-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N32XFJLgVINVMt6mQyU2mXmMeDFHYrnGIa0Kz0DT+gLfN/4XrU7shEY1NNOoO4dR XDp85og/cXDcyRrHGQny+w== /in/edgar/work/20000831/0000098246-00-000035/0000098246-00-000035.txt : 20000922 0000098246-00-000035.hdr.sgml : 20000922 ACCESSION NUMBER: 0000098246-00-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20000831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIFFANY & CO CENTRAL INDEX KEY: 0000098246 STANDARD INDUSTRIAL CLASSIFICATION: [5944 ] IRS NUMBER: 133228013 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09494 FILM NUMBER: 715066 BUSINESS ADDRESS: STREET 1: 727 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127558000 10-Q 1 0001.txt 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q ---------------- (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 for the quarter ended July 31, 2000. OR - ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition from ________ to _____________. Commission file number: 1-9494 TIFFANY & CO. (Exact name of registrant as specified in its charter) Delaware 13-3228013 (State of incorporation) (I.R.S. Employer Identification No.) 727 Fifth Ave. New York, NY 10022 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 755-8000 Former name, former address and former fiscal year, if changed since last report _________. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Common Stock, $.01 par value, 145,202,102 shares outstanding at the close of business on July 31, 2000. TIFFANY & CO. AND SUBSIDIARIES INDEX TO FORM 10-Q FOR THE QUARTER ENDED JULY 31, 2000 PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets - July 31, 2000 (Unaudited), January 31, 2000 and July 31, 1999 (Unaudited) 3 Consolidated Statements of Earnings - for the three and six month periods ended July 31, 2000 and 1999 (Unaudited) 4 Consolidated Statements of Cash Flows - for the six months ended July 31, 2000 and 1999 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-18 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders 19 Item 6. Exhibits and Reports on Form 8-K 20 (a) Exhibits (b) Reports on Form 8-K - 2 - PART I. Financial Information Item 1. Financial Statements TIFFANY & CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
July 31, January 31, July 31, 2000 2000 1999 -------------- -------------- -------------- (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 174,662 $ 216,936 $ 151,044 Accounts receivable, less allowances of $9,776, $9,716 and $9,167 100,526 119,356 93,229 Inventories, net 559,675 504,800 536,603 Deferred income taxes 33,131 30,212 27,214 Prepaid expenses and other current assets 33,969 20,357 32,246 ---------------- ---------------- ---------------- Total current assets 901,963 891,661 840,336 Property and equipment, net 339,626 322,400 205,526 Deferred income taxes 5,681 6,235 8,620 Other assets, net 132,938 123,266 132,320 ---------------- ---------------- ---------------- $ 1,380,208 $ 1,343,562 $ 1,186,802 ================ ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 28,671 $ 20,646 $ 98,295 Accounts payable and accrued liabilities 181,246 176,101 150,474 Income taxes payable 19,067 53,954 18,119 Merchandise and other customer credits 31,569 30,275 24,174 ---------------- ---------------- ---------------- Total current liabilities 260,553 280,976 291,062 Long-term debt 247,239 249,581 194,845 Postretirement/employment benefit obligations 24,684 23,165 22,435 Other long-term liabilities 34,980 32,764 33,822 Commitments and contingencies Stockholders' equity: Common Stock, $.01 par value; authorized 240,000 shares, issued and outstanding 145,202, 144,952 and 144,248 1,452 1,450 1,442 Additional paid-in capital 305,955 293,173 280,838 Retained earnings 522,638 473,819 375,964 Accumulated other comprehensive loss - Foreign currency translation adjustments (17,293) (11,366) (13,606) ---------------- ---------------- ---------------- Total stockholders' equity 812,752 757,076 644,638 ---------------- ---------------- ---------------- $ 1,380,208 $ 1,343,562 $ 1,186,802 ================ ================ ================
See notes to consolidated financial statements. - 3 - TIFFANY & CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share amounts)
Three Months Ended Six Months Ended July 31, July 31, ------------------------------- -------------------------------- 2000 1999 2000 1999 ------------ ------------- ------------- ------------- Net sales $ 371,977 $ 307,067 $ 715,229 $ 579,344 Cost of sales 151,272 132,030 299,006 256,011 ------------ ------------- ------------- ------------- Gross profit 220,705 175,037 416,223 323,333 Selling, general and administrative expenses 153,628 133,084 295,751 251,941 ------------ ------------- ------------- ------------- Earnings from operations 67,077 41,953 120,472 71,392 Other expenses, net 1,804 2,331 4,489 3,913 ------------ ------------- ------------- ------------- Earnings before income taxes 65,273 39,622 115,983 67,479 Provision for income taxes 26,108 16,641 46,393 28,341 ------------ ------------- ------------- ------------- Net earnings $ 39,165 $ 22,981 $ 69,590 $ 39,138 ============ ============= ============= ============= Net earnings per share: Basic $ 0.27 $ 0.16 $ 0.48 $ 0.28 ============ ============= ============= ============= Diluted $ 0.26 $ 0.16 $ 0.46 $ 0.27 ============ ============= ============= ============= Weighted average number of common shares: Basic 145,165 142,180 145,132 141,170 Diluted 151,546 148,092 151,689 146,748
See notes to consolidated financial statements. - 4 - TIFFANY & CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended July 31, ------------------------------------------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 69,590 $ 39,138 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 21,374 17,190 Loss on equity investment 893 - Provision for uncollectible accounts 533 640 Provision for inventories 5,015 4,350 Tax benefit from exercise of stock options 5,543 11,986 Deferred income taxes (2,438) (8,678) Loss on disposal of fixed assets 801 15 Provision for postretirement/employment benefits 1,520 896 Changes in assets and liabilities: Accounts receivable 18,984 12,281 Inventories (66,359) (58,209) Prepaid expenses and other current assets (13,925) (12,798) Other assets, net (3,983) (15,690) Accounts payable 10,385 (4,223) Accrued liabilities (3,838) 15,881 Income taxes payable (34,410) (14,323) Merchandise and other customer credits 1,348 1,972 Other long-term liabilities 2,425 2,019 ------------------- ------------------- Net cash used in operating activities 13,458 (7,553) ------------------- ------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in equity (8,019) (70,146) Capital expenditures (40,392) (32,800) Acquisitions, net of liabilities assumed - (7,031) Proceeds from lease incentives 2,476 3,204 ------------------- ------------------- Net cash used in investing activities (45,935) (106,773) ------------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Common Stock - 71,273 Proceeds from short-term borrowings 9,084 1,272 Repurchase of Common Stock (11,204) - Proceeds from exercise of stock options 4,526 11,836 Cash dividends on Common Stock (10,152) (7,397) ------------------- ------------------- Net cash provided by financing activities (7,746) 76,984 ------------------- ------------------- Effect of exchange rate changes on cash and cash equivalents (2,051) (207) ------------------- ------------------- Net decrease in cash and cash equivalents (42,274) (37,549) Cash and cash equivalents at beginning of year 216,936 188,593 ------------------- ------------------- Cash and cash equivalents at end of six months $ 174,662 $ 151,044 =================== ===================
See notes to consolidated financial statements. - 5 - TIFFANY & CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS --------------------------------- The accompanying consolidated financial statements include the accounts of Tiffany & Co. and all majority-owned domestic and foreign subsidiaries (the "Company"). All material intercompany balances and transactions have been eliminated. The interim statements are unaudited and, in the opinion of management, include all adjustments (which include only normal recurring adjustments including the adjustment necessary as a result of the use of the LIFO (last-in, first-out) method of inventory valuation, which is based on assumptions as to inflation rates and projected fiscal year-end inventory levels) necessary to present fairly the Company's financial position as of July 31, 2000 and the results of its operations and cash flows for the interim periods presented. The consolidated balance sheet data for January 31, 2000 are derived from the audited financial statements which are included in the Company's report on Form 10-K, which should be read in connection with these financial statements. In accordance with the rules of the Securities and Exchange Commission, these financial statements do not include all disclosures required by generally accepted accounting principles. Since the Company's business is seasonal, with a higher proportion of sales and earnings generated in the last quarter of the fiscal year, the results of operations for the three and six months ended July 31, 2000 and 1999 are not necessarily indicative of the results of the entire fiscal year. 2. SUPPLEMENTAL CASH FLOW INFORMATION ---------------------------------- Supplemental cash flow information:
July 31, July 31, (in thousands) 2000 1999 -------------- ---------------- ---------------- Cash paid during the six months for: Interest $ 6,463 $ 6,903 ================ ================ Income taxes $75,841 $38,970 ================ ================ Details of businesses acquired in purchase transactions: Fair value of assets acquired $ - $ 7,048 Less: liabilities assumed - 17 ---------------- ---------------- Net cash paid for acquisitions $ - $ 7,031 ================ ================ Supplemental Noncash Investing and Financing Activities: Issuance of Common Stock for the Employee Profit Sharing and Retirement Savings Plan $ 3,300 $ 1,600 ================ ================
- 6 - 3. NEW ACCOUNTING PRONOUNCEMENTS ----------------------------- In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") which provides guidelines in applying generally accepted accounting principles to certain revenue recognition issues. Subsequently, the SEC has issued related guidance, which has extended the implementation date of SAB 101 until the fourth quarter of 2000. The Company does not expect this statement to have a significant impact on its financial position, earnings or cash flows. In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue 00-10, "Accounting for Shipping and Handling Revenues and Costs". In this issue, the EITF determined that all amounts billed related to shipping and handling should be classified as revenue. However, no determination was made regarding the accounting for handling costs. The Company continues to monitor discussions surrounding this issue and will adopt the new accounting when finalized. It is not anticipated that this issue will have a significant impact on the Company's financial position, earnings or cash flows. 4. INVENTORIES -----------
July 31, January 31, July 31, (in thousands) 2000 2000 1999 -------------- ------------------- -------------------- --------------------- Finished goods $464,031 $438,499 $453,496 Raw materials 94,516 62,116 77,936 Work-in-process 6,291 6,810 8,460 ------------------ ------------------ ------------------- 564,838 507,425 539,892 Reserves (5,163) (2,625) (3,289) ------------------ ------------------ ------------------- $559,675 $504,800 $536,603 ================== ================== ===================
LIFO-based inventories at July 31, 2000, January 31, 2000 and July 31, 1999 were $437,899,000, $377,588,000 and $423,574,000, with the current cost exceeding the LIFO inventory value by approximately $14,958,000, $13,492,000 and $16,870,000 at the end of each period. The LIFO valuation method had no effect on net earnings per diluted share for the three month periods ended July 31, 2000 and 1999. The LIFO valuation method had the effect of decreasing net earnings by $0.01 per diluted share for the six month period ended July 31, 2000 and had no effect on net earnings per diluted share for the six month period ended July 31, 1999. 5. FINANCIAL HEDGING INSTRUMENTS ----------------------------- In accordance with the Company's foreign currency hedging program, at July 31, 2000, the Company had outstanding purchased put options maturing at various dates through July 24, 2001, giving it the right, but not the obligation, to sell yen 11,736,000,000 for dollars at predetermined contract-exchange rates. If the market yen-exchange rates at maturity are below the contract rates, the Company will allow the options to expire. At July 31, 2000, the deferred unrealized gain on the Company's purchased put options amounted to $990,000. To mitigate the exchange rate fluctuations primarily related to intercompany inventory purchases for the Company's business in Japan, the Company enters into forward exchange yen contracts. At July 31, 2000, the Company had $13,666,000 of such contracts outstanding, which will mature on August 28, 2000. At July 31, 1999, the Company had $12,642,000 of such contracts outstanding, which subsequently matured on August 26, 1999. - 7 - 6. EARNINGS PER SHARE ------------------ Basic earnings per share are computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share are calculated to give effect to potentially dilutive stock options that were outstanding during the period. The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings per share ("EPS") computations:
Three Months Ended July 31, Six Months Ended July 31, July 31, ---------------------------- ---------------------------- (in thousands) 2000 1999 2000 1999 -------------- ---- ---- ---- ---- Net earnings for basic and diluted EPS $39,165 $22,981 $69,590 $39,138 ============= ============== ============ ============== Weighted average shares for basic EPS 145,165 142,180 145,132 141,170 Incremental shares from assumed exercise of stock options 6,381 5,912 6,557 5,578 ------------- -------------- ------------ -------------- Weighted average shares for diluted EPS 151,546 148,092 151,689 146,748 ============= ============== ============ ==============
7. COMPREHENSIVE EARNINGS ---------------------- Comprehensive earnings include all changes in equity during a period except those resulting from investments by and distributions to stockholders. The Company's foreign currency translation adjustments, reported separately in stockholders' equity, are required to be included in the determination of comprehensive earnings. The components of comprehensive earnings were:
Three Months Ended Six Months Ended July 31, July 31, -------------------------------- --------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- (in thousands) -------------- Net earnings $39,165 $22,981 $69,590 $39,138 Other comprehensive gain(loss): Foreign currency translation adjustments (4,003) 2,905 (5,927) (251) -------------- -------------- -------------- -------------- Comprehensive earnings $35,162 $25,886 $63,663 $38,887 ============== ============== ============== ==============
Foreign currency translation adjustments are not adjusted for income taxes since they relate to investments that are permanent in nature. - 8 - 8. OPERATING SEGMENTS ------------------ The Company operates its business in three reportable segments: U.S. Retail, International Retail and Direct Marketing (see Management's Discussion and Analysis of Financial Condition and Results of Operations for an overview of the Company's business). The Company's reportable segments represent channels of distribution that offer similar merchandise, service, marketing and distribution strategies. In deciding how to allocate resources and assess performance, the Company's Executive Officers regularly evaluate the performance of its operating segments on the basis of net sales and earnings from operations, after the elimination of intersegment sales and transfers. Certain information relating to the Company's reportable operating segments is set forth below:
Three Months Ended Six Months Ended July 31, July 31, ---------------------------------- --------------------------------- (in thousands) 2000 1999 2000 1999 -------------- ---- ---- ---- ---- Net sales: U.S. Retail $ 187,927 $ 159,512 $ 357,119 $ 291,203 International Retail 153,254 121,574 300,700 239,048 Direct Marketing 30,796 25,981 57,410 49,093 -------------- -------------- -------------- -------------- $ 371,977 $ 307,067 $ 715,229 $ 579,344 ============== ============== ============== ============== Earnings from operations*: U.S. Retail $ 52,424 $ 32,724 $ 95,953 $ 56,429 International Retail 38,619 29,671 74,328 59,092 Direct Marketing 2,244 1,095 2,510 1,477 -------------- -------------- -------------- -------------- $ 93,287 $ 63,490 $ 172,791 $ 116,998 ============== ============== ============== ==============
* Represents earnings from operations before unallocated corporate expenses and interest and other expenses, net. Executive Officers of the Company evaluate the performance of the Company's assets on a consolidated basis. Therefore, separate financial information for the Company's assets on a segment basis is not available. - 9 - The following table sets forth a reconciliation of the reportable segment's earnings from operations to the Company's consolidated earnings before income taxes:
Three Months Ended Six Months Ended July 31, July 31, ------------------------------------ ---------------------------------------- (in thousands) 2000 1999 2000 1999 -------------- ---- ---- ---- ---- Earnings from operations for reportable segments $ 93,287 $ 63,490 $ 172,791 $ 116,998 Unallocated corporate expenses (26,210) (21,537) (52,319) (45,606) Interest and other expenses, net (1,804) (2,331) (4,489) (3,913) -------------- -------------- -------------- -------------- Earnings before income taxes $ 65,273 $ 39,622 $ 115,983 $ 67,479 ============== ============== ============== ==============
9. INVESTMENT ---------- On February 24, 2000, the Company announced an approximate 5.4% equity interest in Della.com, Inc. ("Della") a provider of on-line wedding gift registry services. Immediately thereafter, the Company entered into a Gift Registry Service Agreement, whereby the Company agreed to offer products through Della's site and whereby Della agreed to develop an on-line wedding gift registry for the Company. On April 27, 2000, Della.com merged with and into Wedcom Inc. with the consequence that the Company's equity interest in Della.com was converted to an approximate 2.7% interest in Wedcom Inc., assuming the conversion of all outstanding preferred shares to common. The Company is accounting for this investment in accordance with the cost method as provided in Accounting Principles Board Opinion No. 18, as amended. 10. COMMON STOCK ------------ On May 18, 2000, the stockholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of common shares authorized from 120,000,000 shares to 240,000,000 shares. On May 18, 2000, the Board of Directors declared a two-for-one split of the Company's Common Stock, effected in the form of a share distribution (stock dividend) paid on July 20, 2000 to stockholders of record on June 20, 2000. Stock options and per share data have been retroactively adjusted to reflect the split. - 10 - 11. SUBSEQUENT EVENT ---------------- On August 17, 2000, the Company's Board of Directors declared a quarterly dividend of $0.04 per common share. This dividend will be paid on October 10, 2000 to stockholders of record on September 20, 2000. - 11 - PART I. Financial Information Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - --------------------- Overview - -------- The Company operates three channels of distribution: U.S. Retail includes retail sales in Company-operated stores in the U.S. and wholesale sales of fragrance products to independent retailers in the Americas; International Retail includes retail sales in Company-operated stores and boutiques, corporate sales and wholesale sales to independent retailers and distributors in the Asia-Pacific region, Europe, Canada, the Middle East and Latin America; and Direct Marketing includes corporate (business-to-business), catalog and Internet sales in the U.S. In order to focus on Company-operated stores and to eliminate marginally profitable operations, the Company has decided to eliminate certain wholesale selling operations. Therefore, effective January 2000 wholesale sales of jewelry and other non-jewelry items were discontinued in the U.S.; effective July 2000 wholesale sales of such items were discontinued in Europe; and effective January 2001 wholesale sales of fragrance products will be discontinued in the U.S. and most international markets. Management does not expect these decisions, singularly or in the aggregate, to significantly affect the Company's financial position, earnings or cash flows, although the elimination of wholesale sales and accounts receivable does have a modest effect on year-over-year comparisons. All references to full years relate to the fiscal year that ends on January 31 of the following calendar year. Net sales increased 21% in the three-month period ended July 31, 2000 (second quarter) and 23% in the six-month period ended July 31, 2000 (first half), primarily due to worldwide comparable store sales growth of 18% and 21% in local currencies. Sales growth and higher operating margins resulted in net earnings growth of 70% in the second quarter and 78% in the first half. Net sales by channel of distribution were as follows: - -----------------------------------------------------
Three months Six months Ended July 31, Ended July 31, ------------------ ------------------ (in thousands) 2000 1999 2000 1999 - -------------- -------- -------- -------- -------- U.S. Retail $187,927 $159,512 $357,119 $291,203 International Retail 153,254 121,574 300,700 239,048 Direct Marketing 30,796 25,981 57,410 49,093 -------- -------- -------- -------- $371,977 $307,067 $715,229 $579,344 ======== ======== ======== ========
U.S. Retail sales increased 18% in the second quarter and 23% in the first half, due to comparable store sales growth of 19% in the second quarter and 23% in the first half. In the second quarter and first half, sales in the Company's flagship New York store rose 8% and 13%, while comparable branch store sales rose 23% and 27%. Comparable store sales growth primarily resulted from increased jewelry unit sales. Sales growth was primarily due to increased purchases by domestic customers, although sales to foreign tourists also increased. The - 12 - opening of four new stores in 1999 and one in 2000 also contributed to U.S. Retail sales growth. As part of the Company's strategy to open three to five new U.S. stores each year, the Company opened a store in Skokie, Illinois in May 2000 and plans to open stores in September in Greenwich, Connecticut and in November a second store in Maui, Hawaii and a store in Portland Oregon. International Retail sales increased 26% in both the second quarter and first half. In Japan, the Company's largest international market, sales in total and on a comparable store basis in yen rose 12% in the second quarter and 13% in the first half due to increased unit volume. The Company's reported sales and earnings reflect either a translation-related benefit from a strengthening Japanese yen or a detriment from a strengthening U.S. dollar. The yen in 2000's second quarter and first half was stronger than the prior year; consequently, when translated into U.S. dollars, Japan retail sales increased 26% in both the second quarter and first half. In Asia-Pacific outside Japan, comparable store sales in local currencies rose 39% and 36% in the second quarter and first half due to sales growth throughout the region. In Europe, comparable store sales in local currencies rose 21% and 23% in the second quarter and first half, due to increased retail sales in all markets. In 2000, International Retail store expansion has or will include: a new store in Kuala Lumpur, Malaysia; two new department store boutiques and boutique expansions in Japan; an additional store in Hong Kong and in Korea; and an additional department-store boutique in Mexico City. Direct Marketing sales rose 19% and 17% in the second quarter and first half. In the second quarter and first half, corporate division sales rose 14% and 12% due to an increased number of orders shipped, while catalog and Internet (which commenced in November 1999) sales rose a combined 24% in both periods. The Company anticipates a slight decline in its catalog mailings in 2000 to improve mailing productivity. The Company is also in the process of enhancing its Internet operations, which includes increasing the number of products available for purchase and has introduced an on-line wedding gift registry. Gross Profit - ------------ Gross profit as a percentage of net sales was 59.3% and 58.2% in the second quarter and first half, compared with 57.0% and 55.8% in 1999's corresponding periods. Management attributes the increases to favorable shifts in sales mix, the leverage effect of fixed costs on increased sales and product manufacturing/sourcing efficiencies. The Company's hedging program uses yen put options to stabilize product costs in Japan over the short-term despite exchange rate fluctuations. Also, the Company adjusts its retail prices from time to time to address changes in the yen/dollar relationship and local competitive pricing. In order to maintain gross margin at, or above, prior-year levels, the Company's strategy includes selective price adjustments, achieving further product manufacturing/sourcing efficiencies and leveraging its fixed costs. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses increased 15% and 17% in the second quarter and first half, primarily due to incremental occupancy, staffing and marketing expenses related to the Company's - 13 - worldwide expansion program, as well as to sales-related variable expenses. As a percentage of net sales, the operating expense ratio was 41.3% and 41.4% in the second quarter and first half, compared with 43.3% and 43.5% in the corresponding 1999 periods. Management's ongoing objective is to further reduce the expense ratio by leveraging sales growth against the Company's fixed- expense base. Other Expenses, net - ------------------- Other expenses, net declined in the second quarter and rose in the first half. Higher interest expense and the Company's share of losses of Aber Diamond Corporation, previously known as Aber Resources Ltd. ("Aber"), were largely offset by higher interest income on cash and cash equivalents. Management expects Other expenses, net for the second half of 2000 to be modestly higher than the second half of 1999 (see Financial Condition). Provision for Income Taxes - -------------------------- The provision for income taxes resulted in an effective tax rate of 40.0% in the second quarter and first half, compared with 42.0% in 1999's corresponding periods. The lower rate was due to a shift in the geographical business mix toward lower-tax jurisdictions as a result of the Company's ongoing expansion program. New Accounting Pronouncements - ----------------------------- In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") which provides guidelines in applying generally accepted accounting principles to certain revenue recognition issues. Subsequently, the SEC has issued related guidance, which has extended the implementation date of SAB 101 until the fourth quarter of 2000. The Company does not expect this statement to have a significant impact on its financial position, earnings or cash flows. In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue 00-10, "Accounting for Shipping and Handling Revenues and Costs." In this issue, the EITF determined that all amounts billed related to shipping and handling should be classified as revenue. However, no determination was made regarding the accounting for handling costs. The Company continues to monitor discussions surrounding this issue and will adopt the new accounting when finalized. It is not anticipated that this issue will have a significant impact on the Company's financial position, earnings or cash flows. FINANCIAL CONDITION - ------------------- The Company's liquidity needs have been, and are expected to remain, primarily a function of its seasonal working capital requirements and capital expenditure needs, which have increased due to the Company's expansion. Management believes that the Company's financial condition at July 31, 2000 provides sufficient resources to support current business activities and planned expansion. The Company achieved a net cash inflow from operating activities of $13,458,000 in the six months ended July 31, 2000 compared with an outflow of $7,553,000 in the corresponding 1999 period. The improved cash flow primarily resulted from increased net earnings. - 14 - Working capital (current assets less current liabilities) and the corresponding current ratio (current assets divided by current liabilities) were $641,410,000 and 3.5:1 at July 31, 2000, compared with $610,685,000 and 3.2:1 at January 31, 2000 and $549,274,000 and 2.9:1 at July 31, 1999. Accounts receivable at July 31, 2000 declined 16% from January 31, 2000 (which is a seasonal high-point) but increased 8% from July 31, 1999 due to sales growth. Inventories (which represent the largest portion of assets) at July 31, 2000 were 11% higher than January 31, 2000 and were 4% higher than July 31, 1999. The Company's ongoing objectives are: to refine worldwide replenishment systems; to focus on the specialized disciplines of product development, category management and sales demand forecasting; to improve presentation and management of display inventories in each store; and to improve its warehouse management and supply-chain logistics. Capital expenditures in the six months ended July 31, 2000 were $40,392,000, compared with $32,800,000 in the prior-year period. Based on current plans, management expects that capital expenditures will be approximately $135 million in 2000, compared with $171 million in 1999. Capital expenditures in 2000 will include costs related to openings, renovations and expansions of stores, distribution and office facilities, as well as the cost related to construction of a jewelry manufacturing facility in Rhode Island. The largest portion of capital expenditures in 1999 was for the Company's purchase of the land and building for its flagship store at Fifth Avenue and 57th Street, New York City. In July 1999, the Company made a strategic investment in Aber, a publicly-traded company headquartered in Canada, by purchasing 8 million shares of its common stock at a cost of $70,636,000, representing approximately 14.9% of Aber's outstanding shares. Aber holds a 40% interest in the Diavik Diamonds Project in Canada's Northwest Territories, an operation being developed to mine gem-quality diamond reserves. Production is expected to commence in 2003. In addition, the Company will form a joint venture and enter into a diamond-purchase agreement with Aber. It is expected that this commercial relationship will enable the Company to secure a considerable portion of its future diamond needs. The investment is included in Other assets, net and is being accounted for under the equity method. The Company's share of Aber's results from operations for the six-month period ended July 31, 2000 has been included in Other expenses, net and amounted to a loss of $893,000. On February 24, 2000, the Company announced an approximate 5.4% equity interest in Della.com, Inc. ("Della"), a provider of on-line wedding gift registry services. Immediately thereafter, the Company entered into a Gift Registry Service Agreement, whereby the Company agreed to offer products through Della's site and whereby Della agreed to develop an on-line wedding gift registry for the Company. On April 27, 2000, Della.com merged with and into Wedcom Inc. with the consequence that the Company's equity interest in Della.com was converted to an approximate 2.7% interest in Wedcom Inc., assuming the conversion of all outstanding preferred shares to common. - 15 - In November 1997, the Board of Directors authorized the repurchase of up to $100,000,000 of the Company's Common Stock in the open market over a three-year period. The timing and actual number of shares to be purchased depends on a variety of factors such as price and other market conditions. In the six months ended July 31, 2000, the Company purchased 390,000 shares at a cost of $11,204,000, or an average cost of $28.73 per share. On a cumulative basis, the Company has purchased 4,484,400 shares at a total cost of $49,913,000, or an average of $11.13 per share. Shares and per share data have been adjusted for the July 2000 and 1999 two-for-one splits of the Company's Common Stock. In July 1999, the Company issued 2,900,000 shares of its Common Stock at a price of $24.69 per share, resulting in net proceeds of $71,426,000. The net proceeds from the issuance were added to the Company's working capital and have been used to support strategic initiatives and ongoing business expansion. As a result of many of the above factors, net-debt (short-term borrowings and long-term debt less cash and cash equivalents) and the corresponding ratio of net-debt as a percentage of total capital (net-debt plus stockholders' equity) were $101,248,000 and 11% at July 31, 2000, compared with $53,291,000 and 7% at January 31, 2000 and $142,096,000 and 18% at July 31, 1999. In October 1999, the Company entered into a yen 5,500,000,000, five-year loan agreement, bearing interest at the six-month Japanese LIBOR plus 50 basis points, adjusted every six months (the "floating rate"). The proceeds from this loan were used to reduce short-term indebtedness in Japan. Concurrently, the Company entered into a yen 5,500,000,000 five-year interest rate swap agreement whereby the Company will pay a fixed rate of 1.815% and receive the floating rate. The Company's sources of working capital are internally-generated cash flows and borrowings available under a five-year, $160,000,000 multicurrency, noncollateralized, five-bank revolving credit facility which expires on June 30, 2002. Management anticipates that internally-generated cash flows and funds available under the revolving credit facility will be sufficient to support the Company's planned worldwide business expansion and the seasonal working capital increases that are typically required during the third and fourth quarters of the year. Market Risk - ----------- The Company is exposed to market risk from fluctuations in foreign currency exchange rates and interest rates, which could impact its consolidated financial position, results of operations and cash flows. The Company manages its exposure to market risk through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company uses derivative financial instruments as risk management tools and not for trading or speculative purposes and does not maintain such instruments that may expose the Company to significant market risk. The Company uses foreign currency-purchased put options and, to a lesser extent, foreign-exchange forward contracts to reduce its risk in foreign currency-denominated transactions and to minimize the impact of - 16 - a significant strengthening of the U.S. dollar on foreign currency-denominated transactions. Gains or losses on these instruments substantially offset losses or gains on the assets, liabilities and transactions being hedged. The Company's primary net foreign currency market exposure is the Japanese yen. Management does not foresee nor expect any significant changes in foreign currency exposure in the near future. The Company also manages its portfolio of fixed-rate debt to reduce its exposure to interest rate changes. The fair value of the Company's fixed-rate long-term debt is sensitive to interest rate changes. Interest rate changes would result in gains or losses in the market value of this debt due to differences between market interest rates and rates at the inception of the debt obligation. Management does not foresee nor expect any significant changes in its exposure to interest rate fluctuations, or in how such exposure is managed in the near future. The Company uses an interest rate swap to manage its yen-denominated floating rate long-term debt in order to reduce the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. Seasonality - ----------- As a jeweler and specialty retailer, the Company's business is seasonal in nature, with the fourth quarter typically representing a proportionally greater percentage of annual sales, earnings from operations and cash flow. Management expects such seasonality to continue. Risk Factors - ------------ This document contains certain "forward-looking statements" concerning the Company's objectives and expectations with respect to store openings, catalog mailings, retail prices, gross profit, expenses, inventory performance, capital expenditures and cash flow. In addition, management makes other forward-looking statements from time to time concerning objectives and expectations. As a jeweler and specialty retailer, the Company's success in achieving its objectives and expectations is partially dependent upon economic conditions, competitive developments and consumer attitudes. However, certain assumptions are specific to the Company and/or the markets in which it operates. The following assumptions, among others, are "risk factors" which could affect the likelihood that the Company will achieve the objectives and expectations communicated by management: (i) that sales in Japan will not decline substantially; (ii) that there will not be a substantial adverse change in the exchange relationship between the Japanese yen and the U.S. dollar; (iii) that the Company's commercial relationship with Mitsukoshi, Ltd. ("Mitsukoshi") and Mitsukoshi's ability to continue as a leading department store operator in Japan will continue; (iv) that Mitsukoshi and other department store operators in Japan, in the face of declining or stagnant department store sales, will not close or consolidate stores in which TIFFANY & CO. boutiques are located; (v) that low or negative growth in the economy or in the financial markets will not occur and reduce discretionary spending on goods that are, or are perceived to be, "luxuries"; (vi) that existing product supply arrangements, including license agreements with third-party designers Elsa Peretti and Paloma - 17- Picasso, will continue and that the Company can successfully increase its internal jewelry manufacturing capacity and production; vii) that the wholesale market for high-quality cut diamonds will provide continuity of supply and pricing;(viii) that worldwide consumer demand for diamonds remains strong; (ix) that the investment in Aber achieves its financial and strategic objectives; (x) that new stores and other sales locations can be leased or otherwise obtained on suitable terms in desired markets and that construction can be completed on a timely basis; (xi) that new systems, particularly for inventory management, can be successfully integrated into the Company's operations, and that warehousing and distribution productivity and capacity can be further improved to support the Company's worldwide distribution requirements; and (xii) that no downturn in consumer spending will occur during the fourth quarter of any year. - 18 - PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders At Registrant's Annual Meeting of Stockholders held on May 18, 2000 each of the nominees listed below was elected a director of Registrant to hold office until the next annual meeting of the stockholders and until his or her respective successor has been elected and qualified. Tabulated with the name of each of the nominees elected is the number of Common shares cast for each nominee and the number of Common shares withholding authority to vote for each nominee. Shares reported below have not been re-stated to reflect the subsequent stock split. There were no broker non-votes or abstentions with respect to the election of directors. Nominee Voted For Withholding Authority William R. Chaney 63,054,401 45,219 Rose Marie Bravo 63,050,672 48,948 Samuel L. Hayes III 63,023,905 75,715 Michael J. Kowalski 63,057,106 42,514 Charles K. Marquis 63,056,995 42,625 James E. Quinn 63,055,149 44,471 William A. Shutzer 63,055,980 43,640 Geraldine Stutz 62,873,376 226,244 At such meeting, the stockholders approved an amendment to the Company's Restated Certificate of Incorporation increasing the number of authorized shares of common stock from 120,000,000 to 240,000,000. With respect to such approval, 59,896,133 shares were voted to approve, 3,168,993 were voted against, and 34,494 shares abstained from voting. There were no broker non-votes with respect to the approval of the amendment to the Company's Restated Certificate of Incorporation. The stockholders approved an amendment to the Company's 1998 Employee Incentive Plan to increase the number of shares of common stock from 2,000,000 to 4,000,000. With respect to such approval, 56,127,001 shares were voted to approve, 6,879,581 were voted against, and 93,036 shares abstained from voting. There were no broker non-votes with respect to the approval of the amendment to the Company's 1998 Employee Incentive Plan. The stockholders also approved the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company's fiscal 2000 financial statements. With respect to such appointment, 63,031,136 shares were voted to approve, 38,801 were voted against, and 29,683 shares abstained from voting. There were no broker non-votes with respect to the approval of the appointment of PricewaterhouseCoopers LLP. - 19 - Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Restated Certificate of Incorporation of Registrant. Incorporated by reference from Exhibit 3.1 to Registrant's Report on Form 8-K dated May 16, 1996 as amended by Certificate of Amendment of Certificate of Incorporation dated May 20, 1999 incorporated by reference to Registrant's report on Form 10-Q for the period ended July 31, 1999 and dated September 7, 1999; and Certificate of Amendment of Incorporation dated May 18, 2000. 27 Financial Data Schedule. (b) Reports on Form 8-K On May 17, 2000 Registrant filed a report on Form 8-K reporting its sales and earnings for the three month period ended April 30, 2000. On May 18, 2000 Registrant filed a report on Form 8-K reporting the announcement of a two-for-one stock split and a 33% increase in the quarterly cash dividend rate. - 20 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TIFFANY & CO. (Registrant) Date: August 30, 2000 By: /s/ James N. Fernandez ---------------------------- James N. Fernandez Executive Vice President and Chief Financial Officer (principal financial officer) - 21 - EXHIBIT INDEX Exhibit Number 3.1 Certificate of Amendment of Certificate of Incorporation of , Registrant dated May 18, 2000. 27 Financial Data Schedule (submitted to SEC only) EX-3.1 2 0002.txt CERTIFICATE OF AMENDMENT Exhibit 3.1 Tiffany & Co. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF TIFFANY & CO. --------------------------- Pursuant to Section 242 of the General Corporation Law of the State of Delaware Tiffany & Co., a corporation of the State of Delaware (the "Corporation"), hereby sets forth an Amendment to its Certificate of Incorporation pursuant to 8 Del. C.ss.242, hereby certifying as follows: FIRST: The Certificate of Incorporation of the Corporation is amended by striking out the first paragraph of Article FOURTH thereof and by substituting in lieu thereof a new first paragraph of Article FOURTH reading as follows: FOURTH: The Corporation shall be authorized to issue two classes of shares of stock to be designated, respectively, "Preferred Stock" and "Common Stock"; the total number of shares which the Corporation shall have authority to issue is Two Hundred and Forty-two Million (242,000,000); the total number of shares of Preferred Stock shall be Two Million (2,000,000) and each such share shall have a par value of $.01; and the total number of shares of Common Stock shall be Two Hundred and Forty Million (240,000,000)and each such share of Common Stock shall have a par value of $.01. SECOND: Said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its President and attested by its Assistant Secretary this 18th day of May, 2000. TIFFANY & CO. /s/ Michael J. Kowalski Attest: By: ____________________________ Michael J. Kowalski /s/ Tarz F. Palomba President - --------------------------- Tarz F. Palomba Assistant Secretary EX-27 3 0003.txt FDS --
5 Note:The amount reported for EPS basic and fully diluted is in compliance with Statement of Financial Accounting Standards No.128, "Earnings Per Share" and represents the Basic and Diluted calculation as required by this standard. 3-MOS JAN-31-2001 MAY-01-2000 JUL-31-2000 174,662,000 0 110,302,000 9,776,000 559,675,000 901,963,000 511,388,000 171,762,000 1,380,208,000 260,553,000 0 0 0 1,452,000 811,300,000 1,380,208,000 371,977,000 371,977,000 151,272,000 304,900,000 1,804,000 277,000 4,066,000 65,273,000 26,108,000 39,165,000 0 0 0 39,165,000 .27 .26
-----END PRIVACY-ENHANCED MESSAGE-----