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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For fiscal year ended January 31, 2005,
OR
[ ] 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)
New York 13-2595932
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
650 From Road, 07652
Paramus, New Jersey (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:(201) 267-8000
Securities Registered Pursuant to Section 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on which Registered
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Common stock, par value $0.01 per share New York Stock Exchange
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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 [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of July 31, 2004 was approximately $297,563,403 (based on the
closing sale price of the registrant's Common Stock on that date as reported on
the New York Stock Exchange). For purposes of this computation, each share of
Class A Common Stock is assumed to have the same market value as one share of
Common Stock into which it is convertible and only shares of stock held by
directors and executive officers were excluded.
The number of shares outstanding of the registrant's Common Stock and Class
A Common Stock as of March 31, 2005 were 18,303,621 and 6,801,812, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to registrant's 2005
annual meeting of shareholders (the "Proxy Statement") are incorporated by
reference in Part III hereof.
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PART I
FORWARD-LOOKING STATEMENTS
Statements in this annual report on Form 10-K, including, without limitation,
statements under Item 7 "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.
Item 1. Business
CORPORATE ORGANIZATION
Movado Group, Inc. is a designer, manufacturer, retailer and distributor of
quality watches as well as proprietary jewelry, tabletop and accessory products,
with prominent watch brands sold in almost every major category comprising the
watch industry. Unless the context indicates otherwise, all references to the
"Company" or "MGI" include Movado Group, Inc. and its subsidiaries. The Company
was incorporated in New York in 1967 under the name North American Watch
Corporation to acquire Piaget Watch Corporation and Corum Watch Corporation,
which had been, respectively, the exclusive importers and distributors of Piaget
and Corum watches in the United States since the 1950's. The Company changed its
name to Movado Group, Inc. in 1996. The Company sold its Piaget and Corum
distribution businesses in 1999 and 2000, respectively.
1
In 1970, the Company acquired the Swiss manufacturer of Concord watches, which
had been manufacturing Concord watches since 1908, and in 1983, the Company
acquired the U.S. distributor of Movado watches and substantially all the assets
related to the Movado watch brand from the Swiss manufacturer of Movado watches.
The Movado brand, which was established in 1881, has become the Company's
largest brand.
On October 7, 1993, the Company completed a public offering of 2,666,667 shares
of common stock, par value $.01 per share (the "Common Stock"). On October 21,
1997, the Company completed a secondary stock offering in which 1,500,000 shares
of Common Stock were issued. On May 21, 2001, the Company moved from the NASDAQ
National Market to the New York Stock Exchange ("NYSE"). The Common Stock is
traded on the NYSE under the trading symbol MOV.
On December 22, 2003, the Company signed a definitive agreement with LVMH Moet
Hennessy Louis Vuitton ("LVMH") to acquire Ebel S.A. and the worldwide business
related to the Ebel brand. On March 1, 2004, the Company completed the
acquisition of Ebel with the exception of Ebel's business in Germany, which was
completed on July 30, 2004. The Ebel brand, one of the world's premier luxury
watch brands, was established in La Chaux-de-Fonds, Switzerland in 1911.
The Company operates internationally through wholly-owned subsidiaries in
Switzerland, France, Germany, United Kingdom, Hong Kong, Canada, Japan,
Singapore and Bermuda. Its executive offices are located in Paramus, New Jersey.
INDUSTRY OVERVIEW
The largest markets for watches are North America, Western Europe and Asia. The
Company's watch brands include Movado, Ebel, Concord, ESQ, Coach, Tommy Hilfiger
and as of March 21, 2005, Hugo Boss.
The Company divides the watch market into six principal categories as set forth
in the following table:
Primary Category of
Suggested Retail Movado Group, Inc.
Market Category Price Range Brands
- --------------- ------------------ ------------------------
Exclusive $10,000 and over Ebel and Concord
Luxury $1,500 to $9,999 Ebel, Concord and Movado
Premium $500 to $1,499 Movado
Moderate $100 to $499 ESQ, Coach and Hugo Boss
Fashion Market $55 to $99 Tommy Hilfiger
Mass Market Less than $55 -
The Company's Ebel and Concord watches compete primarily in the Luxury category
of the market, although certain Ebel and Concord watches compete in the
Exclusive category. The Company's Movado watches compete primarily in the
Premium category of the market, although certain Movado watches compete in the
Luxury category. The Company's Coach, ESQ and Hugo Boss brands compete in the
Moderate category. The Company's Tommy Hilfiger brand competes in the Fashion
category.
Exclusive Watches
Exclusive watches are usually made of precious metals, including 18 karat gold
or platinum, and may be set with precious gems, including diamonds, emeralds,
rubies and sapphires. These watches are primarily mechanical or quartz-analog
watches. Mechanical watches keep time with intricate mechanical movements
consisting of an arrangement of wheels, jewels and winding and regulating
mechanisms. Quartz-analog
2
watches have quartz movements in which time is precisely calibrated to the
regular frequency of the vibration of quartz crystal. Exclusive watches are
manufactured almost entirely in Switzerland. In addition to the Company's
Concord and Ebel watches, well-known brand names of Exclusive watches include
Audemars Piguet, Patek Philippe, Piaget and Vacheron Constantin.
Luxury Watches
Luxury watches are either quartz-analog watches or mechanical watches. These
watches typically are made with either 14 or 18 karat gold, stainless steel or a
combination of gold and stainless steel, and are occasionally set with precious
gems. Luxury watches are primarily manufactured in Switzerland. In addition to a
majority of the Company's Concord and Ebel watches and certain Movado watches,
well-known brand names of Luxury watches include Baume & Mercier, Breitling,
Cartier, Omega, Rolex and TAG Heuer.
Premium Watches
The majority of Premium watches are quartz-analog watches. These watches
typically are made with gold finish, stainless steel or a combination of gold
finish and stainless steel. Premium watches are manufactured primarily in
Switzerland, although some are manufactured in Asia. In addition to a majority
of the Company's Movado watches, well-known brand names of Premium watches
include Gucci, Rado and Raymond Weil.
Moderate Watches
Most Moderate watches are quartz-analog watches. Moderate watches are
manufactured primarily in Asia and Switzerland. These watches typically are made
with gold finish, stainless steel, brass or a combination of gold finish and
stainless steel. In addition to the Company's ESQ, Coach and Hugo Boss brands,
well-known brand names of watches in the Moderate category include Anne Klein,
Bulova, Citizen, Gucci, Guess, Seiko and Wittnauer.
Fashion Market Watches
Watches comprising the Fashion Market are primarily quartz-analog watches but
also include some digital watches. Digital watches, unlike quartz-analog
watches, have no moving parts. Instead, time is kept by electronic microchips
and is displayed as discrete Arabic digits illuminated on the watch face by
light emitting diodes (LED's) or liquid crystal displays (LCD's). Watches in the
Fashion Market category are generally made with stainless steel, gold finish,
brass and/or plastic and are manufactured primarily in Asia. Fashion Market
watches are based on designs and use features that attempt to reflect current
and emerging fashion trends. Many are sold under licensed designer and brand
names that are well-known principally in the apparel industry. In addition to
the Company's Tommy Hilfiger brand, other well-known brands of Fashion Market
watches include Anne Klein II, DKNY, Fossil, Guess, Kenneth Cole and Swatch.
Mass Market Watches
Mass Market watches typically consist of digital watches and analog watches made
from stainless steel, brass and/or plastic and are manufactured in Asia.
Well-known brands include Casio, Citizen, Pulsar, Seiko and Timex.
3
PRODUCTS
During fiscal 2005, the Company marketed six distinctive brands of watches:
Movado, Ebel, Concord, ESQ, Coach and Tommy Hilfiger, which compete in the
Exclusive, Luxury, Premium, Moderate and Fashion Market categories. The Company
designs, manufactures and contracts for the assembly of Movado, Ebel and Concord
watches primarily in Switzerland for sale throughout the world. ESQ and Tommy
Hilfiger watches are manufactured to the Company's specifications by independent
contractors located in Asia. ESQ watches are presently sold primarily in North
America and the Caribbean. Tommy Hilfiger watches are presently sold throughout
the world. Coach watches are assembled in Switzerland by independent contractors
and sold primarily in North America and Japan.
Movado
Founded in 1881 in La Chaux-de-Fonds, Switzerland, the Movado brand today
includes a line of watches based on the design of the world famous Movado Museum
watch and a number of other watch collections with more traditional dial
designs. The design for the Movado Museum watch was the first watch design
chosen by the Museum of Modern Art for its permanent collection. It has since
been honored by other museums throughout the world. All Movado watches have
Swiss movements and are made with 14 or 18 karat gold, 18 karat gold finish,
stainless steel or a combination of 18 karat gold finish and stainless steel.
The majority of Movado watches have suggested retail prices between $495 and
$4,000.
Ebel
The Ebel brand, one of the world's premier luxury watch brands, was established
in La Chaux-de-Fonds, Switzerland in 1911. All Ebel watches feature Swiss
movements and are made with solid 18 karat gold, stainless steel or a
combination of 18 karat gold and stainless steel. The majority of Ebel watches
have suggested retail prices between $2,100 and $26,000.
Concord
Concord was founded in 1908 in Bienne, Switzerland. All Concord watches have
Swiss movements and are made with solid 18 karat or 14 karat gold, stainless
steel or a combination of 18 karat gold and stainless steel. The majority of
Concord watches have suggested retail prices between $1,700 and $16,500.
Coach
During fiscal 1999, the Company introduced Coach watches under an exclusive
license with Coach, Inc. The majority of Coach watches contain Swiss movements
and are made with stainless steel, gold finish or a combination of stainless
steel and gold finish with leather straps, stainless steel bracelets or gold
finish bracelets. The majority of Coach watches have suggested retail prices
ranging from $230 to $600.
ESQ
ESQ was launched in the second half of fiscal 1993 under an exclusive license
agreement with The Hearst Corporation. All ESQ watches contain Swiss movements
and are made with stainless steel, gold finish or a combination of stainless
steel and gold finish, with leather straps, stainless steel bracelets or gold
finish bracelets. The ESQ brand consists of sport and fashion watches with
features and styles comparable to more expensive watches. The majority of ESQ
watches have suggested retail prices ranging from $175 to $325.
4
Tommy Hilfiger
The Company launched Tommy Hilfiger watches in March 2001, under an exclusive
agreement with Tommy Hilfiger Licensing, Inc., marketed under the TOMMY
HILFIGER(R) and TOMMY(R) labels. Tommy Hilfiger watches feature quartz, digital
or analog-digital movements, with stainless steel, titanium, aluminum,
silver-tone, two-tone or gold-tone cases and bracelets, and leather, fabric,
plastic or rubber straps. The line includes fashion and sport models with the
majority of Tommy Hilfiger watches having suggested retail prices ranging from
$65 to $95.
RETAIL OPERATIONS
The Company operates in two retail sectors, the luxury boutique market and the
outlet market. At January 31, 2005, the Company's retail operations consisted of
24 Movado Boutiques and 27 outlet stores. Three additional Movado Boutiques and
one outlet are scheduled to open in the first half of fiscal year 2006. The
Movado Boutiques, the first of which opened in 1998, sell selected models of
Movado watches as well as proprietary jewelry, tabletop and accessory products.
The outlet stores serve as an effective vehicle to sell discontinued models and
factory seconds of all of the Company's watches, jewelry, tabletop and accessory
products.
WARRANTY AND REPAIR
The Company has service facilities around the world including five Company-owned
service facilities and 266 authorized independent service centers worldwide. In
addition, as part of the acquisition of the Ebel business on March 1, 2004, the
Company acquired the after-sale service operations of Ebel S.A. located in La
Chaux-de-Fonds, Switzerland, those of its French subsidiary and contracts with
approximately 70 independent Ebel service centers worldwide. The Company
conducts training sessions for and distributes technical information and updates
to repair personnel in order to maintain consistency and quality at its service
facilities and authorized independent service centers. The Company's products
are covered by limited warranties against defects in materials and workmanship
for periods ranging from two to three years from the date of purchase for
movements and up to five years for the gold plating on Movado watch casings and
bracelets. Products that are returned under warranty to the Company are
generally serviced by the Company's employees at its service facilities.
The Company retains adequate levels of component parts to facilitate after-sales
service of its watches for an extended period of time after the discontinuance
of such watches.
ADVERTISING
Advertising is important to the successful marketing of the Company's watches.
Hence, the Company devotes significant resources to advertising. Since 1972, the
Company has maintained its own in-house advertising department which today
focuses primarily on the implementation and management of global marketing and
advertising strategies. The Company utilizes the creative development of
advertising campaigns from outside agencies. Advertising expenditures totaled
approximately 16.2%, 16.1% and 16.8% of net sales in fiscal 2005, 2004 and 2003,
respectively. Advertising is developed individually for each of the Company's
watch brands as well as Movado Boutique jewelry products, and is directed
primarily to the end consumer rather than to trade customers. In addition,
advertising is developed by targeting consumers with particular demographic
characteristics appropriate to the image and price range of the brand.
Advertisements are placed predominantly in magazines and other print media, but
are also created for radio and television campaigns, catalogs, outdoor and
promotional materials.
5
BACKLOG
At March 31, 2005, the Company had unfilled orders of approximately $21.4
million compared to $20.2 million and $15.0 million at March 31, 2004 and 2003,
respectively. The unfilled orders include both confirmed orders and orders the
Company believes will be confirmed based on the historic experience with the
customers. It is customary for many of the Company's customers not to confirm
their future orders with a formal purchase order until shortly before their
desired delivery.
SOURCES AND AVAILABILITY OF SUPPLIES
Movado, Ebel and Concord watches are generally assembled in Switzerland by
independent third party subcontract assemblers with some in-house assembly in
Bienne, Switzerland and in La Chaux-de-Fonds, Switzerland. Movado, Ebel and
Concord watches are assembled using Swiss movements and other components
obtained from third party suppliers. Additionally, the Company manufactures some
movements for the Ebel brand. The majority of Coach watches are assembled in
Switzerland by independent assemblers using Swiss movements and other components
obtained from third party suppliers in Switzerland and elsewhere. ESQ and Tommy
Hilfiger watches are assembled by independent contractors in Asia. ESQ watches
are manufactured using Swiss movements and other components purchased from third
party suppliers principally located in Asia. Tommy Hilfiger watches are
manufactured using movements and other components purchased from third party
suppliers located in Asia.
A majority of the watch movements used in the manufacture of Movado, Ebel,
Concord and ESQ watches are purchased from two suppliers. The Company obtains
other watch components for all of its manufactured brands, including movements,
cases, hands, dials, bracelets and straps from a number of other suppliers.
Precious stones used in the Company's watches are purchased from various
suppliers and are set in Switzerland. The Company does not have long-term supply
contract commitments with any of its component parts suppliers.
COMPETITION
The markets for each of the Company's watch brands are highly competitive. With
the exception of the Swatch Group, Ltd., a large Swiss-based competitor, no
single company competes with the Company across all of its brands. Certain
companies, however, compete with Movado Group, Inc. with respect to one or more
of its watch brands. Certain of these companies have, and other companies that
may enter the Company's markets in the future may have, substantially greater
financial, distribution, marketing and advertising resources than the Company.
The Company's future success will depend, to a significant degree, upon its
continued ability to compete effectively with regard to, among other things, the
style, quality, price, advertising, marketing, distribution and availability of
supply of the Company's watches and other products.
TRADEMARKS, PATENTS AND LICENSE AGREEMENTS
The Company owns the trademarks MOVADO(R), EBEL(R) and CONCORD(R), as well as
trademarks for the Movado Museum dial design, and related trademarks for watches
and jewelry in the United States and in numerous other countries.
The Company licenses ESQUIRE(R), ESQ(R) and related trademarks on an exclusive
basis for use in connection with the manufacture, distribution, advertising and
sale of watches pursuant to an agreement with The Hearst Corporation ("Hearst
License Agreement"). The current term of the Hearst License Agreement expires
December 31, 2006, but contains options for renewal at the Company's discretion
through December 31, 2018.
6
The Company licenses the trademark COACH(R) and related trademarks on an
exclusive basis for use in connection with the manufacture, distribution,
advertising and sale of watches pursuant to an agreement with Coach, Inc.
("Coach License Agreement"). The Coach License Agreement expires on January 31,
2008.
Under an agreement with Tommy Hilfiger Licensing, Inc. ("THLI"), the Company has
been granted the exclusive license to use the trademark TOMMY HILFIGER(R) and
related trademarks in connection with the manufacture of watches worldwide and
in connection with the marketing, advertising, sale and distribution of watches
at wholesale (and at retail through its outlet stores) in the Western
Hemisphere, Europe, Pan Pacific, Latin America and Korea. The initial term of
the license agreement with THLI expires December 31, 2006, but can be extended
at the request of the Company through December 31, 2011, if the Company is in
compliance with all material terms of the agreement.
The Company also owns, and has pending applications for, a number of design
patents in the United States and internationally for various watch designs, as
well as designs of watch cases, bracelets and jewelry.
The Company actively seeks to protect and enforce its intellectual property
rights by working with industry associations, anti-counterfeiting organizations,
private investigators and law enforcement authorities, including the United
States Customs Service and, when necessary, sues infringers of its trademarks
and patents. Consequently, the Company is involved from time to time in
litigation or other proceedings to determine the enforceability, scope and
validity of these rights. With respect to the trademarks MOVADO(R), EBEL(R),
CONCORD(R) and certain other related trademarks, the Company has received
exclusion orders that prohibit the importation of counterfeit goods or goods
bearing confusingly similar trademarks into the United States. In accordance
with Customs regulations, these exclusion orders, however, cannot cover the
importation of gray-market Movado, Ebel and Concord watches because the Company
is the manufacturer of such watches. All of the Company's exclusion orders are
renewable.
On December 15, 2004, the Company entered into a License Agreement with Hugo
Boss Trademark Management GmbH & Co ("Hugo Boss"). The Company received a
worldwide exclusive license to use the trademark "HUGO BOSS" and any other
trademarks of Hugo Boss containing the names HUGO or BOSS, in connection with
the production, promotion and sale of watches. The Company is permitted to
assign its rights and sublicense the trademarks to its affiliates (although the
Company will remain liable after such assignment or sublicense under the License
Agreement). The term of the license is March 21, 2005 through December 31, 2013,
with an optional five-year renewal period.
EMPLOYEES
As of January 31, 2005, the Company had 1,219 full-time employees in its
domestic and international operations. No employee of the Company is represented
by a labor union or is subject to a collective bargaining agreement. The Company
has never experienced a work stoppage due to labor difficulties and believes
that its employee relations are good.
7
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS AND SEASONALITY
Overview
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, in addition to revenue
generated from after-sales service activities and shipping. The Retail segment
includes the Company's Movado Boutiques and its 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 all other Company operations. The Company's International operations
are principally conducted in Europe, the Middle East and Asia. The Company's
International assets are substantially located in Europe.
For operating segment data and geographic segment data for the years ended
January 31, 2005, 2004 and 2003, see Note 14 of the Form 10-K on Segment
Information.
Domestic Wholesale
The Company sells all of its brands in the domestic market primarily through
major jewelry store chains such as Helzberg Diamonds Corp., Sterling, Inc. and
Zales Corporation; department stores, such as Macy's, Neiman-Marcus, Saks Fifth
Avenue and in other department stores through Finlay Fine Jewelry; and
independent jewelers. Sales to trade customers in the United States, Canada and
the Caribbean are made directly by the Company's sales organization of
approximately 130 employees. Of these employees, sales representatives are
responsible for a defined geographic territory, specialize in a particular brand
and sell to and service the independent jewelers within their territory. Their
compensation is based on salary plus commission. The sales force also consists
of account executives and account representatives who, respectively, sell to and
service the chain and department store accounts. The latter typically handle
more than one of the Company's brands and are compensated based on salary and
incentives. In South America, the Company primarily sells Tommy Hilfiger watches
through independent distributors.
The Company's domestic sales are traditionally greater during the Christmas and
holiday season. Consequently, the Company's net sales historically have been
higher during the second half of the fiscal year. The second half of each year
accounted for approximately 58.7%, 58.6% and 56.8% of the Company's net sales
for the fiscal years ended January 31, 2005, 2004 and 2003, respectively. The
amount of net sales and operating income generated during the second half of
each fiscal year depends upon the general level of retail sales during the
Christmas and holiday season, as well as economic conditions and other factors
beyond the Company's control. The Company does not expect any significant change
in the seasonality of its domestic business in the foreseeable future.
International Wholesale
The Company sells Movado, Concord and Coach watches and, as of March 1, 2004,
Ebel watches, internationally through its own sales force of approximately 100
employees operating from the Company's sales and distribution offices in China,
France, Germany, Hong Kong, Japan, Singapore, Switzerland, the UK and the United
Arab Emirates. In addition, the Company sells Movado, Ebel, Concord, Coach and
Tommy Hilfiger watches through a network of independent distributors operating
in numerous countries around the world. A majority of the Company's arrangements
with its international distributors are long-term, generally require certain
minimum purchases and restrict the distributor from selling competitive
products. Major selling seasons in certain international markets center on
significant local holidays that occur in late winter or early spring.
8
Retail
The Company operates in two retail markets, the luxury boutique market and the
outlet market. The Company operates 24 Movado Boutiques in the luxury boutique
market, where Movado watches are sold as well as Movado jewelry, tabletop,
accessories and other product line extensions. In the outlet market the Company
operates 27 outlet stores, which sell the Company's discontinued models and
factory seconds, and provide the Company with an organized and efficient method
of reducing inventory without competing directly with trade customers.
AVAILABLE INFORMATION
The Company's Internet address is www.movadogroupinc.com and it makes available
through that website its annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after the same are
electronically filed with, or furnished to, the Securities and Exchange
Commission. The public may read any materials filed by the Company with the SEC
at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
that contains reports, proxy and information statements, and other information
regarding the Company at www.sec.gov.
The Company has adopted and posted on its website at www.movadogroupinc.com a
Code of Business Conduct and Ethics that applies to all directors, officers and
employees, including the Company's Chief Executive Officer, Chief Financial
Officer and principal accounting and financial officers. The Company will post
any amendments to the Code of Business Conduct and Ethics and any waivers that
are required to be disclosed by SEC regulations on the Company's website. In
addition, the Company's audit committee charter, compensation committee charter,
nominating/corporate governance committee charter and corporate governance
guidelines have been posted on the Company's website.
9
Item 2. Properties
The Company leases various facilities in the North America, Europe, the Middle
East and Asia for its corporate, manufacturing, distribution and sales
operations. As of January 31, 2005, the Company's leased facilities were as
follows:
Square Lease
Location Function Footage Expiration
- ----------------------------- ------------------------------------ ------- -------------
Moonachie, New Jersey Watch assembly, distribution 100,000 May 2010
and repair
Paramus, New Jersey Executive offices 80,400 June 2013
Bienne, Switzerland Corporate functions, watch sales, 53,600 January 2007
distribution, assembly and repair
Villers le Lac, France European service and watch 12,800 January 2006
distribution
Markham, Canada Office, distribution and repair 11,200 June 2007
Kowloon, Hong Kong Watch sales, distribution and repair 9,200 June 2007
ChangAn Dongguan, China Quality control and engineering 7,800 March 2009
Hackensack, New Jersey Warehouse 6,600 July 2007
Munich, Germany Watch sales 3,300 August 2008
Grenchen, Switzerland Watch sales 2,800 December 2005
New York, New York Public relations office 2,700 April 2008
Coral Gables, Florida Caribbean office and watch sales 1,500 November 2006
Shanghai, China Market research 1,100 July 2006
Singapore Watch sales, distribution and repair 1,100 August 2006
Dubai, United Arab Emirates Watch sales 730 July 2007
Richmond-Upon-Thames, England Watch sales 500 June 2005
Tokyo, Japan Watch sales 240 July 2007
The Company also leases retail space averaging 1,600 square feet per store with
leases expiring from July 2005 to January 2015 for the operation of the
Company's 27 outlet stores. In addition, the Company leases retail space for the
operation of its Movado Boutiques, each of which averages 2,200 square feet
(with the exception of the Company's Soho Boutique in New York City which is
4,700 square feet) under leases expiring from March 2006 to January 2016.
With the acquisition of the Ebel worldwide business on March 1, 2004, the
Company acquired two properties totaling 16,000 square feet located in La
Chaux-de-Fonds, Switzerland used for manufacturing, storage and public
relations. In addition, the Company acquired an architecturally significant
building in La Chaux-de-Fonds.
The Company also owns approximately 2,400 square feet of office space in Hanau,
Germany, which it previously used for sales, distribution and watch repair
functions. The Company is currently leasing out this facility.
The Company believes that its existing facilities are suitable and adequate for
its current operations.
10
Item 3. Legal Proceedings
The Company is involved in certain legal proceedings arising in the normal
course of its business. The Company believes that none of these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's operating results, liquidity or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company during the
fourth quarter of fiscal 2005.
11
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
As of March 31, 2005, there were 50 holders of record of Class A Common Stock
and, the Company estimates 3,682 beneficial owners of the Common Stock
represented by 409 holders of record. The Common Stock is traded on the New York
Stock Exchange under the symbol "MOV" and on March 31, 2005, the closing price
of the Common Stock was $18.50. The quarterly high and low split-adjusted
closing prices for the fiscal years ended January 31, 2005 and 2004 were as
follows:
Fiscal Year Ended Fiscal Year Ended
January 31, 2005 January 31, 2004
----------------- -----------------
Quarter Ended Low High Low High
------ ------ ------ ------
April 30 $12.63 $15.31 $ 8.55 $ 9.98
July 31 $14.30 $17.24 $ 9.68 $11.91
October 31 $13.02 $17.81 $10.11 $11.87
January 31 $17.16 $18.95 $12.36 $15.49
In connection with the October 7, 1993 public offering, each share of the then
currently existing Class A Common Stock was converted into 10.46 shares of new
Class A Common Stock, par value of $.01 per share (the "Class A Common Stock").
Each share of Common Stock is entitled to one vote per share and each share of
Class A Common Stock is entitled to 10 votes per share on all matters submitted
to a vote of the shareholders. Each holder of Class A Common Stock is entitled
to convert, at any time, any and all such shares into the same number of shares
of Common Stock. Each share of Class A Common Stock is converted automatically
into Common Stock in the event that the beneficial or record ownership of such
shares of Class A Common Stock is transferred to any person, except to certain
family members or affiliated persons deemed "permitted transferees" pursuant to
the Company's Amended Restated Certificate of Incorporation. The Class A Common
Stock is not publicly traded and consequently, there is currently no established
public trading market for these shares.
During the fiscal year ended January 31, 2004, the Board of Directors approved a
$0.03 per share dividend in the first quarter and a $0.06 per share dividend in
the second, third and fourth quarters on the Common Stock and Class A Common
Stock. On March 10, 2004, the Board approved an increase in the quarterly cash
dividend rate from $0.06 to $0.08 per share and approved a 2 for 1 stock split
to be effected by means of a stock dividend distributable on June 25, 2004, to
shareholders of record as of June 11, 2004, with shareholder approval of an
increase in the number of authorized shares of Common Stock and Class A Common
Stock at the annual shareholders meeting. During the fiscal year ended January
31, 2005, the Board of Directors approved four $0.04 per share quarterly cash
dividends, which reflects the effect of the fiscal 2005 2 for 1 stock split. On
March 23, 2005, the Board approved an increase in the quarterly cash dividend
rate from $0.04 to $0.05 per share. The declaration and payment of future
dividends, if any, will be at the sole discretion of the Board of Directors and
will depend upon the Company's profitability, financial condition, capital and
surplus requirements, future prospects, terms of indebtedness and other factors
deemed relevant by the Board of Directors. See Notes 5 and 6 to the Consolidated
Financial Statements regarding contractual restrictions on the Company's ability
to pay dividends.
12
Item 6. Selected Financial Data
The selected financial data presented below has been derived from the
Consolidated Financial Statements. This information should be read in
conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this report. Amounts
are in thousands except per share amounts:
Fiscal Year Ended January 31,
------------------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
Statement of Income Data:
Net sales $ 418,966 $ 330,214 $ 300,077 $ 299,725 $ 320,841
Cost of sales 168,818 129,908 115,907 115,653 123,392
--------- --------- --------- --------- ---------
Gross profit 250,148 200,306 184,170 184,072 197,449
Selling, general and administrative (1) (2) 215,072 165,525 152,394 157,799 163,317
--------- --------- --------- --------- ---------
Operating income 35,076 34,781 31,776 26,273 34,132
Income from litigation settlement, net 1,444 - - - -
Interest expense, net 3,430 3,044 3,916 5,415 6,443
--------- --------- --------- --------- ---------
Income before taxes and cumulative
effect of a change in accounting
principle 33,090 31,737 27,860 20,858 27,689
Provision for income taxes (3) (4) 6,783 8,886 7,801 3,735 6,922
--------- --------- --------- --------- ---------
Income before cumulative effect of a
change in accounting principle 26,307 22,851 20,059 17,123 20,767
Cumulative effect of a change in
accounting principle - - - (109) -
--------- --------- --------- --------- ---------
Net income $ 26,307 $ 22,851 $ 20,059 $ 17,014 $ 20,767
========= ========= ========= ========= =========
Net income per share-Basic (5) $ 1.06 $ 0.95 $ 0.84 $ 0.73 $ 0.89
Net income per share-Diluted (5) $ 1.03 $ 0.92 $ 0.82 $ 0.71 $ 0.88
Basic shares outstanding (5) 24,708 24,101 23,739 23,366 23,302
Diluted shares outstanding (5) 25,583 24,877 24,381 24,014 23,733
Cash dividends declared per share (5) $ 0.16 $ 0.105 $ 0.06 $ 0.06 $ 0.0525
Balance Sheet Data (End of Period):
Working capital (6) $ 303,696 $ 252,883 $ 219,420 $ 153,932 $ 154,637
Total assets $ 476,950 $ 390,967 $ 345,154 $ 290,676 $ 290,405
Total long-term debt $ 45,000 $ 35,000 $ 35,000 $ 40,000 $ 45,000
Shareholders' equity $ 316,558 $ 274,713 $ 236,212 $ 172,470 $ 159,470
(1) Fiscal 2005 includes a non-cash impairment charge of $2.0 million recorded
in accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No.
144").
(2) Fiscal 2002 includes a one-time severance and early retirement charge of
$2.7 million.
(3) The effective tax rate for fiscal 2005 was reduced to 20.5% principally as
the result of adjustments in the fourth quarter relating to refunds from a
retroactive Swiss tax ruling, a favorable U.S. tax accrual adjustment, and
the recording of the tax benefit from an asset impairment in the U.S.
(4) The fiscal 2002 effective tax rate of 17.9% reflects a decrease in the
Company's U.S. source earnings as a percentage of the overall earnings mix
as compared to a fiscal 2001 effective rate of 25.0%.
(5) For all periods presented, basic and diluted shares outstanding, and the
related "per share" amounts reflect the effect of the fiscal 2005
two-for-one stock split.
(6) The Company defines working capital as current assets less current
liabilities.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Wholesale Sales. The primary factors that influence annual sales are general
economic conditions in the Company's domestic and international markets, new
product introductions, the level and effectiveness of advertising and marketing
expenditures and product pricing decisions.
Approximately 21.2% of the Company's total sales are from international markets
and therefore reported sales made in those markets are affected by foreign
exchange rates. Significant portions of the Company's international sales are
billed in Swiss francs and translated to U.S. dollars at average exchange rates
for financial reporting purposes. With the acquisition of Ebel in March of 2004
and the introduction of Hugo Boss watches, the Company expects that a
slightly higher percentage of its total sales will be derived from international
markets in the future.
The Company's business is seasonal. There are two major selling seasons in the
Company's markets: the spring season, which includes school graduations and
several holidays and, most importantly, the Christmas and holiday season. Major
selling seasons in certain international markets center on significant local
holidays that occur in late winter or early spring. The Company's net sales
historically have been higher during the second half of the fiscal year. The
second half of the fiscal year accounted for approximately 58.7%.
Retail Sales. The Company's retail operations consist of 24 Movado Boutiques and
27 outlet stores located throughout the United States. The Company does not have
any retail operations outside of the United States.
The significant factors that influence annual sales volumes in the Company's
retail operations are similar to those that influence domestic wholesale sales.
In addition, many of the Company's outlet stores are located near vacation
destinations and, therefore, the seasonality of these stores is driven by the
peak tourist seasons associated with these locations.
Gross Margins. The Company's overall gross margins are primarily affected by
four major factors: brand and product sales mix, product pricing strategy,
manufacturing costs and the U.S. dollar/Swiss franc exchange rate. Gross margins
for the Company may not be comparable to those of other entities, since some
entities include all the costs related to its distribution network in cost of
sales whereas the Company does not include the costs associated with the U.S.
warehousing and distribution facility nor the occupancy costs for the retail
segment in the cost of sales line item.
Gross margins vary among the brands included in the Company's portfolio and also
among watch models within each brand. Watches in the luxury and premium price
point categories generally earn lower gross margin percentages than moderate
price models. Gross margins in the Company's outlet business are lower than
those of the wholesale business since the outlets primarily sell seconds and
discontinued models that generally command lower selling prices. Gross margins
from the sale of watches in the Movado Boutiques exceed those of the wholesale
business since the Company earns margins from manufacture to point of sale to
the consumer.
All of the Company's brands compete with a number of other brands on the basis
of not only styling but also wholesale and retail price. The Company's ability
to improve margins through price increases is therefore, to some extent,
constrained by competitors' actions.
Costs of sales of the Company's products consist primarily of component costs,
internal assembly costs and unit overhead costs associated with the Company's
supply chain operations in Switzerland and Asia. The Company's supply chain
operations consist of logistics management of assembly operations and product
14
sourcing in Switzerland and Asia and assembly in Switzerland. Through
productivity improvement efforts, the Company has controlled the level of
overhead costs and maintained flexibility in its cost structure by outsourcing a
significant portion of its component and assembly requirements and expects to
extend this strategy over the near term.
Since a substantial amount of the Company's product costs are incurred in Swiss
francs, fluctuations in the U.S. dollar/Swiss franc exchange rate can impact the
Company's production costs and, therefore, its gross margins. The Company hedges
its Swiss franc purchases using a combination of forward contracts, purchased
currency options and spot purchases. The Company's hedging program had the
effect of minimizing the exchange rate impact on product costs and gross
margins.
Selling, General and Administrative ("SG&A") Expenses. The Company's SG&A
expenses consist primarily of advertising, selling, distribution and general and
administrative expenses. Annual advertising expenditures are based principally
on overall strategic considerations relative to maintaining or increasing market
share in markets that management considers to be crucial to the Company's
continued success as well as on general economic conditions in the various
markets around the world in which the Company sells its products.
Selling expenses consist primarily of salaries, sales commissions, sales force
travel and related expenses, expenses associated with the Basel Watch and
Jewelry Fair and other industry trade shows and operating costs incurred in
connection with the Company's retail business. Sales commissions vary with
overall sales levels. Retail selling expenses consist primarily of salaries and
store rents.
Distribution expenses consist primarily of salaries of distribution staff,
rental and other occupancy costs, security, depreciation and amortization of
furniture and leasehold improvements and shipping supplies.
General and administrative expenses consist primarily of salaries and other
employee compensation, employee benefit plan costs, office rent, management
information systems costs, bad debts, patent and trademark expenses and various
other general corporate expenses.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and those
significant policies are more fully described in Note 1 to the Company's
consolidated financial statements. The preparation of these financial statements
and the application of certain critical accounting policies require management
to make judgments based on estimates and assumptions that affect the information
reported. On an on-going basis, management evaluates its estimates and
judgments, including those related to sales discounts and markdowns, product
returns, bad debt, inventories, income taxes, financing operations, warranty
obligations, and contingencies and litigation. Management bases its estimates
and judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources on historical experience, contractual
commitments and on various other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. Management believes the following are the
critical accounting policies requiring significant judgments and estimates used
in the preparation of its consolidated financial statements.
15
Revenue Recognition
In the wholesale segment, the Company recognizes its revenues upon transfer of
title and risk of loss in accordance with its FOB shipping point terms of sale
and after the sales price is fixed and determinable and collectibility is
reasonably assured. In the retail segment, transfer of title and risk of loss
occurs at the time of register receipt. The Company records estimates for sales
returns, volume-based programs and sales and cash discount allowances as a
reduction of revenue in the same period that the sales are recorded. These
estimates are based upon historical analysis, customer agreements and/or
currently known factors that arise in the normal course of business.
Allowance for Doubtful Accounts
Accounts receivable are reduced by an allowance for amounts that may be
uncollectible in the future. Estimates are used in determining the allowance for
doubtful accounts and are based on the Company's on-going credit evaluations of
the customers and customer payment history and account aging. While the actual
bad debt losses have historically been within the Company's expectations and the
allowances established, there can be no guarantee that the Company will continue
to experience the same bad debt loss rates. As of January 31, 2005, the Company
knew of no situations with any of the Company's major customers which would
indicate the customer's inability to make their required payments.
Inventories
The Company values its inventory at the lower of cost or market using the
first-in, first-out (FIFO) method. The cost of finished goods and component
inventories, held by overseas subsidiaries, are determined using average cost.
The Company's management regularly reviews its sales to customers and customers'
sell through at retail to evaluate the adequacy of inventory reserves. Inventory
with less than acceptable turn rates is classified as discontinued and, together
with the related component parts which can be assembled into saleable finished
goods, is sold through the Company's outlet stores. When management determines
that finished product and components are unsaleable in the Company's outlet
stores, a reserve is established for the cost of those products and components.
These estimates could vary significantly, either favorably or unfavorably, from
actual requirements depending on future economic conditions, customer inventory
levels or competitive conditions which may differ from the Company's
expectations.
Long-Lived Assets
The Company periodically reviews the estimated useful lives of its depreciable
assets based on factors including historical experience, the expected beneficial
service period of the asset, the quality and durability of the asset and the
Company's maintenance policy including periodic upgrades. Changes in useful
lives are made on a prospective basis unless factors indicate the carrying
amounts of the assets may not be recoverable and an impairment write-down is
necessary.
The Company reviews its long-lived assets for impairment when events or changes
in circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable in accordance with Statement of Financial
Accounting Standards No. 144. "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"). When such a determination has been made,
management compares the carrying value of the assets with their estimated future
undiscounted cash flows. If it is determined that an impairment loss has
occurred, the loss is recognized during that period. The impairment loss is
calculated as the difference between asset carrying values and the present value
of estimated future cash flows or comparable market values, giving consideration
to recent operating performance and pricing trends.
16
During the fourth quarter of fiscal 2005, the Company determined that the
carrying value of its long-lived assets in the Movado Boutique located in the
Soho section of New York City, might not be recoverable. The impairment review
was performed pursuant to SFAS No. 144 because of an economic downturn affecting
the Soho Boutique operations and revenue forecasts. As a result, the Company
recorded a non-cash pretax impairment charge of $2.0 million consisting of
property, plant and equipment of $0.8 million and other assets of $1.2 million.
The entire impairment charge is included in the selling, general and
administrative expenses in the fiscal 2005 Consolidated Statements of Income.
The Company will continue to operate this boutique. There were no impairment
losses related to long-lived assets in fiscal 2004 or 2003.
Warranty
All watches sold by the Company are covered by limited warranties against
defects in material and workmanship for periods ranging from two to three years
from the date of purchase for movements and up to five years for the gold
plating for Movado watch cases and bracelets. The Company records an estimate
for future warranty costs based on historical repair costs. Warranty costs have
historically been within the Company's expectations and the provisions
established. If such costs were to substantially exceed estimates, this could
have an adverse affect on the Company's operating results.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax laws and tax rates, in each jurisdiction the Company operates, and
applied to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities due to a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, the amounts of any future tax
benefits are reduced by a valuation allowance to the extent such benefits are
not expected to be realized on a more-likely-than-not basis. The Company
calculates estimated income taxes in each of the jurisdictions in which it
operates. This process involves estimating actual current tax expense along with
assessing temporary differences resulting from differing treatment of items for
both book and tax purposes.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for fiscal 2005
compared to fiscal 2004 and fiscal 2004 compared to fiscal 2003 along with a
discussion of the changes in financial condition during fiscal 2005.
The following are net sales by business segment (in thousands):
Fiscal Year Ended January 31,
---------------------------------------------
2005 2004 2003
--------- --------- ---------
Wholesale:
Domestic $ 256,331 $ 224,866 $ 207,819
International 88,697 44,475 38,376
Retail 73,938 60,873 53,882
--------- --------- ---------
Net Sales $ 418,966 $ 330,214 $ 300,077
========= ========= =========
17
The following table presents the Company's results of operations expressed as a
percentage of net sales for the fiscal years indicated:
Fiscal Year Ended January 31,
----------------------------------------------------------------
2005 2004 2003
-------------- -------------- --------------
% of net sales % of net sales % of net sales
-------------- -------------- --------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 40.3% 39.3% 38.6%
Selling, general and administrative expenses 51.3% 50.1% 50.8%
Interest expense, net 0.8% 0.9% 1.3%
Net income 6.3% 6.9% 6.7%
Fiscal 2005 Compared to Fiscal 2004
Net Sales
Net sales in fiscal 2005 were $419.0 million, or 26.9% above fiscal 2004 sales
of $330.2 million. For the year, sales increases were recorded in all brands and
business segments.
Domestic Wholesale Net Sales
The domestic wholesale business increased by 14.0%, or $31.5 million, to $256.3
million, including Ebel sales of $15.7 million. A sales increase of $7.2 million
was recorded in the Movado brand. The increase is attributed to new product
introductions at more affordable price points as well as increased sell through
at certain retailers in key customer chain stores. The Coach brand increased by
$2.3 million as a result of the introduction of fashion products in tandem with
new product offerings by Coach, Inc. The Tommy Hilfiger watch business increased
by $4.4 million. This reflects the expansion into new doors in the North
American marketplace as well as the continued strength of the Tommy Hilfiger
watch business.
International Wholesale Net Sales
The international wholesale business was $88.7 million and was above prior year
by $44.2 million or 99.4%, including Ebel sales of $28.5 million. An increase of
$6.3 million was recorded in Tommy Hilfiger as a result of international market
expansion. Coach, Concord and Movado increased by $2.0 million, $5.0 million and
$2.3 million, respectively, due to growth primarily recorded in Asia.
Retail Net Sales
Sales in the Company's retail segment increased by $13.1 million, or 21.5%, to
$73.9 million. Comparable store sales increases of 11.2% were achieved in the
Movado Boutiques. In addition, new store sales grew by $10.4 million over the
prior year. Comparable store sales in the Company outlet stores were flat year
over year. At January 31, 2005, the Company operated 24 Movado Boutiques and 27
outlet stores as compared to 17 Movado Boutiques and 26 outlet stores at January
31, 2004.
18
Gross Margin
Gross margin for the year was $250.1 million, an increase of $49.8 million over
prior year gross margin of $200.3 million. The increase of $49.8 million was due
to increased sales of $88.8 million. As a percent of sales, gross margin was
59.7% versus 60.7% in the prior year. The lower gross margin percentage was
primarily attributed to a sales mix change due to the addition of Ebel and the
increased sales of Tommy Hilfiger, where the gross margins are lower than the
Company's historical average.
Selling, General and Administrative Expenses
SG&A expenses of $215.1 million increased by $49.5 million, or 29.9%, from
$165.5 million in fiscal 2004. The primary reasons for the increases were the
addition of Ebel, which recorded $28.3 million of incremental expenses, $6.6
million of increased spending in support of the Movado Boutique expansion,
higher payroll and related costs of $6.4 million, additional marketing programs
of $1.3 million and other corporate initiatives of $2.2 million, which included
higher legal costs, costs incurred in connection with Sarbanes-Oxley
implementation and costs associated with the acquisition of Ebel which could not
be capitalized. In addition, in accordance with SFAS No. 144, the Company
recorded a non-cash impairment charge of $2.0 million which is included in SG&A.
Wholesale Operating Income
Operating income in the wholesale segment decreased by $1.5 million to $33.4
million. The effect of the addition of Ebel was an operating loss for the year
of $3.8 million. Excluding the loss of Ebel, operating income in the wholesale
segment was $37.2 million or an increase over prior year of $2.3 million. The
increase excluding the effect of Ebel is the net result of higher gross margin
of $14.9 million, partially offset by the increase in SG&A expenses of $12.6
million.
The higher gross margin of $14.9 million was the result of an increase in net
sales of $30.3 million. The increase in the SG&A expenses of $12.6 million is
primarily due to $1.7 million in the wholesale segment as a result of the
translation impact of the weak U.S. dollar, an increase of $1.3 million in
marketing spending, which includes support for the Movado expansion in China and
support for the international market expansion of Tommy Hilfiger, higher payroll
and related costs of $6.4 million and $2.2 million in other corporate
initiatives including higher legal costs, costs incurred in connection with
Sarbanes-Oxley implementation and costs associated with the acquisition of Ebel
which could not be capitalized.
Retail Operating Income (Loss)
Operating income in the retail segment increased by $1.8 million. The increase
is the net result of higher gross margin of $10.5 million partially offset by
increased SG&A expenses of $8.7 million.
The retail segment higher gross margin was due to a net sales increase of $13.1
million. This was primarily due to comparable store sales increases in the
Movado Boutiques of 11.2% and the opening of seven new Movado Boutiques and one
new outlet store. The comparable store sales in the outlet stores were flat year
over year.
The increase in SG&A expenses of $8.7 million was primarily attributed to the
costs associated with the opening of the seven new Movado Boutiques and one new
outlet store of $6.6 million and the effect of the impairment charge related to
the Soho Boutique of $2.0 million.
19
Income from Litigation Settlement
The Company recognized income for the year ended January 31, 2005 from a
litigation settlement with Swiss Army Brands, Inc. in the net 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, net income increased by $0.8
million, or $0.03 per diluted share.
Interest Expense
Interest expense for fiscal 2005 was $3.4 million, reflecting a 12.7% increase
over fiscal 2004 interest of $3.0 million. The increase was primarily the result
of higher average borrowings, which were $58.0 million or 14.9% above the prior
year. The increased borrowings were initiated to take advantage of low long-term
rates and to improve the Company's capital structure.
Income Taxes
The Company's income tax provision amounted to $6.8 million and $8.9 million in
fiscal 2005 and 2004 respectively. This represents an effective tax rate of
20.5% in fiscal 2005 compared to 28% for fiscal 2004. The lower effective tax
rate for fiscal 2005 is primarily due to adjustments in the fourth quarter
relating to refunds from a retroactive Swiss tax ruling, a favorable U.S. tax
accrual adjustment and the recording of the tax benefit from an asset impairment
in the U.S.
Fiscal 2004 Compared to Fiscal 2003
Net Sales
Net sales in fiscal 2004 were $330.2 million, or 10.0% above fiscal 2003 sales
of $300.1 million. For the year, sales increases were recorded in all brands and
business segments.
Domestic Wholesale Net Sales
The domestic wholesale business increased by 8.2%, or $17.0 million, to $224.9
million. A sales increase of $7.2 million was recorded in the Movado brand with
the opening of new doors in the chain and department store business. The Coach
brand increased by $3.4 million and was attributed to the introduction of
fashion products in tandem with Coach, Inc. new product offerings. The Company
intends to continue to provide products viewed as accessories to the Coach
leather goods customer. The Concord brand increased by $2.9 million and was
fueled by the introduction of new, more accessibly priced steel products. The
Tommy Hilfiger brand increased by $2.0 million, which reflects the expansion
into new doors in the North American marketplace.
International Wholesale Net Sales
The international wholesale business was $44.5 million and was above prior year
by 15.9%, or $6.1 million. The effect of translating the weaker U.S. dollar
resulted in an increase in net sales of $3.9 million. Increases of $5.2 million
were recorded in Tommy Hilfiger as a result of international market expansion.
The Movado business was below prior year by $3.2 million as a result of
difficult economic conditions in Europe and South America.
20
Retail Net Sales
Sales in the Company's retail segment increased by $7.0 million, or 13.0%, to
$60.9 million. Comparable store sales increases of 20.1% were recorded in the
Movado Boutiques. In addition, sales increases of $3.8 million were recorded as
a result of the expansion into seven new Movado Boutiques opened in fiscal 2004.
At January 31, 2004, the Company operated 17 Movado Boutiques and 26 outlet
stores as compared to 10 Movado Boutiques and 26 outlet stores at January 31,
2003.
Gross Margin
Gross margin for the year was $200.3 million, an increase of $16.1 million over
prior year gross margin of $184.2 million. The increase of $16.1 million was
largely due to increased sales of $30.1 million. Included in these incremental
margins were the effects of foreign currency translation which resulted in an
increase in gross margin of $3.2 million. As a percent of sales, gross margin
was 60.7% versus 61.4% in the prior year. The lower gross margin percentage was
primarily attributed to the effect of the increased sales mix of Tommy Hilfiger,
where the gross margin for this business is lower than the Company's historical
average.
Selling, General and Administrative Expenses
SG&A expenses of $165.5 million reflect an increase of $13.1 million from $152.4
million in fiscal 2003. Included in the $13.1 million increase in SG&A expenses
is approximately $2.7 million in higher costs as a result of the translation
impact of the weak U.S. dollar. In addition, there was increased marketing
spending of $2.6 million, which included the new Movado television campaign,
increased operating costs of approximately $4.0 million to support the seven new
Movado Boutiques, and $4.1 million of higher payroll and related costs.
Wholesale Operating Income
Operating income in the wholesale segment increased by $5.4 million to $34.9
million. The increase is the net result of higher gross margin of $12.6 million,
partially offset by the increase in SG&A expenses of $7.2 million.
The higher gross margin was the result of an increase in net sales of $23.1
million. The principal reasons for the increase in the SG&A expenses of $7.2
million were approximately $2.7 million in the wholesale segment as a result of
the translation impact of the weak U.S. dollar, an increase of $1.8 million in
marketing spending, which included the production and airing of the new Movado
brand television campaign, and higher payroll and related costs of $4.1 million.
Retail Operating Income (Loss)
Operating income in the retail segment decreased by $2.4 million. The decrease
was the net result of higher SG&A expenses of $6.0 million partially offset by
higher gross margin of $3.6 million.
The retail segment higher gross margin was due to a net sales increase of $7.0
million, primarily the result of opening seven new Movado Boutiques which
accounted for $3.8 million and comparable store sales increases in the Movado
Boutiques of $2.6 million. The increase in SG&A expenses of $6.0 million was
primarily due to costs associated with the opening of the new Movado Boutiques
of approximately $4.0 million, as well as increased spending in existing Movado
Boutiques of $1.2 million primarily to support the related back office
infrastructure.
21
Interest Expense
Interest expense in fiscal 2004 declined by $0.9 million from $3.9 million in
fiscal 2003 to $3.0 million in fiscal 2004. The decrease was due to
significantly lower weighted-average bank borrowings. The average borrowings
for fiscal 2004 were $50.5 million or 25.7% lower than fiscal 2003 borrowings of
$68.0 million. This was due to favorable cash flow and working capital
management.
Income Taxes
The Company's income tax provision amounted to $8.9 and $7.8 million in fiscal
2004 and 2003, respectively. This represents a 28.0% effective tax rate in both
fiscal years. Management believes that with the acquisition of Ebel, a slightly
higher percentage of its total sales will be derived from lower tax rate
international markets; thereby slightly reducing the Company's overall effective
rate in fiscal 2005.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2005, the Company had $63.8 million of cash and cash equivalents
as compared to $82.1 million in the comparable prior year period. The $18.3
million decrease is primarily due to the use of $43.5 million to fund the Ebel
acquisition and capital expenditures of $14.9 million, primarily to support the
build out of the new retail stores, remodeling of existing stores and the
expansion of office space in the corporate headquarters in Paramus, New Jersey.
These investing activities were offset by $30.2 million of cash provided by
operating activities.
Cash generated by operating activities continues to be the Company's primary
source to fund its growth initiatives and to pay dividends. In fiscal 2005, 2004
and 2003, the Company generated cash from operations of $30.2 million, $51.6
million and $33.3 million, respectively.
Accounts receivable at January 31, 2005 was $102.6 million as compared to $88.8
million in the comparable prior year period. The $13.8 million increase in
accounts receivable reflects the addition of Ebel receivables of $13.4 million
and the negative effect of currency translation of $0.9 million. Excluding these
two factors, accounts receivable was $0.5 million below the comparable prior
year period. This decrease is the result of a shift in the mix of sales growth
as well as improved global cash collections.
Inventories at January 31, 2005 were $187.9 million as compared to $121.7
million in the comparable prior year period. The $66.2 million increase is
primarily due to the addition of $41.4 million of Ebel inventory. The remaining
$24.8 million increase in inventory resulted from the addition of $5.7 million
to support the retail growth strategy, an increase of $3.2 million due to the
effect of foreign currency translation and an increase of $15.9 million in other
brand inventory to support the expansion of the domestic and international
wholesale business, including new products for introduction at the international
trade fair held in Basel, Switzerland.
Cash provided by / (used) in financing activities amounted to $3.6 million,
($1.9) million and ($11.1) million in fiscal 2005, 2004 and 2003, respectively.
Cash provided by financing activities during fiscal 2005 was primarily the
result of a net increase in long-term debt of $10.0 million partially offset by
the payment of a $5.2 million mortgage assumed as part of the Ebel acquisition.
At January 31, 2005, the Company paid off its Senior Notes due January 31, 2005,
which were originally issued in a private placement completed in fiscal 1994.
These notes had required annual principal payments of $5.0 million since January
1998 and bore interest of 6.56% per annum. The Company repaid $10.0 million of
the final principal due in fiscal 2005. The Company did not repay any principal
in fiscal 2004 due to the timing of when principal payment was due. At January
31, 2005, no principal of these notes remained outstanding.
22
During fiscal 1999, the Company issued $25.0 million of Series A Senior Notes
under a Note Purchase and Private Shelf Agreement dated November 30, 1998. These
notes bear interest of 6.90% per annum, mature on October 30, 2010 and are
subject to annual repayments of $5.0 million commencing October 31, 2006. At
January 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, the Company issued, pursuant to the Note Purchase Agreement,
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 January 31, 2005, $20.0 million was issued and outstanding.
On June 17, 2003, the Company completed the renewal of its revolving credit line
with its bank group. The agreement provides for a three year $75.0 million
unsecured revolving line of credit and $15.0 million of uncommitted working
capital lines. The line of credit expires on June 17, 2006. The Company had no
outstanding borrowings under its bank lines at January 31, 2005 and January 31,
2004. In addition, one bank in the domestic bank group issued five irrevocable
standby letters of credit for retail and operating facility leases to various
landlords and Canadian payroll to the Royal Bank of Canada totaling $0.6 million
with expiration dates through May 15, 2006.
A Swiss subsidiary of the Company maintains unsecured lines of credit with an
unspecified length of time with a Swiss bank. Available credit under these lines
totaled 8.0 million and 8.8 million Swiss francs, with dollar equivalents of
approximately $6.7 million and $7.0 million at January 31, 2005 and 2004,
respectively, 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 January 31, 2005,
the Swiss bank has guaranteed the Company's Swiss subsidiary's obligations to
certain Swiss third parties in the amount of approximately $2.8 million in
various foreign currencies. As of January 31, 2005, there are no borrowings
against these lines.
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program. There
were no shares repurchased under the repurchase program during fiscal 2005 or
fiscal 2004. As of January 31, 2005, the Company had authorization to repurchase
shares up to $4.5 million against an aggregate authorization of $30.0 million.
For fiscal 2005, treasury shares increased by 336,854 as the result of cashless
exercises of stock options for 821,957 shares of stock.
Cash dividends in fiscal 2005 amounted to $4.0 million compared to $2.5 million
in fiscal 2004 and $1.6 million in fiscal 2003.
At January 31, 2005, the Company had working capital of $303.7 million as
compared to $252.9 million in the prior year. The Company defines working
capital as the difference between current assets and current liabilities. The
Company expects that annual capital expenditures in the near term will
approximate the fiscal 2005 levels. Management believes that the cash on hand in
addition to the expected cash flow from operations and the Company's short-term
borrowing capacity will be sufficient to meet its working capital needs for at
least the next 12 months.
23
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Payments due by period (in thousands):
Less than 1 2-3 4-5 More than 5
Total year years years years
---------- ----------- ------------- ------------- ------------
Contractual Obligations:
Long-Term Debt Obligations (1) $ 45,000 - $ 10,000 $ 20,000 $ 15,000
Interest Payments on Long-Term Debt (1) 10,789 1,820 6,497 2,060 412
Operating Lease Obligations (2) 80,597 12,186 21,444 17,610 29,357
Purchase Obligations (3) 34,663 34,663 - - -
---------- ----------- ------------- ------------- ------------
Total Contractual Obligations $ 171,049 $ 48,669 $ 37,941 $ 39,670 $ 44,769
========== =========== ============= ============= ============
(1) The Company has long-term debt obligations and related interest payments of
$55.8 million related to Series A-2004 Senior Notes and Series A Senior Notes
further discussed in "Liquidity and Capital Resources".
(2) Includes store operating leases, which generally provide for payment of
direct operating costs in addition to rent. These obligation amounts include
future minimum lease payments and exclude such direct operating costs.
(3) The Company had outstanding purchase obligations with suppliers at the end
of fiscal 2005 for raw materials, finished watches and packaging in the normal
course of business. These purchase obligation amounts do not represent total
anticipated purchases but represent only amounts to be paid for items required
to be purchased under agreements that are enforceable, legally binding and
specify minimum quantity, price and term.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet financing or unconsolidated
special-purpose entities.
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 will improve financial reporting by clarifying 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
significant impact on the Company's consolidated financial position, results of
operations or cash flows.
On December 16, 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 continued to use the intrinsic value based method of accounting for
share-based payments. The Company uses the Black-Scholes formula 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
Company is currently assessing the impact of this pronouncement on its
consolidated statement of operations and its consolidated statement of cash
flows.
24
Also 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 current financial position or results of operations.
25
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Foreign Currency Exchange Rate Risk
The Company's primary market risk exposure relates to foreign currency exchange
risk (see Note 7 to the Consolidated Financial Statements). The majority of the
Company's purchases are denominated in Swiss francs. The Company reduces its
exposure to the Swiss franc exchange rate risk through a hedging program. Under
the hedging program, the Company manages most of its foreign currency exposures
on a consolidated basis, which allows it to net certain exposures and take
advantage of natural offsets. The Company uses various derivative financial
instruments to further reduce the net exposures to currency fluctuations,
predominantly forward and option contracts. These derivatives either (a) are
used to hedge the Company's Swiss franc liabilities and are recorded at fair
value with the changes in fair value reflected in earnings or (b) are documented
as SFAS No. 133 cash flow hedges with the gains and losses on this latter
hedging activity first reflected in other comprehensive income, and then later
classified into earnings. In both cases, the earnings impact is partially offset
by the effects of currency movements on the underlying hedged transactions. If
the Company did not engage in a hedging program, any change in the Swiss franc
to local currency would have an equal effect on the Company's cost of sales. In
addition, the Company hedges its Swiss franc payable exposure with forward
contracts. As of January 31, 2005, the Company's entire net forward contracts
hedging portfolio consisted of 239.0 million Swiss francs equivalent for various
expiry dates ranging through January 27, 2006. The Company also has 30.0 million
Swiss franc option contracts related to cash flow hedges for various expiry
dates ranging through October 31, 2005.
The Company's Board of Directors authorized the hedging of the Company's Swiss
franc denominated investment in its wholly-owned Swiss subsidiaries using
purchase options under certain limitations. These hedges are treated as net
investment hedges under SFAS No. 133. As of January 31, 2005, the Company's
purchased option hedge portfolio related to net investment hedging amounted to
50.0 million Swiss francs with various expiry dates ranging through September
27, 2006.
Commodity Risk
Additionally, the Company has a hedging program related to gold used in the
manufacturing of the Company's watches. Under this hedging program, the Company
purchases various commodity derivative instruments, primarily future contracts.
These derivatives are documented as SFAS No. 133 cash flow hedges, and gains and
losses on these derivative instruments are first reflected in other
comprehensive income, and later reclassified into earnings, partially offset by
the effects of gold market price changes on the underlying actual gold
purchases. If the Company did not engage in a gold hedging program, any changes
in the gold price would have an equal effect on the Company's cost of sales. The
Company did not hold any futures contracts in its gold hedge portfolio related
to cash flow hedges as of January 31, 2005.
Debt and Interest Rate Risk
In addition, the Company has certain debt obligations with variable interest
rates, which are based on LIBOR plus a fixed additional interest rate. The
Company does not hedge these interest rate risks. The Company also has certain
debt obligations with fixed interest rates. The differences between the market
based interest rates at January 31, 2005, and the fixed rates were unfavorable.
The Company believes that a 1% change in interest rates would affect the
Company's net income by approximately $0.2 million, which is not material.
26
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule Page
Number Number
-------- -----------
Management's Annual Report on Internal Control Over Financial Reporting F-1
Report of Independent Registered Public Accounting Firm F-2
Consolidated Statements of Income for the fiscal years ended January 31, 2005,
2004 and 2003 F-4
Consolidated Balance Sheets at January 31, 2005 and 2004 F-5
Consolidated Statements of Cash Flows for the fiscal years ended January
31, 2005, 2004 and 2003 F-6
Consolidated Statements of Changes in Shareholders' Equity for the fiscal years
ended January 31, 2005, 2004 and 2003 F-7
Notes to Consolidated Financial Statements F-8 to F-30
Valuation and Qualifying Accounts and Reserves II S-1
27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. 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 are 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 January 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.
See Financial Statements and Supplementary Data for Management's Annual
Report on Internal Control Over Financial Reporting and Report of Independent
Registered Public Accounting Firm containing an attestation thereto.
28
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the captions
"Election of Directors" and "Management" and is incorporated herein by
reference.
Information on the beneficial ownership reporting for the Company's directors
and executive officers is contained in the Company's Proxy Statement for the
2005 annual meeting of shareholders under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" and is incorporated herein by reference.
Information on the Company's Audit Committee and Audit Committee Financial
Expert is contained in the Company's Proxy Statement for the 2005 annual meeting
of shareholders under the caption "Information Regarding the Board of Directors
and Its Committees" and is incorporated herein by reference.
The Company has adopted and posted on its website at www.movadogroupinc.com a
Code of Business Conduct and Ethics that applies to all directors, officers and
employees, including the Company's Chief Executive Officer, Chief Financial
Officer and principal financial and accounting officers. The Company will post
any amendments to the Code of Business Conduct and Ethics, and any waivers that
are required to be disclosed by SEC regulations, on the Company's website.
Item 11. Executive Compensation
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the captions
"Executive Compensation" and "Compensation of Directors" and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the caption
"Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the caption "Certain
Relationships and Related Transactions" and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the caption "Fees
Paid to PricewaterhouseCoopers LLP" and is incorporated herein by reference.
29
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of this report
--------------------------------------
1. Financial Statements:
See Financial Statements Index on page 27 included in Item 8 of Part
II of this annual report.
2. Financial Statement Schedule:
Schedule II Valuation and Qualifying
Accounts and Reserves
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
3. Exhibits:
Incorporated herein by reference is a list of the Exhibits contained
in the Exhibit Index on pages 33 through 40 of this annual report.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 18, 2005 By: /s/ Gedalio Grinberg
--------------------------------------
Gedalio Grinberg
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Dated: April 18, 2005 /s/ Gedalio Grinberg
--------------------------------------
Gedalio Grinberg
Chairman of the Board of Directors
Dated: April 18, 2005 /s/ Efraim Grinberg
--------------------------------------
Efraim Grinberg
President and Chief Executive Officer
Dated: April 18, 2005 /s/ Richard J. Cote
--------------------------------------
Richard J. Cote
Executive Vice President and
Chief Operating Officer
Dated: April 18, 2005 /s/ Eugene J. Karpovich
--------------------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
Dated: April 18, 2005 /s/ Margaret Hayes Adame
--------------------------------------
Margaret Hayes Adame
Director
Dated: April 18, 2005 /s/ Donald Oresman
--------------------------------------
Donald Oresman
Director
31
Dated: April 18, 2005 /s/ Leonard L. Silverstein
--------------------------------------
Leonard L. Silverstein
Director
Dated: April 18, 2005 /s/ Alan H. Howard
--------------------------------------
Alan H. Howard
Director
Dated: April 18, 2005 /s/ Nathan Leventhal
--------------------------------------
Nathan Leventhal
Director
Dated: April 18, 2005 /s/ Michael J. Hand
--------------------------------------
Michael J. Hand
Vice President,
Corporate Controller and
Principal Accounting Officer
32
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
3.1 Restated By-Laws of the Registrant.
Incorporated by reference to Exhibit 3.1
filed with the Company's Registration
Statement on Form S-1 (Registration No.
33-666000).
3.2 Restated Certificate of Incorporation of the
Registrant as amended. Incorporated herein by
reference to Exhibit 3(i) to the Registrant's
Quarterly Report on Form 10-Q filed for the
quarter ended July 31, 1999.
4.1 Specimen Common Stock Certificate.
Incorporated herein by reference to Exhibit
4.1 to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1998.
4.2 Note Purchase and Private Shelf Agreement
dated as of November 30, 1998 between the
Registrant and The Prudential Insurance
Company of America. Incorporated herein by
reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for
the year ended January 31, 1999.
4.3 Note Purchase and Private Shelf Agreement
dated as of March 21, 2001 between the
Registrant and The Prudential Insurance
Company of America. Incorporated herein by
reference to Exhibit 4.4 to the Registrant's
Annual Report on Form 10-K for the year ended
January 31, 2001.
4.4 Amendment dated as of March 21, 2004 to Note
Purchase and Private Shelf Agreement dated as
of March 21, 2001 between the Registrant and
The Prudential Insurance Company of America.
Incorporated herein by reference to Exhibit
4.5 to the Registrant's Annual Report on Form
10-K for the year ended January 31, 2004.
10.1 Amendment Number 1 to License Agreement dated
December 9, 1996 between the Registrant as
Licensee and Coach, a division of Sara Lee
Corporation as Licensor, dated as of February
1, 1998. Incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
October 31, 1998.
33
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
10.2 Agreement, dated January 1, 1992, between The
Hearst Corporation and the Registrant, as
amended on January 17, 1992. Incorporated
herein by reference to Exhibit 10.8 filed
with the Company's Registration Statement on
Form S-1 (Registration No. 33-666000).
10.3 Letter Agreement between the Registrant and
The Hearst Corporation dated October 24, 1994
executed October 25, 1995 amending License
Agreement dated as of January 1, 1992, as
amended. Incorporated herein by reference to
Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended October
31, 1995.
10.4 Registrant's 1996 Stock Incentive Plan
amending and restating the 1993 Employee
Stock Option Plan. Incorporated herein by
reference to Exhibit 10.5 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended October 31, 1996. *
10.5 Lease dated August 10, 1994 between
Rockefeller Center Properties, as landlord
and SwissAm, Inc., as tenant for space at 630
Fifth Avenue, New York, New York.
Incorporated herein by reference to Exhibit
10.4 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
1994.
10.6 Death and Disability Benefit Plan Agreement
dated September 23, 1994 between the
Registrant and Gedalio Grinberg. Incorporated
herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1994. *
10.7 Registrant's amended and restated Deferred
Compensation Plan for Executives effective
June 17, 2004. *
10.8 License Agreement dated December 9, 1996
between the Registrant and Sara Lee
Corporation. Incorporated herein by reference
to Exhibit 10.32 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 1997.
34
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
10.9 First Amendment to Lease dated April 8, 1998
between RCPI Trust, successor in interest to
Rockefeller Center Properties ("Landlord")
and Movado Retail Group, Inc., successor in
interest to SwissAm, Inc. ("Tenant") amending
lease dated August 10, 1994 between Landlord
and Tenant for space at 630 Fifth Avenue, New
York, New York. Incorporated herein by
reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for
the year ended January 31, 1998.
10.10 Second Amendment dated as of September 1,
1999 to the December 1, 1996 License
Agreement between Sara Lee Corporation and
Registrant. Incorporated herein by reference
to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
October 31, 1999.
10.11 License Agreement entered into as of June 3,
1999 between Tommy Hilfiger Licensing, Inc.
and Registrant. Incorporated herein by
reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended October 31, 1999.
10.12 Severance Agreement dated December 15, 1999,
and entered into December 16, 1999 between
the Registrant and Richard J. Cote.
Incorporated herein by reference to Exhibit
10.35 to the Registrant's Annual Report on
Form 10-K for the year ended January 31,
2000. *
10.13 Lease made December 21, 2000 between the
Registrant and Mack-Cali Realty, L.P. for
premises in Paramus, New Jersey together with
First Amendment thereto made December 21,
2000. Incorporated herein by reference to
Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 2000.
35
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
10.14 Lease Agreement dated May 22, 2000 between
Forsgate Industrial Complex and the
Registrant for premises located at 105 State
Street, Moonachie, New Jersey. Incorporated
herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q
filed for the quarter ended April 30, 2000.
10.15 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.
Incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on
Form 10-Q filed for the quarter ended October
31, 2001.
10.16 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, New Jersey. Incorporated herein by
reference to Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q filed for the
quarter ended October 31, 2001.
10.17 Amendment Number 2 to Registrant's 1996 Stock
Incentive Plan dated March 16, 2001.
Incorporated herein by reference to Exhibit
10.27 to the Registrant's Annual Report on
Form 10-K for the year ended January 31,
2002.*
10.18 Amendment Number 3 to Registrant's 1996 Stock
Incentive Plan approved June 19, 2001.
Incorporated herein by reference to Exhibit
10.28 to the Registrant's Annual Report on
Form 10-K for the year ended January 31,
2002.*
10.19 Amendment Number 3 to License Agreement dated
December 9, 1996, as previously amended,
between the Registrant, Movado Watch Company
S.A. and Coach, Inc. dated as of January 30,
2003. Incorporated herein by reference to
Exhibit 10.29 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 2002.
36
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
10.20 Amended and Restated Master Promissory Note
Agreement dated June 21, 2001 between the
Registrant and Fleet National Bank.
Incorporated herein by reference to Exhibit
10.30 to the Registrant's Annual Report on
Form 10-K for the year ended January 31,
2002.
10.21 Line of Credit Letter Agreement dated August
20, 2001 between the Registrant and The Bank
of New York. Incorporated herein by reference
to Exhibit 10.31 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 2002.
10.22 First Amendment to the License Agreement
dated June 3, 1999 between Tommy Hilfiger
Licensing, Inc., Registrant and Movado Watch
Company S.A. entered into January 16, 2002.
Incorporated herein by reference to Exhibit
10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
2002.
10.23 Second Amendment to the License Agreement
dated June 3, 1999 between Tommy Hilfiger
Licensing, Inc., Registrant and Movado Watch
Company S.A. entered into August 1, 2002.
Incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
2002.
10.24 Amendment dated August 5, 2004 to Line of
Credit Agreement between the Registrant and
The Bank of New York dated August 20, 2001.
Incorporated herein by reference to Exhibit
10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
2004.
10.25 Line of Credit Letter Agreement dated June
20, 2004 between the Registrant and Fleet
National Bank and Second Amended and Restated
Promissory Note as of June 20, 2004.
Incorporated herein by reference to Exhibit
10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
2004.
37
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
10.26 Endorsement Agreement dated as of April 4,
2003 between the Registrant and The Grinberg
Family Trust. Incorporated herein by
reference to Exhibit 10.28 to the
Registrant's Annual Report on