<PAGE>
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 SEPTEMBER 30, 1998
------------------
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
October 31, 1998: 46,861,878
<PAGE>
TOMMY HILFIGER CORPORATION
INDEX TO FORM 10-Q
September 30, 1998
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998 and March 31, 1998.............. 3
Condensed Consolidated Statements of Operations for the six months ended September 30, 1998
and 1997 and the three months ended September 30, 1998 and 1997............................. 4
Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 1998
and 1997.................................................................................... 5
Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months
ended September 30, 1998 and the year ended March 31, 1998.................................. 6
Notes to Condensed Consolidated Financial Statements........................................... 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 11
</TABLE>
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
<S> <C> <C>
Item 1 Legal Proceedings.............................................................................. 19
Item 4 Submission of Matters to a Vote of Security Holders............................................ 19
Item 6 Exhibits and Reports on Form 8-K............................................................... 19
Signatures............................................................................................. 21
</TABLE>
2
<PAGE>
PART I
ITEM 1 - FINANCIAL STATEMENTS
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
As of September 30, As of March 31,
1998 1998
------------------ ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................................. $ 79,251 $ 157,051
Accounts receivable.................................................... 190,553 104,732
Inventories............................................................ 269,025 150,947
Other current assets................................................... 37,422 25,554
---------- ----------
Total current assets................................................. 576,251 438,284
Property and equipment, at cost, less accumulated
depreciation and amortization.............................................. 210,118 160,089
Intangible and other assets, net of accumulated amortization.................. 1,296,592 19,637
---------- --------
Total Assets........................................................ $2,082,961 $ 618,010
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings.................................................... $ 6,620 $ --
Current portion of long-term debt........................................ 20,000 --
Accounts payable......................................................... 24,071 16,201
Accrued expenses and other current liabilities........................... 175,834 76,197
---------- ----------
Total current liabilities........................................... 226,525 92,398
Long-term debt............................................................... 629,182 --
Deferred tax and other liabilities........................................... 251,875 6,550
Shareholders' equity
Preference Shares, $0.01 par value-shares authorized 5,000,000;
none issued.............................................................. -- --
Ordinary Shares, $0.01 par value-shares authorized 75,000,000;
issued and outstanding 46,861,878 and 37,557,934, respectively........... 469 376
Capital in excess of par value........................................... 560,777 173,416
Retained earnings........................................................ 414,920 345,195
Cumulative translation adjustment........................................ (787) 75
---------- ----------
Total shareholders' equity.......................................... 975,379 519,062
---------- ----------
Commitments and contingencies
Total Liabilities and Shareholders' Equity.......................... $2,082,961 $ 618,010
========== ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED) FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue............................................. $752,980 $398,281 $465,324 $224,546
Cost of goods sold...................................... 401,766 206,870 248,778 114,838
-------- -------- -------- --------
Gross profit............................................ 351,214 191,411 216,546 109,708
Depreciation and amortization........................... 36,936 14,496 20,104 7,368
Other selling, general and administrative expenses...... 180,166 105,061 104,132 55,545
Special charges......................................... 19,800 -- -- --
--------- -------- -------- --------
Total expenses.......................................... 236,902 119,557 124,236 62,913
Income from operations.................................. 114,312 71,854 92,310 46,795
Interest expense........................................ 18,147 694 11,025 515
Interest income......................................... 2,249 3,575 548 1,826
--------- -------- -------- --------
Income before income taxes.............................. 98,414 74,735 81,833 48,106
Provision for income taxes.............................. 28,689 25,334 25,083 16,212
--------- -------- -------- --------
Net income.............................................. $ 69,725 $ 49,401 $ 56,750 $ 31,894
========= ======== ======== ========
Earnings per share:
Basic earnings per share................................ $ 1.54 $ 1.32 $ 1.21 $ .85
========= ======== ======== ========
Weighted average shares outstanding..................... 45,239 37,306 46,834 37,350
========= ======== ======== ========
Diluted earnings per share.............................. $ 1.52 $ 1.30 $ 1.20 $ .84
========= ======== ======== ========
Weighted average shares and share equivalents
outstanding........................................... 45,803 37,928 47,299 37,976
========= ======== ======== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
(UNAUDITED) FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities Net income............................ $ 69,725 $ 49,401
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and amortization....................................... 36,967 14,496
Deferred taxes...................................................... (2,506) --
Provision for special charges....................................... 19,800 --
Write-off of property and equipment................................. 379 --
Changes in operating assets and liabilities
Decrease (increase) in assets
Accounts receivable........................................... (28,478) (24,729)
Inventories................................................... (51,653) (58,490)
Other assets.................................................. 14,911 (1,780)
Increase (decrease) in liabilities
Accounts payable.............................................. (9,314) 6,269
Accrued expenses and other liabilities........................ 3,577 7,901
--------- --------
Net cash provided by (used in) operating activities................. 53,408 (6,932)
--------- --------
Cash flows from investing activities
Purchases of property and equipment...................................... (33,583) (31,453)
Purchases of investments................................................. -- (20,000)
Acquisition of businesses, net of cash acquired.......................... (736,508) --
--------- --------
Net cash used in investing activities.................................. (770,091) (51,453)
--------- --------
Cash flows from financing activities
Proceeds from issuance of long-term debt................................. 649,151 --
Payments on long-term debt............................................... (10,000) (1,510)
Proceeds from the exercise of employee stock options..................... 6,497 2,817
Tax benefit from exercise of stock options............................... 3,442 869
Short-term bank borrowings (repayments).................................. (9,345) 27,104
Other.................................................................... (862) (74)
--------- --------
Net cash provided by financing activities........................... 638,883 29,206
--------- --------
Net decrease in cash................................................ (77,800) (29,179)
Cash and cash equivalents, beginning of period............................. 157,051 109,908
--------- --------
Cash and cash equivalents, end of period................................... $ 79,251 $ 80,729
========= ========
</TABLE>
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, 1997 $372 $165,032 $232,015 $ 45 $397,464
Comprehensive income....................... 113,180 30 113,210
Exercise of employee stock options......... 4 5,681 5,685
Tax benefits from exercise of stock
options............................... 2,703 2,703
____ ________ ________ ______ ________
BALANCE, MARCH 31, 1998 376 173,416 345,195 75 519,062
Comprehensive income....................... 69,725 (862) 68,863
Issuance of shares in connection
with the Acquisition................. 90 377,425 377,515
Exercise of employee stock options......... 3 6,494 6,497
Tax benefits from exercise of stock.......
options.............................. 3,442 3,442
____ ________ ________ ______ ________
BALANCE, SEPTEMBER 30, 1998 (UNAUDITED).......... $469 $560,777 $414,920 ($787) $975,379
==== ======== ======== ====== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
TOMMY HILFIGER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Tommy Hilfiger Corporation ("THC" or the "Company"; unless the
context indicates otherwise, all references to the "Company" include THC and its
subsidiaries) in a manner consistent with that used in the preparation of the
consolidated financial statements included in the Company's 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 six month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 1999. 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 six month and the three month
periods ended September 30, 1998 and 1997 are unaudited. The Condensed
Consolidated Balance Sheet as of March 31, 1998, as presented, has been prepared
from the Consolidated Balance Sheet as of March 31, 1998 included in the
Company's Form 10-K.
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. The Company's
comprehensive income consists of net income and the cumulative translation
adjustment and is reported in the Condensed Consolidated Statements of Changes
in Shareholders' Equity.
NOTE 2 - ACQUISITION OF WOMENSWEAR, JEANSWEAR AND CANADIAN LICENSEES
On May 8, 1998, following the approval by the shareholders of the Company on
May 5, 1998, the Company, through its wholly owned subsidiaries, acquired from
related parties Pepe Jeans USA, Inc., the Company's United States womenswear and
jeanswear licensee ("Pepe USA"), TJ Far East Limited, Pepe USA's buying agency
affiliate, and Tomcan Investments Inc., the parent corporation of Tommy Hilfiger
Canada Inc. ("TH Canada"), the Company's Canadian licensee (collectively, the
"Acquired Companies") (the "Acquisition"). The aggregate purchase price was
$1,166,239, comprised of the following: cash - $755,760, the issuance of
9,045,930 Ordinary Shares of the Company - $377,515 and related transaction
costs. For accounting purposes, the Ordinary Shares of the Company were valued
at $46.37 per share (the average closing price for the five days before and
after the announcement of the Acquisition) reduced by a valuation adjustment of
$41,960 to reflect restrictions on the sale of the shares. The cash portion of
the purchase price was funded from a combination of debt financing and cash on
hand.
7
<PAGE>
Purchase price allocation
The Acquisition has been accounted for as a purchase and, accordingly, the
operating results of the Acquired Companies are included in the consolidated
results of the Company from the date of the Acquisition. The purchase price has
been allocated as follows:
<TABLE>
<S> <C>
Cash.................................................. $ 19,252
Accounts receivable................................... 57,343
Inventory............................................. 67,723
Other current assets.................................. 13,359
Property and equipment................................ 49,212
Intangible assets, including goodwill................. 1,307,376
Other assets.......................................... 1,075
Short-term bank borrowings............................ (15,965)
Accounts payable...................................... (17,183)
Accrued expenses and other current liabilities........ (51,457)
Long-term debt........................................ (10,000)
Deferred tax liability................................ (252,320)
Other liabilities..................................... (2,176)
----------
Total purchase price $1,166,239
==========
</TABLE>
Pro forma results
The pro forma combined condensed results of operations of the Company and the
Acquired Companies for the six months ended September 30, 1998 and 1997 and the
three months ended September 30, 1998 and 1997, after giving effect to certain
pro forma adjustments, are as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
September 30, September 30,
------------- -------------
1998 1997 1998 1997
--------------- --------------- ------------------ ---------------
(Actual)
<S> <C> <C> <C> <C>
Net revenue....................................... $801,430 $590,577 $465,324 $335,933
Gross profit...................................... 373,405 277,503 216,546 159,053
Income from operations............................ 124,120 98,987 92,310 63,267
Net income........................................ 73,458 53,401 56,750 36,171
Diluted earnings per share........................ $1.55 $1.14 $1.20 $0.77
Weighted average shares and share
equivalents outstanding......................... 47,294 46,974 47,299 47,022
</TABLE>
The pro forma net income and diluted earnings per share, before special,
acquisition-related charges of $19,800 taken in the quarter ended June 30, 1998,
for the six months ended September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Six Months Ended
----------------
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Net income............................ $85,338 $53,401
Diluted earnings per share............ $1.80 $1.14
</TABLE>
8
<PAGE>
The foregoing pro forma statement of operations data assumes that the
Acquisition took place as of the beginning of each fiscal year. The results
also reflect (a) the elimination of certain revenues, cost of goods sold and
royalty expense, (b) amortization of intangible assets, principally over 40
years, (c) incremental interest and other expenses and (d) applicable income tax
effects.
On a combined pro forma basis, components of the Company's net revenue for
the six months ended September 30, 1998 and 1997 and the three months ended
September 30, 1998 and 1997 would have been as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
(Actual)
<S> <C> <C> <C> <C>
Wholesale:
Menswear........................................... $387,174 $335,051 $211,894 $183,973
Womenswear......................................... 183,901 78,391 112,384 46,961
Childrenswear...................................... 104,147 57,471 67,156 36,178
-------- -------- -------- --------
Total Wholesale................................... 675,222 470,913 391,434 267,112
Retail............................................ 101,050 91,101 59,815 54,948
Licensing......................................... 25,158 18,660 14,075 11,172
Other non-recurring............................... -- 9,903 -- 2,701
-------- -------- -------- --------
Total net revenue................................. $801,430 $590,577 $465,324 $335,933
======== ======== ======== ========
</TABLE>
Wholesale revenue includes revenues from the sale of menswear, womenswear and
childrenswear in the United States and Canada. Menswear is comprised of men's
sportswear and jeanswear. Womenswear is comprised of women's casualwear and
jeanswear. Childrenswear includes boys' sizes 4-20, and infants and toddlers.
Retail revenue reflects sales from the Company's outlet, specialty and flagship
stores. Licensing includes licensing royalties and buying agency commissions.
Other non-recurring revenue consists of sales of Pepe brand product as well as
product sales of the jeanswear buying office, each of which will not recur
prospectively.
Special acquisition-related charges
During the quarter ended June 30, 1998, the Company recorded a special charge
for non-recurring expenses of $19,800, before income taxes, related to the
Acquisition. This special charge consists of provisions of $7,000 for the
write-off of the fixed assets and operating leases of the Company's specialty
stores, $7,000 for redundant MIS equipment, furniture, fixtures and other
equipment, $3,800 for severance and other employee costs and $2,000 for the
termination of certain vendor contracts.
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
Finished Goods................................. $265,154 $148,488
Raw Materials.................................. 3,871 2,459
-------- --------
$269,025 $150,947
======== ========
</TABLE>
NOTE 4 - CREDIT FACILITIES
The debt financing portion of the Acquisition purchase price consisted of
$250,000 of 6.50% notes maturing on June 1, 2003 (the "2003 Notes"), $200,000 of
6.85% notes maturing on June 1, 2008 (the "2008 Notes") and $200,000 of term
loan borrowings pursuant to new $450,000 term and revolving credit facilities
(the "New Credit Facilities"). The 2003 Notes and the 2008 Notes (collectively,
the "Notes") were issued by Tommy Hilfiger U.S.A., Inc. ("TH USA") and
guaranteed by THC. The indenture under which the Notes were issued contains
covenants that, among other things, restrict the ability of subsidiaries of THC
to incur additional indebtedness, restrict the ability of THC and its
subsidiaries to incur indebtedness secured by liens or enter into sale and
leaseback transactions and restrict the ability of THC and TH USA to engage in
mergers or consolidations.
The New Credit Facilities, which are guaranteed by THC, consist of an
unsecured $250,000 TH USA five-year revolving credit facility, of which up to
$150,000 may be used for direct borrowings, and an unsecured $200,000 five-year
term credit facility which was borrowed by TH USA in connection with the
Acquisition. The revolving credit facility, which accrues interest at varying
interest rates, will be available for letters of credit, working capital and
other general corporate purposes. There were no direct borrowings outstanding
under the revolving credit facility at September 30, 1998. The New Credit
Facilities replaced the Company's secured revolving credit
9
<PAGE>
agreement which had been in place since April 1, 1996. The Company's Canadian
subsidiary is financed under a separate revolving credit facility under which
$6,620 was outstanding at September 30, 1998.
Borrowings under the term loan facility bear interest at varying rates
(6.375% as of September 30, 1998) and are repayable in quarterly installments as
follows: $40,000 in the 12-month period ending March 31, 2000, $50,000 in each
of the next two succeeding 12-month periods and $60,000 in the next succeeding
12-month period.
The New Credit Facilities contain a number of covenants that, among other
things, restrict the ability of subsidiaries of THC to dispose of assets, incur
additional indebtedness, create liens on assets, pay dividends or make other
payments in respect of capital stock, make investments, loans and advances,
engage in transactions with affiliates, enter into sale and leaseback
transactions, engage in mergers or consolidations or change the businesses
conducted by them. The New Credit Facilities also restrict the ability of THC
to create liens on assets or enter into sale and leaseback transactions. Under
the New Credit Facilities, subsidiaries of THC may not pay dividends or make
other payments in respect of capital stock to THC that in the aggregate exceed
33% of the Company's cumulative consolidated net income, commencing with the
fiscal year ended March 31, 1998, less certain deductions. In addition, under
the New Credit Facilities, THC and TH USA are required to comply with and
maintain specified financial ratios and tests (based on the Company's
consolidated financial results), including, without limitation, an interest
expense coverage ratio, a maximum leverage ratio and a minimum consolidated net
worth test.
The Company was in compliance with all covenants in respect of the Notes and
the New Credit Facilities as of September 30, 1998.
NOTE 5 - SUMMARIZED FINANCIAL INFORMATION
The following presents summarized financial information of TH USA, a wholly
owned subsidiary of THC, and its consolidated subsidiaries, as of September 30,
1998 and March 31, 1998 and for each of the six months and three months ended
September 30, 1998 and 1997. TH USA is the issuer and THC is the guarantor of
the Notes. The Company has not presented separate financial statements and
other disclosures concerning TH USA because management has determined that such
information is not material to holders of the Notes.
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
Current assets................................. $ 556,032 $354,128
Noncurrent assets.............................. 1,478,596 179,556
Current liability due to THC................... 47,540 28,669
Other current liabilities...................... 225,033 89,197
Noncurrent liability due to THC................ 767,954 216,651
Other noncurrent liabilities................... 876,470 6,550
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue.................................... $747,386 $394,414 $462,239 $222,358
Gross profit................................... 335,999 182,225 207,002 103,568
Net income (loss).............................. 39,384 33,023 43,325 17,183
</TABLE>
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
GENERAL
In May 1998, the Company acquired its licensed jeanswear, womenswear and
Canadian businesses for an aggregate purchase price of $755,760 in cash plus
9,045,930 Ordinary Shares of the Company. The cash portion of the purchase
price was funded through a combination of cash on hand, the issuance of debt
securities in a public offering, and bank borrowings. The Company has included
the results of the Acquired Companies in its consolidated statements of
operations from the date of the Acquisition. Because of the significance of the
Acquired Companies, management's discussion and analysis is presented on both a
pro forma and actual basis.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30
The following table sets forth the Condensed Consolidated Statements of
Operations data as well as the Pro Forma Statements of Operations data (which
are disclosed in Note 2 to the Condensed Consolidated Financial Statements) for
the six months ended September 30, as a percentage of net revenue.
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
Pro Forma Actual
--------- ------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 53.4 53.0 53.4 51.9
----- ----- ----- -----
Gross profit................................................ 46.6 47.0 46.6 48.1
Depreciation and amortization............................... 5.1 5.9 4.9 3.6
Other SG&A expenses......................................... 23.5 24.3 23.9 26.4
----- ----- ----- -----
SG&A expenses before special charges........................ 28.6 30.2 28.8 30.0
Special charges............................................. 2.5 -- 2.6 --
----- ----- ----- -----
Total SG&A expenses......................................... 31.1 30.2 31.4 30.0
----- ----- ----- -----
Income from operations..................................... 15.5 16.8 15.2 18.1
Interest income (expense), net............................. (2.5) (3.8) (2.1) 0.7
----- ----- ----- -----
Income before taxes........................................ 13.0 13.0 13.1 18.8
Provision for income taxes................................. 3.8 4.0 3.8 6.4
----- ----- ----- -----
Net income................................................. 9.2 9.0 9.3 12.4
===== ===== ===== =====
</TABLE>
Six months ended September 30, 1998 (Pro Forma) compared to six months ended
September 30, 1997 (Pro Forma)
The following discussion of the Company's results of operations for the six
months ended September 30, 1998 compared to the six months ended September 30,
1997 is presented on a pro forma basis, assuming the Acquired Companies had been
combined with the Company for each of the entire six month periods. The pro
forma financial information is derived by applying pro forma adjustments to the
historical financial statements of the Company and the Acquired Companies. The
pro forma adjustments consist of (a) the elimination of certain revenues, cost
of goods sold and royalty expense, (b) amortization of intangible assets,
principally over 40 years, (c) incremental interest and other expenses and (d)
applicable income tax effects. These pro forma results are not necessarily
indicative of the results that would have occurred had the businesses been
combined for the periods indicated.
11
<PAGE>
Net revenue increased to $801,430 in the six months ended September 30, 1998
from $590,577 in the corresponding period of fiscal 1998, an improvement of
35.7%. This increase is due to increases in each of the Company's operating
divisions, as outlined below.
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1998 1997 % Increase
---- ---- ----------
<S> <C> <C> <C>
Wholesale................................. $675,222 $470,913 43.4%
Retail.................................... 101,050 91,101 10.9%
Licensing................................. 25,158 18,660 34.8%
Other non-recurring....................... -- 9,903 --
-------- -------- ------
Total..................................... $801,430 $590,577 35.7%
======== ======== ======
</TABLE>
The Wholesale increase consists of increases in menswear sales of 15.6% (to
$387,174 from $335,051), womenswear sales of 134.6% (to $183,901 from $78,391)
and childrenswear sales of 81.2% (to $104,147 from $57,471). Each of these
improvements is due to volume increases which resulted primarily from increased
sales to existing customers. The increased sales to existing customers is
principally due to the expansion of the in-store shop and fixtured area program,
whereby certain of the Company's customers have increased the amount of square
footage where the Company's products are featured. Revenues in the womenswear
division increased in part due to the introduction of the junior jeans line in
Fall, 1998, while sales in the childrenswear division benefited from the
introduction of infants and toddlers in Holiday, 1997.
The improvement in the Company's Retail division is due to an increase in the
number of stores offset by a decrease in sales of existing stores. At September
30, 1998, the Company operated 74 retail stores as compared to 59 stores at
September 30, 1997. Retail stores opened since September 30, 1997 contributed
$19,372 of net revenue during the six months ended September 30, 1998.
Revenue from the Licensing division, which consists of licensing royalties
and buying agency commissions, principally increased due a general increase in
sales of existing licensed products and buying agency services.
Other non-recurring revenue consists of sales of Pepe brand product as well
as product sales of the jeanswear buying office, each of which will not recur
prospectively.
Gross profit as a percentage of net revenue decreased to 46.6% in the first
six months of fiscal 1999 from 47.0% in the first six months of fiscal 1998.
This decrease is primarily due to the decreased proportion of revenue from the
Retail and Licensing divisions following the Acquisition, each of which produces
higher margins than the Company's consolidated total. In addition, the
Wholesale division's margin was adversely affected by the sale of certain
residual prior season goods through normal channels at margins which were lower
than the normal wholesale margin.
Selling, general and administrative expenses, before the special charge
described below, decreased to 28.6% of net revenue in the first six months of
fiscal 1999 from 30.2% of net revenue in the first six months of fiscal 1998.
The decrease as a percentage of net revenue is primarily due to leveraging
certain expenses against the higher revenue base. The increase in expenses to
$229,485 in fiscal 1999 from $178,516 in fiscal 1998 is principally due to
increased volume related expenses to support the higher revenue as well as
increased depreciation and amortization. Included in selling, general and
administrative expenses is goodwill amortization of $17,264 and $18,104 in the
six months ended September 30, 1998 and 1997, respectively.
During the quarter ended June 30, 1998, the Company recorded a special charge
for non-recurring expenses of $19,800, before income taxes, related to the
Acquisition. This special charge consists of provisions of $7,000 for the
write-off of the fixed assets and operating leases of the Company's specialty
stores, $7,000 for redundant MIS equipment, furniture, fixtures and other
equipment, $3,800 for severance and other employee costs and $2,000 for the
termination of certain vendor contracts.
Interest expense, net of interest income, has decreased to $20,244 in the
first six months of fiscal 1999 from $22,481 in the corresponding period of last
year. Interest expense includes interest on the debt incurred in connection
with the Acquisition. The decrease from 1998 to 1999 is primarily due to
improved cash flow and, therefore, lower borrowing levels of both the Company
and the Acquired Companies.
The provision for income taxes has decreased to 29.3% of income before taxes
in the six month period ended September 30, 1998 from 30.2% in the corresponding
period last year. This decrease was primarily attributable to the relative
level of earnings in the various taxing jurisdictions to which the Company's
earnings are subject, together with the effects of the special charges which are
tax effected at a higher rate than the Company's weighted average tax rate.
12
<PAGE>
Six months ended September 30, 1998 (Actual) compared to six months
ended September 30, 1997 (Actual)
Net revenue increased to $752,980 in the six months ended September 30, 1998
from $398,281 in the corresponding period of fiscal 1998, an improvement of
89.1%. This increase is due to increases in the Company's Wholesale and Retail
divisions, partially offset by a decrease in the Licensing division, as outlined
below.
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1998 1997 % Increase
---- ---- -----------
<S> <C> <C> <C>
Wholesale.............................. $625,239 $278,704 124.3%
Retail................................. 101,050 91,101 10.9%
Licensing.............................. 26,691 28,476 (6.3)%
-------- -------- ------
Total.................................. $752,980 $398,281 89.1%
======== ======== =====
</TABLE>
The Wholesale increase is due to volume increases which resulted from the
Acquisition and from increased sales to existing customers. This increase is
principally attributed to the change in status of Pepe USA and TH Canada, which
contributed to the Company in the form of royalty income for the entire six
month period ended September 30, 1997, compared to a combination of royalty
income and wholesale revenue (since the Acquisition) in the six month period
ended September 30, 1998. A comparison of Wholesale revenue components after
adjusting for these changes is made in the previous section of Management's
Discussion and Analysis.
The improvement in the Company's Retail division is due to an increase in the
number of stores offset by a decrease in sales of existing stores. At September
30, 1998, the Company operated 74 retail stores as compared to 59 stores at
September 30, 1997. Retail stores opened since September 30, 1997 contributed
$19,372 of net revenue during the six months ended September 30, 1998.
Revenue from the Licensing division, which consists of licensing royalties
and buying agency commissions, decreased due to the change in status of Pepe USA
and TH Canada mentioned above offset, in part, by a general increase in sales of
existing licensed products and buying agency services.
Gross profit as a percentage of net revenue decreased to 46.6% in the first
six months of fiscal 1999 from 48.1% in the first six months of fiscal 1998.
This decrease is primarily due to the decreased proportion of revenue from the
Retail and Licensing divisions following the Acquisition, each of which produce
higher margins than the Company's consolidated total. In addition, the
Wholesale division's margin was adversely affected by the sale of certain
residual prior season goods through normal channels at margins which were lower
than the normal wholesale margin.
Selling, general and administrative expenses, before the special charge,
decreased to 28.8% of net revenue in the first six months of fiscal 1999 from
30.0% of net revenue in the first six months of fiscal 1998. The decrease as a
percentage of net revenue is primarily due to leveraging certain expenses
against the higher revenue base. The increase in expenses to $217,102 in fiscal
1999 from $119,557 in fiscal 1998 is principally due to increased volume related
expenses to support the higher revenue as well as increased depreciation and
amortization. Included in selling, general and administrative expenses is
goodwill amortization of $14,387 in the six months ended September 30, 1998.
The Company incurred interest expense, net of interest income, of $15,898 in
the first six months of fiscal 1999 and generated net interest income of $2,881
in the corresponding period of last year. Interest expense in the current year
includes interest on the debt incurred in connection with the Acquisition.
The provision for income taxes has decreased to 29.2% of income before taxes
in the six month period ended September 30, 1998 from 33.9% in the corresponding
period last year. This decrease was primarily attributable to the relative
level of earnings in the various taxing jurisdictions to which the Company's
earnings are subject, together with the effects of the special charges which are
tax effected at a higher rate than the Company's weighted average tax rate.
13
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30
The following table sets forth the Condensed Consolidated Statements of
Operations data as well as the Pro Forma Statements of Operations data (which
are disclosed in Note 2 to the Condensed Consolidated Financial Statements) for
the three months ended September 30, as a percentage of net revenue.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
Actual Pro Forma Actual
------ --------- ------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 53.5 52.7 53.5 51.1
----- ----- ----- -----
Gross profit................................................ 46.5 47.3 46.5 48.9
Depreciation and amortization............................... 4.3 5.3 4.3 3.3
Other SG&A expenses......................................... 22.4 23.2 22.4 24.7
----- ----- ----- -----
Total SG&A expenses......................................... 26.7 28.5 26.7 28.0
----- ----- ----- -----
Income from operations...................................... 19.8 18.8 19.8 20.9
Interest income (expense), net.............................. (2.2) (3.4) (2.2) 0.5
----- ----- ----- -----
Income before taxes........................................ 17.6 15.4 17.6 21.4
Provision for income taxes................................. 5.4 4.6 5.4 7.2
----- ----- ----- -----
Net income................................................. 12.2 10.8 12.2 14.2
===== ===== ===== =====
</TABLE>
Three months ended September 30, 1998 (Actual) compared to three months
ended September 30, 1997 (Pro Forma)
The following is a discussion of the Company's actual results of operations
for the quarter ended September 30, 1998 compared to the pro forma quarter ended
September 30, 1997, that is, assuming the Acquired Companies had been combined
with the Company for the entire quarter ended September 30, 1997. The pro forma
financial information is derived by applying pro forma adjustments to the
historical financial statements of the Company and the Acquired Companies. The
pro forma adjustments consist of (a) the elimination of certain revenues, cost
of goods sold and royalty expense, (b) amortization of intangible assets,
principally over 40 years, (c) incremental interest and other expenses and (d)
applicable income tax effects. These pro forma results are not necessarily
indicative of the results that would have occurred had the businesses been
combined for the periods indicated.
Net revenue increased to $465,324 in the second quarter of fiscal 1999 from
$335,933 in the corresponding quarter of fiscal 1998, an improvement of 38.5%.
This increase is due to increases in each of the Company's operating divisions,
as outlined below.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997 % Increase
---- ---- ----------
<S> <C> <C> <C>
Wholesale................................. $391,434 $267,112 46.5%
Retail.................................... 59,815 54,948 8.9%
Licensing................................. 14,075 11,172 26.0%
Other non-recurring....................... -- 2,701 --
-------- -------- -----
Total.................................. $465,324 $335,933 38.5%
======== ======== ======
</TABLE>
The Wholesale increase consists of increases in menswear sales of 15.2% (to
$211,894 from $183,973), womenswear sales of 139.3% (to $112,384 from $46,961)
and childrenswear sales of 85.6% (to $67,156 from $36,178). Each of these
improvements is due to volume increases which resulted primarily from increased
sales to existing customers. The increased sales to existing customers is
principally due to the expansion of the in-store shop and fixtured area program,
whereby certain of the Company's customers have increased the amount of square
footage where the Company's products are featured. Revenues in the womenswear
division increased in part due to the introduction of the junior jeans line in
Fall, 1998, while sales in the childrenswear division benefited from the
introduction of infants and toddlers in Holiday, 1997.
14
<PAGE>
The improvement in the Company's Retail division is due to an increase in the
number of stores offset by a decrease in sales of existing stores. At September
30, 1998, the Company operated 74 retail stores as compared to 59 stores at
September 30, 1997. Retail stores opened since September 30, 1997 contributed
$12,289 of net revenue during the quarter ended September 30, 1998.
Revenue from the Licensing division, which consists of licensing royalties
and buying agency commissions, increased principally due to a general increase
in sales of existing licensed products and buying agency services.
Other non-recurring revenue consists of sales of Pepe brand product as well
as product sales of the jeanswear buying office, each of which will not recur
prospectively.
Gross profit as a percentage of net revenue decreased to 46.5% in the second
quarter of fiscal 1999 from 47.3% in the second quarter of fiscal 1998. This
decrease is primarily due to the decreased proportion of revenue from the Retail
and Licensing divisions following the Acquisition, each of which produces higher
margins than the Company's consolidated total. In addition, the Wholesale
division's margin was adversely affected by the sale of certain residual prior
season goods through normal channels at margins which were lower than the normal
wholesale margin.
Selling, general and administrative expenses decreased to 26.7% of net
revenue in the second quarter of fiscal 1999 from 28.5% of net revenue in the
first quarter of fiscal 1998. The decrease as a percentage of net revenue is
primarily due to leveraging certain expenses against the higher revenue base.
The increase in expenses to $124,236 in fiscal 1999 from $95,786 in fiscal 1998
is principally due to increased volume related expenses to support the higher
revenue as well as increased depreciation and amortization. Included in
selling, general and administrative expenses is goodwill amortization of $8,632
and $9,052 in the quarters ended September 30, 1998 and 1997, respectively.
Interest expense, net of interest income, has decreased to $10,477 in the
second quarter of fiscal 1999 from $11,446 in the corresponding quarter of last
year. Interest expense includes interest on the debt incurred in connection
with the Acquisition. The decrease from 1998 to 1999 is primarily due to
improved cash flow and, therefore, lower borrowing levels of both the Company
and the Acquired Companies.
The provision for income taxes has increased to 30.7% of income before taxes
in the quarter ended September 30, 1998 from 30.2% in the corresponding quarter
last year. This increase 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 September 30, 1998 (Actual) compared to three months
ended September 30, 1997 (Actual)
Net revenue increased to $465,324 in the second quarter of fiscal 1999 from
$224,546 in the corresponding quarter of fiscal 1998, an improvement of 107.2%.
This increase is due to increases in the Company's Wholesale and Retail
divisions, partially offset by a decrease in the Licensing division, as outlined
below.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997 % Increase
---- ---- ----------
<S> <C> <C> <C>
Wholesale.............................. $391,434 $153,260 155.4%
Retail................................. 59,815 54,948 8.9%
Licensing.............................. 14,075 16,338 (13.9)%
-------- -------- ------
Total.................................. $465,324 $224,546 107.2%
======== ======== ======
</TABLE>
The Wholesale increase is due to volume increases which resulted from the
Acquisition and from increased sales to existing customers. This increase is
principally attributed to the change in status of Pepe USA and TH Canada, which
contributed to the Company in the form of royalty income for the quarter ended
September 30, 1997, compared to wholesale revenue in the quarter ended September
30, 1998. A comparison of Wholesale revenue components after adjusting for
these changes is made in the previous section of Management's Discussion and
Analysis.
15
<PAGE>
The improvement in the Company's Retail division is due to an increase in the
number of stores offset by a decrease in sales of existing stores. At September
30, 1998, the Company operated 74 retail stores as compared to 59 stores at
September 30, 1997. Retail stores opened since September 30, 1997 contributed
$12,289 of net revenue during the quarter ended September 30, 1998.
Revenue from the Licensing division, which consists of licensing royalties and
buying agency commissions, decreased due to the change in status of Pepe USA and
TH Canada mentioned above offset, in part, by a general increase in sales of
existing licensed products and buying agency services
Gross profit as a percentage of net revenue decreased to 46.5% in the second
quarter of fiscal 1999 from 48.9% in the second quarter of fiscal 1998. This
decrease is primarily due to the decreased proportion of revenue from the Retail
and Licensing divisions following the Acquisition, each of which produces higher
margins than the Company's consolidated total. In addition, the Wholesale
division's margin was adversely affected by the sale of certain residual prior
season goods through normal channels at margins which were lower than the normal
wholesale margin.
Selling, general and administrative expenses decreased to 26.7% of net
revenue in the second quarter of fiscal 1999 from 28.0% of net revenue in the
second quarter of fiscal 1998. The decrease as a percentage of net revenue is
primarily due to leveraging certain expenses against the higher revenue base.
The increase in expenses to $124,236 in fiscal 1999 from $62,913 in fiscal 1998
is principally due to increased volume related expenses to support the higher
revenue as well as increased depreciation and amortization. Included in
selling, general and administrative expenses is goodwill amortization of $8,632
in the quarter ended September 30, 1998.
The Company incurred interest expense, net of interest income, of $10,477 in
the second quarter of fiscal 1999 and generated net interest income of $1,311 in
the corresponding quarter of last year. Interest expense in the current year
includes interest on the debt incurred in connection with the Acquisition.
The provision for income taxes has decreased to 30.7% of income before taxes
in the quarter ended September 30, 1998 from 33.7% in the corresponding quarter
last year. This 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 ongoing funding requirements are to finance working
capital and the continued growth of the business. Principally, 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 Company's in-store shop and fixtured area program and additional retail
stores. The Company's sources of liquidity are cash on hand, cash from
operations and the Company's available credit. Additionally, the Company
required financing in May 1998 to acquire its womenswear, jeanswear and Canadian
licensees as discussed further below.
The Company's cash and cash equivalents balance decreased from $157,051 at
March 31, 1998 to $79,251 at September 30, 1998. This represented an overall
decrease of $77,800 due primarily to cash used in connection with the
Acquisition and for seasonal working capital requirements offset, in part, by
the issuance of long-term debt. A detailed analysis of the changes in cash and
cash equivalents is presented in the Condensed Consolidated Statements of Cash
Flows.
Capital expenditures were $33,583 during the six months ended September 30,
1998. Significant capital expenditures included additions related to the
Company's in-store shop and fixtured area expansion program.
At September 30, 1998, accrued expenses and other current liabilities included
$35,356 of open letters of credit for inventory purchased. Additionally, at
September 30, 1998, TH USA was contingently liable for unexpired bank letters of
credit of $74,497 related to commitments of TH USA to suppliers for the purchase
of inventories and leases.
On May 8, 1998, the Company, through its wholly owned subsidiaries, acquired
its womenswear, jeanswear and Canadian licensees for an aggregate purchase price
of $755,760 in cash and 9,045,930 Ordinary Shares of the Company. The cash
portion of the purchase price was funded from a combination of debt financing
and cash on hand. The debt financing portion of the purchase price consisted of
$250,000 of the 2003 Notes, $200,000 the 2008 Notes and $200,000 of term loan
borrowings pursuant to the New Credit Facilities. The Notes were issued by TH
USA and guaranteed by THC. Following the announcement of the proposed
Acquisition on February 1, 1998, the Company sold U.S. Treasury futures
contracts to protect against the potential increase in interest rates between
the announcement and the closing date of the Acquisition. These transactions
resulted in deferred gains of approximately $3,737 which will be amortized over
the respective terms of the Notes to reduce the effective interest rate. The
indenture under which the Notes were issued contains covenants that, among other
things, restrict the ability of subsidiaries of THC to incur additional
indebtedness, restrict the ability of THC and its subsidiaries to incur
indebtedness secured by liens or enter into sale and leaseback transactions and
restrict the ability of THC and TH USA to engage in mergers or consolidations.
16
<PAGE>
The New Credit Facilities, which are guaranteed by THC, consist of an
unsecured $250,000 TH USA five-year revolving credit facility, of which up to
$150,000 may be used for direct borrowings, and an unsecured $200,000 five-year
term credit facility which was borrowed by TH USA in connection with the
Acquisition. The revolving credit facility, which accrues interest at varying
interest rates, will be available for letters of credit, working capital and
other general corporate purposes. There were no direct borrowings outstanding
under the revolving credit facility at September 30, 1998. The New Credit
Facilities replaced the Company's secured revolving credit agreement, which had
been in place since April 1, 1996. The Company's Canadian subsidiary is
financed under a separate revolving credit facility under which $6,620 was
outstanding at September 30, 1998.
Borrowings under the term loan facility bear interest at varying rates (6.375%
as of September 30, 1998) and are repayable in quarterly installments as
follows: $40,000 in the 12-month period ending March 31, 2000, $50,000 in each
of the next two succeeding 12-month periods and $60,000 in the next succeeding
12-month period.
The New Credit Facilities contain a number of covenants that, among other
things, restrict the ability of subsidiaries of THC to dispose of assets, incur
additional indebtedness, create liens on assets, pay dividends or make other
payments in respect of capital stock, make investments, loans and advances,
engage in transactions with affiliates, enter into sale and leaseback
transactions, engage in mergers or consolidations or change the businesses
conducted by them. The New Credit Facilities also restrict the ability of THC
to create liens on assets or enter into sale and leaseback transactions. Under
the New Credit Facilities, subsidiaries of THC may not pay dividends or make
other payments in respect of capital stock to THC that in the aggregate exceed
33% of the Company's cumulative consolidated net income, commencing with the
fiscal year ended March 31, 1998, less certain deductions. In addition, under
the New Credit Facilities, THC and TH USA are required to comply with and
maintain specified financial ratios and tests (based on the Company's
consolidated financial results), including, without limitation, an interest
expense coverage ratio, a maximum leverage ratio and a minimum consolidated net
worth test.
The Company was in compliance with all covenants in respect of the Notes and
the New Credit Facilities as of September 30, 1998.
Cash requirements in fiscal 1999 will primarily include working capital and
capital expenditures relating to the in-store shop and fixtured area programs
and the opening of additional retail stores, including a flagship store in
London. The Company expects fiscal 1999 capital expenditures to approximate
$100,000. The Company intends to fund such cash requirements for fiscal 1999
and future years from available cash balances, internally generated funds and
borrowings available under the New Credit Facilities. The Company believes that
these resources will be sufficient to fund its cash requirements for such
periods.
INFLATION
The Company does not believe that the relatively moderate rates of inflation
experienced over the last few years in the United States, where it primarily
competes, have had a significant effect on its net revenue or profitability.
Higher rates of inflation have been experienced in a number of foreign countries
in which the Company's products are manufactured but have not had a material
effect on the Company's net revenue or profitability. The Company has
historically been able to partially offset its cost increases by increasing
prices or changing suppliers.
EXCHANGE RATES
The Company receives United States dollars for substantially all of its
product sales, other than those in Canada, and its licensing revenues.
Inventory purchases from contract manufacturers throughout the world, other than
those in Canada, are denominated in United States dollars; however, purchase
prices for the Company's products may be impacted by fluctuations in the
exchange rate between the United States dollar and the local currencies of the
contract manufacturers, which may have the effect of increasing the Company's
cost of goods in the future. During the last three fiscal years, exchange rate
fluctuations have not had a material impact on the Company's inventory costs;
however, due to the number of currencies involved and the fact that not all
foreign currencies react in the same manner against the United States dollar,
the Company cannot quantify in any meaningful way the potential effect of such
fluctuations on future income.
The operations of the Company's Canadian business and certain international
licensees are conducted principally in local foreign currencies. The Company
therefore has certain exposure to U.S. dollar purchases by its Canadian
subsidiary, as well as to rate fluctuations upon conversion of Canadian earnings
and foreign royalties into U.S. dollars. The Company attempts to protect
against the adverse effects of such fluctuations, where potentially significant,
principally through selective use of forward foreign currency contracts.
17
<PAGE>
YEAR 2000
During the year ended March 31, 1998, the Company initiated a comprehensive
program to evaluate and address the impact of the year 2000 on its operations
and those of the Acquired Companies in order to ensure that its computer systems
properly recognize calendar year 2000. This program included steps to identify
each item or element that will require date code remediation and make
appropriate modifications to ensure a seamless transition to the year 2000. The
Company expects the major portion of its internal date remediation activity to
be completed in 1998.
The Company is using internal staff resources to accomplish most of this
activity and estimates that the cost will not exceed $500,000. Certain other
costs, which will be capitalized, represent investment in new hardware and
software systems upgrades, the timing of which was planned to coincide with the
integration of the Acquired Companies. Principal among these is a new
investment in packaged financial systems software to which the Company and its
subsidiaries will convert by early 1999. Such costs represent only a nominal
percentage of planned capital expenditures. The estimate of costs of the Year
2000 compliance effort and the timetable for internal Year 2000 modifications
are management's best estimates. There can be no guarantee that these estimates
will prove accurate and actual results could differ from the estimates. Based
upon progress to date, however, the Company believes that it is unlikely that
actual results would differ significantly from the estimates.
The Company has also begun to correspond with significant suppliers,
customers, transportation carriers and general service providers whose computer
systems' functionality could impact the Company and in particular its ability to
schedule forward production and procurement of merchandise from suppliers and to
fulfill customer orders. These communications will facilitate coordination of
Year 2000 conversions and will additionally permit the Company to determine its
exposure to the failure of third parties to address their own Year 2000 issues.
Although the Company is not aware of any material issues that would impede its
ability to prepare its internal systems for the year 2000, and therefore has not
prepared a contingency plan, there can be no assurance that the systems of other
companies on which the Company's processes rely will be timely converted, or
that a failure to successfully convert by another company, or a conversion that
is incompatible with the Company's systems, would not have an adverse impact on
the Company's operations. The need for contingency plans in this regard will
continue to be assessed.
The foregoing commentary should be considered to fall within the coverage of
the "Safe Harbor Statement" under the Private Securities Litigation Reform Act
of 1995 included in this report.
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities Litigation Reform Act of
---------------------------------------------------------------------------
1995. This report contains forward-looking statements within the meaning of
- ----
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are indicated by
words or phrases such as "anticipate," "estimate," "project," "management
expects," "the Company believes" and similar words or phrases. Such statements
are based on current expectations and are subject to certain risks,
uncertainties and assumptions, including, but not limited to, economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected.
18
<PAGE>
PART II
ITEM 1--LEGAL PROCEEDINGS
On February 2, 1998, February 12, 1998 and February 17, 1998, three alleged
holders of Ordinary Shares filed purported derivative actions in New York State
court on behalf of the Company against the members of the Board of Directors.
The actions were later consolidated and an amended complaint was served on May
29, 1998. The amended complaint alleges that the Board's approval of the
Acquisition constitutes a breach of fiduciary duty and corporate waste, and
seeks equitable relief and damages in favor of the Company, and an award of fees
to the plaintiffs' attorneys. On June 15, 1998, the Company and its directors
moved to dismiss the consolidated action on several grounds. The motion to
dismiss remains pending.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 2, 1998, the Company held its Annual Meeting of Shareholders at
PricewaterhouseCoopers, Price Waterhouse Centre, Lower Collymore Rock,
Bridgetown, St. Michael, Barbados. There were a total of 46,861,878 Ordinary
Shares entitled to vote, in person or by proxy, at the meeting.
The following matters were voted upon and approved at the meeting:
(i) the election of three directors to the Board of Directors of the
Company for a term to expire at the 2001 Annual Meeting of Shareholders;
(ii) a proposal to renew the Tommy Hilfiger U.S.A., Inc. Supplemental
Executive Incentive Compensation Plan; and
(iii) a proposal to ratify the selection of PricewaterhouseCoopers LLP as
the Company's auditors for the fiscal year ending March 31, 1999.
With respect to the election of the directors, the following votes were cast:
<TABLE>
<CAPTION>
Nominee For Withheld Authority
------- --- ------------------
<S> <C> <C>
Joel J. Horowitz 36,557,921 111,789
Ronald K.Y. Chao 36,558,599 111,111
Simon Murray 36,360,314 309,396
</TABLE>
With respect to the renewal of the Tommy Hilfiger U.S.A., Inc. Supplemental
Executive Incentive Compensation Plan, a total of 22,027,391 votes were cast in
favor of the proposal, 10,724,696 votes were cast against and 47,811 votes
abstained. There were 3,869,812 broker non-votes with respect to this proposal.
With respect to the ratification of PricewaterhouseCoopers LLP as auditors, a
total of 36,623,733 votes were cast in favor of the proposal, 26,744 votes were
cast against and 19,233 votes abstained.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Material Contracts
(a) Tommy Hilfiger U.S.A., Inc. Supplemental Executive Incentive Compensation
Plan (previously filed as Exhibit A to the Company's Proxy Statement
dated September 25, 1998 and incorporated herein by reference).
(b) Amendment No. 2, dated as of August 7, 1998, to Amended and Restated
Employment Agreement, dated as of June 30, 1992, by and between Tommy
Hilfiger U.S.A., Inc. and Joel Horowitz.
19
<PAGE>
(c) Amendment No. 2, dated November 2, 1998, to Consulting Agreement, dated
April 1, 1991, between Polostro Limited and Tommy Hilfiger (Eastern
Hemisphere) Limited.
(d) First Amendment, dated September 14, 1998, to License Agreement, dated
June 24, 1996, between Tommy Hilfiger Licensing, Inc. and Novel-ITC
Licensing Limited.
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 September 30, 1998.
20
<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: November 11, 1998 By: /s/ Joel J. Horowitz
----------------- ----------------------------
Joel J. Horowitz
Chief Executive Officer and President
Tommy Hilfiger Corporation
Date: November 11, 1998 By: /s/ Joseph Scirocco
----------------- ---------------------------
Joseph Scirocco
Principal Accounting Officer
Tommy Hilfiger Corporation
21
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10. Material Contracts
(a) Tommy Hilfiger U.S.A., Inc. Supplemental Executive Incentive
Compensation Plan (previously filed as Exhibit A to the Company's
Proxy Statement dated September 25, 1998 and incorporated herein
by reference).
(b) Amendment No. 2, dated as of August 7, 1998, to Amended and
Restated Employment Agreement, dated as of June 30, 1992, by and
between Tommy Hilfiger U.S.A., Inc. and Joel Horowitz.
(c) Amendment No. 2, dated November 2, 1998, to Consulting Agreement,
dated April 1, 1991, between Polostro Limited and Tommy Hilfiger
(Eastern Hemisphere) Limited.
(d) First Amendment, dated September 14, 1998, to License Agreement,
dated June 24, 1996, between Tommy Hilfiger Licensing, Inc. and
Novel-ITC Licensing Limited.
11. Computation of Net Income Per Ordinary Share
27. Financial Data Schedule
22
<PAGE>
EXHIBIT 10(b)
AMENDMENT NO. 2 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
AMENDMENT NO. 2 (this "Amendment"), dated as of the 7th day of August,
1998, to that certain Amended and Restated Employment Agreement, dated as of
June 30, 1992, as amended as of March 8, 1994 (the "Employment Agreement"),
between Tommy Hilfiger U.S.A., Inc., a Delaware corporation (the "Company"), and
Joel Horowitz ("Horowitz").
WHEREAS, the parties wish to amend certain provisions of the
Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
1. Section 1 of the Employment Agreement is hereby amended to read
as follows:
1. Term. The Company agrees to employ Horowitz, and Horowitz
----
agrees to serve the Company, for a term (the "Term") ending on March
31, 2004.
2. Section 4(a) of the Employment Agreement is hereby amended to
read as follows:
(a) During Horowitz's employment hereunder, the Company shall pay
to Horowitz a base salary for the fiscal year ending March 31, 1993 at
the rate of $350,000 per year, which amount shall be increased on
April 1 of each subsequent year by a percentage equal to the average
percentage salary increase for all employees of the Company (the "Base
Amount"). In no event shall the Base Amount be reduced. The Base
Amount shall be paid to Horowitz in twenty-four equal semi-monthly
installments.
3. Section 13 of the Employment Agreement is hereby amended by
deleting the words "one year" in the second line thereof and substituting, in
lieu thereof, the words "two years".
4. Conditions of Effectiveness. This Amendment shall become
---------------------------
effective, as of the date hereof, upon the approval by the shareholders of Tommy
Hilfiger Corporation of the renewal of the Tommy Hilfiger U.S.A., Inc.
Supplemental Executive Incentive Compensation Plan for a term to expire no
earlier than April 1, 2004.
<PAGE>
5. Entire Agreement; Amendment. The Employment Agreement, as
---------------------------
amended by this Amendment, supersedes all prior agreements between the parties
with respect to its subject matter, is intended (with the documents referred to
herein and therein) as a complete and exclusive statement of the terms of the
agreement between the parties with respect thereto and may be amended only by a
writing signed by both parties hereto.
6. Waiver. The execution, delivery and performance of this Amendment
------
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of either
party under, the Employment Agreement.
7. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
8. Captions. The captions in this Amendment are for convenience of
--------
reference only and shall not be given any effect in the interpretation of this
Amendment.
9. Governing Law. This Amendment shall be governed by the law of the
-------------
State of New York, without regard to its conflict of laws principles.
10. References. On an after the date hereof, each
----------
reference in the Employment Agreement to "this Agreement", "hereunder",
"hereof", "herein" or word of like import referring to the Employment Agreement,
and each reference in any other document to the Employment Agreement,
"thereunder", "thereof" or words of like import referring to the Employment
Agreement shall mean and be a reference to the Employment Agreement as amended
by this Amendment.
2
<PAGE>
11. Reaffirmation. Except as specifically set forth herein, this
-------------
Amendment shall not by implication or otherwise alter, modify, amend or in any
other way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Employment Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
TOMMY HILFIGER U.S.A., INC.
By: /s/ Benjamin M.T. Ng
----------------------------------
Name: Benjamin M.T. Ng
Title: Executive Vice President-
Strategic Development
/s/ Joel Horowitz
----------------------------------
Joel Horowitz
3
<PAGE>
EXHIBIT 10(c)
POLOSTRO LIMITED
P.O. Box 285
6 Commercial Street
St. Helier, Jersey
Channel Islands
Tommy Hilfiger (Eastern Hemisphere) Limited
Craigmuir Chambers
P.O. Box 71
Road Town, Tortola
British Virgin Islands
Date: November 2, 1998
Dear Sirs,
CONSULTANCY AGREEMENT - AMENDMENT NO. 2
- ---------------------------------------
The purpose of this letter is to set out an amendment to that certain
Consultancy Agreement dated April 1, 1991 between Polostro Limited and Tommy
Hilfiger (Eastern Hemisphere) Limited (as the same has heretofore been amended,
the "Agreement"). The terms and conditions of this amendment shall be as
follows:
1. Clause 5 of the Agreement shall be amended by deleting the amount
"US225,000" specified therein and substituting, in lieu thereof, the amount
"US500,000".
2. The foregoing amendment shall be deemed to have effect from 1st April 1998.
3. Except as set forth hereinabove, all of the other terms and conditions of
the Agreement shall remain in full force and effect between us unchanged.
Would you please confirm your agreement to the above by signing this letter in
the space provided below and returning a copy to our attention. The receipt by
us of your signed counterpart of this letter will constitute a legally binding
agreement between us on the terms of this letter.
Yours faithfully,
/s/ Lawrence Stroll
- ---------------------------
For and on behalf of
POLOSTRO LIMITED
Acknowledged and Agreed to:
/s/ Joel Horowitz
- ----------------------------
For and on behalf of
TOMMY HILFIGER (EASTERN HEMISPHERE) LIMITED
<PAGE>
EXHIBIT 10(d)
FIRST AMENDMENT TO LICENSE
AGREEMENT DATED JUNE 24, 1996
BETWEEN TOMMY HILFIGER LICENSING, INC.
AND NOVEL-ITC LICENSING LIMITED
AGREEMENT entered into this 14/th/ day of September, 1998, by and between
TOMMY HILFIGER LICENSING, INC., having an address at 913 N. Market Street,
Wilmington, Delaware 19801 (hereinafter referred to as "Licensor") and NOVEL-ITC
LICENSING LIMITED, having its offices at 5-1, Kita-Aoyama, 2-Chome, Minato-Ku,
Tokyo 107-77 Japan (hereinafter referred to as "Licensee").
W I T N E S S E T H :
WHEREAS, Tommy Hilfiger Licensing, Inc. and Novel-ITC Licensing Limited,
entered into a license agreement dated June 24, 1996; 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 replaced by the following:
"8.9 MANUFACTURE OF LICENSED PRODUCTS.
(a) For purposes of this Agreement a "Third Party Manufacturer"
shall be defined as an entity or an individual which or whom Licensee or
any Sublicensee either hires or pays to manufacture the Licensed Products.
A "subcontractor" shall be defined as an entity or an individual which or
whom a Third Party Manufacturer either hires or pays to perform the
manufacturing tasks which the Third Party Manufacturer could otherwise
perform itself at its own facility or through its own employees and staff.
A "supplier" shall be defined as an individual or entity who produces
components for the Licensed Products, and provides such components to
manufacturer in order to assemble the finished Licensed Products. Examples
of a supplier include, but are not limited to, fabric/trim manufacturers,
yarn manufacturers, button manufacturers, or zipper
1
<PAGE>
manufacturers, provided that such named manufacturers do not contribute
further to the manufacture of the finished Licensed Products.
(b) Licensee shall not permit Sublicensees to enter into any
agreement with any Third Party Manufacturer, subcontractor or supplier for
the manufacture of Licensed Products without the prior written consent of
Licensor, which consent must be obtained within three (3) months prior to
commencing production. In order to maintain Licensor's high standard of
quality control and to insure that appropriate measures are taken against
counterfeiting, Licensee's notice to Licensor shall include all of the
following information: (i) name and address of each proposed Third Party
Manufacturer, subcontractor or supplier; (ii) type of Licensed Products to
be manufactured; (iii) quantity of Licensed Products to be manufactured;
and (iv) any other relevant information. Licensee will also require
Sublicensees to obtain the signature of an authorized representative from
each Third Party Manufacturer, subcontractor or supplier used by
Sublicensee on a brief agreement, in a form prepared by Licensor,
designated to protect Licensor's rights in the Trademark (see Exhibit F).
Licensee acknowledges that it shall remain primarily liable and completely
obligated under all of the provisions of this Agreement in respect of such
subcontracting arrangements.
(c) Attached hereto as Exhibit G is Licensor's Supplier Code of
Conduct (the "Code") which applies to any entity manufacturing merchandise
under the Tommy Hilfiger(R) label (including the components thereof).
Licensee shall ensure that Licensee, and all Sublicensees, Third Party
Manufacturers, subcontractors and suppliers comply with the terms of the
Code and shall evidence such compliance by, (1) upon execution of this
Agreement, Licensee executing the Code and having all of Licensee=s
Sublicensees, Third Party Manufacturers, subcontractors and suppliers
executed the Code in the form as attached or such other form as may be
provided by Company from time to time, and returning such document to
Licensor, and having all Sublicensees do the same with respect to each of
their Third Parties, and (2) publicly displaying and having all of
Licensee's Sublicensees, Third Party Manufacturers, subcontractors and
suppliers display the Code, in the most current form provided by Licensor,
in a clearly visible location in Licensee's manufacturing facilities (if
applicable) and in the manufacturing facilities of all of Licensee's
Sublicensees, Third Party Manufacturers, subcontractors and suppliers, and
having all Sublicensees require their Third Parties to do the same, at all
times during the term of this Agreement.
(d) Licensee acknowledges that it has in effect (or will
promptly develop) and that all of its Sublicensees have in effect (or will
promptly develop), to the satisfaction of Licensor, a program of monitoring
manufacturing facilities operated by Licensee, Sublicensee, and Licensee's
and Sublicensee's Third Party Manufacturers, subcontractors and suppliers
which is sufficient to ensure their compliance with the Code and all
applicable state, local and foreign laws and regulations pertaining to
wages, overtime compensation, benefits, hours, hiring and employment,
workplace conditions
2
<PAGE>
and safety, the environment, 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, exploited bonded, forced or slave labor. Such compliance shall
be evidenced by Licensee, upon execution of this Agreement, executing and
abiding by, and requiring all Sublicensees to execute and abide by, the
Certification in the form as attached hereto as Exhibit H, and executing
and abiding by, and requiring all Sublicensees to execute and abide by,
such other form as may be provided by Licensor from time to time.
(e) Within thirty (30) days after a new arrangement with a
Sublicensee, Third Party Manufacturer or subcontractor is established, Licensee
shall inspect each of Licensee's Sublicensee, Third Party Manufacturer or
subcontractor and provide approval, in writing, signed by an authorized employee
or agent of Licensee that such Sublicensee, Third Party Manufacturer or
subcontractor is in compliance with Paragraph 8.9(d) above, and shall obtain and
provide to Licensor the signature of an authorized representative from each of
such parties on a Third Party Manufacturing Agreement in the form as Exhibit F
attached hereto, or such other form as may be provided by Licensor from time to
time, and Licensee shall require all Sublicensees to do the same with respect to
each of their Third Party Manufacturers and subcontractors. Within thirty (30)
days after a new arrangement with a supplier is established, Licensee shall
obtain and provide to Licensor the signature of an authorized representative
from each supplier on a Certification in the form as Exhibit H attached hereto,
or such other form as may be provided by Licensor from time to time, and
Licensee shall require all Sublicensees to do the same with respect to each of
their suppliers. In the event that Licensee has knowledge of, has reason to
believe, or should have reason to know that any Sublicensee, Third Party
Manufacturer, subcontractor or supplier of Licensee is in breach of the Third
Party Manufacturing Agreement or Certification, or if any Sublicensee has
knowledge of, has reason to believe, or should have known that any of its Third
Parties is in breach of the Third Party Manufacturing Agreement or
Certification, Licensee shall immediately notify Licensor and Licensee, shall,
at its sole expense, take, and shall require its Sublicensee to take, immediate
action to rectify such breach, including, where Licensor deems it necessary,
immediate termination of Licensee's or Sublicensee=s relationship with such
third party. If Licensee or any Sublicensee fails to take immediate action or
such action is not successful, Licensee shall assign its rights to proceed
against such Sublicensee, Third Party Manufacturer, subcontractor or supplier to
Licensor and shall require its Sublicensee to do the same, 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.
(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) the name and
address of each Sublicensee, Third Party Manufacturer, subcontractor and
3
<PAGE>
supplier of Licensee and any Sublicensee; (ii) the type of Licensed
Products manufactured by such Sublicensee, Third Party Manufacturer and
subcontractor; (iii) quantity of Licensed Products to be manufactured by
each such entity; (iv) the type of components provided by each supplier;
and (iv) any other relevant information regarding all such entities.
(g) Licensee shall ensure, and will require all Sublicensees
shall ensure, that all merchandise manufactured hereunder shall be
manufactured in compliance with all federal, state and local laws which
pertain to the manufacture of clothing, apparel, and other merchandise
including the Flammable Fabrics Act, as amended, and regulations thereunder
and Manufacturer guarantees, that with regard to all products, fabrics or
related materials used in the manufacture of the Products, for which
flammability standards have been issued, amended or continued in effect
under the Flammable Fabrics Act, as amended, reasonable and representative
tests, as prescribed by the Consumer Product Safety Commission, have been
performed which show that the Products at the time of their shipment or
delivery conform to the above-referenced flammability standards as are
applicable.
(h) All Licensed Products manufactured in the United States
(whether by Licensee, any Sublicensee, by Licensee's or any Sublicensee'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, all Licensed Products manufactured outside the United
States, (whether by Licensee, any Sublicensee, by Licensee's or any
Sublicensee's manufacturer or by manufacturers' contractors) shall 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, exploited bonded, forced
or slave labor.
(i) Licensee will require, and shall ensure that all Sublicensees
require, that all commercial invoices (bills of lading) which accompany
all Licensed Products must include the following language (either
preprinted or "stamped"):
"We hereby certify that the merchandise (including components thereof)
covered by this shipment was manufactured in compliance with the Tommy
Hilfiger Supplier Code of Conduct and: (1) if the merchandise was
manufactured in the United States, it was manufactured in compliance
with (a) 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 (b) state and
4
<PAGE>
local laws pertaining to child labor, minimum wage and overtime
compensation; or (2) if the merchandise was manufactured outside the
United States, it was manufactured in compliance with the wage and
hour 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, exploited bonded, forced or slave labor. We further
certify that we have in effect a program of monitoring our
subcontractors and suppliers and other designated contract facilities
which manufacture Tommy Hilfiger/R/ brand merchandise for compliance
with the foregoing. We also certify that the merchandise is in
compliance with all laws governing the designation of country of
origin and, if applicable, is being shipped under legally issued and
valid export license or visa."
(j) Licensee shall not utilize or permit any Sublicensee, Third
Party Manufacturer, subcontractor or supplier, and shall require all
Sublicensees to not permit any of their Third Parties, to utilize in the
manufacture or treatment of any Licensed Products (including the components
thereof) manufactured hereunder any Azo dyes that can be split into any of
the following amines:
<TABLE>
<CAPTION>
CAS #
-----
<S> <C>
4-Aminobiphenlyl 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
p-Chloroaniline 106-47-8
2,4-Diaminoanisole 615-05-4
4,4'-Diaminodiphenylmethane 101-77-9
3,3'-Dichlorbenzidin 91-94-1
Aminoanabenzane
</TABLE>
<TABLE>
<CAPTION>
CAS #
-----
<S> <C>
3,3'-Dimethoxybenzidine 119-90-4
3,3'-Dimethylbenzadine 119-93-7
3,3'-Dimethyl- 838-88-0
4,4'diaminodiphenylmethane
p-Kresidin 120-71-8
4,4'Methaylen-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
o-Anisidine
</TABLE>
(k) Licensee's use or the use by any Sublicensee, Third Party
Manufacturer, subcontractor or supplier of the following chemicals in
connection with the manufacturer or treatment of any Licensed Products
(including the components thereof) manufactured hereunder, shall be in
accordance with the following standards or such other 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.
------------------------------
5
<PAGE>
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 is replaced by the following:
"8.11 INSPECTION OF FACILITIES. Licensee shall regularly, and not less
than two (2) times per year, inspect the facilities it utilizes and
those facilities utilized by all of Licensee's Sublicensees and Third
Parties for compliance with this provision and Licensee shall require
all Sublicensees to do the same with respect to each of their Third
Parties. Licensee shall take all action necessary to cure any
deficiencies and shall require all Sublicensees to do the same.
Licensee further agrees that it shall terminate and shall require any
Sublicensee to 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
Sublicensees, and all of Licensee's and any Sublicensee's Third Party
Manufacturers, subcontractors and suppliers in connection with the
manufacture, sale, storage or distribution of Licensed Products, and
to examine (i) Licensee's manufacturing facilities, residential
facilities (if any) and any manufacturing and/or residential facility
operated by any Sublicensees, and by any of Licensee's and
Sublicensee's Third Party Manufacturers or subcontractors; (ii)
Licensee's, any Sublicensee's, and any of Licensee's and Sublicensee's
Third Party Manufacturers or subcontractors books, records and
documents necessary to evidence such entities compliance with the Code
and all applicable laws, rules and regulations including, but not
limited to, employee wages, employee timecards, withholding rates and
deductions, worker's contracts and/or agreements, any company policies
affecting employees, evidence of employee age, shipping documents,
cutting reports and other documentation relating to the manufacture
and shipment of the Products; and (iii) Licensee's, any Sublicensee's,
and any of Licensee's and Sublicensee's Third Party Manufacturer's or
subcontractor's books, records and documents relating to the use of
chemicals and dyestuffs in the fabrics, trims, garments and other
merchandise manufactured hereunder. For purposes of this Paragraph,
all such books, records and documents shall be maintained by Licensee
and all Sublicensees in a secure and readily accessible location for a
period of three (3) years from their creation."
4. Exhibit F, in the form as attached hereto and such other form as
provided by Licensor from time to time, shall be appended to the License
Agreement.
6
<PAGE>
5. Exhibit G, in the form as attached hereto and such other form as
provided by Licensor from time to time, shall be appended to the License
Agreement.
6. Exhibit H, in the form as attached hereto and such other form as
provided by Licensor from time to time, shall be appended to the License
Agreement.
7. 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. NOVEL-ITC LICENSING LIMITED
By: /s/ Virginia M. Cleary By: /s/ K. Kojima
-------------------------------- -------------------------------
Title: Assistant Secretary Title: President
------------------------------ ---------------------------
Date: Sept. 14, 1998 Date: Sep. 02, 1998
------------------------------- ---------------------------
7
<PAGE>
EXHIBIT 11
TOMMY HILFIGER CORPORATION
COMPUTATION OF NET INCOME PER ORDINARY SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended THREE MONTHS ENDED
---------------- ------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
FINANCIAL STATEMENT PRESENTATION
BASIC
Weighted average shares outstanding 45,239 37,306 46,834 37,350
====== ====== ====== ======
Net Income $69,725 $49,401 $56,750 $31,894
======= ======= ======= =======
Per share amount $ 1.54 $ 1.32 $ 1.21 $ .85
======= ======= ======= =======
DILUTED
Weighted average shares outstanding 45,239 37,306 46,834 37,350
Net effect of dilutive stock options based on the
treasury stock method using average
market price 564 622 465 626
------- ------- ------- -------
Total 45,803 37,928 47,299 37,976
======= ======= ======= =======
Net Income $69,725 $49,401 $56,750 $31,894
======= ======= ======= =======
Per share amount $ 1.52 $ 1.30 $ 1.20 $ .84
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Tommy
Hilfiger Corporation Condensed Consolidated Balance Sheet as of September 30,
1998 and Condensed Consolidated Statement of Operations for the six 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-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 79,251
<SECURITIES> 0
<RECEIVABLES> 190,553
<ALLOWANCES> 0
<INVENTORY> 269,025
<CURRENT-ASSETS> 576,251
<PP&E> 210,118
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,082,961
<CURRENT-LIABILITIES> 226,525
<BONDS> 629,182
0
0
<COMMON> 469
<OTHER-SE> 974,910
<TOTAL-LIABILITY-AND-EQUITY> 2,082,961
<SALES> 0
<TOTAL-REVENUES> 752,980
<CGS> 0
<TOTAL-COSTS> 401,766
<OTHER-EXPENSES> 252,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 98,414
<INCOME-TAX> 28,689
<INCOME-CONTINUING> 69,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,725
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.52
</TABLE>
