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 DECEMBER 31, 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
DECEMBER 31, 1997: 37,436,929
<PAGE>
TOMMY HILFIGER CORPORATION
INDEX TO FORM 10-Q
December 31, 1997
PART I - FINANCIAL INFORMATION Page
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of December 3
31, 1997 and March 31, 1997...........................
Condensed Consolidated Statements of Operations for the
nine months ended December 31, 1997 and 1996 and the
three months ended December 31, 1997 and 1996......... 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended December 31, 1997 and 1996.......... 5
Condensed Consolidated Statement of Changes in
Shareholders' Equity for the nine months ended
December 31, 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 1 Legal Proceedings..................................... 12
Item 6 Exhibits and Reports on Form 8-K...................... 12
Signatures..................................................... 13
2
<PAGE>
PART I
ITEM 1 - FINANCIAL STATEMENTS
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED) AS OF DECEMBER AS OF MARCH 31,
31,
1997 1997
---- ----
ASSETS
Current assets
Cash and cash equivalents............... $148,911 $109,908
Accounts receivable..................... 91,452 79,984
Inventories............................. 157,439 123,847
Other current assets.................... 18,764 18,614
-------- --------
Total current assets................. 416,566 332,353
Property and equipment, at cost, less
accumulated depreciation and
amortization............................ 150,272 121,540
Other assets................................. 8,614 9,192
-------- ---------
Total Assets......................... $575,452 $463,085
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings................... $9,323 $5,980
Accounts payable........................ 16,787 5,996
Accrued expenses and other current
liabilities.......................... 58,710 49,710
------ ------
Total current liabilities............ 84,820 61,686
Other liabilities............................ 2,216 2,425
Long-term debt............................... -- 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 37,436,929 and 37,249,529,
respectively......................... 374 372
Capital in excess of par value.......... 170,250 165,032
Retained earnings....................... 317,797 232,015
Cumulative translation adjustment....... (5) 45
-------- -------
Total shareholders' equity........... 488,416 397,464
------- -------
Commitments and contingencies
Total Liabilities and Shareholders'
Equity............................. $575,452 $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 NINE FOR THE THREE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
Net revenue.......................... $644,385 $491,235 $246,104 $188,199
Cost of goods sold................... 337,671 255,954 130,801 97,968
------- ------- ------- ------
Gross profit......................... 306,714 235,281 115,303 90,231
Selling, general and administrative
expenses............................. 182,476 141,145 62,919 48,961
------- ------- -------- ------
Income from operations............... 124,238 94,136 52,384 41,270
Interest expense .................... 1,049 679 355 135
Interest income ..................... 5,127 4,539 1,552 1,555
-------- ------ ------- ------
Income before income taxes........... 128,316 97,996 53,581 42,690
Provision for income taxes .......... 42,534 33,931 17,200 15,293
------- ------ ------- ------
Net income........................... $85,782 $64,065 $36,381 $27,397
======= ======= ======= =======
Earnings per share:
Basic earnings per share............. $2.30 $1.73 $ .97 $ .74
===== ===== ======== ========
Weighted average shares outstanding.. 37,333 37,015 37,387 37,095
====== ====== ====== ======
Diluted earnings per share........... $2.26 $1.69 $ .96 $ .72
===== ===== ======== ========
Weighted average shares and share
equivalents outstanding.............. 37,918 37,838 37,898 38,031
====== ====== ====== ======
See Accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED) FOR THE NINE MONTHS
ENDED DECEMBER 31,
-------------------
1997 1996
---- ----
Cash flows from operating activities
Net income................................ $85,782 $64,065
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization.......... 21,692 14,968
Changes in operating assets and
liabilities
Decrease (increase) in assets
Accounts receivable................ (11,468) (2,062)
Inventories........................ (33,592) (30,651)
Other assets....................... (3) 2,701
Increase (decrease) in liabilities
Accounts payable................... 10,791 (2,888)
Accrued expenses and other
liabilities....................... 8,791 11,290
----- ------
Net cash provided by operating
activities............................ 81,993 57,423
------ ------
Cash flows from investing activities
Purchases of property and equipment....... (49,993) (64,222)
Purchases of investments.................. (20,000) --
Maturities of investments................. 20,000 --
------ -------
Net cash used in investing activities.. (49,993) (64,222)
-------- --------
Cash flows from financing activities
Proceeds from the exercise of employee
stock options............................ 3,886 3,051
Tax benefit from exercise of stock options 1,334 4,312
Short-term bank borrowings, net........... 3,343 (8,454)
Payments on long-term debt................ (1,510) (208)
Other..................................... (50) 14
------- -------
Net cash provided by (used in) financing
activities............................ 7,003 (1,285)
----- -------
Net increase (decrease) in cash........ 39,003 (8,084)
Cash and cash equivalents, beginning
of period................................. 109,908 127,743
------- -------
Cash and cash equivalents, end of period.... $148,911 $119,659
======== ========
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 CUMULATIVE TOTAL
ORDINARY EXCESS OF RETAINED TRANSLATION SHAREHOLDERS'
SHARES PAR 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 3 3,926 3,929
stock options.........
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............. 85,782 85,782
Exercise of employee 2 3,884 3,886
stock options.........
Tax benefits from
exercise of stock
options............... 1,334 1,334
Translation adjustment. (50) (50)
---- -------- -------- --- -------
BALANCE, DECEMBER 31, 1997
(UNAUDITED)............... $374 $170,250 $317,797 ($5) $488,416
==== ======== ======== ==== ========
</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 nine month period ended December 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ended 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 nine month and the three month
periods ended December 31, 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:
December 31, 1997 March 31, 1997
----------------- --------------
Finished Goods..... $155,216,000 $122,237,000
Raw Materials...... 2,223,000 1,610,000
------------ ------------
$157,439,000 $123,847,000
============ ============
NOTE 3 - SUBSEQUENT EVENT
On January 31, 1998, the Company entered into a definitive agreement to
acquire its women's, jeans and Canada licensees for $755,760,000 in cash and
9,045,930 Ordinary Shares of the Company. The acquisition is subject to approval
by the Company's shareholders, who will be asked to vote on the proposed
acquisition during the first quarter of fiscal 1999. The acquisition is also
subject to the Company obtaining necessary financing and other customary
conditions. The Company expects that the cash portion of the purchase price will
be funded from a combination of debt financing and cash on hand.
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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................... 52.4 52.1 53.1 52.1
---- ---- ---- ----
Gross profit................................ 47.6 47.9 46.9 47.9
Selling, general and administrative expenses 28.3 28.7 25.6 26.0
---- ---- ---- ----
Income from operations...................... 19.3 19.2 21.3 21.9
Interest expense............................ 0.2 0.1 0.1 0.1
Interest income............................. 0.8 0.8 0.6 0.9
--- --- --- ---
Income before income taxes.................. 19.9 19.9 21.8 22.7
Provision for income taxes.................. 6.6 6.9 7.0 8.1
--- --- --- ---
Net income.................................. 13.3 13.0 14.8 14.6
==== ==== ==== ====
</TABLE>
Nine months ended December 31, 1997 compared to
nine months ended December 31, 1996
The Company's net income increased 33.9% to $85,782,000, or $2.26 per share
on a diluted basis, in the first nine months of fiscal 1998 from $64,065,000, or
$1.69 per share on a diluted basis, in the corresponding period of fiscal 1997.
As a percentage of net revenue, net income has increased to 13.3% in fiscal 1998
from 13.0% in fiscal 1997.
Net revenue increased $153,150,000, or 31.2%, to $644,385,000 during the nine
months ended December 31, 1997 from $491,235,000 during the nine months ended
December 31, 1996. This improvement is principally due to volume increases in
each of the Company's operating divisions, as outlined below.
Wholesale net revenue has increased to $436,265,000 in the first nine months
of fiscal 1998 from $348,723,000 in the corresponding period of fiscal 1997, an
improvement of $87,542,000 or 25.1%. This improvement consists of a menswear
wholesale sales increase of 14.4% and a childrenswear wholesale sales increase
of 88.2%. During the nine months ended December 31, 1997, menswear wholesale
sales were $341,442,000 while childrenswear wholesale sales were $94,823,000. In
the corresponding period last year, menswear wholesale sales were $298,341,000
while childrenswear wholesale sales were $50,382,000. Substantially all of these
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 34.0% to $161,972,000
in the first nine months of fiscal 1998 from $120,896,000 in the corresponding
period 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 $41,076,000, $13,165,000 was attributable to retail stores
opened since December 31, 1996. The total number of retail stores open as of
December 31, 1997 and 1996 were 64 and 54, respectively.
Net revenue from royalties and buying agency commissions increased 113.5% to
$46,148,000 during the nine months ended December 31, 1997 from $21,616,000
during the nine months ended December 31, 1996. Of the increase of $24,532,000,
approximately 22.6% was due to products introduced under licenses entered into
since December 31, 1996. The remainder of the increase reflects the incremental
revenue associated with a general increase in sales of existing licensed
products and buying agency services.
8
<PAGE>
Gross profit as a percentage of net revenue decreased to 47.6% in the first
nine months of fiscal 1998 from 47.9% in the first nine months of fiscal 1997.
This decrease is attributable to lower margins in menswear wholesale operations
and a greater contribution to wholesale operations of childrenswear, which
typically produces lower margins than menswear. This was primarily offset by
increased royalty and buying agency commissions, which produce higher margins
than wholesale and retail operations.
Selling, general and administrative expenses, as a percentage of net revenue,
decreased to 28.3% in the first nine months of fiscal 1998 from 28.7% in the
corresponding period of fiscal 1997. This decrease is due to leveraging these
expenses against the higher revenue base. Selling, general and administrative
expenses increased to $182,476,000 in the first nine months of fiscal 1998 from
$141,145,000 in the corresponding period of fiscal 1997. This 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 has increased due to the greater number of in-store shops and
fixtured areas.
The provision for taxes decreased to 33.1% of income before taxes in the nine
months ended December 31, 1997 from 34.6% in the nine months ended December 31,
1996. The decrease was primarily attributable to the relative level of earnings
in the various taxing jurisdictions to which the Company's earnings are subject.
Three months ended December 31, 1997 compared to
three months ended December 31, 1996
During the third quarter of fiscal 1998, the Company's net income increased
to $36,381,000, or $.96 per share on a diluted basis, from $27,397,000, or $.72
per share on a diluted basis, in the third quarter of fiscal 1997. This
represents an increase of $8,984,000, or 32.8%. As a percentage of net revenue,
third quarter net income has increased to 14.8% in fiscal 1998 from 14.6% in
fiscal 1997.
Net revenue increased to $246,104,000 in the third quarter of fiscal 1998
from $188,199,000 in the third quarter of fiscal 1997, an improvement of
$57,905,000, or 30.8%. This increase is primarily due to volume increases in
each of the Company's operating divisions, as outlined below.
Wholesale net revenue increased to $157,561,000 in the third quarter of
fiscal 1998 from $125,845,000 in the third quarter of fiscal 1997, an
improvement of 25.2%. This improvement consists of a menswear wholesale sales
increase of 10.1% and a childrenswear increase of 116.9%. Menswear wholesale
sales totaled $118,956,000 and $108,045,000 in the third quarters of fiscal 1998
and fiscal 1997, respectively, while childrenswear wholesale sales increased to
$38,605,000 in the third quarter of fiscal 1998 from $17,800,000 in the
corresponding quarter of last year. These increases were primarily due to
increases in volume which resulted principally from increased sales to existing
customers, many of which have increased the square footage where the Company's
products are presented.
Net revenue in the Company's retail division increased 33.9% to $70,871,000
during the third quarter of fiscal 1998 from $52,930,000 in the third 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 $17,941,000, $8,736,000 was attributable to Company stores opened
since December 31, 1996. Additionally, $5,961,000 of the increase resulted from
actions taken to reduce retail division inventory through other channels. A
total of 64 stores were open as of December 31, 1997 compared to 54 stores as of
December 31, 1996.
Revenue from royalties and buying agency commissions increased 87.5% to
$17,672,000 in the third quarter of fiscal 1998 from $9,424,000 in the
corresponding quarter of fiscal 1997. Approximately 33.6% of the total increase
of $8,248,000 was due to products introduced under licenses entered into since
December 31, 1996. The remainder of the increase reflects the incremental
revenue associated with a general increase in sales of existing licensed
products and buying agency services.
Gross profit as a percentage of net revenue decreased to 46.9% in the third
quarter of fiscal 1998 from 47.9% in the third quarter of fiscal 1997. The
decrease is attributable to lower margins in menswear wholesale operations and a
greater contribution to wholesale operations of childrenswear, which typically
produces lower margins than menswear. In addition, retail margins declined
slightly as the Company took measures to reduce its inventory position. This was
partially offset by increased royalty and buying agency commissions, which
produce higher margins than wholesale and retail operations.
Selling, general and administrative expenses, as a percentage of net revenue,
decreased to 25.6% in the third quarter of fiscal 1998 from 26.0% in the
corresponding period of fiscal 1997. Selling, general and administrative
expenses have decreased as a percentage of net revenue due primarily to an
overall leveraging of these expenses against a higher revenue base. Selling,
general and administrative expenses increased to $62,919,000 in the third
quarter of fiscal 1998 from $48,961,000 in the corresponding period of fiscal
1997. This increase is principally due to increased volume related expenses of
the Company's wholesale and retail operations to support the higher revenue. In
addition, depreciation and amortization has increased due to the greater number
of in-store shops and fixtured areas.
9
<PAGE>
The provision for income taxes decreased to 32.1% of income before taxes in
the third quarter of fiscal 1998 from 35.8% in the corresponding period of
fiscal 1997. The decrease was primarily attributable to the relative level of
earnings in the various taxing jurisdictions to which the Company's earnings are
subject.
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 childrenswear fixtured area programs and additional
retail stores. The Company's sources of liquidity are cash on hand, cash from
operations and available credit.
As of December 31, 1997, the Company had approximately $148,911,000 of cash
and cash equivalents compared to a year-end balance of approximately
$109,908,000. This represented an overall increase of $39,003,000 due to cash
provided by operating and financing activities, partially offset by cash used in
investing activities. A detailed analysis of the changes in cash and cash
equivalents is presented in the Condensed Consolidated Statements of Cash Flows.
Net cash from operating activities during the first nine months of fiscal
1998 was $81,993,000. This amount is primarily made up of cash generated from
net earnings offset, in part, by an increase in working capital. The increase in
working capital is principally due to a higher inventory level which increased
27.1% to $157,439,000 at December 31, 1997 from $123,847,000 at March 31, 1997.
Higher inventory levels at December 31, 1997 were primarily attributable to the
timing of receipts of inventory for the spring and summer seasons and increased
retail division inventory due to the greater number of stores. Also contributing
to the increased working capital is an increase in accounts receivable of
$11,468,000 from March 31, 1997 to December 31, 1997 due to the increased sales.
Capital expenditures were $49,993,000 for the nine months ended December 31,
1997, compared with $64,222,000 for the nine months ended December 31, 1996.
Significant capital expenditures in the first nine months of fiscal 1998 include
additions related to the Company's first flagship store in Beverly Hills and the
Company's in-store shop and fixtured area expansion program. 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 December 31, 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 December 31, 1997, accrue interest at varying interest rates.
At December 31, 1997, total short-term borrowings of $9,323,000 consisted
entirely of open letters of credit for inventory purchased. There were no direct
borrowings outstanding under the credit agreement at December 31, 1997.
Additionally, at December 31, 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 $41,199,000 related to commitments of TH USA to
suppliers for the purchase of inventories.
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 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, December 31, 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, including 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.
10
<PAGE>
On January 31, 1998, the Company entered into a definitive agreement to
acquire its women's, jeans and Canada licensees for $755,760,000 in cash and
9,045,930 Ordinary Shares of the Company. The acquisition is subject to approval
by the Company's shareholders, who will be asked to vote on the proposed
acquisition during the first quarter of fiscal 1999. The acquisition is also
subject to the Company obtaining necessary financing and other customary
conditions. The Company expects that the cash portion of the purchase price will
be funded from a combination of debt financing and cash on hand.
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.
11
<PAGE>
PART II
ITEM 1 - LEGAL PROCEEDINGS
On February 2, 1998, an alleged holder of Ordinary Shares filed a purported
derivative action in New York state court on behalf of the Company against the
members of the Company's Board of Directors. The complaint alleges that the
Board's approval of the Company's proposed acquisition of its women's, jeans and
Canada licensees constitutes a breach of fiduciary duty and corporate waste. The
complaint seeks equitable relief and damages in favor of the Company, and an
award of fees to the plaintiff's attorneys. The Company and its Board of
Directors have not yet responded to the complaint.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Material Contracts
(a) Tommy Hilfiger U.S.A. 1992 Stock Incentive Plan, as amended and
restated (previously filed as Exhibit 4.1 with Registration No.
333-42241).
(b) Tommy Hilfiger (Eastern Hemisphere) Limited 1992 Stock Incentive
Plan, as amended and restated (previously filed as Exhibit 4.2 with
Registration No. 333-42241).
(c) Second Amendment, dated October 1, 1997, to United States License
Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing,
Inc. and AIHL Investment Group Limited (as assigned to Pepe Jeans
USA, Inc.).
(d) First Amendment, dated December 1, 1997, to License Agreement, dated
as of February 1, 1997, between Tommy Hilfiger Licensing, Inc. and
Pepe Jeans London Corporation (as assigned to Tommy Hilfiger Europe
B.V.).
11. Computation of Net Income Per Ordinary Share
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
three months ended December 31, 1997.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:
Tommy Hilfiger Corporation
Date: February 9, 1998 By: /s/Joel J. Horowitz
---------------- ----------------
Joel J. Horowitz
Chief Executive Officer and President
Tommy Hilfiger Corporation
Date: February 9, 1998 By: /s/Joseph Scirocco
---------------- ---------------
Joseph Scirocco
Principal Accounting Officer
Tommy Hilfiger Corporation
13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.Material Contracts
(a)Tommy Hilfiger U.S.A. 1992 Stock Incentive Plan, as amended and
restated (previously filed as Exhibit 4.1 with Registration No.
333-42241).
(b)Tommy Hilfiger (Eastern Hemisphere) Limited 1992 Stock Incentive Plan,
as amended and restated (previously filed as Exhibit 4.2 with
Registration No. 333-42241).
(c)Second Amendment, dated October 1, 1997, to United States License
Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc.
and AIHL Investment Group Limited (as assigned to Pepe Jeans USA, Inc.).
(d)First Amendment, dated December 1, 1997, to License Agreement, dated as
of February 1, 1997, between Tommy Hilfiger Licensing, Inc. and Pepe
Jeans London Corporation (as assigned to Tommy Hilfiger Europe B.V.).
11.Computation of Net Income Per Ordinary Share
27.Financial Data Schedule
14
EXHIBIT 10(c)
SECOND AMENDMENT TO LICENSE AGREEMENT
DATED AUGUST 28, 1995 BETWEEN
TOMMY HILFIGER LICENSING, INC.
AND PEPE JEANS USA, INC.
AGREEMENT entered into as of the 1st day of October 1997, by and between
TOMMY HILFIGER LICENSING, INC., having an address at 913 N. Market Street,
Wilmington, Delaware 19801 (hereinafter referred to as "Licensor") and, by
assignment, PEPE JEANS USA, INC., having an address at 5428 East Slauson Avenue,
Commerce, California 90040 (hereinafter referred to as "Licensee").
W I T N E S S E T H :
WHEREAS, Licensor and Licensee entered into a License Agreement dated
August 28, 1995, by way of an assignment from SEL International Investments
Corp. to Pepe Jeans London Corporation, and from Pepe Jeans London Corporation
to Pepe Jeans USA, Inc. on October 1, 1995.
WHEREAS, the parties have agreed to the amendments to said agreement
contained herein.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
agreements herein contained and promises herein expressed, and for other good
consideration acknowledged by each of them to be satisfactory and adequate, do
hereby agree as follows:
1. Article 8.9 of the License Agreement shall be deleted in its entirety
and replaced with the following:
"8.9 (a) Licensee shall promptly and thereafter annually execute the
Certification attached hereto as Exhibit H;
(b) Licensee represents that all Licensed Products to be manufactured
hereunder (whether by Licensee, Licensee's third party manufacturers or by such
third party manufacturers' contract sewing shops or other designated contract
facilities) will be manufactured in compliance with the wage and hour laws of
the country of manufacture and without the use of child (under the age of 14),
prison or slave labor. All manufacturing facilities producing Licensed Products
that are located in the United States will be in strict compliance with the
minimum wage, overtime and child labor provisions of the Fair Labor Standards
Act and applicable state and local laws;
(c) Licensee shall not utilize any factory in the manufacture of
Licensed Products unless it has been inspected and approved, in writing, by an
authorized employee or agent of Licensee;
(d) Licensee shall provide to Licensor the name, address, telephone
number and facsimile number for each third party manufacturer utilized in the
production of Licensed Product;
(e) Licensee represents that it has in effect (or will promptly
develop) a program of monitoring all third party manufacturers and such third
party manufacturers' contract sewing shops and other designated contract
facilities for compliance with the requirements of Article 8.9(b) above;
<PAGE>
(f) Licensee shall require that all shipping documents which
accompany Licensed Products manufactured on Licensee's behalf include the
following language (either pre-printed or "stamped"):
"We hereby certify that the merchandise (including components thereof)
covered by this shipment was manufactured in compliance with (1) all
applicable requirements of the wage and hour laws of the country of
manufacture and without the use of child (under the age of 14), prison
or slave labor, and if manufactured in the United States, (2) all
applicable requirements of Sections 6,7, and 12 of the Fair Labor
Standards Act, as amended and all regulations and orders of the United
States Department of Labor under Section 14 thereof, and applicable
state and local laws pertaining to child labor, minimum wage and
overtime compensation. We further certify that we have in effect a
program of monitoring any manufacturers and their contract sewing
shops and other designated contract facilities which performed work
for us in connection with the manufacture of such merchandise for
compliance with the Fair Labor Standards Act and comparable state,
local and foreign laws. We also certify that upon importation (if
applicable) this shipment is in compliance with all laws applicable to
the designation of country of origin and is being shipped under
legally issued and valid export license or visa."
and;
2. Article 13 of the License Agreement shall be deleted in its entirety.
3. The Third Party Manufacturing Agreement incorporated into the Agreement
as Exhibit E is hereby substituted with the Third Party Manufacturing Agreement
attached hereto.
4. Exhibit H is hereby incorporated into the Agreement and is attached
hereto.
5. Except as modified hereby, all other paragraphs contained therein shall
remain in full force and effect and nothing contained herein shall alter them in
any way and are hereby in all respects ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
TOMMY HILFIGER LICENSING, INC. PEPE JEANS USA, INC.
BY: /s/ Virginia M. Cleary BY: /s/ Arthur Bargonetti
NAME: Virginia M. Cleary NAME: Arthur Bargonetti
TITLE: Assistant Secretary TITLE: Executive Vice President
EXHIBIT 10(d)
FIRST AMENDMENT TO LICENSE
AGREEMENT DATED FEBRUARY 1, 1997
BETWEEN TOMMY HILFIGER LICENSING, INC.
AND TOMMY HILFIGER EUROPE B.V.
AGREEMENT entered into this 1st day of December, 1997, by and between
TOMMY HILFIGER LICENSING, INC., having an address at 913 N. Market Street,
Wilmington, Delaware 19801 (hereinafter referred to as "Licensor") and TOMMY
HILFIGER EUROPE B.V., having its offices at Atlanta Building, Stadhouderskade 6,
1054 ES Amsterdam, The Netherlands (hereinafter referred to as "Licensee").
W I T N E S S E T H :
WHEREAS, Tommy Hilfiger Licensing, Inc. and Pepe Jeans London Corporation
("PLJC"), entered into a license agreement dated February 1, 1997 ("License
Agreement"), which License Agreement was, on June 1, 1997, was assigned by PLJC
to Tommy Hilfiger Europe B.V.; and
WHEREAS, the parties have agreed to the amendments to said
agreement contained herein;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
agreements herein contained and promises herein expressed, and for other good
consideration acknowledged by each of them to be satisfactory and adequate, do
hereby agree as follows:
1. Unless otherwise specified herein, all capitalized terms used herein
shall have the meanings ascribed to them in the License Agreement.
2. Paragraph 8.9 of the License Agreement shall be deleted in its entirety
and in lieu of the following is added:
"8.9 MANUFACTURE OF LICENSED PRODUCTS.
(a) Simultaneous to executing this Agreement, Licensee shall
execute and abide by the Certification in the form as
attached hereto as Exhibit H, and shall execute and abide
by all Certifications provided by Licensor from time to
time.
(b) Licensee shall not utilize any factory (whether operated
by Licensee or by Licensees manufacturers' contractors)
in the manufacture of
<PAGE>
Licensed Products unless (i) it has been inspected and
approved, in writing, by an authorized employee or agent of
Licensee; and (ii) Licensee has obtained and provided to
Licensor, the signature of an authorized representative from
each of its manufacturers and each of such manufacturer's
contractors (if any) used in the production of the Licensed
Products hereunder on a Third Party Manufacturing Agreement
in the form as attached hereto as Exhibit D or such other
form as may be provided by Licensor from time to time.
Licensee shall further obtain and provide to Licensor the
signature of an authorized representative from each of
Licensee's or Licensee's manufacturer's suppliers of fabric,
trim or any other product used in the manufacture of the
Licensed Products on a Certification in the same form as
that which is attached hereto and hereafter referred to as
Exhibit H, or such other form which is provided by Licensor
from time to time. Licensee shall provide a copy of each
such executed Agreement and Certification to Licensor within
thirty (30) days from the date of execution.
(c) All Licensed Products manufactured in the United States
(whether by Licensee, by Licensee's manufacturer or by
manufacturers' contractors) shall be in compliance with all
applicable requirements of Sections 6, 7, and 12 of the Fair
Labor Standards Act, as amended, and all regulations and
orders of the United States Department of Labor under
Section 14 thereof, and applicable state and local laws
pertaining to child labor, minimum wage and overtime
compensation, and, if the merchandise is manufactured
outside the United States, it will be manufactured in
compliance with the wage, overtime compensation, benefits,
hour, hiring and employment, workplace conditions and
safety, environmental, collective bargaining, freedom of
association laws of the country of manufacture and without
the use of child (persons under the age of fifteen or
younger than the age for completing compulsory education, if
that age is higher than 15), prison, indentured, bonded,
forced or slave labor.
(d) Licensee shall have in effect (or will promptly develop), to
the satisfaction of Licensor, a program of monitoring
Licensee's manufacturers and such manufacturer's contractors
and suppliers for compliance with the requirements of
Article 8.9(c) above.
(e) Licensee will require that commercial invoices which
accompany all Licensed Products manufactured on Licensee's
behalf include the following language (either pre-printed or
"stamped"):
"We hereby certify that the merchandise (including
<PAGE>
components thereof) covered by this shipment was
manufactured in compliance with (1) all applicable
requirements of Sections 6, 7, and 12 of the Fair
Labor Standards Act, as amended and all regulations
and orders of the United States Department of Labor
under Section 14 thereof, and applicable state and
local laws pertaining to child labor, minimum wage and
overtime compensation, and, (2) if the merchandise was
manufactured outside the United States, it was
manufactured in compliance with all of the applicable
requirements of the wage, benefits, hour, hiring and
employment, workplace conditions and safety,
environmental, collective bargaining, freedom of
association, laws of the country of manufacture and
without the use of child (persons under the age of 15
or younger than the age for completing compulsory
education, if that age is higher than 15), prison,
indentured, bonded, forced or slave labor. We further
certify that we have in effect a program of monitoring
our manufacturers and suppliers and other designated
contract facilities which manufacture Tommy Hilfiger
[Registered Mark] brand merchandise to ensure their
compliance with the Fair Labor Standards Act and all
state, local and foreign laws pertaining to wages,
overtime compensation, benefits, hours, hiring and
employment, workplace conditions and safety, environ-
mental, collective bargaining, freedom of association
and that their products or and the components thereof
are made without the use of child (persons under the
age of 15 or younger than the age for completing
compulsory education, if that age is higher than 15),
prison, indentured, bonded, forced or slave labor. We
also certify that upon importation (if applicable)
this shipment is in compliance with all laws
applicable to the designation of country of origin
and is being shipped under legally issued and valid
export license or visa."
(f) In order to maintain Licensor's high standard of quality
control and to insure that appropriate measures are taken
against counterfeiting, Licensee shall provide notice to
Licensor, on a quarterly basis, including all of the
following information: (i) name and address of each
manufacturer; (ii) type of Licensed Products manufactured by
such manufacturer; (iii) quantity of Licensed Products to be
manufactured; and (iv) any other relevant information.
(g) In the event Licensee has knowledge of, has reason to
believe, or should have reason to know that any
manufacturer, any of the manufacturer's contractors or
suppliers used by Licensee is in
<PAGE>
breach of the Certification or Third Party Manufacturing
Agreement, as the case may be, Licensee shall immediately
notify Licensor and Licensee shall, at its sole expense,
take immediate action to rectify such breach, including,
where Licensor deems it necessary, immediate termination of
its relationship with such manufacturer. If Licensee fails
to take immediate action or such action is not successful,
Licensee shall assign its rights to proceed against such
manufacturer to Licensor and Licensor shall, at Licensee's
expense, have the right to pursue all available remedies to
protect its rights. Notwithstanding the foregoing, Licensee
acknowledges that it shall remain primarily liable and
completely obligated under all of the provisions of this
Agreement in respect of the production of Licensed Products
hereunder.
(h) Licensee shall not utilize or permit any of its
manufacturers, each of such manufacturer's contractors or
suppliers used in the manufacture of Licensed Products to
utilize in the manufacture or treatment of any of the
Licensed Products (including the components thereof)
manufactured hereunder any AZO dyes that can be split into
any of the following amines:
CAS #
4-Aminobiphenyl 92-67-1
Benzidine 92-87-5
4-Chloro-o-toluidine 95-69-2
2-Naphthylamin 91-59-8
o-Aminoazotoluol 97-56-3
2-amino-4-nitrotoluol 99-55-8
Chloroaniline 106-47-8
2,4-Diaminoanisole 615-05-4
4,4'-Diaminodiphenylmethane 101-77-9
3,3'-Dichlorbenzidin 91-94-1
3,3'-Dimethoxybenzidine 119-90-4
3,3'-Dimethylbenzidine 119-93-7
3,3'-Dimethyl- 838-88-0
4,4'diaminodiphenylmethane
p-Kresidin 120-71-8
4,4'Methylen-bis-(2-chloranilin) 101-14-4
4,4'Oxydianiline 101-80-4
4,4'Thiodianiline 139-65-1
o-Toluidine 95-53-4
2,4-Toluylenediamine 95-80-7
2,4,5-Trimethylaniline 137-17-7
<PAGE>
(i) Licensee's use or any of Licensee's manufacturers and each
of such manufacturers' contractors and suppliers' use of the
following chemicals in connection with the manufacturer or
treatment of any of the Licensed Products (including the
components thereof) manufactured hereunder, shall be in
accordance with the following standards or further standards
Licensor may designate from time to time:
(i) Formaldehyde: Must be less than 300 p.p.m. when tested
in by the Acetylacetone method in accordance with
Japanese law 112.
(ii) Pentachlorophenol (Pesticides): Must be less than 5
p.p.m.
and; (iii)Nickel: In the event any metal parts of a garment
or other merchandise coming into contact with the skin,
contain nickel in excess of 0.5 micrograms per square
centimeter/week, Company must be so notified and
special warning labels need to be attached to the
garment."
3. Paragraph 8.11 of the License Agreement is hereby deleted in its
entirety and in lieu of the following is added:
"8.11 LICENSEE AND THIRD PARTY FACILITIES; INSPECTION OF FACILITIES.
Licensee represents and warrants that Licensee and any manufacturers,
contractors or suppliers ("Third Parties") utilized hereunder shall
operate all facilities in accordance with the United States Federal
Government's guidelines for Fair Labor Standards including but not
limited to maintaining safe regulated working conditions and shall at
no time employ minors in connection with the manufacture, sale,
storage or distribution of Licensed Products. Licensee shall
regularly, and not less than two (2) times per year, inspect the
facilities it utilizes and those facilities utilized by Third Parties
for compliance with this Provision and shall take all action
necessary to cure any deficiencies. Licensee further agrees that it
shall terminate any agreement with any third party found to be in
default of the terms of this provision on three (3) separate
inspections. Licensor and its duly authorized representatives shall
have the right, during normal business hours and upon reasonable
notice, to inspect all facilities utilized by Licensee, its
contractors and suppliers in connection with the manufacture, sale,
storage or distribution of Licensed Products, and to examine (i) the
Licensed Products at all stages manufacture; (ii) the manufacturing
facility, residential facilities (if any) and any manufacturing
and/or residential facility; (iii) the books and records relating to
employee wages, employee timecards, evidence of employee age,
shipping documents, cutting reports and other documentation relating
to the manufacture and shipment of the Licensed Products; and (iii)
the books and records relating to the use of chemicals and dyestuffs
in the fabrics, trims, garments and other
<PAGE>
components of the Licensed Products manufactured hereunder."
4. Exhibit D of the License Agreement is hereby replaced with a new
Exhibit D, in the form as attached hereto and such other form as provided by
Licensor from time to time.
5. Except as modified hereby, all other paragraphs contained therein
shall remain in full force and effect and nothing contained herein shall alter
them in any way and are hereby in all respects ratified and confirmed.
IN WITNESS WHEREOF, Licensor and Licensee have respectively signed this
Amendment as of the date first written above.
TOMMY HILFIGER LICENSING, INC. TOMMY HILFIGER EUROPE B.V.
By: /s/ Virginia M. Cleary By: /s/ L. R. Onnink
Title: Assistant Secretary Title: Director
Date: December 1, 1997 Date: 17 Nov. 1997
EXHIBIT 11
TOMMY HILFIGER CORPORATION
COMPUTATION OF NET INCOME PER ORDINARY SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
FINANCIAL STATEMENT PRESENTATION
BASIC
Weighted average shares
outstanding 37,333 37,015 37,387 37,095
====== ====== ====== ======
Net Income $85,782 $64,065 $36,381 $27,397
======= ======= ======= =======
Per share amount $ 2.30 $ 1.73 $ 0.97 $ 0.74
======= ======= ======= =======
DILUTED
Weighted average shares 37,333 37,015 37,387 37,095
outstanding
Net effect of dilutive stock
options based on the
treasury stock method using
average market price 585 823 511 936
--- --- --- ---
Total 37,918 37,838 37,898 38,031
====== ====== ====== ======
Net Income $85,782 $64,065 $36,381 $27,397
======= ======= ======= =======
Per share amount $ 2.26 $ 1.69 $ 0.96 $ 0.72
======= ======= ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
TOMMY HILFIGER CORPORATION
FINANCIAL DATA SCHEDULE
AS OF, AND FOR THE NINE MONTHS ENDED,
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
This schedule contains summary financial information extracted from the Tommy
Hilfiger Corporation Condensed Consolidated Balance Sheet as of December 31,
1997 and Condensed Consolidated Statement of Operations for the nine months then
ended and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 148,911
<SECURITIES> 0
<RECEIVABLES> 91,452
<ALLOWANCES> 0
<INVENTORY> 157,439
<CURRENT-ASSETS> 416,566
<PP&E> 150,272
<DEPRECIATION> 0
<TOTAL-ASSETS> 575,452
<CURRENT-LIABILITIES> 84,820
<BONDS> 0
0
0
<COMMON> 374
<OTHER-SE> 488,042
<TOTAL-LIABILITY-AND-EQUITY> 575,452
<SALES> 0
<TOTAL-REVENUES> 644,385
<CGS> 0
<TOTAL-COSTS> 337,671
<OTHER-EXPENSES> 178,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 128,316
<INCOME-TAX> 42,534
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,782
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.26
</TABLE>
