UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 30, 2015

¨

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 Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

 

 

650 From Road, Ste. 375

Paramus, New Jersey

 

07652-3556

(Address of Principal Executive Offices)

 

(Zip Code)

(201) 267-8000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for that past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,’’ “accelerated filer’’ and “smaller reporting company’’ in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x

Accelerated filer   ¨

Non-accelerated filer   ¨

Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of May 21, 2015 were 17,114,255 and 6,644,105, respectively.

 

 

 

 

 


 

MOVADO GROUP, INC.

Index to Quarterly Report on Form 10-Q

April 30, 2015

 

 

 

 

  

Page

Part I

 

Financial Information (Unaudited)

 

 

 

  

 

Item 1.

  

Consolidated Balance Sheets at April 30, 2015, January 31, 2015 and April 30, 2014

  

3

 

  

 

  

 

Consolidated Statements of Operations for the three months ended April 30, 2015 and April 30, 2014

  

4

 

  

 

  

 

Consolidated Statements of Comprehensive (Loss) \ Income for the three months ended April 30, 2015 and April 30, 2014

  

5

 

  

 

  

 

Consolidated Statements of Cash Flows for the three months ended April 30, 2015 and April 30, 2014

  

6

 

  

 

  

 

Notes to Consolidated Financial Statements

  

7

 

  

Item 2.

  

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

16

 

  

Item 3.

  

 

Quantitative and Qualitative Disclosures About Market Risk

  

22

 

  

Item 4.

  

 

Controls and Procedures

  

23

Part II

  

 

Other Information

  

23

 

  

 

Item 1.

  

Legal Proceedings

  

23

 

  

 

Item 1A.

  

Risk Factors

  

23

 

  

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

23

 

 

 

Item 6.

 

Exhibits

 

25

 

Signature

  

26

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MOVADO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

April 30,

 

 

January 31,

 

 

April 30,

 

 

2015

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

185,828

 

 

$

199,852

 

 

$

137,827

 

Short-term investments

 

 

 

 

 

 

 

34,063

 

Trade receivables

 

73,472

 

 

 

74,106

 

 

 

77,395

 

Inventories

 

183,904

 

 

 

170,788

 

 

 

184,443

 

Other current assets

 

43,960

 

 

 

40,532

 

 

 

47,228

 

Total current assets

 

487,164

 

 

 

485,278

 

 

 

480,956

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

44,354

 

 

 

46,673

 

 

 

46,806

 

Deferred income taxes

 

13,536

 

 

 

13,550

 

 

 

15,058

 

Other non-current assets

 

39,483

 

 

 

37,522

 

 

 

32,064

 

Total assets

$

584,537

 

 

$

583,023

 

 

$

574,884

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Loans payable to bank

$

25,000

 

 

$

 

 

$

 

Accounts payable

 

25,647

 

 

 

27,767

 

 

 

25,644

 

Accrued liabilities

 

37,899

 

 

 

30,933

 

 

 

36,854

 

Deferred and current income taxes payable

 

1,352

 

 

 

7,372

 

 

 

5,777

 

Total current liabilities

 

89,898

 

 

 

66,072

 

 

 

68,275

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred and non-current income taxes payable

 

3,505

 

 

 

3,470

 

 

 

3,792

 

Other non-current liabilities

 

30,484

 

 

 

29,196

 

 

 

27,244

 

Total liabilities

 

123,887

 

 

 

98,738

 

 

 

99,311

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares

   issued

 

 

 

 

 

 

 

 

Common Stock, $0.01 par value, 100,000,000 shares authorized;

   26,926,331,26,849,080 and 26,753,324 shares issued, respectively

 

269

 

 

 

268

 

 

 

268

 

Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;

   6,644,105,6,642,184 and 6,638,262 shares issued and outstanding,

   respectively

 

66

 

 

 

66

 

 

 

66

 

Capital in excess of par value

 

176,524

 

 

 

174,826

 

 

 

168,067

 

Retained earnings

 

358,992

 

 

 

358,006

 

 

 

321,176

 

Accumulated other comprehensive income

 

95,221

 

 

 

98,854

 

 

 

111,832

 

Treasury Stock, 9,662,176, 8,784,497 and 8,081,423 shares, respectively,

   at cost

 

(172,515

)

 

 

(149,811

)

 

 

(128,657

)

Total Movado Group, Inc. shareholders' equity

 

458,557

 

 

 

482,209

 

 

 

472,752

 

Noncontrolling interests

 

2,093

 

 

 

2,076

 

 

 

2,821

 

Total equity

 

460,650

 

 

 

484,285

 

 

 

475,573

 

Total liabilities and equity

$

584,537

 

 

$

583,023

 

 

$

574,884

 

 

See Notes to Consolidated Financial Statements

 

 

 

3


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended April 30,

 

 

2015

 

 

2014

 

Net sales

$

120,461

 

 

$

120,921

 

Cost of sales

 

58,012

 

 

 

55,770

 

Gross profit

 

62,449

 

 

 

65,151

 

Selling, general, and administrative

 

55,574

 

 

 

54,230

 

Operating income

 

6,875

 

 

 

10,921

 

Interest expense

 

(152

)

 

 

(94

)

Interest income

 

53

 

 

 

35

 

Income before income taxes

 

6,776

 

 

 

10,862

 

Provision for income taxes (Note 9)

 

3,135

 

 

 

3,433

 

Net income

 

3,641

 

 

 

7,429

 

Less: Net income attributed to noncontrolling interests

 

19

 

 

 

64

 

Net income attributed to Movado Group, Inc.

$

3,622

 

 

$

7,365

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

Weighted basic average shares outstanding

 

24,279

 

 

 

25,325

 

Net income per share attributed to Movado Group, Inc.

$

0.15

 

 

$

0.29

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

Weighted diluted average shares outstanding

 

24,569

 

 

 

25,696

 

Net income per share attributed to Movado Group, Inc.

$

0.15

 

 

$

0.29

 

 

 

 

 

 

 

 

 

Dividends declared per share

$

0.11

 

 

$

0.10

 

 

See Notes to Consolidated Financial Statements

 

 

 

4


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) \ INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended April 30,

 

 

2015

 

 

2014

 

Comprehensive (loss) \ income, net of taxes:

 

 

 

 

 

 

 

Net income including noncontrolling interests

$

3,641

 

 

$

7,429

 

Net unrealized gain on investments, net of tax of $4 and $39, respectively

 

10

 

 

 

70

 

Net change in effective portion of hedging contracts, net of tax benefit of $100 and $0, respectively

 

(508

)

 

 

-

 

Foreign currency translation adjustments

 

(3,137

)

 

 

8,131

 

Comprehensive income including noncontrolling interests

 

6

 

 

 

15,630

 

Less: Comprehensive income attributable to noncontrolling interests

 

17

 

 

 

135

 

Total comprehensive (loss) \ income attributable to Movado Group, Inc.

$

(11

)

 

$

15,495

 

 

See Notes to Consolidated Financial Statements

 

 

 

5


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended April 30,

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income including noncontrolling interests

$

3,641

 

 

$

7,429

 

Adjustments to reconcile net income to net cash (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

2,981

 

 

 

3,022

 

Transactional (gains) \ losses

 

(774

)

 

 

1,097

 

Write-down of inventories

 

330

 

 

 

302

 

Deferred income taxes

 

283

 

 

 

155

 

Stock-based compensation

 

1,520

 

 

 

1,180

 

Excess tax benefit from stock-based compensation

 

(42

)

 

 

(858

)

Operating efficiency initiatives and other items

 

2,670

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

685

 

 

 

(8,092

)

Inventories

 

(14,205

)

 

 

(1,034

)

Other current assets

 

(3,959

)

 

 

(2,775

)

Accounts payable

 

(2,079

)

 

 

(8,228

)

Accrued liabilities

 

4,044

 

 

 

(5,950

)

Income taxes payable

 

(5,914

)

 

 

1,473

 

Other non-current assets

 

(1,641

)

 

 

(1,477

)

Other non-current liabilities

 

1,286

 

 

 

1,703

 

Net cash (used in) operating activities

 

(11,174

)

 

 

(12,053

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(1,461

)

 

 

(1,523

)

Trademarks

 

(94

)

 

 

(20

)

Net cash (used in) investing activities

 

(1,555

)

 

 

(1,543

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Stock options exercised and other changes

 

(513

)

 

 

(1,324

)

Excess tax benefit from stock-based compensation

 

42

 

 

 

858

 

Proceeds from bank borrowings

 

25,000

 

 

-

 

Dividends paid

 

(2,636

)

 

 

(2,523

)

Stock repurchase

 

(22,154

)

 

 

(5,312

)

Net cash (used in) financing activities

 

(261

)

 

 

(8,301

)

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(1,034

)

 

 

2,065

 

Net (decrease) in cash and cash equivalents

 

(14,024

)

 

 

(19,832

)

Cash and cash equivalents at beginning of period

 

199,852

 

 

 

157,659

 

Cash and cash equivalents at end of period

$

185,828

 

 

$

137,827

 

 

See Notes to Consolidated Financial Statements

 

 

 

6


 

MOVADO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

BASIS OF PRESENTATION

The accompanying interim unaudited consolidated financial statements have been prepared by Movado Group, Inc. (the “Company”), in a manner consistent with that used in the preparation of the annual audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (the “2015 Annual Report on Form 10-K”). In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position and results of operations for the periods presented. The consolidated balance sheet data at January 31, 2015 is derived from the audited annual financial statements, which are included in the Company’s 2015 Annual Report on Form 10-K and should be read in connection with these interim unaudited financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

 

 

NOTE 1 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Level 3 – Unobservable inputs based on the Company’s assumptions.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands) as of April 30, 2015 and 2014 and January 31, 2015:

 

 

  

 

  

Fair Value at April 30, 2015

 

 

  

Balance Sheet Location

  

Level 1

 

  

Level 2

 

  

Level 3

 

  

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

327

 

 

$

 

 

$

 

 

$

327

 

Long-term investment

 

Other non-current assets

 

 

 

 

 

 

 

 

1,264

 

 

 

1,264

 

SERP assets - employer

 

Other non-current assets

 

 

1,520

 

 

 

 

 

 

 

 

 

1,520

 

SERP assets - employee

 

Other non-current assets

 

 

26,047

 

 

 

 

 

 

 

 

 

26,047

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

866

 

 

 

 

 

 

866

 

Total

 

$

27,894

 

 

$

866

 

 

$

1,264

 

 

$

30,024

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

26,047

 

 

$

 

 

$

 

 

$

26,047

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

690

 

 

 

 

 

 

690

 

Total

 

$

26,047

 

 

$

690

 

 

$

 

 

$

26,737

 

 

 

  

 

  

Fair Value at January 31, 2015

 

 

  

Balance Sheet Location

  

Level 1

 

  

Level 2

 

  

Level 3

 

  

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

314

 

 

$

 

 

$

 

 

$

314

 

Long-term investment

 

Other non-current assets

 

 

 

 

 

 

 

 

1,240

 

 

 

1,240

 

SERP assets - employer

 

Other non-current assets

 

 

1,351

 

 

 

 

 

 

 

 

 

1,351

 

SERP assets - employee

 

Other non-current assets

 

 

24,811

 

 

 

 

 

 

 

 

 

24,811

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

1,298

 

 

 

 

 

 

1,298

 

Total

 

$

26,476

 

 

$

1,298

 

 

$

1,240

 

 

$

29,014

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

24,811

 

 

$

 

 

$

 

 

$

24,811

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

71

 

 

 

 

 

 

71

 

Total

 

$

24,811

 

 

$

71

 

 

$

 

 

$

24,882

 

7


 

 

  

 

  

Fair Value at April 30, 2014

 

 

  

Balance Sheet Location

  

Level 1

 

  

Level 2

 

  

Level 3

 

  

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

687

 

 

$

 

 

$

 

 

$

687

 

Time deposits

 

Short-term investments

 

 

34,063

 

 

 

 

 

 

 

 

 

34,063

 

SERP assets - employer

 

Other non-current assets

 

 

1,273

 

 

 

 

 

 

 

 

 

1,273

 

SERP assets - employee

 

Other non-current assets

 

 

22,478

 

 

 

 

 

 

 

 

 

22,478

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

772

 

 

 

 

 

 

772

 

Total

 

$

58,501

 

 

$

772

 

 

$

 

 

$

59,273

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

22,478

 

 

$

 

 

$

 

 

$

22,478

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Total

 

$

22,478

 

 

$

10

 

 

$

 

 

$

22,488

 

The fair values of the Company’s available-for-sale securities are based on quoted prices. The fair value of the long-term investment is based on the purchase price plus eight percent calculated annually. Time deposits are classified as short-term investments and held to original maturity. The assets related to the Company’s defined contribution supplemental executive retirement plan (“SERP”) consist of both employer (employee unvested) and employee assets which are invested in investment funds with fair values calculated based on quoted market prices. The SERP liability represents the Company’s liability to the employees in the plan for their vested balances. The hedge derivatives are entered into by the Company principally to reduce its exposure to Swiss franc and Euro currency exchange rate risk. Fair values of the Company’s hedge derivatives are calculated based on quoted foreign exchange rates, quoted interest rates and market volatility factors.

The following table presents a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of April 30, 2015 and 2014 and January 31, 2015.  Level 3 consists of a long-term investment.

 

 

 

April 30,

2015

 

 

January 31,

2015

 

 

April  30,

2014

 

Balance, beginning of fiscal year

 

$

1,240

 

 

$

 

 

$

 

Purchase of long-term investment

 

 

 

 

 

1,200

 

 

 

 

Interest income

 

 

24

 

 

 

40

 

 

 

 

Balance, end of period

 

$

1,264

 

 

$

1,240

 

 

$

 

 

 

8


NOTE 2 – EQUITY

The components of equity for the three months ended April 30, 2015 and 2014 are as follows (in thousands):

 

 

 

Movado Group, Inc. Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

Common Stock (1)

 

 

Class A Common Stock (2)

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Treasury Stock

 

 

Accumulated Other Comprehensive Income

 

 

Noncontrolling Interests

 

 

Total

 

Balance, January 31, 2015

 

$

268

 

 

$

66

 

 

$

174,826

 

 

$

358,006

 

 

$

(149,811

)

 

$

98,854

 

 

$

2,076

 

 

$

484,285

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,622

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

3,641

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,636

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,636

)

Stock repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,154

)

 

 

 

 

 

 

 

 

 

 

(22,154

)

Stock options exercised, net of

   tax benefit of $42

 

 

1

 

 

 

 

 

 

 

78

 

 

 

 

 

 

 

(550

)

 

 

 

 

 

 

 

 

 

 

(471

)

Supplemental executive

   retirement plan

 

 

 

 

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

1,520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,520

 

Net unrealized gain on

   investments, net of tax of $4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

10

 

Net change in effective portion

   of hedging contracts, net of

   tax benefit of $100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(508

)

 

 

 

 

 

 

(508

)

Foreign currency translation

   adjustment (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,135

)

 

 

(2

)

 

 

(3,137

)

Balance, April 30, 2015

 

$

269

 

 

$

66

 

 

$

176,524

 

 

$

358,992

 

 

$

(172,515

)

 

$

95,221

 

 

$

2,093

 

 

$

460,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock (1)

 

 

Class A Common Stock (2)

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Treasury Stock

 

 

Accumulated Other Comprehensive Income

 

 

Noncontrolling Interests

 

 

Total

 

Balance, January 31, 2014

 

$

266

 

 

$

66

 

 

$

165,342

 

 

$

316,334

 

 

$

(122,406

)

 

$

103,702

 

 

$

2,686

 

 

$

465,990

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,365

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

7,429

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,523

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,523

)

Stock repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,312

)

 

 

 

 

 

 

 

 

 

 

(5,312

)

Stock options exercised, net of

   tax benefit of $858

 

 

2

 

 

 

 

 

 

 

856

 

 

 

 

 

 

 

(1,324

)

 

 

 

 

 

 

 

 

 

 

(466

)

Supplemental executive

   retirement plan

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

1,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,180

 

Net unrealized gain on

   investments, net of tax of $39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

 

70

 

Stock donation

 

 

 

 

 

 

 

 

 

 

671

 

 

 

 

 

 

 

385

 

 

 

 

 

 

 

 

 

 

 

1,056

 

Foreign currency translation

   adjustment (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,060

 

 

 

71

 

 

 

8,131

 

Balance, April 30, 2014

 

$

268

 

 

$

66

 

 

$

168,067

 

 

$

321,176

 

 

$

(128,657

)

 

$

111,832

 

 

$

2,821

 

 

$

475,573

 

 

(1) Each share of common stock is entitled to one vote per share.

 

(2) 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 of 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 Restated Certificate of Incorporation as amended. The class A common stock is not publicly traded and consequently, there is currently no established public trading market for these shares.

 

(3) The currency translation adjustment is not adjusted for income taxes to the extent that it relates to permanent investments of earnings in international subsidiaries.

 

 

NOTE 3 – SEGMENT INFORMATION

The Company follows accounting guidance related to disclosures about segments of an enterprise and related information. This guidance requires disclosure of segment data based on how management makes decisions about allocating resources to segments and measuring their performance.

9


The Company conducts its business in two operating segments: Wholesale and Retail. The Company’s Wholesale segment includes the designing, manufacturing and distribution of watches of quality luxury brands or licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Retail segment includes the Company’s outlet stores.

The Company divides its business into two major geographic locations: United States operations, and International, which includes the results of all other Company operations. The allocation of geographic revenue is based upon the location of the customer. The Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 18.6%, 11.0%, 8.7% and 8.1%, respectively, of the Company’s total net sales for the three months ended April 30, 2015. For the three months ended April 30, 2014, the Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 20.3%, 12.8%, 8.1% and 7.4%, respectively, of the Company’s total net sales. Substantially all of the Company’s International assets are located in Switzerland and Hong Kong.

 

Operating Segment Data for the Three Months Ended April 30, 2015 and 2014 (in thousands):

 

 

Net Sales

 

 

2015

 

 

2014

 

Wholesale:

 

 

 

 

 

 

 

Luxury brands category

$

44,903

 

 

$

44,220

 

Licensed brands category

 

60,842

 

 

 

61,729

 

After-sales service and all other

 

3,852

 

 

 

3,736

 

Total Wholesale

 

109,597

 

 

 

109,685

 

Retail

 

10,864

 

 

 

11,236

 

Consolidated total

$

120,461

 

 

$

120,921

 

 

 

Operating Income

 

 

2015

 

 

2014

 

Wholesale

$

5,925

 

 

$

9,375

 

Retail

 

950

 

 

 

1,546

 

Consolidated total

$

6,875

 

 

$

10,921

 

 

 

Total Assets

 

 

April 30,
2015

 

  

January 31,
2015

 

  

April  30,
2014

 

Wholesale

$

563,947

 

 

$

562,462

 

 

$

553,833

 

Retail

 

20,590

 

 

 

20,561

 

 

 

21,051

 

Consolidated total

$

584,537

 

 

$

583,023

 

 

$

574,884

 

Geographic Location Data for the Three Months Ended April 30, 2015 and 2014 (in thousands):

 

 

Net Sales

 

  

Operating Income / (Loss) 

 

 

2015

 

  

2014

 

  

2015

 

  

2014

 

United States (1)

$

64,584

 

 

$

62,279

 

 

$

2,429

 

 

$

(843

)

International  (2)

 

55,877

 

 

 

58,642

 

 

 

4,446

 

 

 

11,764

 

Consolidated total

$

120,461

 

 

$

120,921

 

 

$

6,875

 

 

$

10,921

 

United States and International net sales are net of intercompany sales of $81.5 million and $64.8 million for the three months ended April 30, 2015 and 2014, respectively.

(1) The United States operating income included $7.1 million and $7.0 million of unallocated corporate expenses for the three months ended April 30, 2015 and 2014.

(2) The International operating income included $8.8 million and $9.6 million of certain intercompany profits related to the Company’s supply chain operations for the three months ended April 30, 2015 and 2014.

 

 

Total Assets

 

 

April 30,
2015

 

  

January 31,
2015

 

  

April 30,
2014

 

United States

$

214,062

 

 

$

209,660

 

 

$

218,760

 

International

 

370,475

 

 

 

373,363

 

 

 

356,124

 

Consolidated total

$

584,537

 

 

$

583,023

 

 

$

574,884

 

10


 

 

Long-Lived Assets

 

 

April 30,
2015

 

  

January 31,
2015

 

  

April 30,
2014

 

United States

$

25,072

 

 

$

25,950

 

 

$

24,969

 

International

 

19,282

 

 

 

20,723

 

 

 

21,837

 

Consolidated total

$

44,354

 

 

$

46,673

 

 

$

46,806

 

 

 

NOTE 4 – INVENTORIES

Inventories consisted of the following (in thousands):

 

 

April 30,

2015

 

 

January 31,

2015

 

 

April 30,

2014

 

Finished goods

$

128,451

 

 

$

115,435

 

 

$

121,150

 

Component parts

 

50,100

 

 

 

49,790

 

 

 

55,272

 

Work-in-process

 

5,353

 

 

 

5,563

 

 

 

8,021

 

 

$

183,904

 

 

$

170,788

 

 

$

184,443

 

 

 

NOTE 5 – DEBT AND LINES OF CREDIT

On January 30, 2015, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “Borrowers”), each a wholly-owned domestic subsidiary of the Company, entered into a Credit Agreement (the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”).  The Credit Agreement provides for a $100.0 million senior secured revolving credit facility (the “Facility”) including a $15.0 million letter of credit sub-facility that matures on January 30, 2020, with provisions for uncommitted increases of up to $50.0 million in the aggregate subject to customary terms and conditions.  In connection with the Credit Agreement, the Borrowers also entered into a Security and Pledge Agreement dated as of January 30, 2015 in favor of the Agent (“Security Agreement”).

As of April 30, 2015, $25.0 million in loans were drawn under the Facility. Additionally, approximately $3.5 million in letters of credit which were outstanding under the Borrower’s pre-existing asset-based revolving credit facility that was concurrently terminated as described below, were deemed to be issued and outstanding under the Facility.  As of April 30, 2015, availability under the Facility was approximately $71.5 million.

Borrowings under the Facility bear interest at rates selected periodically by the Company at LIBOR plus 1.25% per annum (subject to increases up to a maximum of 1.75% per annum based on the Company’s consolidated leverage ratio) or a base rate plus 0.25% (subject to increases up to a maximum of 0.75% per annum based on the Company’s consolidated leverage ratio).  The Company has also agreed to pay certain fees and expenses and provide certain indemnities, all of which are customary for such financings.

The borrowings under the Facility are joint and several obligations of the Borrowers and are also cross-guaranteed by each Borrower.  In addition, pursuant to the Security Agreement, the Borrowers’ obligations under the Facility are secured by first priority liens, subject to permitted liens, on substantially all of the Borrowers’ assets other than certain excluded assets. The Security Agreement contains representations and warranties and covenants, which are customary for pledge and security agreements of this type, relating to the creation and perfection of security interests in favor of the Agent over various categories of the Company’s assets.

The Credit Agreement contains affirmative and negative covenants binding on the Borrowers and their subsidiaries that are customary for credit facilities of this type, including, but not limited to, restrictions and limitations on the incurrence of debt and liens, dispositions of assets, capital expenditures, dividends and other payments in respect of equity interests, the making of loans and equity investments, mergers, consolidations, liquidations and dissolutions, and transactions with affiliates (in each case, subject to various exceptions). As of April 30, 2015, the Company was in compliance with its covenants under the Credit Agreement.

The Borrowers are also subject to a minimum consolidated EBITDA test of $50.0 million, measured at the end of each fiscal quarter based on the four most recent fiscal quarters and a consolidated leverage ratio covenant not to exceed 2.50 to 1.00, measured as of the last day of each fiscal quarter.

The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, failure of any representation or warranty to be true in any material respect when made or deemed made, violation of covenants, cross default with material indebtedness, material judgments, material ERISA liability, bankruptcy events, asserted or actual revocation or invalidity of the loan documents, and change of control.

11


On January 30, 2015, in connection with the Company’s entry into the Credit Agreement, the Company terminated its Amended and Restated Loan and Security Agreement, dated as of July 17, 2009, as amended, by and between the Borrowers, the lenders party thereto and Bank of America, N.A., as agent for the lenders.  There were no borrowings outstanding under that agreement as of April 30, 2014 or January 31, 2015, and there were no material early termination penalties incurred as a result of the termination of that agreement.  Additionally, the Company used cash on-hand to pay accrued fees and expenses in conjunction with the termination of that agreement and the rollover of certain outstanding letters of credit into the Facility.

A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified length of time with a Swiss bank. As of April 30, 2015 and 2014, these lines of credit totaled 5.0 million Swiss francs with a dollar equivalent of $5.4 million and $5.7 million.  As of April 30, 2015 and 2014, there were no borrowings against these lines. As of April 30, 2015, two European banks have guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million in various foreign currencies.

 

 

NOTE 6 – EARNINGS PER SHARE

The Company presents net income per share on a basic and diluted basis. Basic earnings per share are computed using weighted-average shares outstanding during the period. Diluted earnings per share are computed using the weighted-average number of shares outstanding adjusted for dilutive common stock equivalents.

The weighted-average number of shares outstanding for basic earnings per share was approximately 24,279,000 and 25,325,000 for the three months ended April 30, 2015 and 2014, respectively. For the three months ended April 30, 2015 and 2014, the number of shares outstanding for diluted earnings per share increased by approximately 290,000 and 371,000, respectively, due to potentially dilutive common stock equivalents issuable under the Company’s stock compensation plans and SERP.

For the three months ended April 30, 2015 and 2014, approximately 371,000 and 36,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of dilutive earnings per share because their effect would have been antidilutive.

 

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

As of April 30, 2015, one bank in the domestic bank group had issued four irrevocable standby letters of credit in connection with a trademark license agreement, retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada. As of April 30, 2015, the Company had outstanding letters of credit totaling $3.5 million with expiration dates through April 30, 2016.

As of April 30, 2015, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million in various foreign currencies.

The Company is involved in various legal proceedings and claims from time to time in the ordinary course of its business. 

On February 4, 2015, an individual plaintiff filed a complaint against the Company and several of its officers in the United States District Court for the District of New Jersey (the “Complaint”) as a purported class action, alleging that between March 26, 2014 and November 13, 2014, the Company made false and misleading statements about the Company’s financial performance. The Complaint also claims that these alleged false and misleading statements resulted in the Company’s stock trading at an artificially high price until November 14, 2014, when the Company issued a press release preliminarily announcing financial results and reducing its previous projections, after which the Company’s stock price fell. The Company believes that the Complaint is meritless and it intends to vigorously defend this matter.

The Company believes that it has valid legal defenses to all of the matters currently pending against it. These matters are inherently unpredictable and the resolutions of these matters are subject to many uncertainties and the outcomes are not predictable with assurance. Consequently, management is unable to estimate the ultimate aggregate amount of monetary loss, amounts covered by insurance or the financial impact that will result from such matters.

 

 

NOTE 8 – INCOME TAXES

The Company recorded an income tax provision of $3.1 million and $3.4 million for the three months ended April 30, 2015 and 2014, respectively.  

The effective tax rate was 46.3% and 31.6% for the three months ended April 30, 2015 and 2014, respectively. The increase in the effective tax rate was primarily due to certain costs related to the operating efficiency initiatives and other items (see note 13) resulting in deferred tax benefits that were valued and recording a valuation allowance against certain foreign deferred tax assets.

12


The effective tax rate for the three months ended April 30, 2015 differs from the U.S. statutory tax rate of 35.0% primarily due to no tax benefit being recognized on losses incurred by certain foreign operations, recording a valuation allowance against certain foreign deferred tax assets, and certain costs related to the operating efficiency initiatives and other items (see note 13) resulting in deferred tax benefits that were valued, partially offset by foreign earnings being taxed at rates lower than the U.S. statutory tax rate. The effective tax rate for the three months ended April 30, 2014 differs from the U.S. statutory tax rate of 35.0%, primarily due to foreign earnings being taxed at rates lower than the U.S. statutory tax rate, partially offset by no tax benefit being recognized on losses incurred by certain foreign operations.

 

 

NOTE 9– DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for its derivative financial instruments in accordance with guidance which requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. A significant portion of the Company’s purchases are denominated in Swiss francs. The Company also sells to third-party customers in a variety of foreign currencies, most notably the Euro. The Company reduces its exposure to the Swiss franc and the Euro exchange rate risks 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. In the event these exposures do not offset, the Company uses various derivative financial instruments to further reduce the net exposures to currency fluctuations, predominately forward contracts. When entered into, the Company designates and documents these derivative instruments as a cash flow hedge of a specific underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transactions. Changes in the fair value of a derivative that is designated and documented as a cash flow hedge and is highly effective, are recorded in other comprehensive income until the underlying transaction affects earnings, and then are later reclassified into earnings in the same account as the hedged transaction. The earnings impact is partially offset by the effects of currency movements on the underlying hedged transactions. The Company formally assesses, both at the inception and at each financial quarter thereafter, the effectiveness of the derivative instrument hedging the underlying forecasted cash flow transaction. Any ineffectiveness related to the derivative financial instruments’ change in fair value will be recognized as other income in the Consolidated Statements of Operations in the period in which the ineffectiveness was calculated. No ineffectiveness has been recorded in the three months ended April 30, 2015 and 2014.

The Company uses forward exchange contracts to offset its exposure to certain foreign currency receivables and liabilities. These forward contracts are not designated as qualified hedges and, therefore, changes in the fair value of these derivatives are recognized into earnings, thereby offsetting the current earnings effect of the related foreign currency receivables and liabilities.

All of the Company’s derivative instruments have liquid markets to assess fair value. The Company does not enter into any derivative instruments for trading purposes.

As of April 30, 2015, the Company’s entire net forward contracts hedging portfolio consisted of 28.0 million Swiss francs equivalent and 14.0 million Euros equivalent for various expiry dates ranging through December 18, 2015.

The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for derivatives (in thousands):

 

 

Asset Derivatives

 

 

  

Liability Derivatives

 

 

Balance
Sheet
Location

 

 

April 30,
2015
Fair
Value

 

 

 

January 31,
2015
Fair
Value

 

 

April 30,
2014
Fair
Value

 

 

 

Balance
Sheet
Location

 

 

April 30,
2015
Fair
Value

 

 

 

January 31,
2015
Fair
Value

 

 

April 30,
2014
Fair
Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

Other Current
Assets

 

 

$

866

 

 

$

1,298

 

 

$

772

 

 

 

Accrued
Liabilities

 

 

$

87

 

 

$

71

 

 

$

10

 

Total Derivative Instruments

 

 

 

$

866

 

 

$

1,298

 

 

$

772

 

 

 

 

 

 

$

87

 

 

$

71

 

 

$

10

 

 

 

 

Liability Derivatives

 

 

 

Balance
Sheet
Location

 

 

April 30,
2015
Fair
Value

 

 

 

January 31,
2015
Fair
Value

 

 

April 30,
2014
Fair
Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Accrued
Liabilities

 

 

$

603

 

 

$

-

 

 

$

-

 

Total Derivative Instruments

 

 

 

 

$

603

 

 

$

-

 

 

$

-

 

13


 

As of April 30, 2015, the balance of deferred net losses on derivative financial instruments documented as cash flow hedges included in accumulated other comprehensive income (“AOCI”) was $0.5 million, net of tax benefit of $0.1 million.  As of April 30, 2014, there was no balance of deferred net losses on derivative financial instruments documented as cash flow hedges included in AOCI. The maximum length of time the Company hedges its exposure to the fluctuation in future cash flows for forecasted transactions is 24 months. For the three months ended April 30, 2015, the Company reclassified from AOCI to earnings $0.1 million of net gains, net of tax of $0.1 million. For the three months ended April 30, 2014, the Company had no reclassifications from AOCI to earnings.

 

 

NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income consisted of the following (in thousands):

 

 

 

Currency
Translation
Adjustments

 

  

Available-for-sale securities

 

  

Net Unrealized
Income \ (Loss)
On Hedging
Contracts

 

  

Accumulated
Other
Comprehensive
Income

 

Balance, January 31, 2015

$

98,642

 

 

$

211

 

 

$

1

 

 

$

98,854

 

Other comprehensive (loss) \ income before reclassifications

 

(3,135

)

 

 

10

 

 

 

(679

)

 

 

(3,804

)

Amounts reclassified from accumulated other comprehensive (loss) \ income (1)

 

 

 

 

 

 

 

171

 

 

 

171

 

Net current-period other comprehensive (loss) \ income

 

(3,135

)

 

 

10

 

 

 

(508

)

 

 

(3,633

)

As of April 30, 2015

$

95,507

 

 

$

221

 

 

$

(507

)

 

$

95,221

 

 

 

 

Currency
Translation
Adjustments

 

  

Available-for-sale securities

 

  

Net Unrealized
Income
On Hedging
Contracts

 

  

Accumulated
Other
Comprehensive
Income

 

Balance, January 31, 2014

$

103,438

 

 

$

263

 

 

$

1

 

 

$

103,702

 

Other comprehensive income before reclassifications

 

8,060

 

 

 

70

 

 

 

 

 

 

8,130

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

8,060

 

 

 

70

 

 

 

 

 

 

8,130

 

As of April 30, 2014

$

111,498

 

 

$

333

 

 

$

1

 

 

$

111,832

 

 

(1)

Amounts reclassified to earnings in the Consolidated Statements of Operations.

 

NOTE 11 – TREASURY STOCK

On March 21, 2013, the Board approved a share repurchase program under which the Company was authorized to purchase up to $50.0 million of its outstanding common stock from time to time, depending on market conditions, share price and other factors. The Company may purchase shares of its common stock through open market purchases, repurchase plans, block trades or otherwise. On November 25, 2014, the Board increased the amount of the share repurchase authorization to $100.0 million. This authorization expires on January 31, 2016.  During the three months ended April 30, 2015, the Company repurchased a total of 859,700 shares of its common stock at a total cost of approximately $22.2 million or an average cost of $25.77 per share.  During the three months ended April 30, 2014, the Company repurchased a total of 133,073 shares of its common stock at a total cost of approximately $5.3 million or an average cost of $39.92 per share.

There were 17,979 shares of common stock repurchased during the three months ended April 30, 2015 as a result of the surrender of shares in connection with the vesting of certain stock awards. At the election of an employee, shares having an aggregate value on the vesting date equal to the employee’s withholding tax obligation may be surrendered to the Company.

 

 

NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS

On April 7, 2015, FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which states that debt issuance costs be presented in the balance sheet as a direct deduction from the debt liability, consistent with debt discounts. Under current accounting standards, such costs are recorded as an asset. The new guidance is effective for the beginning of the Company’s fiscal year 2017, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s consolidated financial statements.

14


In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This pronouncement affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This pronouncement provides alternative methods of retrospective adoption and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is evaluating the effect of adopting this pronouncement, but the adoption is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

NOTE 13 – OPERATING EFFICIENCY INITIATIVES AND OTHER ITEMS

As a result of actions taken by the Company in fiscal 2016 to achieve greater operating efficiencies and streamline its operations, primarily at certain of its foreign subsidiaries, the Company recorded $2.7 million of pre-tax expenses primarily for severance, occupancy charges, and fixed assets. The Company expects that the remaining liabilities will be paid during fiscal 2016.

A summary rollforward of costs related to the operating efficiency initiatives and other items is as follows (in thousands):

 

 

Balance at

January 31, 2015

 

 

Fiscal 2016

charges (4)

 

  

Cash

payments

 

  

Non-cash

adjustments

 

 

Accrued

balance at

April 30, 2015

Severance (1)

$

1,080

 

 

$

1,300

 

 

$

(365

)

 

$

-

 

 

$

2,015

Occupancy charges (1) (2)

 

-

 

 

 

788

 

 

 

(16

)

 

 

-

 

 

 

772

Fixed assets (1) (3)

 

-

 

 

 

582

 

 

 

-

 

 

 

(582

)

 

 

-

Total

$

1,080

 

 

$

2,670

 

 

$

(381

)

 

$

(582

)

 

$

2,787

 

(1)

The total severance charges of $1.3 million include $0.6 million in SG&A and $0.7 million in Cost of sales on the Consolidated Statement of Operations for the three months ended April 30, 2015. The occupancy charge of $0.8 million and fixed asset charge of $0.6 million are included in SG&A on the Consolidated Statement of Operations for the three months ended April 30, 2015

(2)

Occupancy charges include expenses for rent, office equipment and legal expenses.

(3)

Includes $0.5 million related to closing of certain shop-in-shops that were no longer in use in Asia.

(4)

This pre-tax charge was the net of a $0.9 million transfer of the provision related to severance agreements and a charge of $3.6 million in the United States and International locations of the Wholesale segment, respectively.

 

 

 

15


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q, including, without limitation, statements under Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as statements in future filings by the Company with the Securities and Exchange Commission (the “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 (including Europe) where the Company’s products are sold, uncertainty regarding such economic and business conditions, trends in consumer debt levels and bad debt write-offs, general uncertainty related to possible terrorist attacks, natural disasters, the stability of the European Union and defaults on or downgrades of sovereign debt and the impact of any of those events on consumer spending, changes in consumer preferences and popularity of particular designs, new product development and introduction, the ability of the Company to successfully implement its business strategies, competitive products and pricing, the impact of “smart” watches and other wearable tech products on the traditional watch market, seasonality, availability of alternative sources of supply in the case of the loss of any significant supplier or any supplier’s inability to fulfill the Company’s orders, the loss of or curtailed sales to 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 the company’s major warehouse and distribution centers, the continuation of licensing arrangements with third parties, losses possible from pending or future litigation, the ability to secure and protect trademarks, patents and other intellectual property rights, the ability to lease new stores on suitable terms in desired markets and to complete construction on a timely basis, the ability of the Company to successfully manage its expenses on a continuing basis, information systems failure or breaches of network security, the 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, changes to existing laws or regulations, and success of hedging strategies with respect to currency exchange rate fluctuations.

These risks and uncertainties, along with the risk factors discussed under Item 1A “Risk Factors” in the Company’s 2015 Annual Report on Form 10-K, should be considered in evaluating any forward-looking statements contained in this report or incorporated by reference herein. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are qualified by the cautionary statements in this section. The Company undertakes no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses. Estimates by their nature are based on judgments and available information. Therefore, actual results could materially differ from those estimates under different assumptions and conditions.

Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition and the results of operations and require management’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s most critical accounting policies have been discussed in the Company’s 2015 Annual Report on Form 10-K.

As of April 30, 2015, there have been no material changes to any of the critical accounting policies as disclosed in the Company’s 2015 Annual Report on Form 10-K.

16


Recent Developments

As a result of actions taken by the Company in fiscal 2016 to achieve greater operating efficiencies and streamline its operations, primarily at certain of its foreign subsidiaries, the Company recorded $2.7 million of pre-tax expenses primarily for severance, occupancy charges, and fixed assets (see note 13- Operating Efficiency Initiatives and Other Items).

On May 27, 2015, the Board approved the payment of a cash dividend in the amount of $0.11 for each share of the Company’s outstanding common stock and class A common stock. The dividend will be paid on June 22, 2015 to all shareholders of record as of the close of business on June 8, 2015. The decision of whether to declare any future cash dividend, including the amount of any such dividend and the establishment of record and payment dates, will be determined, in each quarter, by the Board of Directors, in its sole discretion.

On May 1, 2015, the Company and ABG Juicy Couture, LLC entered into Amendment Number 5, effective as of January 1, 2014, to that certain License Agreement between them dated as of November 15, 2005 (as previously amended, the "Amended License Agreement"), which extends the term of the Amended License Agreement through December 31, 2017 and makes certain other modifications to the Amended License Agreement.

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 and revenue generated from after-sales service activities and shipping. The Retail segment includes the Company’s outlet stores. The Company also operates in two major geographic locations: United States operations and International, the latter of which includes the results of all other Company operations.

Since April 30, 2014, the Company has divided its watch business into two principal categories: the luxury category and the licensed brands category. The luxury category consists of the Ebel®, Concord®, Movado® and ESQ® Movado brands.  Previously, the Company classified the Movado and the ESQ Movado brands together as a separate category referred to as accessible luxury. Watches in the licensed brands category include the following brands manufactured and distributed under license agreements with the respective brand owners: Coach®, HUGO BOSS®, Juicy Couture®, Lacoste®, Tommy Hilfiger® and SCUDERIA FERRARI®. These changes to the Company’s watch brand categories did not change the Company’s operating segments.

Gross margins vary among the brands included in the Company’s portfolio and also among watch models within each brand. Watches in the luxury category generally earn higher gross margin percentages than watches in the licensed brands category. The difference in gross margin percentages for the licensed brands category is primarily the impact of royalty payments made on the licensed brands.  Gross margins in the Company’s outlet business are affected by the mix of product sold and may exceed those of the wholesale business since the Company earns margins on its outlet store sales from manufacture to point of sale to the consumer.

Results of operations for the three months ended April 30, 2015 as compared to the three months ended April 30, 2014

Net Sales: Comparative net sales by business segment were as follows (in thousands):

 

 

 

Three Months Ended
April 30,

 

 

 

2015

 

  

2014

 

Wholesale:

 

 

 

 

 

 

 

 

United States

 

$

53,720

 

 

$

51,043

 

International

 

 

55,877

 

 

 

58,642

 

Total Wholesale

 

 

109,597

 

 

 

109,685

 

Retail

 

 

10,864

 

 

 

11,236

 

Net Sales

 

$

120,461

 

 

$

120,921

 

 

17


Comparative net sales by categories were as follows (in thousands):

 

 

 

Three Months Ended
April 30,

 

 

 

2015

 

  

2014

 

Wholesale:

 

 

 

 

 

 

 

 

Luxury brands category

 

$

44,903

 

 

$

44,220

 

Licensed brands category

 

 

60,842

 

 

 

61,729

 

After-sales service and all other

 

 

3,852

 

 

 

3,736

 

Total Wholesale

 

 

109,597

 

 

 

109,685

 

Retail

 

 

10,864

 

 

 

11,236

 

Consolidated total

 

$

120,461

 

 

$

120,921

 

 

Net sales for the three months ended April 30, 2015 were $120.5 million, below the prior year period by $0.5 million or 0.4%. For the period ended April 30, 2015, fluctuations in foreign currency exchange rates unfavorably impacted net sales by $6.5 million when compared to the prior year period.

Net sales for the three months ended April 30, 2015 in the Wholesale segment were $109.6 million, a slight decrease compared to the prior year period of $0.1 million or 0.1%.  The slight decrease in net sales was the net result of a decrease in net sales in the International location, partially offset by sales increases in the United States location of the Wholesale segment.

Net sales for the three months ended April 30, 2015 in the United States location of the Wholesale segment were $53.7 million, above the prior year period by $2.7 million or 5.2%, primarily driven by sales increases in both the luxury and licensed brands categories. The net sales increase recorded in the luxury brands category was $1.3 million, or 4.0%, which was primarily attributable to the strong sell-through and expansion in the Company’s retail distribution channels. The sales increase in the luxury brands category was primarily due to higher sales in the Movado brand, partially offset by lower ESQ Movado brand sales. The sales increase in the Movado brand was primarily due to higher sales of Movado BOLD and the introduction of new products in the current year, all of which were supported by the Company’s continued focus and investment in marketing and advertising. These increases were partially offset by a decrease in ESQ Movado brand sales as a result of the ESQ/Movado conversion strategy in the prior year.  The sales increase in the licensed brands category was primarily due to higher sales of certain licensed brands, as a result of strong sell-through, as design and key price points resonated well with customers.  

Net sales for the three months ended April 30, 2015 in the International location of the Wholesale segment were $55.9 million, below prior year by $2.8 million or 4.7%, which included fluctuations in foreign currency exchange rates which unfavorably impacted net sales by $6.5 million when compared to the prior year period. This decrease was primarily driven by sales decreases in both the licensed brands and luxury brands categories. Net sales in the licensed brands category were below the prior year period by $2.1 million, or 4.7%, due to lower sales of certain licensed brands primarily due to the translational impact of the weaker European and Canadian currencies when compared to the prior year period.  The net sales decrease in the luxury category of $0.6 million was primarily due to lower sales of Movado brand watches. The decrease in Movado watch sales was primarily due to weaker than expected performance in certain markets, including Asia and South America.

Net sales for the three months ended April 30, 2015 in the retail segment were $10.9 million, representing a 3.3% decrease from the prior year period sales of $11.2 million. The decrease in net sales was primarily due to inclement weather, which slowed foot traffic in certain locations of the Company’s outlets when compared to the prior year period. As of April 30, 2015, the Company operated 38 outlet stores, compared to 35 outlet stores at the end of the prior year period.

Gross Profit.   Gross profit for the three months ended April 30, 2015 was $62.4 million or 51.8% of net sales as compared to $65.2 million or 53.9% of net sales in the prior year period. The decrease in gross profit of $2.7 million, as well as a decrease in the gross margin percentage of approximately 210 basis points for the three months ended April 30, 2015, was primarily due to an unfavorable impact of fluctuations in foreign currency exchange rates of approximately 200 basis points and an unfavorable impact of approximately 60 basis points related to charges from the Company’s operating efficiencies initiative, partially offset by a favorable shift in channel and product mix of approximately 60 basis points.

Selling, General and Administrative (“SG&A”).   SG&A expenses for the three months ended April 30, 2015 were $55.6 million, representing an increase from the prior year period of $1.3 million or 2.5%. The increase in SG&A expenses was attributable to a charge for the Company’s operating efficiencies initiative and other items of $2.0 million and an increase in compensation, benefits and other payroll related expenses of $1.5 million, primarily resulting from higher headcount, salaries, and stock awards. Also contributing to this increase in SG&A expenses was certain higher selling related expenses of $0.3 million. These increases in SG&A expenses were partially offset by the favorable effect of fluctuations in foreign currency exchange rates of $2.2 million, which was the

18


result of the translation of foreign subsidiary results and the result of the stronger average Swiss to Euro currency rate when compared to the prior year period, and also contributing to this offset was lower marketing expense of $0.4 million.

Wholesale Operating Income.   Operating income of $5.9 million and $9.4 million, which includes $7.1 million and $7.0 million of unallocated corporate expenses as well as $8.8 million and $9.6 million of certain intercompany profits related to the Company’s supply chain operations, was recorded in the Wholesale segment for the three months ended April 30, 2015 and 2014, respectively. The $3.5 million decrease in operating income was the net result of a decrease in gross profit of $2.5 million and an increase in SG&A expenses of $0.9 million. The decrease in gross profit of $2.5 million was primarily due to a lower gross margin percentage. The increase in SG&A expenses was attributable to a charge for the Company’s operating efficiencies initiative and other items of $2.0 million and an increase in compensation, benefits and other payroll related expenses of $1.2 million, primarily resulting from higher headcount, salaries, and stock awards. Also contributing to this increase in SG&A expenses were certain higher selling related expenses of $0.3 million.  These increases in SG&A expenses were partially offset by the favorable effect of fluctuations in foreign currency exchange rates of $2.2 million, which was the result of the translation of foreign subsidiary results and the result of the stronger average Swiss franc to Euro currency rate when compared to the prior year period and also contributing to this offset was lower marketing expense of $0.4 million.

U.S. Wholesale Operating Income / (Loss).   Operating income of $1.5 million and an operating loss of $2.4 million, which included unallocated corporate expenses, was recorded in the United States location of the Wholesale segment for the three months ended April 30, 2015 and 2014, respectively. The increase in operating income of $3.9 million was the net result of higher gross profit of $5.2 million, partially offset by higher SG&A expenses of $1.3 million. The increase in gross profit of $5.2 million was primarily due to higher net sales and to a lesser extent, a higher gross margin percentage. The increase in SG&A expenses was attributable to an increase in compensation, benefits and other payroll related expenses of $1.7 million, primarily resulting from higher headcount, salaries, and stock awards. Also contributing to the increase in SG&A expenses was an increase in professional fees of $0.3 million. These increases in SG&A expenses were partially offset by a $0.9 million transfer of the provision related to severance agreements as a result of the Company’s operating efficiencies initiative and other items. Also offsetting these increases in SG&A expenses were lower marketing expenses of $0.4 million.

International Wholesale Operating Income.   Operating income of $4.4 million and $11.8 million, which included certain profits related to the Company’s supply chain operations, was recorded in the International location of the Wholesale segment for the three months ended April 30, 2015 and 2014, respectively. The decrease in operating income of $7.4 million was primarily due to a lower gross profit of $7.7 million, partially offset by lower SG&A expenses of $0.3 million. The decrease in gross profit of $7.7 million was primarily due to lower sales and lower gross margin percentage. The decrease in SG&A expenses included a favorable effect of fluctuations in foreign currency exchange rates of $2.2 million. Also contributing to the decrease in SG&A expenses was a lower compensation and benefit expenses of $0.5 million and lower professional fees of $0.2 million.  These decreases were partially offset by a charge of $2.9 million related to the Company’s operating efficiencies initiative and other items.

Retail Operating Income.   Operating income of $1.0 million and $1.5 million was recorded in the retail segment for the three months ended April 30, 2015 and 2014, respectively. The $0.5 million decrease in operating income was the result of an increase in SG&A expenses of $0.3 million and a decrease in gross profit of $0.2 million. The increase in SG&A expenses of $0.3 million was primarily due to higher compensation, benefit expenses and occupancy expenses related to operating more stores when compared to the prior year period. The decrease in gross profit of $0.2 million was primarily attributable to lower sales.

Income Taxes. The Company recorded an income tax provision of $3.1 million and $3.4 million for the three months ended April 30, 2015 and 2014, respectively.  

The effective tax rate was 46.3% and 31.6% for the three months ended April 30, 2015 and 2014, respectively. The increase in the effective tax rate was primarily due to certain costs related to the operating efficiency initiatives and other items resulting in deferred tax benefits that were valued and recording a valuation allowance against certain foreign deferred tax assets.

The effective tax rate for the three months ended April 30, 2015 differs from the U.S. statutory tax rate of 35.0% primarily due to no tax benefit being recognized on losses incurred by certain foreign operations, recording a valuation allowance against certain foreign deferred tax assets, and certain costs related to the operating efficiency initiatives and other items resulting in deferred tax benefits that were valued, partially offset by foreign earnings being taxed at rates lower than the U.S. statutory tax rate. The effective tax rate for the three months ended April 30, 2014 differs from the U.S. statutory tax rate of 35.0%, primarily due to foreign earnings being taxed at rates lower than the U.S. statutory tax rate, partially offset by no tax benefit being recognized on losses incurred by certain foreign operations.

Net Income Attributed to Movado Group, Inc. The Company recorded net income of $3.6 million and $7.4 million for the three months ended April 30, 2015 and 2014, respectively.

19


LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2015 and April 30, 2014, the Company had $185.8 million and $137.8 million of cash and cash equivalents, $181.0 million and $121.4 million of which consisted of cash and cash equivalents at the Company’s foreign subsidiaries, respectively. At April 30, 2014 one of the Company’s foreign subsidiaries also had $34.1 million in a six-month time deposit which matured on July 24, 2014, labeled as Short-Term Investments on the Consolidated Balance Sheet. The majority of the foreign cash balances are associated with earnings that the Company has asserted are permanently reinvested, and which are required to support continued growth outside the United States through funding of capital expenditures, operating expenses and similar cash needs of the foreign operations.  The Company has recorded a federal tax liability of $2.7 million related to $12.7 million of pre-2013 foreign earnings which have been earmarked for future repatriation.

Cash used in operating activities was $11.2 million and $12.1 million for the three months ended April 30, 2015 and 2014, respectively. The $11.2 million of cash used in operating activities for the three months ended April 30, 2015, was primarily due to change in working capital of $21.4 million, partially offset by favorable non-cash items of $7.0 million, which included a $2.3 million non-cash charge related to the operating efficiency initiatives and other items, and net income for the period of $3.6 million. The change in working capital of $21.4 million was primarily due to the timing of building of inventory to meet future sales and payments made on income taxes. The $12.1 million of cash used in operating activities for the three months ended April 30, 2014, was primarily due to the change in working capital of $24.6 million, partially offset by income for the period of $7.4 million and favorable non-cash items of $4.9 million.  The change in working capital of $24.6 million was primarily due to the pay down of liabilities related to the timing of payments for inventory and certain year-end accruals and an increase in accounts receivable primarily due to increased sales.

Cash used in investing activities amounted to $1.6 million and $1.5 million for the three months ended April 30, 2015 and 2014, respectively. The cash used in investing activities for both the three months ended April 30, 2015 and 2014, was primarily for capital expenditures related to the improvements of Baselworld Watch and Jewelry Show booths, construction of shop-in-shops at some of the Company’s wholesale customers, spending on store renovation/openings and spending on tooling and design.

Cash used in financing activities amounted to $0.3 million and $8.3 million for the three months ended April 30, 2015 and 2014, respectively. Cash used in financing activities for the three months ended April 30, 2015 included the repurchase of shares of the Company’s common stock, the payment of dividends, and the result of the surrender of shares in connection with the vesting of certain stock awards, partially offset by proceeds from bank borrowings. Cash used in financing activities for the three months ended April 30, 2014, was primarily to repurchase shares of the Company’s common stock, to pay dividends, and the result of the surrender of shares in connection with the vesting of certain stock awards.

On January 30, 2015, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “Borrowers”), each a wholly-owned domestic subsidiary of the Company, entered into a Credit Agreement (the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”).  The Credit Agreement provides for a $100.0 million senior secured revolving credit facility (the “Facility”) including a $15.0 million letter of credit sub-facility that matures on January 30, 2020, with provisions for uncommitted increases of up to $50.0 million in the aggregate subject to customary terms and conditions.  In connection with the Credit Agreement, the Borrowers also entered into a Security and Pledge Agreement dated as of January 30, 2015 in favor of the Agent (“Security Agreement”).

As of April 30, 2015, $25.0 million in loans were drawn under the Facility. Additionally, approximately $3.5 million in letters of credit which were outstanding under the Borrower’s pre-existing asset-based revolving credit facility that was concurrently terminated as described below, were deemed to be issued and outstanding under the Facility.  As of April 30, 2015, availability under the Facility was approximately $71.5 million.

Borrowings under the Facility bear interest at rates selected periodically by the Company at LIBOR plus 1.25% per annum (subject to increases up to a maximum of 1.75% per annum based on the Company’s consolidated leverage ratio) or a base rate plus 0.25% (subject to increases up to a maximum of 0.75% per annum based on the Company’s consolidated leverage ratio).  The Company has also agreed to pay certain fees and expenses and provide certain indemnities, all of which are customary for such financings.

The borrowings under the Facility are joint and several obligations of the Borrowers and are also cross-guaranteed by each Borrower.  In addition, pursuant to the Security Agreement, the Borrowers’ obligations under the Facility are secured by first priority liens, subject to permitted liens, on substantially all of the Borrowers’ assets other than certain excluded assets. The Security Agreement contains representations and warranties and covenants, which are customary for pledge and security agreements of this type, relating to the creation and perfection of security interests in favor of the Agent over various categories of the Company’s assets.

The Credit Agreement contains affirmative and negative covenants binding on the Borrowers and their subsidiaries that are customary for credit facilities of this type, including, but not limited to, restrictions and limitations on the incurrence of debt and liens, dispositions of assets, capital expenditures, dividends and other payments in respect of equity interests, the making of loans and equity

20


investments, mergers, consolidations, liquidations and dissolutions, and transactions with affiliates (in each case, subject to various exceptions). As of April 30, 2015, the Company was in compliance with its covenants under the Credit Agreement.

The Borrowers are also subject to a minimum consolidated EBITDA test of $50.0 million, measured at the end of each fiscal quarter based on the four most recent fiscal quarters and a consolidated leverage ratio covenant not to exceed 2.50 to 1.00, measured as of the last day of each fiscal quarter.

The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, failure of any representation or warranty to be true in any material respect when made or deemed made, violation of covenants, cross default with material indebtedness, material judgments, material ERISA liability, bankruptcy events, asserted or actual revocation or invalidity of the loan documents, and change of control.

On January 30, 2015, in connection with the Company’s entry into the Credit Agreement, the Company terminated its Amended and Restated Loan and Security Agreement, dated as of July 17, 2009, as amended, by and between the Borrowers, the lenders party thereto and Bank of America, N.A., as agent for the lenders.  There were no borrowings outstanding under that agreement as of April 30, 2014 or January 31, 2015, and there were no material early termination penalties incurred as a result of the termination of that agreement.  Additionally, the Company used cash on-hand to pay accrued fees and expenses in conjunction with the termination of that agreement and the rollover of certain outstanding letters of credit into the Facility.

A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified length of time with a Swiss bank. As of April 30, 2015 and 2014, these lines of credit totaled 5.0 million Swiss francs with a dollar equivalent of $5.4 million and $5.7 million.  As of April 30, 2015 and 2014, there were no borrowings against these lines. As of April 30, 2015, two European banks have guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million in various foreign currencies.

The Company paid dividends of $0.11 per share and $0.10 per share or approximately $2.6 million and $2.5 million for the three months ended April 30, 2015 and 2014, respectively.

On May 27, 2015, the Board approved the payment of a cash dividend in the amount of $0.11 for each share of the Company’s outstanding common stock and class A common stock. The dividend will be paid on June 22, 2015 to all shareholders of record as of the close of business on June 8, 2015. The decision of whether to declare any future cash dividend, including the amount of any such dividend and the establishment of record and payment dates, will be determined, in each quarter, by the Board of Directors, in its sole discretion.

On March 31, 2015, the Board approved an increase in the Company’s quarterly cash dividend to $0.11 for each share of the Company’s outstanding common stock and class A common stock.

Cash at April 30, 2015 amounted to $185.8 million compared to $137.8 million at April 30, 2014. The increase in cash is primarily the result of  proceeds from the maturity of a short-term investment, cash provided by operating activities and available-for-sale securities, partially offset by cash used in stock repurchases, the payment of dividends, capital expenditures and a long-term investment.

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 twelve months.

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet financing or unconsolidated special-purpose entities.

Recent Accounting Pronouncements

On April 7, 2015, FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which states that debt issuance costs be presented in the balance sheet as a direct deduction from the debt liability, consistent with debt discounts. Under current accounting standards, such costs are recorded as an asset. The new guidance is effective for the beginning of the Company’s fiscal year 2017, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This pronouncement affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This

21


pronouncement provides alternative methods of retrospective adoption and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is evaluating the effect of adopting this pronouncement, but the adoption is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

The Company’s primary market risk exposure relates to foreign currency exchange risk. A significant portion of the Company’s purchases are denominated in Swiss francs. The Company also sells to third-party customers in a variety of foreign currencies, most notably the Euro. The Company reduces its exposure to the Swiss franc and Euro 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. In the event these exposures do not offset, the Company uses various derivative financial instruments to further reduce the net exposures to currency fluctuations, predominately forward and option contracts. When entered into, the Company designates and documents these derivative instruments as a cash flow hedge of a specific underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transactions. Changes in the fair value of a derivative that is designated and documented as a cash flow hedge and is highly effective, are recorded in other comprehensive income until the underlying transaction affects earnings, and then are later reclassified into earnings in the same account as the hedged transaction. The earnings impact is partially offset by the effects of currency movements on the underlying hedged transactions. If the Company does not engage in a hedging program, any change in the Swiss franc and Euro exchange rates to local currency would have an equal effect on the Company’s earnings.

The Company uses forward exchange contracts to offset its exposure to certain foreign currency receivables and liabilities. These forward contracts are not designated as qualified hedges and, therefore, changes in the fair value of these derivatives are recognized into earnings, thereby offsetting the current earnings effect of the related foreign currency liabilities.

As of April 30, 2015, the Company’s entire net forward contracts hedging portfolio consisted of 28.0 million Swiss francs equivalent and 14.0 million Euros equivalent for various expiry dates ranging through December 18, 2015 compared to a portfolio of 37.0 million Swiss francs equivalent for various expiry dates ranging through October 22, 2014 as of April 30, 2014. If the Company were to settle its Swiss franc and Euro forward contracts at April 30, 2015, the net result would be a gain of $0.5 million, net of tax of $0.3 million and a loss of $0.5 million, net of tax benefit of $0.1 million, respectively. The Company had no Swiss franc or Euro option contracts related to cash flow hedges as of April 30, 2015 and 2014, respectively.

The Board 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 the relevant accounting guidance regarding derivative instruments. As of April 30, 2015 and 2014, the Company did not hold a purchased option hedge portfolio related to net investment hedging.

Commodity Risk

The Company considers its exposure to fluctuations in commodity prices to be primarily related to gold used in the manufacturing of the Company’s watches. Under its hedging program, the Company can purchase various commodity derivative instruments, primarily future contracts. These derivatives are documented as qualified 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. The Company did not hold any future contracts in its gold hedge portfolio related to cash flow hedges as of April 30, 2015 and 2014, thus any changes in the gold price will have an equal effect on the Company’s cost of sales.

Debt and Interest Rate Risk

The Company has the capability to have 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. As of April 30, 2015, the Company had $25.0 million in outstanding debt. The Company believes that a 1% change in interest rates would affect the Company’s net income by approximately $0.1 million.  For additional information concerning potential changes to future interest obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective at that reasonable assurance level. However, it should be noted that a control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that its objectives will be met and may not prevent all errors or instances of fraud.

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, have 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. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level 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 three months ended April 30, 2015, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal proceedings and claims from time to time in the ordinary course of its business. 

On February 4, 2015, an individual plaintiff filed a complaint against the Company and several of its officers in the United States District Court for the District of New Jersey (the “Complaint”) as a purported class action, alleging that between March 26, 2014 and November 13, 2014, the Company made false and misleading statements about the Company’s financial performance. The Complaint also claims that these alleged false and misleading statements resulted in the Company’s stock trading at an artificially high price until November 14, 2014, when the Company issued a press release preliminarily announcing financial results and reducing its previous projections, after which the Company’s stock price fell. The Company believes that the Complaint is meritless and it intends to vigorously defend this matter.

The Company believes that it has valid legal defenses to all of the matters currently pending against it. These matters are inherently unpredictable and the resolutions of these matters are subject to many uncertainties and the outcomes are not predictable with assurance. Consequently, management is unable to estimate the ultimate aggregate amount of monetary loss, amounts covered by insurance or the financial impact that will result from such matters.

Item 1A Risk Factors

As of April 30, 2015, there have been no material changes to any of the risk factors previously reported in the Company’s 2015 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 21, 2013, the Board approved a share repurchase program under which the Company was authorized to purchase up to $50.0 million of its outstanding common stock from time to time, depending on market conditions, share price and other factors. The Company may purchase shares of its common stock through open market purchases, repurchase programs, block trades or otherwise. On November 25, 2014, the Board increased the amount of the share repurchase authorization to $100.0 million. This authorization expires on January 31, 2016. During the three months ended April 30, 2015, the Company repurchased a total of 859,700 shares of its common stock in the open market at a total cost of approximately $22.2 million or an average cost of $25.77 per share.

There were 17,979 shares of common stock repurchased during the three months ended April 30, 2015 as a result of the surrender of shares in connection with the vesting of certain stock awards. At the election of an employee, shares having an aggregate value on the vesting date equal to the employee’s withholding tax obligation may be surrendered to the Company.

23


The following table summarizes information about the Company’s purchases for the three months ended April 30, 2015 of equity securities that are registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

Issuer Repurchase of Equity Securities

 

Period

 

Total

Number of

Shares

Purchased

 

  

Average

Price Paid

Per Share

 

  

Total Number of

Shares

Purchased as

Part of Publicly

Announced

Plans or

Programs

 

  

Maximum

Amount

that May Yet Be

Purchased Under

the Plans or

Programs

 

February 1, 2015 – February 28, 2015

 

 

293,200

 

 

$

24.93

 

 

 

293,200

 

 

$

55,821,119

 

March 1, 2015 – March 31, 2015

 

 

376,200

 

 

 

24.39

 

 

 

376,200

 

 

 

46,645,838

 

April 1, 2015 – April 30, 2015

 

 

208,279

 

 

 

29.86

 

 

 

190,300

 

 

 

40,977,157

 

Total

 

 

877,679

 

 

$

25.87

 

 

 

859,700

 

 

$

40,977,157

 

 

 

 

24


 

Item 6. Exhibits

 

 

10.1

Amendment No. 5, effective as of January 1, 2014, entered into May 1, 2015 between the Registrant and ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc., further amending the License Agreement dated as

of November 15, 2005, as previously amended. *

 

 

 

 

10.2

Form of Stock Award Agreement under the Movado Group, Inc. 1996 Stock Incentive Plan, amended and restated

as of April 4, 2013. **

 

 

 

 

10.3

Form of Option Award Agreement under the Movado Group, Inc. 1996 Stock Incentive Plan, amended and restated as of April 4, 2013. **

 

 

 

 

31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

101

The following financial information from Movado Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2015 filed with the SEC, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive (Loss) \ Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.

 

*

Confidential portions of this Exhibit10.1 have been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

**

Compensatory plan or arrangement.

 

 

 

25


 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

MOVADO GROUP, INC.

 

 

(Registrant)

Dated: May  27, 2015

By:

 

/s/ Sallie A. DeMarsilis

 

 

Sallie A. DeMarsilis

Senior Vice President,

Chief Financial Officer and

Principal Accounting Officer

 

26

 

Exhibit 10.1**

AMENDMENT NO. 5

TO

LICENSE AGREEMENT

THIS AMENDMENT NO. 5 TO THE LICENSE AGREEMENT (this “ Amendment No. 5 ”) is effective as of January 1, 2014 and is entered into by and between ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc. (“ Licensor ”) on the one hand, and Movado Group, Inc. (“ Licensee ”) on the other hand, concerning that certain License Agreement effective as of November 18, 2005 (the “ License Agreement ”) and amended as of September 28, 2009 (“ Amendment No. 1 ”), December 6, 2010 (“ Amendment No. 2 ”), June 1, 2011 (“ Amendment No. 3 ”) and September 28, 2012 (“ Amendment No. 4 ”). The License Agreement, Amendment No. 1, Amendment No. 2, Amendment No. 3 and Amendment No. 4 shall be referred to herein, individually and collectively, as the “ Agreement ”.

1.

Defined Terms : Except as otherwise defined herein, all capitalized terms used herein shall have the meaning ascribed to them in the Agreement. For the avoidance of doubt, references to the “Agreement” in both the Agreement and this Amendment No. 5 shall mean the Agreement as modified by this Amendment No. 5.

2.

Licensor : As of November 6, 2013 (the “ Closing Date ”), all references to L.C. Licensing, Inc. in the Agreement shall be replaced with ABG Juicy Couture, LLC, a Delaware limited liability company (or “ Licensor ”). For the avoidance of doubt, Notwithstanding anything contained in Section 20 of the Agreement to the contrary, the address for Licensor in the Agreement, and the ‘copy to’ address, shall be deleted in their entirety and replaced with the following:

“ABG Juicy Couture, LLC

c/o Authentic Brands Group, LLC

100 West 33 rd Street, Suite 1007

New York, NY 10001”

3.

Licensed Marks (Schedule 1.2) : As of November 21, 2014, Schedule 1.2 of the Agreement shall be deleted in its entirety and replaced with the schedule attached hereto as Schedule 1.2 , which is incorporated herein by this reference.

4.

Contract Year; Contract Quarter : As of the Closing Date, Section 1.9 of the Agreement shall be deleted in its entirety and replaced with the following: “The term “ Contract Year ” means the First Contract Year, the period of twelve (12) months commencing on the day following the end of the First Contract Year, and the twelve (12) month period commencing on each January 1 thereafter for the Initial Term and any Renewal Term. The term “ Calendar Quarter ” means each of the following three (3) month periods during a given calendar year beginning with January 1 and ending December 31: from January 1 through March 31; from April 1 through June 30; from July 1 through September 30; and from October 1 through December 31.” As such, all references to ‘Fiscal Year’ in the Agreement (if any) shall be replaced with references to ‘Contract Year’, (b) all references ‘Fiscal Quarter’ in the Agreement (if any) shall be replaced with references to ‘Calendar Quarter.”

5.

LCI Standards : Both parties acknowledge that Licensor’s parent company is Authentic Brands Group, LLC (“ ABG ”) and as such, as of the Closing Date: (a) all references to ‘LCI’ or ‘Liz Claiborne, Inc.’ in the Agreement shall be replaced with references to ‘ABG’, (b) all references to ‘LCI Standards’ in the Agreement shall be changed to ‘ABG Standards’, and (c) all references to Juicy Couture, Inc. in the Agreement shall be replaced with references to Licensor.

6.

Licensee / Factory Profile (Schedule 2.3(b)) : From and after the date hereof, Schedule 2.3(b) of the Agreement shall be deleted in its entirety and replaced with the schedule attached hereto as Schedule 2.3(b) , which is incorporated herein by this reference.

7.

Term (Schedule 3.1 ): From and after the date hereof, Schedule 3.1 of the Agreement shall be deleted in its entirety and replaced with the schedule attached hereto as Schedule 3.1 , which is incorporated herein by this reference.

 

**CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED FROM PAGES 2, 3 AND 9 – 13  AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (“1934 ACT”).

1


 

8.

Events of Default : As  of  the Effective Date, Section 3.3(b) of the Agreement shall be deleted in its entirety and replaced with the following: “If Licensee or Licensor institutes proceedings to be adjudicated  a voluntary bankrupt or insolvent, or consents to the filing of a bankruptcy proceeding against it, or files a petition or answer seeking reorganization or arrangement under any bankruptcy act or any other similar applicable law of any country, or consents to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency for itself, or any of its property, or makes an assignment for the benefit of creditors, or is unable to pay its debts generally as they become due, or shall cease doing business as a going concern, or corporate action is taken by it in furtherance of any of the foregoing purposes; provided, however, that any financing by done Licensor in the ordinary course of business shall not be deemed an assignment for the benefit of creditors for purposes of this Agreement; or”

9.

Minimum Net Sales (Schedule 3.3(g)) : From and after the date hereof, Schedule 3.3(g) of the Agreement shall be deleted in its entirely and replaced with the schedule attached hereto as Schedule 3.3(g) , which is incorporated herein by this reference.

10.

Sales of Licensed Merchandise to Licensor & Licensor’s Affiliates : From and after the date hereof, the following shall be added to the end of Section 4.4(a): “All such sales of Licensed Merchandise by Licensee pursuant to this Section shall be at a discount of      *     off of Licensee’s local, territory-specific wholesale price for such Licensed Merchandise.”

11.

Sales Representatives : As of the Closing Date, Section 4.6 of the Agreement shall be deleted in its entirety and replaced with the following: “Licensee is permitted to enter into arm’s length agreements with Licensor’s distributors and/or either of their sales representatives to solicit orders of Licensed Merchandise on behalf of Licensee.”

12.

Standards and Quality; Merchandise Approvals : As of the Closing Date, all references to “Los Angeles” in the Agreement shall be replaced with “New York City”.

13.

Approvals; RoyaltyZone : Licensor shall have the right to approve any and all uses of the Licensed Marks pursuant to the Agreement, including, without limitation, Licensed Merchandise, Packaging and all advertising and promotion of the Licensed Merchandise done by Licensee and any of its affiliates. From and after the date hereof, Licensor hereby reserves the right to modify the process for approvals (set forth in Section 6 of the Agreement) and submission of royalty and sales reports (set forth in Section 11 of the Agreement) on reasonable advance written notice to Licensee. In no event shall Licensor modify the timing or frequency of the same without Licensee’s prior written approval. Licensor has adapted its systems and processes to accommodate the services provided by RoyaltyZone, detailed explanation of which can be found at: www.royaltyzone.com (“ RoyaltyZone ”). Licensee shall comply with the reporting and submissions process via RoyaltyZone. Licensor’s silence or failure to respond to a request for approval shall be deemed Licensor’s disapproval of that approval request.

14.

Samples : From and after the date hereof, Section 6.8 of the Agreement shall be deleted in its entirety and replaced with the following: “Licensee will furnish Licensor, free of charge, with the following for each of the five (5) lines developed each year hereunder: (i) two (2) complete sets of production samples (which may be without moving parts) for Licensor New York showroom; (ii) ten (10) timepieces of their choice for any persons to whom Licensor desires to give them; and (iii) a reasonable number of timepieces for celebrity placement.”

15.

National Advertising, Marketing and Cooperative Advertising (Schedule 7.2) : From and after the date hereof, Schedule 7.2 of the Agreement shall be deleted in its entirety and replaced with the schedule attached hereto as Schedule 7.2 , which is incorporated herein by this reference.

16.

Image Fund Payment (Schedule 7.3) : From and after the date hereof:

(a)

Schedule 7.3 of the Agreement shall be deleted in its entirety and replaced with the schedule attached hereto as Schedule 7.3 , which is incorporated herein by this reference.

(b)

The first (1 st ) sentence of Section 7.3(d) of the Agreement shall be deleted in its entirety and replaced with the following: “Licensee shall compute the Image Fund Payment on a quarterly basis at the beginning of each calendar quarter, and Licensee shall pay to Licensor the quarterly portion of the Image Fund Payment on the first (1 st ) day of each calendar quarter (e.g., January 1, April 1, July 1 and October 1).”

 

*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC PUSUANT TO RULE 24b-2 OF THE 1934 ACT.

2


 

(c)

Upon execution of this Amendment, Licensee shall submit to Licensor, for Licensor’s review and approval, a detailed account of Licensee’s Co-Op Spend (as defined in Schedule 7.2) during Contract Year 10 (2014), including actual invoices and other support documentation (“ 2014 Report ”). Upon Licensor’s approval of the 2014 Report, and so long as Licensee’s Co-Op Spend in Contract Year 10 (2014) actually exceeded     *     (“ 2014 Threshold ”), then Licensor shall reimburse Licensee for up to     *     of additional Co-Op Spend actually spent by Licensee in excess of the 2014 Threshold, upon Licensee’s submission to Licensor of actual invoices and other support documentation for the same.

(d)

Beginning with Contract Year 11 (2015) through and including the remainder of the Term, Licensee shall, no later than thirty (30) days prior to the beginning of each Calendar Quarter, submit to Licensor, for Licensor’s review and approval, a comprehensive written marketing plan, inclusive of budget, detailing Licensee’s planned Co-Op Spend for such upcoming Calendar Quarter (each, a “ Co-Op Report ”). So long as Licensor has approved each Co-Op Report, and so long as Licensee’s Co-Op Spend for the applicable Contract Year actually exceeds    *   (“ CY Threshold ”), as evidenced by actual invoices and other support documentation, then Licensor shall reimburse Licensee for up to    *   of additional Co-Op Spend actually spent by Licensee during the same Calendar Quarter in excess of the CY Threshold (“ CY Limit ”) (if any), within thirty (30) days of Licensee’s submission to Licensor of an invoice for such amount.

(e)

For purposes of the Agreement, “ Excess Marketing Spend ” shall be defined as any amounts spent by Licensee in each Contract Year on: (i) co-op advertising for the Licensed Merchandise that is in excess of the CY Limit, and (ii) general marketing and/or advertising expenses related to the Licensed Merchandise (e.g., personnel, etc.) (but specifically excluding the National Advertising, Marketing and Cooperative Advertising spend and any amounts spent by Licensee pursuant to Section 16(d) above). Licensee shall be permitted to request reimbursement from Licensor for each of Licensee’s Excess Marketing Spend by delivering a summary of each payment out of the Excess Marketing Spend to Licensor, inclusive of all details and support materials reasonably requested by Licensor (“ EMS Summary(ies) ”), which EMS Summaries shall be delivered to, and signed by, Licensor. Licensee shall review and approve invoices that are received by Licensee for all amounts included in previously submitted EMS Summaries (“ Invoice(s) ”), and shall, from time to time, submit the Invoices, along with the signed copy of the EMS Summaries (“ Reimbursement Request ”), to Licensor. Within thirty (30) days of Licensor’s receipt of any Reimbursement Request, Licensor shall make payment to Licensee out of the IFP Account (if any) in accordance therewith. In no event shall Licensor be required to pay Licensee any amount in excess of the then-current IFP Account. For the avoidance of doubt, Licensee shall not be permitted to credit Excess Marketing Spend towards achieving the CY Threshold.

17.

Buy Meetings : From and after the date hereof, Section 7.7 of the Agreement shall be deleted in its entirety and replaced with the following: “Licensee shall participate, at Licensee’s sole cost and expense, in no more than four (4) Juicy Couture global sales / buy meetings per Contract Year (“ Buy Meeting(s) ”), in each case scheduled by Licensor.”

18.

Guaranteed Minimum Royalty (Schedule 8.2) : From and after the date hereof, Schedule 8.2 of the Agreement shall be deleted in its entirety and replaced with the schedule attached hereto as Schedule 8.2 , which is incorporated herein by this reference.

19.

Interest on Late Payments : As of the Effective Date, the first (1 st ) sentence of Section 11.2 of the Licensed Agreement shall be deleted in its entirety and replaced with the following: “If any payment due to Licensor hereunder is delayed for any reason, interest, compounded monthly, will accrue on the unpaid amount of such payment at the prime rate (as defined), plus five percent (5%) (the “ Default Rate ”) from and after the date upon which said payment is due until the date payment is actually received.”

20.

Audit : As of the Effective Date, all references to “Sales Royalties” in Section 11.3 of the Agreement shall be deleted in their entirety and replaced with “any amount”.

 

*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC PUSUANT TO RULE 24b-2 OF THE 1934 ACT.

3


 

21.

Payments to Licensor : Notwithstanding anything contained in Section 11.4 of the Agreement to the contrary, all payments to Licensor shall be made by wire transfer to the following account:

Payee:   ABG Intermediate Holdings 2, LLC

Bank of America

One Bryant Park

New York, NY 10036

Account Number: 4427792434

ABA Routing Number (for domestic wires): 026009593 (wire) or 021000322 (ach).

Swift Code (for international wires): BOFAUS3N

In each case reference: Movado / Calendar Quarter

22.

Effect of Expiration or Termination : As of the Closing Date:

(a)

The first (1 st ) sentence of Section 12.3 of the Agreement shall be deleted in its entirety and replaced with the following: “So long as this Agreement: (i) has expired pursuant to its terms (e.g., it was not terminated by Licensor for any reason pursuant to the terms of this Agreement, other than pursuant to Section 3.3(g) of the Agreement), (ii) was terminated by Licensee pursuant to the express terms of Section 3.3 of this Agreement (provided that notice of termination sent pursuant to Section 3.3 is not after and/or in response to a breach notice sent by Licensor to Licensee), or (iii) was terminated by Licensor pursuant to Section 3.3(g) of the Agreement for Licensee’s failure to meet Minimum Net Sales as specified therein), then: Licensee may complete (but only in accordance with the terms and conditions of this Agreement) production of Approved Licensed Merchandise which is in process, or for which written orders have been received from customers, all as of the date of expiration of this Agreement. In the event this Agreement is: (A) terminated by Licensor for any reason other than pursuant to Section 3.3(g) (for Licensee’s failure to meet Minimum Net Sales as specified therein), or (B) terminated by Licensee after and/or in response to a breach notice sent by Licensor to Licensee, then: Licensee shall immediately cease production of Approved Licensed Merchandise which is in process, or for which written orders have been received from customers, all as of the date of termination of this Agreement.”

(b)

The first (1 st ) sentence of Section 12.4 of the Agreement shall be deleted in its entirety and replaced with the following: “So long as this Agreement: (i) has expired pursuant to its terms (e.g., it was not terminated by Licensor for any reason pursuant to the terms of this Agreement, other than pursuant to Section 3.3(g) of the Agreement), (ii) was terminated by Licensee pursuant to the express terms of Section 3.3 of this Agreement (provided that notice of termination sent pursuant to Section 3.3 is not after and/or in response to a breach notice sent by Licensor to Licensee), or (iii) was terminated by Licensor pursuant to Section 3.3(g) of the Agreement for Licensee’s failure to meet Minimum Net Sales as specified therein), then: to the extent that the Inventory Purchase Option is not exercised in full with respect to all Licensed Merchandise subject thereto, and if Licensee is not in default under this Agreement (other than pursuant to Section 3.3(g) of the Agreement), Licensee may use the Licensed Mark(s) (“ Royalty Option ”) on a non-exclusive basis in connection with the sale of Approved Licensed Merchandise as to which an Inventory Purchase Option was not exercised for the six (6) month period immediately following the expiration of the applicable Purchase Option Period, provided Licensee fully complies with the provisions of this Agreement in connection with such disposal. In the event this Agreement is: (A) terminated by Licensor for any reason other than pursuant to Section 3.3(g) (for Licensee’s failure to meet Minimum Net Sales as specified therein), or (B) terminated by Licensee after and/or in response to a breach notice sent by Licensor to Licensee, then: Licensee shall have no Royalty Option.”

23.

Non-Compete : From and after the date hereof, the list of ‘Competing Brands’ set forth in the last sentence of Section 13.1(a) shall be deleted in its entirety and replaced with the following: “Chloe, Diesel, Mix Sixty, Seven for All Mankind, Earl Jeans, Theory, Camp Beverly Hills, Kate Spade, Diane von Furstenberg, Marni, Citizens of Humanity, Limited Brands (including, without limitation, Pink, Victoria’s Secret and Express) and Wildfox.”

24.

Works Made for Hire : As of the Effective Date, the second (2 nd ) sentence of Section 14.4 of the Agreement shall be deleted in its entirety and replaced with the following: “Licensee acknowledges and agrees that any and all intellectual property rights arising from or relating to the Licensed Marks and Licensed Merchandise that are created or developed by or on behalf of Licensee under this Agreement and that qualify as works of authorship, belong to Licensor and are “works made for hire” as defined in Section 101 et seq. of the United States Copyright Act, Title 17, United States Code (“ Copyright Act ”).  To the extent any rights in and to a Licensed Mark or any Licensed Merchandise are not “works made for hire” as defined in the Copyright Act, Licensee hereby assigns any and all such rights, at such time as they may be deemed to accrue, to Licensor.”

4


 

25.

Equitable Relief : From and after the date hereof, Section 16 of the Agreement shall be deleted in its entirety and replaced with the following:

“The Licensee acknowledges that any breach by Licensee shall cause Licensor irreparable harm for which there is no adequate remedy at law, and in the event of such breach, Licensor shall be entitled to, in addition to other available remedies, injunctive or other equitable relief, including, without limitation, interim or emergency relief, including, without limitation, a temporary restraining order or injunction, before any court with applicable jurisdiction, to protect or enforce its rights. All rights and remedies conferred upon or reserved to the parties in this Agreement shall be cumulative and concurrent and shall be in addition to all other rights and remedies available to such parties at law or in equity or otherwise, including, without limitation, requests for temporary and/or permanent injunctive relief.  Such rights and remedies are not intended to be exclusive of any other rights or remedies and the exercise by either party of any right or remedy herein provided shall be without prejudice to the exercise of any other right or remedy by such party provided herein or available at law or in equity.”

26.

Governing Law : From and after the date hereof, the following shall be added to the end of Section 21.1(c) of the Agreement: “With respect to Licensor’s right to injunctive relief, Licensor may seek an injunction before any court of competent jurisdiction, not limited to a court located in New York, New York and Licensee agrees not to contest the jurisdiction of any such court nor assert, by way of motion, defense or otherwise, that the Agreement or the subject matter hereof may not be enforced in or by such court.”

27.

Except as modified by this Amendment No. 5, all terms and conditions of the Agreement shall remain in full force and effect.

28.

This Amendment No. 5 may be signed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  Facsimile, photographic and/or PDF copies of counterpart signature pages shall be deemed original counterpart pages for all purposes hereunder.

29.

This Amendment No. 5 shall be governed by, and construed in accordance with, the law of the State of New York applicable to contracts made and to be performed in the State of New York, without regard to conflicts of law principles.

30.

In the event one or more of the provisions of this Amendment No. 5 should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Amendment No. 5, and this Amendment No. 5 shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 5 as of the date first set forth above.

 

AGREED AND ACCEPTED:

 

AGREED AND ACCEPTED:

Movado Group, Inc.

 

ABG Juicy Couture, LLC

 

 

 

 

 

 

 

By:

 

/s/ Timothy F. Michno

 

By:

 

/s/ Terri DiPaolo

 

 

 

 

 

 

 

Print:

 

Timothy F. Michno

 

Print:

 

Terri DiPaolo

 

 

 

 

 

 

 

Title:

 

General Counsel

 

Title:

 

COO & General COunsel

 

 

 

 

 

 

 

Date:

 

April 29, 2015

 

Date:

 

May 1, 2015

 

 

 

5


 

This Schedule 1.2 is attached to and made part of Amendment No. 5 by and between ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc. (“ Licensor ”), and Movado Group, Inc. (“ Licensee ”), dated January 1, 2014.

Schedule 1.2

Licensed Marks

 

Trademark

 

Country

 

Registration Number

 

Status

 

JUICY COUTURE

Antigua & Barbuda

6485

Registered

JUICY COUTURE

Argentina

2092853

Registered

JUICY COUTURE

Aruba

23088

Registered

JUICY COUTURE

Australia

1033026

Registered

JUICY COUTURE

Azerbaijan

N201201407

Registered

JUICY

Canada

TMA719582

Registered

JUICY COUTURE

Caribbean Netherlands (BES – Bonaire, Eustatius, Saba)

1375

Registered

China

7340932

Registered

JUICY

China

6005670

Registered

JUICY COUTURE

China

4054363

Registered

JUICY COUTURE

China

8477618

Registered

JUICY COUTURE

Bosnia & Herzegovina

BAZ047683

Registered

JUICY COUTURE

Brazil

830149155

Registered

JUICY COUTURE

Bulgaria

54236

Registered

CTM

009302373

Registered

CTM

9824608

Registered

China

9303844

Registered

珠希酷图

China

6875262

Registered

JUICY COUTURE

Columbia

444868

Registered

JUICY COUTURE

Croatia

Z20041781

Registered

JUICY

CTM

009115775

Registered

JUICY COUTURE

CTM

005812458

Registered

JUICY COUTURE

Cuba

20040443

Registered

JUICY COUTURE

Curacao

10924

Registered

JUICY COUTURE

Cyprus

73380

Registered

JUICY COUTURE

Ecuador

1842-05

Registered

JUICY COUTURE

Egypt

200844

Registered

JUICY COUTURE

El Salvador

128 BOOK 42

Registered

JUICY COUTURE

Georgia

23160

Registered

JUICY COUTURE

Guatemala

136840

Registered

JUICY COUTURE

Haiti

199REG131

Registered

JUICY COUTURE

Honduras

94322

Registered

Hong Kong

301313973

Registered

Hong Kong

301871596

Registered

JUICY COUTURE

Hong Kong

300195480

Registered

6


 

珠希酷 珠希酷图

Hong Kong

301484424

Registered

JUICY COUTURE

Iceland

5312004

Registered

JUICY COUTURE

India

1285521

Registered

JUICY COUTURE

Indonesia

IDM000119169

Registered

JUICY COUTURE

Indonesia

IDM000163572

Registered

Indonesia

IDM000306979

Registered

JUICY COUTURE

Israel

217348

Registered

Japan

5517321

Registered

JC (Design)

Japan

5343927

Registered

JUICY

Japan

5348222

Registered

JUICY COUTURE

Japan

4878014

Registered

JUICY COUTURE

Japan

5462443

Registered

JUICY COUTURE

Kazakhstan

40183

Registered

JUICY

Kuwait

88953

Registered

JUICY COUTURE

Kuwait

92236

Registered

JC (Design)

Macau

N/042019

Registered

JUICY COUTURE

Macau

N/020771

Registered

JC (Design)

Malaysia

2009005212

Registered

JUICY COUTURE

Malaysia

200513866

Registered

JUICY

Mexico

987591

Registered

JUICY COUTURE

Mexico

890699

Registered

Mexico

1329976

Registered

JUICY COUTURE

Monaco

0424305

Registered

JUICY COUTURE

New Zealand

721667

Registered

JUICY COUTURE

Nicaragua

81384

Registered

JUICY COUTURE

Norway

230375

Registered

JUICY COUTURE

Oman

43004

Registered

JUICY COUTURE

Panama

20370801

Registered

JUICY COUTURE

Paraguay

273163

Registered

JUICY COUTURE

Peru

101349

Registered

JUICY COUTURE

Qatar

42891

Registered

JC (Design)

Republic of Korea (South)

450031967

Registered

JUICY COUTURE

Republic of Korea (South)

4006581820000

Registered

JUICY COUTURE

Russian Federation

313668

Registered

JUICY

Saudi Arabia

101721

Registered

JUICY COUTURE

Saudi Arabia

108013

Registered

Singapore

T0903426C

Registered

JUICY COUTURE

Singapore

T0421350Z

Registered

Singapore

T1104053D

Registered

JUICY COUTURE

South Africa

2004/06999

Registered

JUICY COUTURE

Switzerland

523483

Registered

JC (Design)

Taiwan

1393524

Registered

JUICY COUTURE

Taiwan

1213148

Registered

JUICY COUTURE

Taiwan

1174771

Registered

JUICY COUTURE

Ukraine

145169

Registered

JUICY

United Arab Emirates

94209

Registered

JUICY COUTURE

United Arab Emirates

57471

Registered

JUICY

United Kingdom

UK00002319404

Registered

7


 

United States of America

3395794

Registered

United States of America

4158800

Registered

JUICY

United States of America

3381433

Registered

JUICY

United States of America

3763190

Registered

JUICY COUTURE

United States of America

3194741

Registered

JUICY COUTURE

United States of America

2978046

Registered

JUICY COUTURE

Turkey

200410546

Registered

JUICY COUTURE

Uruguay

358532

Registered

JUICY COUTURE

Venezuela

P266266

Registered

JUICY COUTURE

Vietnam

75487

Registered

 

 

 

8


 

This Schedule 2.3(b) is attached to and made part of Amendment No. 5 by and between ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc. (“ Licensor ”), and Movado Group, Inc. (“ Licensee ”), dated January 1, 2014.

Schedule 2.3(b)

 

 

 

 

9


 

This Schedule 3.1 is attached to and made part of Amendment No. 5 by and between ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc. (“ Licensor ”), and Movado Group, Inc. (“ Licensee ”), dated January 1, 2014.

Schedule 3.1

Initial Term; Renewal Term

(a)

Initial Term: Effective Date – December 31, 2011.

Contract Year 1: Effective Date – December 31, 2005.

Contract Year 2: January 1, 2006 – December 31, 2006.

Contract Year 3: January 1, 2007 – December 31, 2007.

Contract Year 4: January 1, 2008 – December 31, 2008.

Contract Year 5: January 1, 2009 – December 31, 2009.

Contract Year 6: January 1, 2010 – December 31, 2010.

Contract Year 7: January 1, 2011 – December 31, 2011.

(b)

Renewal Threshold:   *  .

(c )

Renewal Term: January 1, 2012 – December 31, 2017.

Contract Year 8: January 1, 2012 – December 31, 2012.

Contract Year 9: January 1, 2013 – December 31, 2013.

Contract Year 10: January 1, 2014 – December 31, 2014.

Contract Year 11: January 1, 2015 – December 31, 2015.

Contract Year 12: January 1, 2016 – December 31, 2016.

Contract Year 13: January 1, 2017 – December 31, 2017.

(d)

Renewal Notice: Notice must be provided by March 31, 2011.

 

*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC PUSUANT TO RULE 24b-2 OF THE 1934 ACT.

 

 

 

10


 

This Schedule 3.3(g) is attached to and made part of Amendment No. 5 by and between ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc. (“ Licensor ”), and Movado Group, Inc. (“ Licensee ”), dated January 1, 2014.

Schedule 3.3(g)

Minimum Net Sales

Initial Term :

(a)

Licensee shall achieve Net Sales of Approved Licensed Merchandise in the U.S. of at least   *   in Contract Year 1 (2005).

(b)

Licensee shall achieve Net Sales of Approved Licensed Merchandise of at least   *   in Contract Year 2 (2006).

(c)

For Contract Year 3 (2007) through and including Contract Year 7 (2011), Licensee shall achieve Net Sales of Approved Licensed Merchandise of at least the greater of: (i)   *   of the Net Sales from the immediately preceding Contract Year, or (ii) the following base sales amount for such Contract Year:

 

Contract Year

Minimum Net Sales

3

*

4

*

5

*

6

*

7

*

Renewal Term :

(a)

Licensee shall achieve Net Sales of   *   in Contract Year 8 (2012).

(b)

Licensee shall achieve Net Sales of   *   in Contract Year 9 (2013).

(c)

For Contract Year 10 (2014) through and including Contract Year 13 (2017), Licensee shall achieve Net Sales of Approved Licensed Merchandise of at least the greater of: (i)   *   of the Net Sales from the immediately preceding Contract Year, or (ii) the following base sales amount for such Contract Year:

 

Contract Year

Minimum Net Sales

10

*

11

*

12

*

13

*

 

*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC PUSUANT TO RULE 24b-2 OF THE 1934 ACT.

 

 

 

11


 

This Schedule 7.2 is attached to and made part of Amendment No. 5 by and between ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc. (“ Licensor ”), and Movado Group, Inc. (“ Licensee ”), dated January 1, 2014.

Schedule 7.2

National Advertising, Marketing and Cooperative Advertising

Initial Term

(a)

Contract Year 1 :   *  .

(b)

Contract Year 2 (2006) through and including Contract Year 7 (2011) : the greater of (i)   *  of Net Sales of Licensed Merchandise in the current Contract Year, or (ii)    *  .

Renewal Term

(a)

Contract Year 8 (2012) : the greater of (i)   *  of Net Sales of Licensed Merchandise in Contract Year 8, minus   *   or (ii)   *  

(b)

Contract Year 9 (2013) through and including Contract Year 13 (2017) : the greater of (i)   *  of Net Sales of Licensed Merchandise in the current Contract Year, or (ii)  *  . Without limiting the foregoing, Licensee shall expend no less than   *   of actual Net Sales of Licensed Merchandise made to Licensor on co-op marketing efforts with Licensee’s retail operations for expenditures related to the promotion of the Licensed Mark in the following manners/mediums (and any other manner/medium Licensor may hereafter pre-approve in writing): national advertising (in addition to the Image Fund), co-op advertising, digital medias, display materials and shop-in-shops, samples for merchandising, promotions and incentives. For purposes of this Agreement, any amounts spent by Licensee on co-op advertising (e.g., point of sale fixturing, imagery, etc.) over and above the required National Advertising, Marketing and Cooperative Advertising spend required hereunder shall be defined as the “ Co-Op Spend .”

 

*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC PUSUANT TO RULE 24b-2 OF THE 1934 ACT.

 

 

 

12


 

This Schedule 7.3 is attached to and made part of Amendment No. 5 by and between ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc. (“ Licensor ”), and Movado Group, Inc. (“ Licensee ”), dated January 1, 2014.

Schedule 7.3

Image Fund Payment

Initial Term

(a)

Contract Year 1 (2005) :   *  .

(b)

Contract Year 2 (2006) :   *  .

(c)

Contract Year 3 (2007) through and including Contract Year 7 (2011) : the greater of: (i)   *  , or (ii) (A) for any Net Sales from the immediately preceding Contract Year that are less than or equal to   *  :   *   of such Net Sales; and (B) for any Net Sales from the immediately preceding Contract Year that are in excess of   *   of such Net Sales in excess of   *  . For example, if Licensee’s Net Sales in a given Contract Year are Twenty-eight Million Dollars ($28,000,000), Licensee’s Image Fund Payment would be   *   plus   *  , for a total Image Fund Payment of   *  .

Renewal Term

(a)

Contract Year 8 (2012) & Contract Year 9 (2013) : the greater of: (i)   *  , or (ii) (A) for any Net Sales from the immediately preceding Contract Year that are less than or equal to   *   of such Net Sales; and (B) for any Net Sales from the immediately preceding Contract Year that are in excess of   *   of such Net Sales in excess of   *  . For example, if Licensee’s Net Sales in a given Contract Year are Twenty-eight Million Dollars ($28,000,000), Licensee’s Image Fund Payment would be *   plus   *  , for a total Image Fund Payment of   *  .

(b)

Contract Year 10 (2014) : the greater of (i)   *  , or (ii)   *   of Net Sales from the current Contract Year.

(c)

Contract Year 11 (2015) through and including Contract Year 13 (2017) : all of the following amounts: (i)   *  ; and (ii)   *   of Net Sales from the current Contract Year that are in excess of   *   but less than or equal to   *   (half of such amount to be defined herein as the “ IFP Account ”); and (iii)   *   of Net Sales from the current Contract Year that are in excess of   *  .

 

*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC PUSUANT TO RULE 24b-2 OF THE 1934 ACT.

 

 

 

13


 

This Schedule 8.2 is attached to and made part of Amendment No. 5 by and between ABG Juicy Couture, LLC, as successor in interest to L.C. Licensing, Inc. (“ Licensor ”), and Movado Group, Inc. (“ Licensee ”), dated January 1, 2014.

Schedule 8.2

Guaranteed Minimum Royalties (GMR)

Initial Term

(a)

Contract Year 1 (2005) :    *  .

(b)

Contract Year 2 (2006) :   *  . For Contract Year 2 only, Sales Royalties in excess of the GMR will only be payable on sales that generate Sales Royalty revenue in excess of   *  .

(c)

Contract Year 3 (2007) through and including Contract Year 7 (2011) : the greater of (i)   *   of the actual Sales Royalty payable from the immediately preceding Contract Year, or (ii) the following base sales amount for such Contract Year:

 

Contract Year

GMR

3

*

4

*

5

*

6

*

7

*

Renewal Term

(a)

Contract Year 8 (2012) :   *.

(b)

Contract Year 9 (2013) :   *.

(d)

Contract Year 10 (2014) through and including Contract Year 13 (2017) : the greater of (i)   *   of the actual Sales Royalty payable from the immediately preceding Contract Year, or (ii) the following base sales amount for such Contract Year:

 

Contract Year

GMR

10

*

11

*

12

*

13

*

 

 

Commencing on January 1, 2006 and throughout the remainder of the Term, the Guaranteed Minimum Royalty for each Contract Year shall be paid in advance in four (4) equal, quarterly installments, on the first (1 st ) day of each Calendar Quarter.

 

*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC PUSUANT TO RULE 24b-2 OF THE 1934 ACT.

14

Top of Form

EXHIBIT 10.2 

/CurrentDate/

This STOCK AWARD AGREEMENT (“Agreement” ) is effective /Grant Date/ (the “Grant Date”) between MOVADO GROUP, INC. (the “Company”) and the Eligible Person named in the indicative information below:

Name : /ParticipantName/

Officer Code : /OfficerCode/

Location Code : /LocationCode/

Plan Name : /PlanName/

Grant Date : /GrantDate/

Grant Type : /GrantType/

Awards Granted : /AwardsGranted/

The Compensation Committee of the Company’s Board of Directors (the “Committee”), acting as the Committee authorized to administer the Movado Group, Inc. 1996 Stock Incentive Plan (as amended and restated as of April 4, 2013 and as subsequently amended, the “Plan”), has determined that the purposes of the Plan will be furthered by granting a stock award to you under the Plan.  Capitalized terms not otherwise defined herein shall have the meaning given such terms in the Plan.

In consideration of the foregoing and of the mutual undertakings set forth in this Agreement, the Company and the Grantee agree as follows.

SECTION 1 Grant of Stock Award.

The Company hereby grants to you an award (the “Award”) for that number of shares of the Company’s common stock, par value $.01 per share (“Stock”) as indicated above next to "Awards Granted".

SECTION 2 Vesting

2.1 The Stock shall become fully vested on the third anniversary of the Grant Date; provided that Grantee shall then be, and since the date hereof continuously shall have been, a full time employee of the Company or one of its Affiliates.

2.2 Upon the occurrence of a Change of Control (as defined in the Plan) prior to the date on which the Stock otherwise shall vest in accordance with Section 2.1 above,  notwithstanding any other provision of the Plan, all unvested shares of the Stock shall immediately vest.

2.3 If your employment with the Company or any Affiliate of the Company terminates by reason of your retirement (i) at or after the age of 65 or (ii) before the age of 65 but at or after age 55, provided that you have been employed by the Company or any Company Affiliate for at least 10 years and subject to the approval of the Committee, including any limitations or conditions the Committee may, in its discretion, impose which are not inconsistent with the terms of the Plan (such as, without limitation, a covenant by the you not to compete with the Company), then all unvested shares of Stock shall immediately become vested. The Committee may in its discretion determine whether any leave of absence (including short-term or long-term disability or medical leave) shall constitute a termination of employment for purposes of this Agreement.

2.4 If your employment with the Company terminates by reason of your (i) permanent disability (as determined by the Committee) and you have been employed by the Company or any of its Affiliates for at least 10 years or (ii) death, then, in either case, all unvested shares of Stock shall immediately become vested.  

SECTION 3 Non-Transferability.

No right granted to the Grantee under the Plan or this Agreement shall be assignable or transferable (whether by operation of law or otherwise and whether voluntarily or involuntarily), other than by will or by the laws of descent and distribution, except as otherwise permitted under the Plan to a Permitted Transferee.  


SECTION 4. Right of Discharge Reserved.

Nothing in the Plan or this Agreement shall confer upon the Grantee the right to continue in the employment of the Company or any of its Affiliates or affect any right that the Company or such Affiliate may have to terminate the employment of the Grantee.

SECTION 5 No Shareholder Rights.

No Grantee or other person shall have any of the rights of a shareholder of the Company with respect to any shares subject to the Award until the date such shares become fully vested as provided in Section 2 hereof.  Except for the adjustments made pursuant to the Plan, no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date such shares have vested.

SECTION 6 Plan Provisions to Prevail.

This Agreement shall be subject to all of the terms and provisions of the Plan, which are incorporated herein and made a part hereof.  If there is any inconsistency between any of the provisions of this Agreement and the Plan, the provisions of the Plan shall govern.

SECTION 7 Grantee’s Acknowledgments.

By entering into this Agreement you agree and acknowledge that (a) you have received and read a copy of the Plan and (b) none of the Company, the Company’s Board of Directors, the Committee, any Affiliate of the Company (including their respective parents and subsidiaries) and their respective shareholders, officers, directors, employees, agents and counsel shall be liable for any action or determination with respect to the Plan or any award granted thereunder.

SECTION 8 Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent set forth in this Agreement, the heirs, personal representatives, conservator and committee of the Grantee.

SECTION 9 Governing Law.

This Agreement shall be governed by the laws of the State of New York applicable to agreements made to and to be performed entirely within such State.

SECTION 10 Interpretation .

Any dispute regarding the interpretation of this Agreement shall be submitted by the Grantee or the Company to the Committee for review. The resolution of such dispute by the Committee shall be final and binding on the Grantee and the Company.

SECTION 11 Notices.

All notices and other communications hereunder shall be in writing and shall be deemed given on the date of delivery or of mailing, and if mailed, shall be addressed (a) to the Company, as its principal corporate headquarters and (b) to the Grantee, at the Grantee’s principal residential address last furnished to the Company.  Notices sent to the Company shall be sent to Movado Group, Inc., 650 From Road, Ste. 375, Paramus, New Jersey 07652. Attention:  Secretary.  Either party may, by notice, change the address to which notice to such party is to be given.

SECTION 12 Discretionary Nature of Plan .

The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion. The grant of the Award in this Agreement does not create any contractual right or other right to receive any other awards under the Plan in the future. Future awards, if any, will be at the sole discretion of the Company. Any amendment, modification, or termination of the Plan shall not constitute a change or impairment of the terms and conditions of the Grantee`s employment with the Company.


SECTION 13 Section 409A .

This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Grantee on account of non-compliance with Section 409A of the Code.

SECTION 14 No Impact on Other Benefits .

The value of the Grantee`s Restricted Stock Units is not part of his or her normal or expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.

SECTION 15 Counterparts .

This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

SECTION 16 Section Headings.

The Section headings contained herein are for convenience only and are not intended to define or limit the contents of said Sections.

IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date and year first above written.

MOVADO GROUP, INC .

/s/ Timothy Michno

Timothy Michno

Secretary and General Counsel

 

Bottom of Form

 

Top of Form

EXHIBIT 10.3 

/CurrentDate/

This NONQUALIFIED STOCK OPTION AGREEMENT (“Agreement”) is effective /Grant Date/ (the “Grant Date”) between MOVADO GROUP, INC. (the “Company”) and the Eligible Person named in the indicative information below:

Name : /ParticipantName/

Officer Code : /OfficerCode/

Location Code : /LocationCode/

Plan Name : /PlanName/

Grant Date : /GrantDate/

Grant Type : /GrantType/

Awards Granted : /AwardsGranted/

The Compensation Committee of the Company’s Board of Directors (the “Commitee”), acting as the Committee authorized to administer the Movado Group, Inc. 1996 Stock Incentive Plan (as amended and restated as of April 4, 2013 and as subsequently amended, the “Plan”), has determined that the purposes of the Plan will be furthered by granting options to the Optionee under the Plan.  Capitalized terms not otherwise defined herein shall have the meaning given such terms in the Plan.

In consideration of the foregoing and of the mutual undertakings set forth in this Nonqualified Stock Option Agreement (“Agreement”), the Company and the Optionee agree as follows:

SECTION 1. Grant of Option.

1.1 The Company hereby grants to the Optionee an option (the “Option”) to purchase that number of shares of the Company’s Common Stock, par value $.01 per share (“Stock”) at a purchase price per share as set forth as indicated above next to "Awards Granted". 

1.2 The Option granted hereby is intended to be a nonqualified stock option subject to the provisions of the “Code, and is not intended to qualify for special tax provisions of Code Section 422.

SECTION 2. Exercisability.

2.1 The Option shall become exercisable on the third anniversary of the Grant Date

2.2 The Option may at any time and from time to time be exercised in whole or in part for the shares of Stock subject thereto, within the limitations on exercisability set forth above.

2.3 Unless terminated earlier, the unexercised portion of the Option shall automatically and without notice terminate and become null and void on the tenth anniversary of the Grant Date.

2.4 Upon the occurrence of a Change of Control (as defined in the Plan) prior to the date on which the Option expires, notwithstanding any other provision of the Plan, the Option shall immediately vest and become exercisable; provided , however, that in no event may the Option may be exercised until six months after the Grant Date.

SECTION 3. Method of Exercise.

3.1 The Option or any part thereof may be exercised in accordance with Section 2 of the Agreement only by giving written notice of exercise to the Company on a form to be provided by the Committee for that purpose and by specifying the number of whole shares of Stock with respect to which the Option is being exercised.  Such notice must be accompanied by payment of the full purchase price for the number of shares purchased.

3.2 Payment of the purchase price shall be made by the Optionee to the Company at the time of exercise as provided under the Plan and may be made in any manner permitted by the Plan.

 


 

SECTION 4. Termination of Employment

4.1 Notwithstanding the provisions of Section 2 of this Agreement, if the Option remains outstanding on the date the Optionee’s employment with the Company and all Affiliates terminates, the Option shall cease to be exercisable and shall terminate on such termination date, except as otherwise provided in this Section 4.

4.2 The Option shall terminate and expire on the day the Optionee’s employment is terminated for Cause whether or not the Optionee is a party to a written employment contract.  For purposes of this Section 4, the Optionee’s employment shall be deemed to be terminated for “Cause” if  the Optionee is discharged (i)  on account of fraud, embezzlement or other unlawful or tortious conduct, whether or not involving or against the Company or any Affiliate,  (ii)  for violation of a written policy of the Company or any Affiliate, (iii)   for serious and willful acts of misconduct detrimental to the business or reputation of the Company or any Affiliate or (iv)  for “Cause” or any like term as defined in any written employment contract with the Optionee.

4.3 If the Optionee’s employment with the Company or any Company Affiliate terminates by reason of the Optionee’s voluntary resignation or termination without Cause then the vested portion of the Option may be exercised until the earlier of (i) 60 days after the date on which the final payment of any salary or severance (exclusive of any other payments such as commissions , bonuses or reimbursements for expenses) due to the Optionee from the Company or any Company Affiliate is made or (ii) the date on which the Option terminates or expires in accordance with the provisions of the Plan and this Agreement (other than this Section 4); provided, however, that in the event the Optionee’s employment terminates by reason of his or her permanent disability (as determined by the Committee) the opton shall become imediately exercisiable if the optionee has been employed by the company or any affiliate for at least 10 years and in any event.

4.4 If the Optionee’s employment terminates by reason of the Optionee’s retirement (i) at or after age 65 or (ii) before the age of 65 but at or after age 55, provided the Optionee has been employed by the Company or any Company Affiliate for at least 10 years and further subject to the approval of the Committee including any limitations or conditions the Committee may, in its discretion, impose which are not inconsistent with the terms of the Plan (such as, without limitation, a covenant by the you not to compete with the Company), then the option shall become imediately exercisable and the vested portion of the Option may be exercised until the earlier of (a) three years after termination of employment or (b) the date on which the Option terminates or expires in accordance with the provisions of the Plan and this Agreement (other than this Section 4).  The Committee may in its discretion determine whether any leave of absence (including short-term or long-term disability or medical leave) shall constitute a termination of employment for purposes of this Agreement.  The “vested portion” of the Option shall mean the portion thereof that becomes exercisable imediatley upon termination of the optionee's employment as provided in Section 4.3, 4.4 or 4.5 or otherwise is exercisable immediately prior to the Optionee’s termination of employment for any other reason.

4.5 If the Optionee’s employment terminates by  reason of death the option shall become imediately exercisable and  if the Optionee’s employment terminates in the manner described in Section 4.3 or 4.4 and he or she dies within the period for exercise provided for therein,  the vested portion shall be exercisable by the person to whom the Option passes under the Optionee’s will (or, if applicable, pursuant to the laws of descent and distribution) until the earlier of (i) three years after the Optionee’s death or (ii)  the date on which the Option terminates or expires in accordance with the provisions of the Plan and this Agreement (other than this Section 4).

SECTION 5. Non-Transferability.

No right granted to the Optionee under the Plan or this Agreement shall be assignable or transferable (whether by operation of law or otherwise and whether voluntarily or involuntarily), other than by will or by laws of descent and distribution except as otherwise permitted under the Plan to a Permitted Transferee.

SECTION 6. Right of Discharge Reserved.

Nothing in the Plan or this Agreement shall confer upon the Optionee the right to continue in the employment of the Company or any of its Affiliates or affect any right that the Company or such Affiliate may have to terminate the employment of the Optionee.

SECTION 7. No Shareholder Rights.

No Optionee or other person shall have any of the rights of a shareholder of the Company with respect to any shares subject to the Option until the date of the issuance of the underlying shares of Stock subject to the Option to the Optionee.  Except for the adjustments made pursuant to Section 13 of the Plan, no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date of the issuance of such shares of Stock to the Optionee.

 


 

SECTION 8. Plan Provisions to Prevail.

This Agreement shall be subject to all of the terms and provisions of the Plan, which are incorporated hereby and made a part hereof.  If there is any inconsistency between any of the provisions of this Agreement and the Plan, the provisions of the Plan shall govern.

SECTION 9. Optionee’s Acknowledgments.

By entering into this Agreement the Optionee agrees and acknowledges that (a) the Optionee has received and read a copy of the Plan and (b) none of the Company, the Company’s Board of Directors, the Committee, any Affiliate of the Company (including their respective parents and subsidiaries) and their respective shareholders, officers, directors, employees, agents and counsel shall be liable for any action or determination with respect to the Plan or any award thereunder of this Agreement.

SECTION 10. Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent set forth in this Agreement, the heirs, personal representatives, conservator and committee of the Optionee.

SECTION 11. Governing Law.

This Agreement shall be governed by the laws of the State of New York applicable to agreements made to and to be performed entirely within such State.

SECTION 12. Interpretation .

Any dispute regarding the interpretation of this Agreement shall be submitted by the Optionee or the Company to the Committee for review. The resolution of such dispute by the Committee shall be final and binding on the Optionee and the Company.

SECTION 13. Notices.

All notices and other communications hereunder shall be given in writing and shall be deemed given on the date of delivery or of mailing, and if mailed, shall be addressed (a) to the Company, as its principal corporate headquarters and (b) to the Optionee, at the Optionee’s principal residential address last furnished to the Company.  Notices sent to the Company shall be sent to Movado Group, Inc., 650 From Road, Ste. 375, Paramus, New Jersey 07652. Attention:  Secretary.  Either party may, by notice, change the address to which notice to such party is to be given.

SECTION 14. Discretionary Nature of Plan .

The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion. The grant of the Option in this Agreement does not create any contractual right or other right to receive any other awards under the Plan in the future. Future awards, if any, will be at the sole discretion of the Company. Any amendment, modification, or termination of the Plan shall not constitute a change or impairment of the terms and conditions of the Optionee`s employment with the Company.

SECTION 15. Section 409A .

This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Optionee on account of non-compliance with Section 409A of the Code.

SECTION 16 No Impact on Other Benefits .

The value of the Grantee`s Restricted Stock Units is not part of his or her normal or expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.

 


 

SECTION 17 Counterparts .

This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

SECTION 18. Section Headings.

The Section headings contained herein are for convenience only and are not intended to define or limit the contents of said Sections.

IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date and year first above written.

MOVADO GROUP, INC.

/s/ Timothy Michno

Timothy Michno

Secretary and General Counsel

 

Bottom of Form

 

 

EXHIBIT 31.1

CERTIFICATIONS

I, Efraim Grinberg, certify that:

1)

I have reviewed this quarterly report on Form 10-Q of Movado Group, Inc.;

2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5)

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 27, 2015

 

 

 

 

 

 

 

/s/ Efraim Grinberg

 

 

Efraim Grinberg

 

 

Chairman of the Board of Directors and Chief Executive Officer

 

 

EXHIBIT 31.2

CERTIFICATIONS

I, Sallie A. DeMarsilis, certify that:

1)

I have reviewed this quarterly report on Form 10-Q of Movado Group, Inc.;

2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5)

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 27, 2015

 

 

 

 

 

 

 

/s/ Sallie A. DeMarsilis

 

 

Sallie A. DeMarsilis

 

 

Senior Vice President,  

 

 

Chief Financial Officer and

 

 

Principal Accounting Officer

 

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Movado Group, Inc. (the “Company”) for the quarter ended April 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) the undersigned hereby certifies, in the capacity indicated below and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:  May 27, 2015

/s/ Efraim Grinberg

 

Efraim Grinberg

Chairman of the Board of Directors and Chief Executive Officer

 

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Movado Group, Inc. (the “Company”) for the quarter ended April 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) the undersigned hereby certifies, in the capacity indicated below and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:  May 27, 2015

/s/  Sallie A. DeMarsilis

 

Sallie A. DeMarsilis

Senior Vice President,

Chief Financial Officer and

Principal Accounting Officer