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 JUNE 30, 1997
COMMISSION FILE NUMBER 1-11226
TOMMY HILFIGER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BRITISH VIRGIN ISLANDS NOT APPLICABLE
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
6/F, PRECIOUS INDUSTRIAL CENTRE, 18 CHEUNG YUE STREET, CHEUNG SHA WAN,
KOWLOON, HONG KONG
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
852-2745-7798
(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 THE PAST 90 DAYS.
YES X NO
ORDINARY SHARES, $0.01 PAR VALUE PER SHARE, OUTSTANDING AS OF
JUNE 30, 1997: 37,339,054<PAGE>
TOMMY HILFIGER CORPORATION
INDEX TO FORM 10-Q
June 30, 1997
PART I - FINANCIAL INFORMATION Page
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
and March 31, 1997...................................... 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996............... 4
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1997 and 1996............... 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity for the three months ended
June 30, 1997 and the year ended March 31, 1997......... 6
Notes to Condensed Consolidated Financial Statements.... 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K........................ 11
Signatures........................................................ 12
2<PAGE>
PART I
ITEM 1 - FINANCIAL STATEMENTS
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED) AS OF JUNE 30, AS OF MARCH 31,
1997 1997
ASSETS
Current assets
Cash and cash equivalents.................. $87,871 $109,908
Accounts receivable........................ 94,116 79,984
Inventories................................ 155,414 123,847
Investments................................ 20,000 --
Other current assets....................... 18,030 18,614
------ ------
Total current assets................... 375,431 332,353
Property and equipment, at cost, less accumulated
depreciation and amortization.............. 125,707 121,540
Other assets................................... 7,953 9,192
Total Assets........................... $509,091 $463,085
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings...................... $33,207 $5,980
Accounts payable........................... 6,033 5,996
Accrued expenses and other current
liabilities.............................. 47,813 49,710
------ ------
Total current liabilities.............. 87,053 61,686
Other liabilities.............................. 2,601 2,425
Long-term debt................................. 1,442 1,510
Shareholders' equity
Preference Shares, $0.01 par value-shares
authorized 5,000,000; none issued........ -- --
Ordinary Shares, $0.01 par value-shares
authorized 50,000,000, issued and outstanding
37,339,054 and 37,249,529, respectively.. 373 372
Capital in excess of par value............. 168,060 165,032
Retained earnings.......................... 249,522 232,015
Cumulative translation adjustment.......... 40 45
-------- -------
Total shareholders' equity............. 417,995 397,464
------- -------
Commitments and contingencies
Total Liabilities and Shareholders'
Equity............................... $509,091 $463,085
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
3<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) FOR THE THREE MONTHS ENDED
JUNE 30,
1997 1996
Net revenue................................... $173,735 $124,129
Cost of goods sold............................ 92,032 66,010
--------- --------
Gross profit.................................. 81,703 58,119
Selling, general and administrative expenses.. 56,644 40,388
-------- --------
Income from operations........................ 25,059 17,731
Interest expense ............................. 179 203
Interest income .............................. 1,749 1,588
-------- --------
Income before income taxes.................... 26,629 19,116
Provision for income taxes ................... 9,122 6,538
-------- --------
Net income.................................... $ 17,507 $ 12,578
======== ========
Earnings per share:
Earnings per share and share equivalents...... $ .46 $ .34
======== ========
Weighted average shares and share equivalents
outstanding................................. 37,880 37,500
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
4<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED) FOR THE THREE MONTHS ENDED
JUNE 30,
1997 1996
Cash flows from operating activities
Net income................................... $17,507 $12,578
Adjustments to reconcile net income to cash from
operating activities
Depreciation and amortization............ 7,128 4,347
Changes in operating assets and liabilities
Decrease (increase) in assets
Accounts receivable..................... (14,132) 11,300
Inventories............................. (31,567) (21,590)
Other assets............................ 1,680 1,956
Increase (decrease) in liabilities
Accounts payable........................ 37 2,972
Accrued expenses and other
liabilities.......................... (1,721) (11,589)
-------- --------
Net cash used in investing activities... (21,068) (26)
-------- --------
Cash flows from investing activities
Purchases of property and equipment.......... (11,152) (36,772)
Purchases of investments..................... (20,000) --
------- -------
Net cash used in investing activities... (31,152) (36,772)
------- -------
Cash flows from financing activities
Proceeds from the exercise of
employee stock options..................... 2,441 1,551
Tax benefit from exercise of stock options... 588 2,426
Short-term bank borrowings................... 27,227 2,206
Payments on long-term debt................... (68) (71)
Other ....................................... (5) 1
------ -----
Net Cash provided by financing
activities........................... 30,183 6,113
------ -----
Net decrease in cash................... (22,037) (30,685)
Cash and cash equivalents, beginning of
period...................................... 109,908 127,743
------- -------
Cash and cash equivalents, end of period...... $87,871 $97,058
======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements
5<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
EXCESS CUMULATIVE TOTAL
ORDINARY OF PAR RETAINED TRANSLATION SHAREHOLDERS'
SHARES VALUE EARNINGS ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $369 $155,294 $145,633 $42 $301,338
Net income......................... 86,382 86,382
Exercise of employee stock
options.......................... 3 3,926 3,929
Tax benefits from exercise of stock
options.......................... 5,812 5,812
Translation adjustment............. 3 3
---- -------- -------- --- --------
Balance, March 31, 1997 372 165,032 232,015 45 397,464
Net income......................... 17,507 17,507
Exercise of employee stock
options.......................... 1 2,440 2,441
Tax benefits from exercise of stock
options.......................... 588 588
Translation adjustment............. (5) (5)
---- -------- -------- --- --------
Balance, June 30, 1997 (Unaudited)... $373 $168,060 $249,522 $40 $417,995
==== ======== ======== === ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
6<PAGE>
TOMMY HILFIGER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements have been prepared by Tommy Hilfiger
Corporation (the "Company") in a manner consistent with that
used in the preparation of the consolidated financial
statements included in the Company's 1997 Annual Report as
filed with the Securities and Exchange Commission on Form 10-K
(the "Form 10-K"). Certain items contained in these statements
are based on estimates. In the opinion of management, the
accompanying financial statements reflect all adjustments,
consisting of only normal and recurring adjustments, necessary
for a fair presentation of the financial position and results
of operations and cash flows for the periods presented. All
significant intercompany accounts and transactions have been
eliminated.
Operating results for the three month period ended June
30, 1997 are not necessarily indicative of the results that may
be expected for the fiscal year ending March 31, 1998. These
unaudited financial statements should be read in conjunction
with the financial statements included in the Form 10-K.
The financial statements as of and for the three month
periods ended June 30, 1997 and 1996 are unaudited. The
Condensed Consolidated Balance Sheet as of March 31, 1997, as
presented, has been prepared from the Consolidated Balance
Sheet as of March 31, 1997 included in the Company's Form 10-K.
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
June 30, 1997 March 31, 1997
Finished Goods................. $153,423,000 $122,237,000
Raw Materials.................. 1,991,000 1,610,000
------------ ------------
$155,414,000 $123,847,000
============ ============
7<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated,
the percentage relationship to net revenue of certain items in
the Company's Condensed Consolidated Statements of Operations:
THREE MONTHS ENDED
JUNE 30,
1997 1996
Net revenue............................... 100.0% 100.0%
Cost of goods sold........................ 53.0 53.2
----- -----
Gross profit.............................. 47.0 46.8
Selling, general and administrative
expenses................................ 32.6 32.5
---- ----
Income from operations.................... 14.4 14.3
Interest expense.......................... 0.1 0.2
Investment income........................ 1.0 1.3
---- ----
Income before income taxes................ 15.3 15.4
Provision for income taxes................ 5.2 5.3
---- ----
Net income................................ 10.1 10.1
==== ====
Three months ended June 30, 1997 compared to three months ended
June 30, 1996
The Company's net income increased 39.2% to $17,507,000,
or $.46 per share, in the quarter ended June 30, 1997 from
$12,578,000, or $.34 per share, in the corresponding quarter
last year.
Net revenue increased to $173,735,000 in the first quarter
of fiscal 1998 from $124,129,000 in the first quarter of fiscal
1997, an improvement of $49,606,000, or 40.0%. This increase
is a result of improvements in each of the Company's wholesale,
retail, and licensing and buying agency divisions, as outlined
below.
Wholesale net revenue increased to $125,444,000 in the
first quarter of fiscal 1998 from $93,945,000 in the first
quarter of fiscal 1997, an improvement of 33.5%. This
improvement consists of a menswear wholesale sales increase of
27.4% and a boyswear wholesale sales increase of 75.3%. During
the quarter ended June 30, 1997, menswear wholesale sales were
$104,281,000 while boyswear wholesale sales were $21,163,000.
In the corresponding quarter last year, menswear wholesale
sales were $81,874,000 while boyswear wholesale sales
totaled $12,071,000. Substantially all of theses increases were
due to increases in volume which resulted primarily from
increased sales to existing customers. The increased sales to
existing customers were partially the result of the Company's
in-store shop and fixtured area expansion program, whereby
certain of the Company's customers have increased the amount of
square footage where the Company's products are featured.
Net revenue in the Company's retail division increased
45.5% to $36,153,000 during the first quarter of fiscal 1998
from $24,843,000 in the first quarter of fiscal 1997. The
increase in the number of stores as well as an increase in
sales at existing stores contributed to the improved revenue.
Of the total increase of $11,310,000, $5,367,000 was
attributable to retail stores opened since June 30, 1996.
A total of 57 stores were open as of June 30, 1997 compared
to 49 stores as of June 30, 1996.
Revenue from royalties and buying agency commissions
increased 127.3% to $12,138,000 in the first quarter of fiscal
1998 from $5,341,000 in the corresponding quarter of fiscal
1997. This increase reflects the incremental revenue associated
with newly licensed products and a general increase in sales of
existing licensed products and buying agency services. Of this
increase, approximately 36.5% was due to products introduced
under licenses entered into since June 30, 1996.
8<PAGE>
Gross profit as a percentage of net revenue increased to
47.0% in the first quarter of fiscal 1998 from 46.8% in the
first quarter of fiscal 1997. The increase was attributable to
the increases in retail operations and royalties and buying
agency commissions, each of which had higher percentage revenue
increases, and which produce higher margins, than wholesale
operations, partially offset by lower margins in men's wholesale
operations.
Selling, general and administrative expenses increased to
$56,644,000 in the first quarter of fiscal 1998 from
$40,388,000 in the corresponding period of fiscal 1997. The
overall increase is primarily due to increased volume-related
expenses of the Company's wholesale and retail operations to
support the higher revenue. In addition, depreciation and
amortization increased due to the greater number of in-store
shops and marketing and advertising expense increased to
promote brand awareness. As a percentage of net revenue,
selling, general and administrative expenses increased slightly
to 32.6% in fiscal 1998 from 32.5% in fiscal 1997.
The provision for income taxes increased to 34.3% of
income before taxes in the first quarter of fiscal 1998 from
34.2% in the corresponding period of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary funding requirements are to finance
working capital and the continued growth of its business.
Primarily, this includes the purchase of inventory in
anticipation of increased sales of the wholesale and retail
divisions as well as capital expenditures related to the
expansion of the menswear in-store shop and boyswear fixtured
area programs and additional retail stores. The Company's
sources of liquidity are cash on hand, cash from operations and
available credit.
At June 30, 1997, the Company had approximately
$87,871,000 of cash and cash equivalents and $20,000,000 of
short-term investments compared to a year-end balance of
$109,908,000 of cash and cash equivalents. This represented an
overall decrease of $2,037,000 due to cash used in operating
and investing activities, partially offset by cash provided by
financing activities. A detailed analysis of the changes in
cash and cash equivalents is presented in the Consolidated
Statements of Cash Flows.
Net cash used in operating activities during the first
quarter of fiscal 1998 was $21,068,000, an increase of
$21,042,000 over the June 30, 1996 amount of $26,000. This
amount is primarily made up of an increase in working capital
offset, in part, by cash generated from net earnings. The
increase in working capital is principally due to a higher
inventory level and an increase in accounts receivable. The
Company's inventories increased 25.5% to $155,414,000 at June
30, 1997 from $123,847,000 at March 31, 1997. Higher inventory
levels at June 30, 1997 were attributable to a planned build-up
of inventory in anticipation of the fall and holiday seasons of
fiscal 1997 and increased retail division inventory due to the
greater number of stores.
Capital expenditures were $11,152,000 for the three months
ended June 30, 1997, compared with $36,772,000 for the three
months ended June 30, 1996. Significant capital expenditures
in the first quarter of fiscal 1998 include additions related
to the Company's first flagship store in Beverly Hills and the
expansion of certain of the Company's in-store shops. The
fiscal 1997 amount includes the purchase of the property which
houses the Company's executive offices along with its primary
sales, marketing and licensing offices and its main licensees'
showrooms for approximately $25,875,000.
In July 1996, the Company entered into an amended and
restated revolving credit agreement (the "Credit Agreement")
effective April 1, 1996. The Credit Agreement, which expires
in June 1999, provides for direct borrowings, bankers
acceptances and letters of credit of amounts ranging from
$100,000,000 in fiscal 1997 to $150,000,000 in fiscal 1999.
Available borrowings under the Credit Agreement are subject to
the timed increase of availability under the Credit Agreement
and are based upon eligible accounts receivable, inventory and
open letters of credit. As of June 30, 1997, $125,000,000 was
available for utilization under the Credit Agreement.
Obligations under the Credit Agreement are collateralized by
substantially all the assets of the Company's U.S. operations.
Direct borrowings under the Credit Agreement, which were
limited to $75,000,000 as of June 30, 1997, accrue interest at
varying interest rates.
At June 30, 1997, total short-term borrowings of
$33,207,000 consisted of $7,400,000 of borrowings under the
credit agreement, open letters of credit for inventory
purchased of $25,532,000 and the current portion of mortgage
debt payable of $275,000. Additionally, at June 30, 1997,
Tommy Hilfiger U.S.A., Inc. ("TH USA"), a wholly owned
subsidiary of the Company, was contingently liable for
unexpired bank letters of credit of $57,746,000 related to
commitments of TH USA to suppliers for the purchase of
inventories.
9<PAGE>
The Credit Agreement contains various covenants and, among
other matters, includes certain restrictions upon capital
expenditures, investments, indebtedness, loans and advances and
transactions with related parties. In addition, the Credit
Agreement prohibits certain of the Company's operating
subsidiaries which are borrowers or guarantors under the Credit
Agreement from paying any dividends. Because Tommy Hilfiger
Corporation is a holding company, dividends or other advances
from its subsidiaries will be required to fund any cash
dividends to holders of Ordinary Shares. Such dividend
restrictions are not expected to have an adverse impact on the
Company. The Credit Agreement also requires the maintenance of
minimum tangible net worth and interest coverage ratios. The
Company was in compliance with all covenants under the Credit
Agreement as of, and for the period ended, June 30, 1997.
Cash requirements in fiscal 1998 will primarily include
capital expenditures relating to the in-store shop and fixtured
area programs and the opening of additional retail stores, as
well as flagship stores. The Company believes the amount of
capital expenditures in fiscal 1998 will be consistent with
fiscal 1997 and the Company intends to fund its cash
requirements for fiscal 1998 and future years from available
cash balances, internally generated funds and borrowings
available under the Credit Agreement. The Company believes
that these resources will be sufficient to fund its cash
requirements for such periods.
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995. In addition to the historical
information contained herein, there are matters discussed which
are hereby identified as "forward-looking statements" for
purposes of the Safe Harbor Statement. These forward-looking
statements involve risks and uncertainties, including but not
limited to economic, competitive, governmental and
technological factors affecting the Company's operations,
markets, products, services and prices.
10<PAGE>
PART II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Net Income Per Ordinary Share
27. Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any Current Reports on Form
8-K during the three months ended June 30, 1997.
11<PAGE>
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:
Tommy Hilfiger Corporation
Date: August 5, 1997 By: /s/ Joel J. Horowitz
Joel J. Horowitz
Chief Executive Officer and President
Tommy Hilfiger Corporation
Date: August 5, 1997 By: /s/ Steven A. Sorrillo
Steven A. Sorrillo
Principal Accounting Officer
Tommy Hilfiger Corporation
12<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
11. Computation of Net Income Per Ordinary Share. 14
27. Financial Data Schedule 15
13
EXHIBIT 11
TOMMY HILFIGER CORPORATION
COMPUTATION OF NET INCOME PER ORDINARY SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
JUNE 30,
1997 1996
FINANCIAL STATEMENT PRESENTATION
PRIMARY
Average shares outstanding 37,262 36,911
Net effect of dilutive stock options
based on the treasury stock method
using average market price 618 589
------- -------
Total 37,880 37,500
======= =======
Net Income $17,507 $12,578
======= =======
Per share amount $ .46 $ .34
======= =======
FULLY DILUTED
Average shares outstanding 37,262 36,911
Net effect of dilutive stock options
based on the treasury stock method
using the greater of the average
or ending market price 618 1,079
------- -------
Total 37,880 37,990
======= =======
Net Income $17,507 $12,578
======= =======
Per share amount $ .46 $ .33
======= =======
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Tommy
Hilfiger Corporation Condensed Consolidated Balance Sheet as of June 30, 1997
and Condensed Consolidated Statement of Operations for the three months then
ended and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 87,871
<SECURITIES> 0
<RECEIVABLES> 94,116
<ALLOWANCES> 0
<INVENTORY> 155,414
<CURRENT-ASSETS> 375,431
<PP&E> 125,707
<DEPRECIATION> 0
<TOTAL-ASSETS> 509,091
<CURRENT-LIABILITIES> 87,053
<BONDS> 1,442
0
0
<COMMON> 373
<OTHER-SE> 417,622
<TOTAL-LIABILITY-AND-EQUITY> 417,995
<SALES> 0
<TOTAL-REVENUES> 173,735
<CGS> 0
<TOTAL-COSTS> 92,032
<OTHER-EXPENSES> 58,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,629
<INCOME-TAX> 9,122
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,507
<EPS-PRIMARY> 46
<EPS-DILUTED> 0
</TABLE>
