<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____ to _____.
Commission file number 1-11226.
TOMMY HILFIGER CORPORATION
(Exact name of registrant as specified in its charter)
British Virgin Islands Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6/F, Precious Industrial Centre
18 Cheung Yue Street
Cheung Sha Wan
Kowloon, Hong Kong Not Applicable
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code 852-2745-7798
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Ordinary Shares, $.01 par value per share New York Stock Exchange
Tommy Hilfiger U.S.A., Inc. 6.50% Notes due 2003 New York Stock Exchange
Tommy Hilfiger U.S.A., Inc. 6.85% Notes due 2008 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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 __
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price on May 31, 2000: Ordinary Shares, $.01
----------------------
Par Value - $528,325,690
------------------------
The number of shares outstanding of the registrant's stock as of May 31, 2000:
Ordinary Shares, $.01 Par Value - 92,947,038 shares.
---------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Item Page
------------------------------------------------------------------------------
PART I
<S> <C>
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 12
Item 3. Legal Proceedings............................................. 13
Item 4. Submission of Matters to a Vote of
Security Holders............................................ 14
PART II
Item 5. Market for Registrant's Common Equity
and Related Matters......................................... 14
Item 6. Selected Financial Data...................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk... 24
Item 8. Financial Statements and Supplementary Data.................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26
PART III
Item 10. Directors and Executive Officers of
the Company............................................... 26
Item 11. Executive Compensation..................................... 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management..................................... 34
Item 13. Certain Relationships and Related
Transactions.............................................. 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................................... 37
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
General
Tommy Hilfiger Corporation ("THC" or the "Company"; unless the context
indicates otherwise, all references to the "Company" include THC and its
subsidiaries), through its subsidiaries, designs, sources and markets men's and
women's sportswear, jeanswear and childrenswear under the Tommy Hilfiger
trademarks. See "Acquisition of Womenswear, Jeanswear and Canadian Licensees."
Through a range of strategic licensing agreements, the Company offers a broader
array of apparel, accessories, footwear, fragrance and home furnishings. The
Company's products can be found in leading department and specialty stores
throughout the United States, Canada, Mexico, Central and South America, Europe,
Japan, Hong Kong and other countries in the Far East. Tommy Hilfiger is the
Company's principal designer and provides leadership and direction for all
aspects of the design process. The Company's apparel is designed to combine
classic American styling with unique details and fit to give time-honored basics
a fresh and updated look for customers who desire high quality, designer clothes
at competitive prices. The Company was organized under the laws of the British
Virgin Islands in June 1992.
As of March 31, 2000, the Company was engaged in three reportable segments:
Wholesale, Retail and Licensing. The Wholesale segment consists of the design
and sourcing of men's sportswear and jeanswear, women's casualwear, junior
jeanswear and childrenswear for wholesale distribution. The Retail segment
reflects the operations of the Company's outlet, specialty and flagship stores.
The Licensing segment consists of the operations of licensing the Company's
trademarks for specified products in specified geographic areas.
In the wholesale segment, products are principally merchandised through the
Company's in-store shop and fixtured areas program, whereby participating
retailers set aside floor space highlighted by distinctive fixtures dedicated
for the exclusive sale of the Company's products by the retailer. In addition to
continuing the in-store shop and fixtured areas program, the Company plans to
continue broadening its range of product offerings, both in-house and through
licensing arrangements, and expanding its channels of distribution. Since 1992,
the Company has introduced several in-house products, including childrenswear,
athleticwear and jeanswear. Additionally, the Company has introduced new
products through licensing agreements, including fragrances, robes and
sleepwear, footwear, home furnishings and other accessories. See "Merchandising
Strategies - Licensing and Distributorships."
As of March 31, 2000, the Company also operated 84 outlet stores and 4
specialty retail stores, including a store in London, England and currently
plans to open approximately 7 to 10 additional outlet stores and expand 7 to 10
of its existing outlet stores by March 31, 2001. The Company is currently
testing new specialty retail store formats for possible rollout on a broader
scale. The Company currently operates two flagship stores, one in Beverly
Hills, California and one in London, England, principally as marketing vehicles,
which stores are scheduled to be closed during fiscal 2001. See "Merchandising
Strategies - Retailing."
Share Repurchase Program
On April 7, 2000 the Company announced that its Board of Directors
authorized the repurchase of up to $150 million of its outstanding shares over a
period of up to 18 months using available cash.
3
<PAGE>
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 acquired 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 ("Pepe Far East"), and Tomcan Investments Inc.
("Tomcan"), the parent corporation of Tommy Hilfiger Canada Inc. ("TH Canada"),
the Company's Canadian licensee (collectively, the "Acquired Companies"), for an
aggregate purchase price of $755,760,000 in cash plus 18,091,860 Ordinary Shares
of the Company (the "Acquisition"). 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" in Item 7.
Pursuant to a license granted by the Company, Pepe USA had exclusive United
States rights to develop, source and market men's, women's and girls' jeanswear
and jeans-related apparel, including women's and girls' casualwear, bearing the
Tommy Jeans and Tommy Hilfiger trademarks. Pepe USA marketed its products
principally through in-store shops and fixtured areas in leading department
stores and through leading specialty stores. Pepe Far East and its subsidiaries
perform buying agency services for womenswear and jeanswear under the Tommy
Jeans and Tommy Hilfiger trademarks for both Pepe USA and the Company's third-
party distributors outside the United States.
Pursuant to a license granted by the Company, TH Canada had exclusive
Canadian rights to source, manufacture and distribute apparel bearing the Tommy
Hilfiger and Tommy Jeans trademarks, including men's sportswear and
athleticwear, boys' sportswear, women's and girls' casualwear and men's, women's
and girls' jeanswear. TH Canada marketed Tommy Hilfiger and Tommy Jeans
products principally through leading specialty stores and through in-store shops
and fixtured areas in leading department stores.
Information on the components of the Company's pro forma net revenue,
giving effect to the Acquisition, is presented in Note 14 to the Consolidated
Financial Statements in Item 8. For more information relating to the
Acquisition, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" in Item 7, Note 14
to the Consolidated Financial Statements in Item 8 and "Certain Relationships
and Related Transactions - The Acquisition" in Item 13.
Merchandising Strategies
Wholesale
The Company generally organizes its apparel collections, including products
produced under licensing arrangements, into three primary product lines: Core,
Core Plus and Fashion.
Core
The Core line is comprised of the Company's seasonless, or very basic,
products all in classic solid colors. Core items are made available for sale by
the Company throughout the year and, therefore, generally are kept in stock by
the Company. Since Core items are seasonless, they do not have fixed selling
periods and, therefore, retailers' inventories of Core products tend to be
maintained throughout the year and reordered as necessary. The Company receives
orders from most of its larger customers for Core products on an electronic data
interchange ("EDI") system, which expedites reorders. See "Management
Information Systems."
4
<PAGE>
Core Plus
The Core Plus line is comprised of a broad selection of seasonal "basics"
which are derived from Core but offer a greater variety of fabrics, colors and
patterns, such as stripes and plaids. The Core Plus line also incorporates
certain Fashion products that had previously been successful at retail. The
Company sells four different seasonal groups of Core Plus products each year.
As compared to Fashion items, Core Plus items provide the retailer with longer
selling periods at regular prices. Because Core Plus is a broader product
category than Fashion, with a longer regular-price selling period, the Company's
shipping deadlines are more flexible and the Company may be able to place
reorders when demand is high.
Fashion
The Fashion line represents the most updated component of the Company's
product line. Fashion items consist of a group of product classifications
coordinated around a seasonal theme. The Company offers Fashion products under
at least two themes per season, thereby creating a flow of new merchandise in
the marketplace.
Licensing and Distributorships
In connection with the Company's business strategy of expanding its market
penetration through product line and geographic expansion, the Company considers
entering into licensing and distribution agreements with respect to certain
products and geographic regions if the Company believes such arrangements
provide more effective manufacturing, distribution and marketing of such
products than could be achieved in-house. The Company continually pursues new
opportunities in product categories which are believed to be complementary to
its existing product lines, as well as opportunities for geographic expansion
through licenses and distributorships to enhance its international presence.
5
<PAGE>
As shown in the table below, the Company offers numerous products through
license arrangements with companies which are among the industry leaders in
their respective categories and has several strategic geographic licenses and
distributorships:
<TABLE>
<CAPTION>
Product Category Licensee Available at Retail
---------------- -------- --------------------
<S> <C> <C>
Men's socks Mountain High Hosiery, Inc. Holiday 1992
Men's neckwear Superba, Inc. Father's Day 1993
Men's belts and small leather goods Trafalgar, Inc. Fall 1993
Men's suits, sport coats, dress slacks, top coats, formal wear Hartmarx Corporation Fall 1994
Men's dress shirts Oxford Industries, Inc. Fall 1994
Men's underwear Jockey International, Inc. Fall 1994
Men's fragrance Aramis, Inc. (Estee Lauder) Father's Day 1995
Men's robes and sleepwear Russell-Newman, Inc. Holiday 1995
Men's golfwear Oxford Industries, Inc. Holiday 1995
Eyewear Lantis Eyewear Corporation (a) Fall 1996
Women's fragrance Aramis, Inc. (Estee Lauder) Fall 1996
Men's footwear The Stride Rite Corporation Spring 1997
Children's socks Mountain High Hosiery, Inc. Spring 1997
Boy's blazers Alperin, Inc. Spring 1997
Men's sunglasses Lantis Eyewear Corporation Fall 1997
Children's footwear The Stride Rite Corporation Fall 1997
Boy's neckwear Superba, Inc. Holiday 1997
Athletics fragrance Aramis, Inc. (Estee Lauder) Spring 1998
Formal accessories Marks & Barry Spring 1998
Linens, bedding and bath products Revman Industries, Inc. Summer 1998
Women's footwear The Stride Rite Corporation Holiday 1998
Women's robes and sleepwear Russell-Newman, Inc. Holiday 1998
Women's sunglasses Lantis Eyewear Corporation Holiday 1998
Women's hosiery Mountain High Hosiery, Inc. Holiday 1998
Bath & body products Aramis, Inc. (Estee Lauder) Spring 1999
Women's handbags, belts and small leather goods and sportbags Dickson Licensing Limited Fall 1999
Men's tailored clothing (Europe) Strellson AG Fall 1999
Cosmetics Aramis, Inc. (Estee Lauder) Fall 1999
Children's sunglasses Lantis Eyewear Corporation Fall 1999
Children's eyewear Lantis Eyewear Corporation Spring 2000
Men's and women's jewelry Victoria & Co. Ltd. Spring 2000
Women's hosiery and legwear Holt Hosiery Mills Fall 2000
Women's intimate apparel Bestform Intimates Fall 2000
Women's golfwear Oxford Industries, Inc. Holiday 2000
Men's and women's watches Movado Group, Inc. Spring 2001
Women's swimwear Jantzen, Inc. Spring 2001
Geographic Territory Licensee/Distributor Available at Retail
-------------------- -------------------- -------------------
Central and South America American Sportswear S.A. 1989
Japan Novel-ITC Licensing Limited 1991 (b)
Mexico Tommy Hilfiger Mexico SA de CV 1995
Europe Tommy Hilfiger Europe B.V. 1997
Asia-Pacific KSDP International 1998
</TABLE>
_____________
(a) License acquired from Liberty Optical in August, 1999.
(b) From 1991 to 1996, the operations in Japan were conducted through a Company
joint venture with Itochu.
In addition to a royalty payment or license fee, all of the Company's
licensees and distributors are required to contribute to the advertisement and
promotion of Tommy Hilfiger products on the basis of a percentage of their net
sales of Tommy Hilfiger products or a percentage of their net purchases of Tommy
Hilfiger products through the Company's buying offices (depending on the terms
of the license or distributorship agreement), subject to minimum amounts.
6
<PAGE>
Retailing
The Company believes its outlet store business has positioned it to take
advantage of an important segment of the retail apparel industry that appeals to
customers' value orientation and provides the Company with an additional channel
of distribution. The Company stocks its outlet stores with first-quality
products manufactured specifically for its outlet stores' customers and, to a
small degree, with out-of-season products. As of March 31, 2000, the Company
operated 84 outlet stores and currently plans to open approximately 7 to 10
additional outlet stores and expand 7 to 10 of its existing outlet stores by
March 31, 2001. The Company's outlet stores are located primarily in major
outlet centers in the United States.
As of March 31, 2000, the Company also operated 4 specialty retail stores,
including a store in London, England. Two existing specialty stores are being
expanded in size and the others are being remerchandised as part of a program to
test new formats considered most appropriate based on local consumer
demographics. Examples include sportswear stores, jeanswear stores,
childrenswear stores or a combination thereof, each with appropriate licensed
products. New locations are also being sought in select markets of the United
States in which to also experiment with these concepts during fiscal 2001.
The Company currently operates two Flagship stores which served as
showcases for all of the Company's products as it sought to further establish
the brand and develop its designer image in select locations with international
recognition. During fiscal 2000, the Company decided to close its two flagship
stores as it redirects its specialty retail store strategy, choosing locations
more closely associated with its targeted consumers.
In February 2000 and April 2000, the Company signed leases for new
specialty stores in Lower Manhattan and South Beach, Florida, respectively.
Design
Tommy Hilfiger is the Company's principal designer and provides leadership
and direction for all aspects of the design process. Tommy Hilfiger selects
designers on the basis of their understanding of the retail industry and their
ability to understand what consumers desire and which designs are most likely to
be commercially viable. Design teams are responsible for separate product
classifications. In addition, the Company has senior designers, whose
responsibility is to coordinate the design teams. Design teams utilize computer
aided design stations, which provide timely translation of designs into sample
depictions varying in color, cut and style. The speed of production and breadth
of the resulting output assist the Company in selecting desirable designs for
the sourcing and research and development staffs to assess.
Research and Development
The Company employs senior production executives who oversee a staff whose
primary functions are to identify ways to develop new designs and products more
efficiently, and to identify new and more cost-effective sourcing methods. This
group receives new product direction from Tommy Hilfiger and then researches and
develops the potential product. This process is designed to avoid costly
attempts to develop products that require designs or production methods that are
not efficient. In addition, the staff researches and identifies new sources for
both fabrics and manufacturing worldwide in order to control or reduce
manufacturing costs while maintaining the Company's quality standards.
7
<PAGE>
Sales and Marketing
Tommy Hilfiger products are sold throughout the United States in major
department and specialty retail store locations. The Company's department store
customers include major United States retailers such as Dillard Department
Stores, Federated Department Stores (including Macy's, Bloomingdale's, and
Burdines), The May Department Stores Company (including Lord & Taylor and
Foley's), Belk Stores, Saks, Inc. and Dayton Hudson Corporation. The Company
believes that its relationships with major retailers, including the active sales
involvement of the Company's senior management, are important elements of its
marketing strategy. The Company's strategy is to continue to maintain and,
where demand warrants, to selectively expand its United States in-store shop and
fixtured areas program, expand its product lines and market to new customers
both in the United States and internationally.
A significant aspect of the Company's ability to increase the commitment of
its existing customers and to attract new customers is its in-store shop and
fixturing program, whereby participating retailers set aside floor space
highlighted by distinctive fixtures dedicated for exclusive sale of the
Company's products by the retailer. This program enables the retailer to create
an environment consistent with the Company's image and to display and stock a
greater volume of the Company's products per square foot of retail space. Such
shops and fixtured areas encourage longer-term commitment by the retailer to the
Company's products, including the retailer's provision of upgraded staffing.
These shops and fixtured areas also increase consumer product recognition and
loyalty because of the retail customer's familiarity with the location of the
Company's products in the store.
The Company's sales and marketing departments include individuals located
in the Company's New York headquarters, Atlanta and Dallas showrooms and Los
Angeles, Chicago, Philadelphia, San Francisco and Cincinnati regional sales
territories. The sales force sells only the Tommy Hilfiger collection.
The Company employs an extensive staff of merchandise coordinators located
throughout the United States. These merchandisers educate the retailers'
salespeople about the Company's current products, provide the Company with
first-hand consumer feedback concerning consumer reaction to the Company's
products and coordinate the in-store displays with the department stores. In
addition to the coordinator program, the Company also conducts a training
program for the department stores' Tommy Hilfiger selling specialists. The
program is designed to educate specialists on the Company's image and
merchandising standards and to promote the development and servicing of
clientele. The program educates specialists in customer assistance and advice,
including merchandise selection and the coordination of complete outfits of
Tommy Hilfiger products.
The Company sells substantially all its out-of-season products, which are
principally from the Fashion and Core Plus product lines, to certain discount
retailers and through its Company owned outlet stores. The net revenues from
such sales represented less than 15% of the Company's total net revenue for each
of the last three fiscal years.
8
<PAGE>
Advertising, Public Relations and Promotion
The Company believes that advertising to promote and enhance the Tommy
Hilfiger brand and the image of Tommy Hilfiger products is important to its
long-term growth strategy. All of the Company's licensees and distributors are
required to contribute to the advertisement and promotion of Tommy Hilfiger
products a percentage of their net sales of Tommy Hilfiger products or a
percentage of their net purchases of Tommy Hilfiger products through the
Company's buying offices (depending on the terms of the license or
distributorship agreement), subject to minimum amounts. Advertising by the
Company, its licensees and most of its distributors is coordinated by the
Company and principally appears in magazines, newspapers, and outdoor
advertising media. In addition, selected personal appearances by Tommy
Hilfiger, corporate sponsorships and charitable programs are utilized to further
enhance awareness of the Company's image and promote the Company's products.
The Company employs an advertising and public relations staff to implement these
efforts.
In December 1999, the Company's website, tommy.com was launched as a
marketing vehicle to complement the ongoing development of the Tommy Hilfiger
lifestyle brand. It is designed to strengthen the Company's relationship with
customers, with the added benefit of driving traffic and sales in the Company's
existing retail venues. The Company plans to explore further developments of
tommy.com during fiscal 2001, including e-commerce capabilities.
Sourcing
The Company's sourcing strategy is to contract for the manufacture of its
products. Outsourcing allows the Company to maximize production flexibility
while avoiding significant capital expenditures, work-in-process inventory
buildups and the costs of managing a large production work force. The Company
inspects products manufactured by contractors to determine whether they meet the
Company's standards. See "Quality Control."
The Company imports most of its finished goods because it believes it can
import higher quality products at lower costs than could be achieved
domestically. Management maintains extensive and long-term relationships with
leading manufacturers in the Far East, including, among others, manufacturers
located in Indonesia, Thailand, India, the Philippines, Taiwan and Mauritius.
None of the countries from which the Company imports accounts for more than 15%
of the total cost of products purchased annually. The Company monitors duty,
tariff and quota-related developments and continually seeks to minimize its
potential exposure to duty, tariff and quota-related risks through, among other
measures, geographical diversification of its manufacturing sources, the
maintenance of its buying offices in Hong Kong, Macau, India and the United
States, allocation of production to merchandise categories where more quota is
available and shifts of production among countries and manufacturers.
The Company's production and sourcing staff oversees all aspects of apparel
manufacturing and production, the negotiation for raw materials and research and
development of new products and sources. The Company's buying offices perform
product development, sourcing, production scheduling and quality control
functions. In addition, the Company contracts with various buying subagents that
perform similar services for the Company and its licensees and geographic
distributors, for specified commissions.
The Company has its products manufactured according to plans prepared each
year which reflect prior years' experience, current fashion trends, economic
conditions and management estimates of a line's performance. In certain cases,
the Company separately negotiates with suppliers for the
9
<PAGE>
purchase of required raw materials by its contractors in accordance with the
Company's specifications. The Company limits its exposure to holding excess
inventory by committing to purchase a portion of total projected demand and the
Company, in its experience, has been able to satisfy its excess demand through
reorders. The Company believes that its policy of limiting its commitments for
purchases early in the season reduces its exposure to excess inventory and
obsolescence.
As noted above, the Company does not own or operate any manufacturing
facilities and is therefore dependent upon third parties for the manufacture of
all its products. The inability of a manufacturer to ship orders of the
Company's products in a timely manner, including as a result of local financial
market disruption which could impair the ability of such suppliers to finance
their operations, or to meet quality standards, could cause the Company to miss
the delivery date requirements of its customers for those items, which could
result in cancellation of orders, refusal to accept deliveries or a reduction in
purchase prices, any of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company has no
long-term formal arrangements with any of its suppliers and historically has
experienced only limited difficulty in satisfying its raw material and finished
goods requirements. Although the Company believes it could replace such
suppliers without a material adverse effect on the Company, there can be no
assurance that such suppliers could be replaced in a timely manner, and the loss
of such suppliers could have a significant effect on the Company's short-term
operating results.
Quality Control
The Company's quality control program is designed to ensure that purchased
goods meet the Company's standards. The Company inspects prototypes of each
product prior to cutting by the contractors and performs two in-line inspections
and a final inspection prior to shipment. All finished goods are shipped to the
Company's New Jersey facilities for re-inspection and distribution. While the
Company's return policy permits customers to return defective products for
credit, less than 1% of the Company's shipments in fiscal 2000 were returned as
defective under this policy.
Management Information Systems
The Company believes that high levels of automation and technology are
essential to maintain its competitive position and the Company continues to
invest in computer hardware, systems applications and networks to enhance and to
speed the apparel design process, to support the sale and distribution of
products to its customers and to improve the integration and efficiency of its
United States and Far East operations. The Company utilizes computer-aided
design stations for use by the design teams, which provide timely translations
of designs into sample depictions varying in color, cut and style. The Company
also uses an EDI system to receive on-line orders from its customers and to
accumulate sales information on its products. The EDI technology enables the
Company to provide valuable sales information and inventory maintenance
information services to its customers who have adopted such technology. Nine of
the Company's 10 largest customers communicate with the Company through EDI
technology.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Year 2000" in Item 7.
10
<PAGE>
Distribution
In the United States, wholesale distribution occurs at three New Jersey
facilities which average approximately 342,000 square feet. The facilities are
operated and principally staffed by an independent contractor who charges the
Company on the basis of the number of items processed, subject to a minimum
annual fee. In addition, the Company utilizes a 203,000 square foot facility in
New Jersey for retail distribution. The Company maintains its distribution
management group and certain administrative functions at its New Jersey
facilities.
The Company's Canadian distribution is processed through a 174,000 square
foot facility located in Montreal, Quebec.
Credit and Collection
The Company collects substantially all of its receivables from U.S.
customers through a credit company subsidiary of a large financial institution
pursuant to an agreement whereby the credit company pays the Company after the
credit company receives payment from the Company's customer. The credit company
establishes maximum credit limits for each customer account. If the receivable
becomes 120 days past due, or the customer becomes bankrupt or insolvent, the
full amount of the receivable is reimbursable by the credit company. The
Company has a similar arrangement with another large financial institution for
credit services to its Canadian subsidiary. In both cases the Company believes
that the credit risk associated with such financial institutions is minimal.
The Company also grants credit directly to certain select customers in
normal course of business without participation by a credit company. In such
cases the Company monitors its credit exposure limits to avoid any significant
concentration of risk.
Bad debts as a percentage of net sales were less than 0.1% in each of the
Company's last three fiscal years.
Trademarks
The Company owns and utilizes the following principal trademarks: the names
TOMMY HILFIGER(R), TOMMY JEANS(R), TOMMY(R), TOMMY GIRL(R), HILFIGER
ATHLETICS(R), and TOMMY.COM and the distinctive flag logo, crest design and
green eyelet device. Tommy Hilfiger Licensing, Inc., a subsidiary of THC
("THLI"), has registered or applied for registration for these trademarks for
use in the United States and in numerous countries worldwide, including, inter
alia, in North America, Europe, Asia, South and Central America. The Company
regards its trademarks and other proprietary intellectual property rights as
valuable assets in the marketing of its products. THLI is a party to an
agreement with Mr. Hilfiger that restricts the sale, lease, license or other
conveyance of THLI's trademarks, the amendment of the license agreement between
THLI and Tommy Hilfiger U.S.A., Inc., a subsidiary of THC ("THUSA"), and the
creation of any lien on THLI's trademarks without Mr. Hilfiger's consent, until
Mr. Hilfiger's death, or until termination of Mr. Hilfiger's employment with TH
USA without the consent of TH USA.
Backlog
The Company generally receives orders approximately three to five months
prior to the time the products are delivered to stores. Thus, at March 31,
2000, the Company's backlog of orders, which the
11
<PAGE>
Company believes, will result in sales, represents a significant portion of the
Company's expected sales through September 30, 2000. At March 31, 2000, the
Company's backlog of orders was approximately $771 million, compared to
approximately $820 million at March 31, 1999. The Company's backlog depends upon
a number of factors, including the timing of "market weeks" during which a
significant percentage of the Company's orders are received and the timing of
shipments. Accordingly, a comparison of backlog from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments.
Competition; Changes in Fashion Trends
The apparel industry is highly competitive. The Company competes with
numerous domestic and foreign designers, brands and manufacturers of apparel,
accessories and other products, some of which may be significantly larger and
more diversified, and have greater resources, than the Company. In addition, the
Company believes that its success depends in substantial part on its ability to
anticipate, gauge and respond to changing consumer demand and fashion trends in
a timely manner. The Company attempts to minimize the risk of changing fashion
trends and product acceptance by closely monitoring retail sales trends.
However, if fashion trends shift away from the Company's products, or if the
Company otherwise misjudges the market for its product lines, it may be faced
with a significant amount of unsold finished goods inventory or other conditions
which could have a material adverse effect on the Company.
Dependence on Customers Under Common Control
The Company's department store customers include major United States
retailers, certain of which are under common ownership. When considered
together as a group under common ownership, sales to the department store
customers which were owned by Dillard Department Stores, Federated Department
Stores and The May Department Stores Company accounted for approximately 22%,
18%, and 16%, respectively, of the Company's fiscal 2000 net wholesale product
sales. A decision by the controlling owner of a group of department stores to
decrease the amount purchased from the Company or to cease carrying the
Company's products could have a material adverse effect on the Company.
Employees
At March 31, 2000, the Company had approximately 2,600 full-time employees
and 900 part-time employees. Virtually all of the Company's part-time employees
were employed in the Company's retail stores. None of the Company's employees is
a member of a union. The Company considers its relations with its employees to
be excellent.
ITEM 2. PROPERTIES
The principal executive offices of THC are located at 6/F, Precious
Industrial Centre, 18 Cheung Yue Street, Cheung Sha Wan, Kowloon, Hong Kong. TH
USA's principal executive offices are located at 25 West 39/th/ Street, New
York, New York 10018.
The general location, use and approximate size of the principal properties
which the Company occupied as of March 31, 2000 are set forth below:
12
<PAGE>
<TABLE>
<CAPTION>
Approximate
Area in
Ownership Square
Location Use Status Feet
-------- --- ------ ----
<S> <C> <C> <C>
Hong Kong....................... Executive offices and principal buying office Owned 20,000
New York, New................... TH USA headquarters, sales offices and showrooms Owned 170,000
New York, New................... Design, production and administrative offices Owned 115,000
Edison, New Jersey.............. Warehouse distribution and administrative offices Leased 203,000
South Brunswick, New Jersey..... Warehouse distribution and administrative offices Leased 360,000
Secaucus, New Jersey............ Warehouse distribution and administrative offices Leased 324,000
Kearny, New Jersey.............. Warehouse distribution Leased 342,500
Montreal, Quebec................ Warehouse distribution, sales and administrative offices and Leased 174,000
showrooms
</TABLE>
The Company operates 84 outlet stores, each averaging approximately 4,800
square feet, generally located in major outlet centers in the U.S., 4 retail
stores in metropolitan areas, including one in London, England, each averaging
approximately 3,300 square feet, and two flagship stores, each averaging
approximately 18,000 square feet, one in Beverly Hills, California and one in
London, England. The two flagship stores are expected to be closed during fiscal
2001. See "Business - General - Retailing" in Item 1. In addition, the Company
has two regional showrooms outside of New York City and an administrative office
in Wilmington, Delaware. All of such stores, showrooms and the administrative
office are leased.
ITEM 3. LEGAL PROCEEDINGS
Saipan Litigation. On January 13, 1999, two actions were filed against the
-----------------
Company and other garment manufacturers and retailers asserting claims that
garment factories located on the island of Saipan, which allegedly supply
product to the Company and other co-defendants, engage in unlawful practices
relating to the recruitment and employment of foreign workers. One action,
brought in San Francisco Superior Court (the "State Action"), was filed by a
union and three public interest groups alleging unfair competition and false
advertising by the Company and others. It seeks equitable relief, restitution
and disgorgement of profits relating to the allegedly wrongful conduct, as well
as interest and an award of fees to the plaintiffs' attorneys. The other, an
action seeking class action status filed in federal court for the Central
District of California and subsequently transferred to the Federal Court in the
District of Hawaii (the "Federal Action"), was brought on behalf of an alleged
class consisting of the Saipanese factory workers. The defendants include both
companies selling goods purchased from factories located on the island of Saipan
and the factories themselves. This complaint alleges claims under RICO, the
Alien Tort Claims Act, federal anti-peonage and indentured servitude statutes
and state and international law. It seeks equitable relief and damages,
including treble and punitive damages, interest and an award of fees to the
plaintiffs' attorneys.
In addition, the same law firm that filed the State Action and the Federal
Action has filed an action seeking class action status in the Federal Court in
Saipan. This action is brought on behalf of Saipanese garment factory workers
against the Saipanese factories and alleges violation of federal and Saipanese
wage and employment laws. The Company is not a defendant in this action.
The Company has entered into settlement agreements with the plaintiffs in
the Federal Action and in the State Action. As part of these agreements, the
Company specifically denies any wrongdoing or any liability with regard to the
claims made in the Federal Action and the State Action. The settlement agreement
provides for a monetary payment, in an amount that is not material to the
Company's financial position or results of operations, to a class of plaintiffs
in the Federal Action, as
13
<PAGE>
well as the creation of a monitoring program for factories in Saipan. The
settlement must be approved by the Federal Court, and a class of plaintiffs
certified. The hearing on settlement approval and preliminary class
certification is presently scheduled for July 2000.
The Company and its subsidiaries are from time to time involved in routine
legal matters incidental to their businesses. In the opinion of the Company's
management, based on advice of counsel, the resolution of these matters will not
have a material effect on its financial position or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company's Ordinary Shares, par value U.S. $0.01, are listed and traded
on the New York Stock Exchange under the symbol "TOM." As of May 31, 2000,
there were approximately 1,200 record holders of the outstanding Ordinary
Shares.
The following table sets forth, for each of the periods indicated, the high
and low sales prices per Ordinary Share as reported on the New York Stock
Exchange Composite Tape.
<TABLE>
<CAPTION>
High Low
-------- ---------
<S> <C> <C>
Fiscal Year ended March 31, 2000
Fourth Quarter...................... 22 5/8 11 1/16
Third Quarter....................... 29 7/8 22 1/8
Second Quarter...................... 41 26 1/4
First Quarter....................... 41 1/16 31 9/16
Fiscal Year ended March 31, 1999
Fourth Quarter...................... 38 3/8 28 27/32
Third Quarter....................... 30 11/16 17 1/8
Second Quarter...................... 32 3/4 20 1/32
First Quarter....................... 35 3/16 28 1/4
</TABLE>
In the past two fiscal years, the Company has not paid any cash dividends,
and the Company has no current plans to pay cash dividends. Future dividend
policy will depend on the Company's earnings, capital requirements, financial
condition, restrictions imposed by agreements governing indebtedness of the
Company and its subsidiaries, availability of dividends from subsidiaries,
receipt of funds in connection with repayment of loans to subsidiaries or
advances from operating subsidiaries and other factors considered relevant by
the Board of Directors of the Company. For certain restrictions on the ability
of subsidiaries of the Company to pay dividends to the Company, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in Item 7.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data
The following selected financial data have been derived from the Company's
Consolidated Financial Statements. The information should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
that appear elsewhere in this Annual Report and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-------------------------------------------------------------------------
2000/(1)/ 1999/(1)/ 1998 1997 1996
------------ ------------ ------------ ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
-----------------------------
Net revenue.................................... $1,977,180 $1,637,073 $847,110 $661,688 $478,131
Cost of goods sold............................. 1,103,582 872,607 447,524 344,884 258,419
------------ ------------ ------------ ----------- -----------
Gross profit................................... 873,598 764,466 399,586 316,804 219,712
Selling, general and administrative
expenses................................... 618,099 484,185 236,571 190,976 132,270
------------ ------------ ------------ ----------- -----------
Income from operations......................... 255,499 280,281 163,015 125,828 87,442
Interest expense............................... 41,024 39,525 1,258 761 754
Interest income................................ 13,056 5,615 7,013 6,181 5,712
------------ ------------ ------------ ----------- -----------
Income before income taxes..................... 227,531 246,371 168,770 131,248 92,400
Provision for income taxes..................... 55,173 72,654 55,590 44,866 30,900
------------ ------------ ------------ ----------- -----------
Net income..................................... $ 172,358 $ 173,717 $113,180 $ 86,382 $ 61,500
============ ============ ============ =========== ===========
Basic earnings per share....................... $ 1.82 $ 1.88 $ 1.51 $ 1.17 $ 0.86
============ ============ ============ =========== ===========
Weighted average shares outstanding............ 94,662 92,264 74,748 74,118 71,534
============ ============ ============ =========== ===========
Diluted earnings per share..................... $ 1.80 $ 1.86 $ 1.49 $ 1.14 $ 0.83
============ ============ ============ =========== ===========
Weighted average shares and share
equivalents outstanding..................... 95,632 93,376 75,772 75,770 74,482
============ ============ ============ =========== ===========
</TABLE>
/(1)/ Reflects the acquisition in May 1998 of the Company's licensees, Pepe USA
and TH Canada, as described further in Item 1. Selling, general and
administrative expenses in fiscal 1999 included special acquisition-related
charges of $19,800 ($11,900 after-tax or $0.13 per diluted share). Fiscal 2000
results included special charges of $62,153 ($36,360 after tax or $0.38 per
diluted share), of which $11,700 was included in cost of goods sold.
<TABLE>
<CAPTION>
As of March 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- ------------- ---------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
-------------------
Cash, cash equivalents and short-term
investments............................... $ 309,397 $ 241,950 $157,051 $109,908 $127,743
Working capital.............................. 537,765 443,006 345,886 270,667 238,439
Total assets................................. 2,381,521 2,206,620 618,010 463,085 358,622
Short-term borrowings, including current
portion of long-term debt................. 50,523 41,234 - 275 5,975
Long-term debt............................... 579,370 609,245 - 1,510 1,789
Shareholders' equity......................... 1,277,714 1,092,249 519,062 397,464 301,338
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(dollar amounts in thousands)
All references to years relate to the fiscal year ended March 31 of such
year.
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
18,091,860 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 of the comparison of
the years ended March 31, 1999 and 1998 is presented on both a pro forma and an
actual basis.
Results of Operations
The following table sets forth the Consolidated Statements of Operations
data as well as the Pro Forma Statements of Operations data (which are disclosed
in Note 14 to the Consolidated Financial Statements) for the twelve months ended
March 31, as a percentage of net revenue.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------------------------------------------
Actual Pro Forma
---------------------------------------- ---------------------
2000 1999 1998 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue............................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold........................ 55.8 53.3 52.8 53.3 53.5
-------- -------- -------- -------- --------
Gross profit.............................. 44.2 46.7 47.2 46.7 46.5
Depreciation and amortization............. 5.0 5.0 3.5 5.0 5.8
Other SG&A expenses....................... 23.7 23.4 24.5 23.3 24.0
-------- -------- -------- -------- --------
SG&A expenses before special charges...... 28.7 28.4 28.0 28.3 29.8
Special charges........................... 2.6 1.2 - 1.2 -
-------- -------- -------- -------- --------
Total SG&A expenses....................... 31.3 29.6 28.0 29.5 29.8
-------- -------- -------- -------- --------
Income from operations.................... 12.9 17.1 19.2 17.2 16.7
Interest income (expense), net............ (1.4) (2.1) 0.7 (2.3) (3.6)
-------- -------- -------- -------- --------
Income before taxes....................... 11.5 15.0 19.9 14.9 13.1
Provision for income taxes................ 2.8 4.4 6.5 4.4 4.0
-------- -------- -------- -------- --------
Net income................................ 8.7 10.6 13.4 10.5 9.1
======== ======== ======== ======== ========
</TABLE>
16
<PAGE>
Year Ended March 31, 2000 (Actual) Compared to Year Ended March 31, 1999
(Actual)
Net revenue increased to $1,977,180 in fiscal 2000 from $1,637,073 in
fiscal 1999, an improvement of 20.8%. This increase is due to increases in each
of the Company's operating divisions, as outlined below.
Fiscal Year Ended March 31,
---------------------------
2000 1999 % Increase
----------- ----------- ----------
Wholesale................ $1,635,242 $1,364,946 19.8%
Retail................... 280,255 214,637 30.6%
Licensing................ 61,683 57,490 7.3%
----------- ----------- ----------
Total.................... $1,977,180 $1,637,073 20.8%
=========== =========== ==========
The Wholesale increase consists of increases in womenswear sales of 47.7%
(to $566,962 from $383,989) and childrenswear sales of 47.6% (to $314,196 from
$212,838) offset, in part, by a decrease in menswear sales of 1.8% (to $754,084
from $768,119). The improvements in womenswear and childrenswear are 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. The decrease in menswear sales is due to price
adjustments caused by the promotional environment of department stores where the
Company's products are sold, particularly during the holiday and spring selling
seasons.
The improvement in the Company's Retail division is due to an increase in
the number of stores and an increase in sales at existing stores, including
stores which were expanded in size during fiscal 1999 and fiscal 2000. At March
31, 2000, the Company operated 90 retail stores as compared to 80 stores at
March 31, 1999. Retail stores opened since March 31, 1999 contributed $37,774 of
net revenue during the fiscal year ended March 31, 2000.
Revenue from the Licensing division, which consists of third-party
licensing royalties and buying agency commissions, increased principally due to
a general increase in sales of existing licensed products and buying agency
services and the incremental revenue associated with newly licensed products.
Of the increase, approximately $576 was due to products introduced under
licenses entered into since March 31, 1999.
Gross profit as a percentage of net revenue decreased to 44.2% in fiscal
2000 from 46.7% in fiscal 1999. This decrease is mainly due to reduced
wholesale margins in the menswear and womenswear components caused by the
promotional environment of department stores, principally during the holiday and
spring selling seasons and an oversupply of the Company's products in department
stores. Wholesale gross margin declines were partially offset by increased
sales in the Retail division, which produce higher margins than those in the
Wholesale division. In addition, gross profit in fiscal 2000 was negatively
impacted by $11,700 of the special charge described below. Excluding this
charge, gross profit would have been 44.8%.
The Company anticipates that the promotional environment of department
stores will continue to prevail into fiscal 2001 and therefore expects a
significant decline in revenue from fiscal 2000 levels in its menswear and
womenswear components until supply and demand are brought more closely into
balance. The Company also anticipates that continued pressure on its gross
margins in menswear and womenswear will result in a significant reduction in
consolidated net income in fiscal 2001 from the fiscal 2000 level.
17
<PAGE>
Selling, general and administrative expenses, before the special charges
described below, increased to 28.7% of net revenue in fiscal 2000 from 28.4% of
net revenue in fiscal 1999. The increase in expenses to $567,646 in fiscal 2000
from $464,385 in fiscal 1999 is principally due to increased volume related
expenses to support the higher revenue as well as increased depreciation and
amortization. In addition, in the fiscal 2000 period, the Company incurred
higher marketing and advertising costs to promote the brand and incurred
expenses related to the start up of the womens dress-up and junior sportswear
divisions. These expenses were also the primary reasons for the increase as a
percentage of net revenue.
During the quarter ended March 31, 2000, the Company recorded a special
charge of $62,153, before income taxes, principally related to the following: a
re-direction of the Company's full-price retail store program, which includes
the closure of its two flagship stores in Beverly Hills, California and London,
England; the postponement of the launch of the women's dress-up line; and the
consolidation of the junior jeans and junior sportswear divisions. This charge
consisted of provisions of $44,857 for the write-off of fixed assets and
operating leases of the Company's two flagship stores and the write-off of fixed
assets related to the dress-up and junior sportswear divisions, $11,700 for
inventory of the junior sportswear division and, to a lesser extent, the
flagship stores, and $5,596 for severance and other costs. Inventory provisions
have been included in cost of sales.
In fiscal 1999, the Company recorded a special charge of $19,800, before
income taxes, related to the Acquisition. This special charge consisted 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, decreased to $27,968 in fiscal
2000 from $33,910 in fiscal 1999. The decrease from fiscal 1999 to fiscal 2000
is primarily due to higher average invested cash balances and higher interest
rates earned on investments offset, in part, by higher average borrowing levels.
The provision for income taxes decreased to 24.2% of income before taxes in
the twelve-month period ended March 31, 2000 from 29.5% 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, as well as the effects of the special charges which were
tax effected at higher rates than the Company's weighted average tax rate in
each period. Excluding the effects of special charges, the comparative
provisions for income taxes were 28.0% and 30.3% in fiscal year 2000 and fiscal
year 1999, respectively.
18
<PAGE>
Year Ended March 31, 1999 (Pro Forma) Compared to Year Ended March 31,
1998(Pro Forma)
The following discussion of the Company's results of operations for the
year ended March 31, 1999 compared to the year ended March 31, 1998 is presented
on a pro forma basis, assuming the Acquired Companies had been combined with the
Company for each of the entire twelve 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.
Net revenue increased to $1,685,523 in fiscal 1999 from $1,270,811 in
fiscal 1998, an improvement of 32.6%. This increase is due to increases in each
of the Company's operating divisions, as outlined below.
Fiscal Year Ended March 31,
------------------------------
1999 1998 % Increase
------------ ------------- ------------
Wholesale............... $1,414,927 $1,020,388 38.7 %
Retail.................. 214,637 196,066 9.5 %
Licensing............... 55,959 40,731 37.4 %
Other non-recurring..... - 13,626 - %
------------ ------------- ------------
Total................... $1,685,523 $1,270,811 32.6 %
============ ============= ============
The Wholesale increase consists of increases in menswear sales of 13.4% (to
$795,796 from $701,552), womenswear sales of 123.0% (to $405,783 from $181,926)
and childrenswear sales of 55.8% (to $213,348 from $136,910). 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
programs, 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, partially offset by a decrease in sales at existing
stores. At March 31, 1999, the Company operated 80 retail stores as compared to
66 stores at March 31, 1998. Retail stores opened since March 31, 1998
contributed $29,662 of net revenue during the fiscal year ended March 31, 1999.
Revenue from the Licensing division, which consists of licensing royalties
and buying agency commissions, increased due to a general increase in sales of
existing licensed products and buying agency services and the incremental
revenue associated with newly licensed products. Of the increase, $3,191, or
21.0%, was due to products introduced under licenses entered into since March
31, 1998.
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 increased to 46.7% in fiscal
1999 from 46.5% in fiscal 1998. This increase is due to improved wholesale
margins, offset, in part, by a reduction in the
19
<PAGE>
proportion of revenue from the Retail and Licensing divisions, each of which
produces higher margins than the Company's consolidated total.
Selling, general and administrative expenses, before the special charge
described below, decreased to 28.3% of net revenue in fiscal 1999 from 29.8% of
net revenue in 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 $476,768 in fiscal 1999 from $377,733 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 amortization of goodwill and
acquired intangibles of $34,528 and $36,008 in fiscal 1999 and fiscal 1998,
respectively.
In fiscal 1999, the Company recorded a special charge for non-recurring
expenses of $19,800, before income taxes, related to the Acquisition. This
special charge consisted 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 $38,256 in
fiscal 1999 from $46,274 last year. Interest expense includes interest on the
debt incurred in connection with the Acquisition. The decrease from fiscal 1998
to fiscal 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 29.5% of income before
taxes in the twelve month period ended March 31, 1999 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.
Year Ended March 31, 1999 (Actual) Compared to Year Ended March 31,
1998 (Actual)
Net revenue increased to $1,637,073 in fiscal 1999 from $847,110 in fiscal
1998, an improvement of 93.3%. 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>
Fiscal Year Ended March 31,
-----------------------------
1999 1998 % Increase/(Decrease)
------------ ------------ ---------------------
<S> <C> <C> <C>
Wholesale............. $1,364,946 $587,922 132.2 %
Retail................ 214,637 196,066 9.5 %
Licensing............. 57,490 63,122 (8.9) %
------------ ------------ ------------
Total................. $1,637,073 $847,110 93.3 %
============ ============ ============
</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 fiscal
year ended March 31, 1998, compared to a combination of royalty income and
wholesale revenue (since the Acquisition) in the fiscal year ended March 31,
1999. 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, partially offset by a decrease in sales at existing
stores. At March 31, 1999, the Company operated 80
20
<PAGE>
retail stores as compared to 66 stores at March 31, 1998. Retail stores opened
since March 31, 1998 contributed $29,662 of net revenue during the fiscal year
ended March 31, 1999.
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 and the incremental
revenue associated with newly licensed products. For fiscal 1999, $3,191 of the
revenue amount was due to products introduced under licenses entered into since
March 31, 1998.
Gross profit as a percentage of net revenue decreased to 46.7% in fiscal
1999 from 47.2% in fiscal 1998. This decrease is primarily due to the increased
proportion of revenue from the Wholesale divisions following the Acquisition.
Partially offsetting this decrease, the Wholesale margin improved during fiscal
1999 due to the addition of the Acquired Companies.
Selling, general and administrative expenses, before the special charge
described above, increased to 28.4% of net revenue in fiscal 1999 from 28.0% of
net revenue in fiscal 1998. The increase as a percentage of net revenue is
primarily due to an increase in depreciation and amortization, including
amortization of goodwill and other intangibles of $31,651 during fiscal 1999,
partially offset by leveraging certain expenses against the higher revenue base.
The increase in expenses to $464,385 in fiscal 1999 from $236,571 in fiscal 1998
is principally due to increased volume related expenses to support the higher
revenue as well as increased depreciation and amortization.
The Company incurred interest expense, net of interest income, of $33,910
in fiscal 1999 and generated net interest income of $5,755 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 29.5% of income before
taxes in the twelve month period ended March 31, 1999 from 32.9% 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.
Liquidity and Capital Resources
Cash provided by operations continues to be the Company's primary source of
funds to finance operating needs, capital expenditures and debt service.
Capital expenditures primarily relate to maintenance or selective expansion of
the Company's in-store shop and fixtured area program and the construction of
additional retail stores. The Company's sources of liquidity are cash on hand,
cash from operations and the Company's available credit.
The Company's cash and cash equivalents balance increased from $241,950 at
March 31, 1999 to $309,397 at March 31, 2000. This represented an overall
increase of $67,447 due primarily to cash provided by operating activities,
partially offset by cash used in investing and financing activities. A detailed
analysis of the changes in cash and cash equivalents is presented in the
Consolidated Statements of Cash Flows.
Capital expenditures were $151,984 in fiscal 2000, compared with $79,422 in
fiscal 1999. Significant capital expenditures included additions related to the
Company's in-store shop and fixtured area expansion program as well as the
purchase of the property which houses the Company's design and production
facilities for $37,250 on March 31, 2000.
21
<PAGE>
At March 31, 2000, accrued expenses and other current liabilities included
$62,535 of open letters of credit for inventory purchased. Additionally, at
March 31, 2000, TH USA was contingently liable for unexpired bank letters of
credit of $90,003 related to commitments of TH USA to suppliers for the purchase
of inventories.
On May 8, 1998, the Company acquired its womenswear, jeanswear and Canadian
licensees for an aggregate purchase price of $755,760 in cash and 18,091,860
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 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 "Credit Facilities").
The 2003 Notes and the 2008 Notes (collectively, the "Notes") were issued by TH
USA and guaranteed by THC. The indenture under which the Notes were issued
contains covenants that are more fully described in Note 6 to the Consolidated
Financial Statements.
The 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 loan
facility which was borrowed by TH USA in connection with the Acquisition, of
which $160,000 remains outstanding at March 31, 2000. The term loan bears
interest at variable rates which, on a weighted average basis, amounted to 6.49%
and 6.06% as of, and for the year ended, March 31, 2000, respectively. The
revolving credit facility will be available for letters of credit, working
capital and other general corporate purposes.
Borrowings under the term loan facility are repayable in quarterly
installments as follows: $50,000 in each of fiscal 2001 and fiscal 2002; and
$60,000 in fiscal 2003. Also included in long-term debt is $20,000 of
borrowings drawn under the revolving credit facilities on March 31, 2000 to
finance a portion of the purchase price of the property which houses the
Company's design and production offices. The Company intends to maintain this
outstanding debt balance beyond March 31, 2001.
Under the 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. The Credit
Facilities also contain a number of other restrictive covenants that are more
fully described in Note 6 to the Consolidated Financial Statements.
The Company was in compliance with all covenants in respect of the Notes
and the Credit Facilities as of March 31, 2000.
The Company attempts to mitigate the risks associated with adverse
movements in interest rates by establishing and maintaining a favorable balance
of fixed and floating rate debt and cash on hand. Management also believes that
significant flexibility remains available in the form of additional borrowing
capacity and the ability to prepay long-term debt, if so desired, in response to
changing conditions in the debt markets. Because such flexibility exists, the
Company does not normally enter into specific hedging transactions to further
mitigate interest rate risks, except in the case of specific, material borrowing
transactions such as those associated with the Acquisition. No interest rate
hedging contracts were in place as of March 31, 2000.
There were no significant committed capital expenditures at March 31, 2000.
The Company expects fiscal 2001 capital expenditures to approximate $80,000 to
$90,000. Funds may also be required to conduct the Company's share repurchase
program, announced on April 7, 2000, over a period of up to 18 months.
22
<PAGE>
The Company will incur approximately $14,000 of cash charges related to the
fiscal 2000 special charges of which approximately $2,500 was paid in the fourth
quarter of fiscal 2000. The remaining cash charges are expected to be
substantially paid by the end of fiscal year 2001.
The Company intends to fund its cash requirements for fiscal 2001 and
future years from available cash balances, internally generated funds and
borrowings available under the 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. Substantially all inventory purchases from contract
manufacturers throughout the world are also 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 Company does not
engage in hedging activities with respect to such exchange rate risk.
The Company does, however, seek to protect against adverse movements in
foreign currency which might affect certain firm commitments or transactions.
These include the purchase of inventory, capital expenditures and the collection
of certain foreign receivables. The Company enters into forward contracts with
maturities of up to one year to sell or purchase foreign currency in order to
hedge against such risks. The Company does not use financial instruments for
speculative or trading purposes. No significant gain or loss was inherent in
such contracts at March 31, 2000. While a hypothetical 10% adverse change in
all of the relevant exchange rates would potentially cause a decrease in the
fair value of the contracts of approximately $2,549, the Company would
experience an offsetting benefit in the spot rate on the associated underlying
transactions.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging
Activities" ("SFAS 133"). This statement will become effective for the Company
beginning in fiscal 2002. SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
23
<PAGE>
transaction. Management of the Company anticipates that, due to the limited use
of derivative instruments, the nature of such instruments and the nature of the
underlying transactions being hedged, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
Year 2000
The Company sustained no material interruption in its operations during the
transition to calendar year 2000 and believes that it has satisfactorily
mitigated all material risks associated with year 2000 date recognition. The
Company completed its internal date remediation program during fiscal 2000
within its original estimate of $500.
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 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 (the "Exchange Act"). Such
statements are indicated by words or phrases such as "anticipate," "estimate,"
"project," "expect," "believe" 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, the overall level
of consumer spending on apparel, the financial strength of the retail industry
generally and the Company's customers in particular, changes in trends in the
market segments in which the Company competes, the level of demand for the
Company's products, actions of existing or new competitors and changes in
economic or political conditions in the markets where the Company sells or
sources its products, as well as other risks and uncertainties set forth in the
Company's publicly-filed documents, including this Annual Report on Form 10-K .
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the sections entitled "Liquidity and Capital Resources" and "Exchange
Rates" in Item 7 above, which sections are incorporated herein by reference.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Statements of Operations for the years ended March 31, 2000, 1999,
and 1998
Consolidated Balance Sheets as of March 31, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended March 31, 2000, 1999
and 1998
Consolidated Statements of Changes in Shareholders' Equity for the years ended
March 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
25
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................................... F-2
Consolidated Statements of Operations for the
years ended March 31, 2000, 1999 and 1998................................................. F-3
Consolidated Balance Sheets as of March 31, 2000
and 1999.................................................................................. F-4
Consolidated Statements of Cash Flows for the
years ended March 31, 2000, 1999 and 1998................................................. F-5
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
March 31, 2000, 1999 and 1998............................................................. F-6
Notes to Consolidated Financial Statements................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
Tommy Hilfiger Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)1. on page 37 present fairly, in all material
respects, the financial position of Tommy Hilfiger Corporation and its
subsidiaries (the "Company") at March 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14(a)2. on page 37
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
May 23, 2000
F-2
<PAGE>
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Fiscal Year Ended
March 31,
---------------------------------------------------------------
2000 1999 1998
-------------- -------------- ------------
<S> <C> <C> <C>
Net revenue........................................... $ 1,977,180 $ 1,637,073 $ 847,110
Cost of goods sold.................................... 1,103,582 872,607 447,524
-------------- -------------- ------------
Gross profit.......................................... 873,598 764,466 399,586
-------------- -------------- ------------
Depreciation and amortization......................... 98,141 81,180 29,840
Other selling, general and
administrative expenses.............................. 469,505 383,205 206,731
Special charges....................................... 50,453 19,800 -
-------------- -------------- ------------
Total operating expenses.............................. 618,099 484,185 236,571
-------------- -------------- ------------
Income from operations................................ 255,499 280,281 163,015
Interest expense...................................... 41,024 39,525 1,258
Interest income....................................... 13,056 5,615 7,013
-------------- -------------- ------------
Income before income taxes............................ 227,531 246,371 168,770
Provision for income taxes ........................... 55,173 72,654 55,590
-------------- -------------- ------------
Net income............................................ $ 172,358 $ 173,717 $ 113,180
============== ============== ============
Earnings per share:
Basic earnings per share.............................. $ 1.82 $ 1.88 $ 1.51
============== ============== ============
Weighted average shares outstanding................... 94,662 92,264 74,748
============== ============== ============
Diluted earnings per share............................ $ 1.80 $ 1.86 $ 1.49
============== ============== ============
Weighted average shares and share
equivalents outstanding.............................. 95,632 93,376 75,772
============== ============== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
TOMMY HILFIGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31,
-------------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents................................................ $ 309,397 $ 241,950
Accounts receivable...................................................... 221,110 186,640
Inventories.............................................................. 218,793 222,928
Other current assets..................................................... 103,707 48,638
-------------- --------------
Total current assets................................................ 853,007 700,156
Property and equipment, at cost, less accumulated
depreciation and amortization.............................................. 282,743 228,294
Intangible assets, net of accumulated
amortization of $66,731 and $32,191, respectively.......................... 1,240,945 1,275,485
Other assets.................................................................. 4,826 2,685
-------------- --------------
Total Assets........................................................ $ 2,381,521 $ 2,206,620
============== ==============
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings.................................................... $ 523 $ 1,234
Current portion of long-term debt........................................ 50,000 40,000
Accounts payable......................................................... 31,289 27,310
Accrued expenses and other current liabilities........................... 233,430 188,606
-------------- --------------
Total current liabilities........................................... 315,242 257,150
Long-term debt................................................................ 579,370 609,245
Deferred tax liability........................................................ 205,910 242,546
Other liabilities............................................................. 3,285 5,430
Shareholders' equity
Preference Shares, $0.01 par value-shares authorized 5,000,000;
none issued............................................................ - -
Ordinary Shares, $0.01 par value-shares authorized 150,000,000;
issued and outstanding 94,830,638 and 94,324,088, respectively......... 948 943
Capital in excess of par value........................................... 584,920 572,809
Retained earnings........................................................ 691,270 518,912
Accumulated other comprehensive income (loss)............................ 576 (415)
-------------- --------------
Total shareholders' equity.......................................... 1,277,714 1,092,249
-------------- --------------
Commitments and contingencies
Total Liabilities and Shareholders' Equity.......................... $ 2,381,521 $ 2,206,620
============== ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Fiscal Year Ended
March 31,
---------------------------------------------------
2000 1999 1998
---------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.................................................... $ 172,358 $ 173,717 $113,180
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................. 99,396 81,112 29,840
Deferred taxes............................................ (79,788) (15,793) (410)
Provision for special charges............................. 62,153 19,800 -
Write-off of property and equipment....................... - 1,820 -
Changes in operating assets and liabilities
Decrease (increase) in assets
Accounts receivable................................ (34,470) (24,565) (24,748)
Inventories........................................ (2,549) (5,556) (27,100)
Other assets....................................... (13,056) 8,538 (17,520)
Increase (decrease) in liabilities
Accounts payable................................... 3,978 (6,074) 10,205
Accrued expenses and other liabilities............. 23,187 26,986 27,335
---------- ---------- ---------
Net cash provided by operating activities................. 231,209 259,985 110,782
---------- ---------- ---------
Cash flows from investing activities
Purchases of property and equipment........................... (151,984) (79,422) (67,814)
Purchases of investments...................................... - - (20,000)
Maturities of investments..................................... - - 20,000
Acquisition of businesses, net of cash acquired............... - (735,263) -
----------- ---------- ---------
Net cash used in investing activities..................... (151,984) (814,685) (67,814)
---------- ---------- ---------
Cash flows from financing activities
Proceeds of long-term debt.................................... 20,000 649,151 -
Payments on long-term debt.................................... (40,000) (10,000) (1,510)
Proceeds from the exercise of stock options................... 8,933 15,180 5,685
Repayments of short-term bank borrowings...................... (711) (14,732) -
---------- ---------- ---------
Net cash provided by (used in) financing activities....... (11,778) 639,599 4,175
---------- ---------- ---------
Net increase in cash...................................... 67,447 84,899 47,143
Cash and cash equivalents, beginning of period................. 241,950 157,051 109,908
---------- ---------- ---------
Cash and cash equivalents, end of period....................... $ 309,397 $ 241,950 $157,051
========== ========== =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Capital in Accumulated
excess other Total
Ordinary of par Retained comprehensive shareholders'
shares value earnings income (loss) equity
----------- ---------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1997........................ $ 744 $164,660 $ 232,015 $ 45 $ 397,464
Net income................................... - - 113,180 - 113,180
Foreign currency translation................. - - - 30 30
Exercise of stock options.................... 8 5,677 - - 5,685
Tax benefits from exercise of stock options.. - 2,703 - - 2,703
--------- --------- ---------- --------- -----------
Balance, March 31, 1998........................ 752 173,040 345,195 75 519,062
Net income................................... - - 173,717 - 173,717
Foreign currency translation................. - - - (490) (490)
Issuance of shares in connection with the
Acquisition................................ 180 377,335 - - 377,515
Exercise of stock options.................... 11 15,169 - - 15,180
Tax benefits from exercise of stock options.. - 7,265 - - 7,265
--------- --------- ---------- --------- -----------
Balance, March 31, 1999........................ 943 572,809 518,912 (415) 1,092,249
Net income................................... - - 172,358 - 172,358
Foreign currency translation................. - - - 991 991
Exercise of stock options.................... 5 8,928 - - 8,933
Tax benefits from exercise of stock options.. - 3,183 - - 3,183
--------- --------- ---------- --------- -----------
Balance, March 31, 2000........................ $ 948 $584,920 $ 691,270 $ 576 $1,277,714
========= ========= ========== ========= ===========
</TABLE>
Comprehensive income consists of net income and foreign currency
translation and totaled $173,349, $173,227 and $113,210 in fiscal 2000, 1999 and
1998, respectively.
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
TOMMY HILFIGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies
(a) Basis of Consolidation
The consolidated financial statements include the accounts of Tommy
Hilfiger Corporation ("THC" or the "Company"; unless the context indicates
otherwise, all references to the "Company" include THC and its subsidiaries) and
all majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
(b) Organization and Business
THC, through its subsidiaries, designs, sources and markets men's and
women's sportswear, jeanswear and childrenswear under the Tommy Hilfiger
trademarks. Through licensing agreements, the Company is expanding its product
lines to offer a broader array of apparel, accessories, footwear, fragrance and
home furnishings.
(c) Cash and Cash Equivalents and Investments
The Company considers all financial instruments purchased with original
maturities of three months or less to be cash equivalents. Short-term
investments include investments with an original maturity of greater than three
months and a remaining maturity of less than one year.
(d) Inventories
Inventories are valued at the lower of cost (weighted average method) or
market. Substantially all inventories are comprised of finished goods.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets, ranging
from three to twenty-five years. Leasehold improvements are amortized using the
straight-line method over the lesser of the terms of the leases or the estimated
useful lives of the assets. Major additions and betterments are capitalized and
repairs and maintenance are charged to operations in the period incurred. The
Company's share of the cost of constructing in-store shop displays is
capitalized and amortized using the straight-line method over their estimated
useful lives. These costs are included in "Furniture and fixtures".
(f) Intangible Assets
Intangible assets are comprised principally of goodwill and other
intangibles acquired during fiscal 1999 of $645,238 and $594,710, respectively.
The principal intangible assets acquired were the licenses between the Acquired
Companies (as defined in Note 14) and the Company described in Note 14, which
had remaining terms in excess of 40 years. Accordingly, these intangibles and
goodwill are being amortized principally over 40 years on a straight-line basis.
F-7
<PAGE>
(g) Long Lived Assets
The Company reviews long lived assets including goodwill and other
intangibles to assess recoverability from future operations using undiscounted
cash flows. Impairments would be recognized in earnings to the extent that
carrying value exceeds fair value.
(h) Income Taxes
The Company has recorded its provision for income taxes under the asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized based on differences between the financial statement and tax bases of
assets and liabilities using presently enacted tax rates.
(i) Earnings Per Share and Authorized Shares
Diluted earnings per share reflect the potentially dilutive effect of
common stock issuable under the Company's stock option plans.
Included in the Company's authorized, issued and outstanding shares are
18,091,860 shares issued in connection with the Acquisition (as defined in Note
14). Transfers of these shares are restricted for two years following the date
of the Acquisition with additional restrictions during the following three years
on transfers of the shares as a block, subject to certain exceptions.
(j) Revenues
Net revenues from wholesale product sales are recognized upon shipment of
products to customers. Allowances for estimated returns, discounts and doubtful
accounts are provided when sales are recorded. Retail store revenues are
recognized at the time of sale. Licensing royalties and buying agency fees are
recognized as earned.
Net wholesale sales to major customers as a percentage of total net
wholesale sales, for the three-year period ended March 31, 2000 were as follows:
Fiscal Year Ended March 31,
--------------------------
2000 1999 1998
---- ---- ----
Customer A 22% 20% 22%
Customer B 18% 18% 22%
Customer C 16% 14% 15%
F-8
<PAGE>
(k) Foreign Currency Translation
The consolidated financial statements of the Company are prepared in United
States dollars as this is the currency of the primary economic environment in
which the Company operates, and the vast majority of its revenues are received
and expenses are disbursed in United States dollars. Adjustments resulting from
translating the financial statements of those non-United States subsidiaries
which do not use the United States dollar as their functional currency are
recorded in shareholders' equity.
(l) Advertising Costs
Advertising costs are charged to operations when incurred and totaled
$57,141, $44,040 and $21,841 during the years ended March 31, 2000, 1999 and
1998, respectively. The increase in advertising costs from fiscal 1998 to fiscal
1999 is principally due to the change in status of the Acquired Companies which
made advertising contributions to the Company prior to the Acquisition.
Advertising cost of the Acquired Companies was $14,718 in fiscal 1998.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(n) Segments and Foreign Operations
The Company's operations are reported on the basis of three segments:
wholesale, retail, and licensing, as further discussed in Note 9.
Substantially all of the Company's net revenue and income from operations
as well as identifiable assets constitute foreign operations in that the Company
is incorporated in the British Virgin Islands ("BVI").
(o) Stock Options
The Company uses the intrinsic value method to account for stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" and has adopted the disclosure-
only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
(p) Reclassification of Prior Year Balances
Certain prior year balances have been reclassified to conform to current
year presentation.
F-9
<PAGE>
Note 2 - Cash Equivalents
As of March 31, 2000, the balance in Cash and Cash Equivalents was
comprised entirely of overnight deposits at several major international
financial institutions earning interest at a weighted average interest rate of
5.74%. As part of its ongoing control procedures, the Company monitors its
concentration of deposits with various financial institutions in order to avoid
any undue exposure.
Note 3 - Financial Instruments
Accounts Receivable
The Company collects the vast majority of its receivables from U.S.
customers through a credit company subsidiary of a large financial institution
pursuant to an agreement whereby the credit company pays the Company after the
credit company receives payment from the Company's customer. The credit company
establishes maximum credit limits for each customer account. If the receivable
becomes 120 days past due, or the customer becomes bankrupt or insolvent, the
full amount of the receivable is reimbursable by the credit company. The Company
has a similar arrangement with another large financial institution for credit
services to its Canadian subsidiary. In both cases the Company believes that the
credit risk associated with such financial institutions is minimal.
The Company also grants credit directly to certain select customers in the
normal course of business without participation by a credit company. In such
cases the Company monitors its credit exposure limits to avoid any significant
concentration of risk. Bad debts have been minimal.
Interest Rate Risk Management
Interest rate protection is used very selectively on certain borrowing
transactions. Such contracts are integral to the underlying borrowing
transaction and are therefore not recognized at fair value at any balance sheet
date. 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 which would be in effect upon the funding
of the Acquisition. These contracts generated gains of $3,737, resulting from
changes in the market values of the futures contracts through the time of
transaction financing, which are being amortized as adjustments to interest
expense over the appropriate debt amortization periods. No interest rate
protection agreements existed at March 31, 2000.
Foreign Currency Risk Management
The Company seeks to protect against adverse movements in foreign currency
which might affect certain firm commitments or transactions. These include the
purchase of inventory, capital expenditures and the collection of certain
foreign receivables. The Company enters into forward contracts with maturities
of up to one year to sell or purchase foreign currency in order to hedge against
such risks. The Company does not use financial instruments for speculative or
trading purposes.
Gains and losses on such forward contracts are recognized at the time the
underlying hedged transaction is completed or recognized in earnings. At March
31, 2000, the Company had contracts
F-10
<PAGE>
to exchange foreign currencies, principally the Canadian dollar, Japanese yen
and the Euro, having a total notional amount of $23,313. No significant gain or
loss was inherent in such contracts at March 31, 2000.
Fair Value of Other Financial Instruments
The fair value of the Company's cash and cash equivalents is equal to their
carrying value at March 31, 2000. The fair value of the Company's 2003 and 2008
Notes, having a face value of $450,000 is approximately $405,000 based on quoted
market prices as of March 31, 2000. Management believes that the fair value of
the term and revolving loans approximate the carrying value of $180,000 since
these loans are stated at floating rates. However, prices for the loans are not
quoted and management believes that such loans have not been traded. The fair
value of the Company's other monetary assets and liabilities approximate
carrying value due to the relatively short-term nature of these items.
Note 4 - Property and Equipment
Property and equipment consists of the following:
March 31,
------------------------
2000 1999
---------- ---------
Furniture and fixtures............... $283,826 $ 208,662
Leasehold improvements............... 38,601 59,567
Buildings and land................... 102,080 47,076
Machinery and equipment.............. 28,472 26,643
-------- ---------
452,979 341,948
Less: accumulated depreciation and
amortization........................ 170,236 113,654
-------- ---------
$282,743 $ 228,294
======== =========
Note 5 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the
following:
March 31,
-----------------------
2000 1999
--------- ---------
Letters of credit payable............ $ 62,535 $ 48,081
Accrued compensation................. 41,026 48,569
Income taxes payable................. 23,715 7,623
Other................................ 106,154 84,333
--------- ---------
$233,430 $188,606
========= =========
F-11
<PAGE>
Note 6 - Long-Term Debt
Long-term debt consists of the following:
March 31,
----------------------
2000 1999
--------- ---------
Term and revolving credit facilities at
a weighted average interest rate of
approximately 6.49% and 5.66%
at March 31, 2000 and 1999,
respectively............................... $180,000 $200,000
Unsecured 6.85% notes due June 1, 2008,
less unamortized discount of $396
at March 31, 2000.......................... 199,604 199,555
Unsecured 6.50% notes due June 1, 2003,
less unamortized discount of $234
at March 31, 2000.......................... 249,766 249,690
Less current maturities..................... (50,000) (40,000)
--------- ---------
$579,370 $609,245
========= =========
The 6.50% notes maturing on June 1, 2003 and the 6.85% notes maturing on
June 1, 2008 (collectively, the "Notes") were issued by Tommy Hilfiger U.S.A.,
Inc., a subsidiary of THC ("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 term and revolving credit facilities (the "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 is available for letters of credit, working capital and other general
corporate purposes. As of March 31, 2000, $152,538 of the available borrowings
had been used to open letters of credit and $20,000 had been borrowed to finance
a portion of the purchase price of the property which houses the Company's
design and production offices.
Borrowings under the term loan facility are repayable in quarterly
installments as follows: $50,000 in each of fiscal 2001 and 2002; and $60,000 in
fiscal 2003.
The 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 Credit Facilities also restrict the ability of THC to
create liens on assets or enter into sale and leaseback transactions. Under the
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
F-12
<PAGE>
certain deductions. In addition, under the 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 Credit Facilities as of March 31, 2000.
Note 7 - Commitments and Contingencies
Leases
The Company leases office, warehouse and showroom space, retail stores and
office equipment under operating leases, which expire not later than 2023. The
Company normalizes fixed escalations in rental expense under its operating
leases. Minimum annual rentals under non-cancelable operating leases, excluding
operating cost escalations and contingent rental amounts based upon retail
sales, are payable as follows:
Fiscal Year Ending March 31,
----------------------------
2001.............. $23,734
2002.............. 24,258
2003.............. 19,177
2004.............. 15,164
2005.............. 12,154
Thereafter........ 73,536
Rent expense was $20,902, $16,362 and $12,551 for the years ended March 31,
2000, 1999 and 1998, respectively.
Letters of credit
TH USA is contingently liable for unexpired bank letters of credit at March
31, 2000 of $90,003 related to commitments for the purchase of inventories.
Legal matters
Saipan Litigation. On January 13, 1999, two actions were filed against the
-----------------
Company and other garment manufacturers and retailers asserting claims that
garment factories located on the island of Saipan, which allegedly supply
product to the Company and other co-defendants, engage in unlawful practices
relating to the recruitment and employment of foreign workers. One action,
brought in San Francisco Superior Court (the "State Action"), was filed by a
union and three public interest groups alleging unfair competition and false
advertising by the Company and others. It seeks equitable relief, restitution
and disgorgement of profits relating to the allegedly wrongful conduct, as well
as interest and an award of fees to the plaintiffs' attorneys. The other, an
action seeking class action status initially filed in Federal Court for the
Central District of California and subsequently transferred to the Federal Court
in the District of Hawaii (the "Federal Action"), was brought on behalf of an
alleged class consisting of the Saipanese factory workers. The defendants
include both companies selling goods purchased from factories located on the
island of Saipan and the factories
F-13
<PAGE>
themselves. This complaint alleges claims under RICO, the Alien Tort Claims Act,
Federal anti-peonage and indentured servitude statutes and state and
international law. It seeks equitable relief and damages, including treble and
punitive damages, interest and an award of fees to the plaintiffs' attorneys.
In addition, the same law firm that filed the State Action and the Federal
Action has filed an action seeking class action status in the Federal Court in
Saipan. This action is brought on behalf of Saipanese garment factory workers
against the Saipanese factories and alleges violation of Federal and Saipanese
wage and employment laws. The Company is not a defendant in this action.
The Company has entered into settlement agreements with the plaintiffs in
the Federal Action and in the State Action. As part of these agreements, the
Company specifically denies any wrongdoing or any liability with regard to the
claims made in the Federal Action and the State Action. The settlement agreement
provides for a monetary payment, in an amount which is not material to the
Company's financial position or results of operations, to a class of plaintiffs
in the Federal Action, as well as the creation of a monitoring program for
factories in Saipan. The settlement must be approved by the Federal Court, and a
class of plaintiffs certified. The hearing on settlement approval and
preliminary class certification is presently scheduled for July 2000.
Shareholder Derivative Litigation. 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 alleged that
the Board's approval of the Acquisition constituted a breach of fiduciary duty
and corporate waste, and sought 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. On December 9, 1998, the Court dismissed the action, ruling
that the British Virgin Islands, the Company's place of incorporation, is the
appropriate forum in which to litigate these derivative claims. In January 1999,
the plaintiffs filed a notice of appeal with respect to the Court's ruling. On
September 13, 1999, the parties stipulated to the withdrawal of the notice of
appeal.
The Company and its subsidiaries are from time to time involved in routine
legal matters incidental to their businesses. In the opinion of the Company's
management, based on advice of counsel, the resolution of these matters will not
have a material effect on the Company's financial position or its results of
operations.
F-14
<PAGE>
Note 8 - Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
--------------------------------------------------
2000 1999 1998
---------- --------- ---------
<S> <C> <C> <C>
Current:
U.S. Federal....................... $ 92,332 $ 60,530 $ 48,463
State and Local.................... 25,850 10,149 5,810
Non-U.S............................ 16,779 17,768 1,727
---------- --------- ---------
134,961 88,447 56,000
---------- --------- ---------
Deferred:
U.S. Federal....................... (55,683) (12,305) (510)
State and Local.................... (24,105) (3,488) 100
Non-U.S............................ - - -
---------- --------- ---------
(79,788) (15,793) (410)
---------- --------- ---------
Provision for income taxes.............. $ 55,173 $ 72,654 $ 55,590
========== ========= =========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are summarized as follows:
<TABLE>
<CAPTION>
March 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets - current:
Inventory costs.................... $ 8,479 $ 5,940
Accrued marketing costs............ 45,800 18,150
Accrued compensation............... 6,541 2,615
Other items, net................... 16,387 7,349
----------- -----------
77,207 34,054
----------- -----------
Deferred tax assets (liabilities)
- non-current:
Depreciation and amortization...... 30,173 7,798
Intangible assets, other
than goodwill (243,737) (250,344)
Other, net......................... 7,654 -
----------- -----------
(205,910) (242,546)
----------- -----------
Total net deferred tax liabilities...... $ (128,703) $ (208,492)
=========== ===========
</TABLE>
F-15
<PAGE>
The U.S. and non-U.S. components of income before income taxes are as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
---------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
U.S..................................... $ 82,965 $ 121,437 $ 136,793
Non-U.S................................. 144,566 124,934 31,977
---------- ---------- ----------
$ 227,531 $ 246,371 $ 168,770
========== ========== ==========
</TABLE>
The provision for income taxes differs from the amounts computed by
applying the applicable U.S. federal statutory rate to income before taxes as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
--------------------------------------------
2000 1999 1998
---------- --------- ---------
<S> <C> <C> <C>
Provision for income taxes at the
U.S. federal statutory rate.......... $ 79,636 $ 86,230 $ 59,070
State and local income taxes, net of
federal benefits..................... 1,330 4,330 3,841
Non-U.S. income taxed at different
rates................................ (34,950) (27,529) (10,031)
Goodwill amortization................... 5,787 5,691 -
Other................................... 3,370 3,932 2,710
---------- --------- ---------
Provision for income taxes.............. $ 55,173 $ 72,654 $ 55,590
========== ========= =========
</TABLE>
THC is not taxed on income in the BVI, where it is incorporated. THC's
subsidiaries are subject to taxation in the jurisdictions in which they
operate.
Provision has not been made for taxes on undistributed non-BVI earnings of
$348,412 at March 31, 2000, as those earnings have been and will continue to be
reinvested. As a result of various tax planning strategies available to the
Company, it is not practical to estimate the amount of tax, if any, that might
be payable on the eventual remittance of such earnings.
Note 9 - Segment Reporting
The Company has three reportable segments: Wholesale, Retail and Licensing.
The Company's reportable segments are business units that offer different
products and services or similar products through different distribution
channels. The Wholesale segment consists of the design and sourcing of men's
sportswear and jeanswear, women's casualwear and jeanswear and childrenswear for
wholesale distribution. The Retail segment reflects the operations of the
Company's outlet, specialty and flagship stores. The Licensing segment consists
of the operations of licensing the Company's trademarks for specified products
in specified geographic areas. The Company evaluates performance and allocates
resources based on segment profits. The accounting policies of the reportable
segments are the same as those described in Note 1, "Summary of Significant
Accounting Policies". Segment profits are comprised of segment net revenue less
cost of goods sold and selling, general and administrative expenses. Excluded
from segment profits, however, are the vast majority of executive compensation,
marketing, brand image marketing costs associated with its flagship stores,
amortization of intangibles including goodwill, special charges and interest
costs. Financial information for the Company's reportable segments is as
follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
Wholesale Retail Licensing Total
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Fiscal year ended March 31, 2000
--------------------------------
Total segment revenue $1,635,242 $280,255 $120,256 $2,035,753
Segment profits 269,472 73,548 77,190 420,210
Depreciation and amortization
included in segment profits 46,090 9,179 1,171 56,440
Fiscal year ended March 31, 1999
--------------------------------
Total segment revenue $1,364,946 $214,637 $106,308 $1,685,891
Segment profits 275,312 44,183 60,645 380,140
Depreciation and amortization
included in segment profits 32,532 7,686 1,228 41,446
Fiscal year ended March 31, 1998
--------------------------------
Total segment revenue $ 587,922 $196,066 $ 90,337 $ 874,325
Segment profits 98,275 50,015 57,274 205,564
Depreciation and amortization
included in segment profits 17,462 4,169 934 22,565
</TABLE>
A reconciliation of total segment revenue to consolidated net revenue is as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------------------------
2000 1999 1998
----------- ----------- ---------
<S> <C> <C> <C>
Total segment revenue $2,035,753 $1,685,891 $874,325
Intercompany revenue (58,573) (48,818) (27,215)
----------- ----------- ---------
Consolidated net revenue $1,977,180 $1,637,073 $847,110
=========== =========== =========
</TABLE>
Intercompany revenue represents buying agency commissions from consolidated
subsidiaries.
A reconciliation of total segment profits to consolidated income before
income taxes is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
----------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Segment profits $420,210 $380,140 $205,564
Corporate expenses not allocated 102,558 80,059 42,549
Special charge 62,153 19,800 -
Interest income (expense), net (27,968) (33,910) 5,755
---------- ---------- ----------
Consolidated income before income taxes $227,531 $246,371 $168,770
========== ========== ==========
</TABLE>
The Company is domiciled in the BVI; accordingly all sales outside the BVI
are considered foreign. Countries representing 5% or more of consolidated net
revenue are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ----------
<S> <C> <C> <C>
United States $1,855,968 $1,529,465 $826,419
Canada 88,680 82,465 4,100
Other 32,532 25,143 16,591
------------ ------------ ----------
Consolidated net revenue $1,977,180 $1,637,073 $847,110
============ ============ ==========
</TABLE>
F-17
<PAGE>
The Company does not disaggregate assets on a segment basis for internal
management reporting and, therefore, such information is not presented.
Note 10 - Related Parties
See related disclosures in Note 14 - Acquisition of Womenswear, Jeanswear
and Canadian Licensees.
The Company is party to a geographic license agreement for Europe and
certain other countries with Tommy Hilfiger Europe B.V., a related party. Under
this agreement, the licensee pays Tommy Hilfiger Licensing, Inc., a subsidiary
of THC ("THLI"), a royalty based on a percentage of the value of licensed
products sold by the licensee. Except with the approval of THLI, all products
sold by or through the licensee must be purchased through Tommy Hilfiger
(Eastern Hemisphere) Limited, a subsidiary of THC ("THEH"), or TH USA pursuant
to buying agency agreements. Under these agreements, THEH and TH USA are paid a
buying agency commission based on a percentage of the cost of products sourced
through them. The distribution of products under this arrangement began in
fiscal 1998. Results of operations include $6,372, $4,748 and $1,641, for the
years ended March 31, 2000, 1999 and 1998, respectively, of royalties and
commissions under this arrangement.
The Company is party to a geographic license agreement for Japan with
Novel-ITC Licensing Limited ("NIL"), a related party. Under the license
agreement, NIL pays THLI a royalty based on a percentage of the value of
licensed products sold by NIL's sublicensee. Except with the approval of THLI,
all products sold by or through NIL or its sublicensee must be purchased through
THEH or TH USA pursuant to buying agency agreements. Under these agreements,
THEH and TH USA are paid a buying agency commission based on a percentage of the
cost of products sourced through them. Pursuant to this arrangement, royalties
and commissions totaled $3,429, $3,119 and $4,211 in fiscal 2000, 1999 and 1998,
respectively.
During fiscal 1999 and 1998, the Company was party to the Pepe United
States License and the Pepe International License (each as defined in Note 14).
Under this license arrangement, which terminated as a result of the Acquisition,
the Company received royalties based upon a percentage of net sales of licensed
products. The fiscal 1999 and 1998 results of operations include $1,990 and
$19,016, respectively, of such royalties. In addition, in connection with the
Pepe United States License, the licensee leased certain space at the Company's
U.S. headquarters, for which rent of $22 and $262 was received by the Company in
fiscal 1999 and 1998, respectively. Prior to the Acquisition, TH USA purchased
finished goods in the ordinary course of business from the licensees. Such
purchases amounted to $1,004 and $8,400 during the fiscal years ended March 31,
1999 and 1998, respectively.
TH USA purchases finished goods in the ordinary course of business from
other affiliated companies. Such purchases amounted to $64,670, $47,734 and
$14,600 during the fiscal years ended March 31, 2000, 1999 and 1998,
respectively. In addition, contractors of the Company purchase raw materials in
the ordinary course of business from affiliates of the Company. Such purchases
amounted to $9,364, $15,051 and $5,930 during the fiscal years ended March 31,
2000, 1999 and 1998, respectively. The significant increase in 1999 reflects the
inclusion of purchases made by the Acquired Companies.
Under the Canadian License (as defined in Note 14), which terminated as a
result of the Acquisition, the Company received a royalty from the licensee
based upon a percentage of net sales of licensed products and a buying agency
commission based on a percentage of the cost of goods
F-18
<PAGE>
sourced on behalf of the licensee. Results of operations include $399 and $3,885
for the years ended March 31, 1999 and 1998, respectively, for royalties and
commissions earned from this licensee.
TH USA sells merchandise in the ordinary course of business to a retail
store that is owned by a relative of a director and executive officer of the
Company. Sales to this customer amounted to approximately $522, $732 and $476
during the years ended March 31, 2000, 1999 and 1998, respectively.
In connection with the shareholder derivative litigation described in Note
7 above, the Company agreed to advance legal fees and other expenses to the
Company's directors. Each director delivered a written undertaking to repay the
Company in the event that a court ultimately determines that such director was
not entitled to indemnification. An aggregate of approximately $600 was advanced
pursuant to these arrangements in fiscal 1999.
THEH has two consulting agreements with affiliates. THEH paid fees of
$1,000, $1,000 and $875 under these agreements during the fiscal years ended
March 31, 2000, 1999 and 1998, respectively.
Under the terms of an agreement with an affiliate, Tommy Hilfiger (HK)
Limited, a subsidiary of THC ("THHK"), reimburses the affiliate for certain
general and administrative expenses incurred by the affiliate on behalf of THHK.
Payments made to the affiliate for the years ended March 31, 2000, 1999 and 1998
were $401, $133 and $77, respectively.
Note 11 - Retirement Plans
The Company maintains employee savings plans for eligible U.S. employees.
The Company's contributions to the plans are discretionary with matching
contributions of up to 50% of employee contributions of up to 5% of employee
compensation through December 31, 1999 and 6% beginning January 1, 2000. For the
years ended March 31, 2000, 1999 and 1998, the Company made plan contributions
of $1,486, $1,171 and $568, respectively.
Effective January 1, 1998, the Company adopted a supplemental executive
retirement plan which provides certain members of senior management with a
supplemental pension. The supplemental executive retirement plan is an unfunded
plan for purposes of both the Internal Revenue Code of 1986 and the Employee
Retirement Income Security Act of 1974. Included in accrued expenses and other
current liabilities is $3,600 and $1,600 at March 31, 2000 and 1999,
respectively, related to this plan.
Effective January 1, 1998, the Company adopted a voluntary deferred
compensation plan which provides certain members of senior management with an
opportunity to defer a portion of base salary or bonus pursuant to the terms of
the plan. The voluntary deferred compensation plan is an unfunded plan for
purposes of both the Internal Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974. Included in accrued expenses and other current
liabilities is $350 and $128 at March 31, 2000 and 1999, respectively, related
to this plan.
Note 12 - Stock Option Plans
In September 1992, the Company and its subsidiaries adopted stock option
plans (the "Plans") authorizing the issuance of an aggregate of up to 5,940,000
Ordinary Shares to directors, officers and employees of the Company and its
subsidiaries. Through March 2000, a total of
F-19
<PAGE>
13,500,000 additional Ordinary Shares of THC were authorized and reserved for
issuance under the Plans. In August 1994, the Board of Directors and
shareholders of the Company approved the Tommy Hilfiger Corporation Non-Employee
Directors Stock Option Plan (the "Directors Option Plan"). Under the Directors
Option Plan, directors who are not officers or employees of the Company are
eligible to receive stock option grants. The total number of Ordinary Shares for
which options may be granted under the Directors Option Plan may not exceed
400,000 Ordinary Shares in the aggregate, subject to certain adjustments.
Options vest in equal installments over periods ranging from 1-6 years with a
maximum term of 10 years. The exercise price of all options granted under the
Plans and the Directors Option Plan is the market price on the dates of grant.
Transactions involving the Plans and the Directors Option Plan are
summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise
Option Shares Price Per Share
---------------- ----------------
<S> <C> <C>
Outstanding as of March 31, 1997 3,777,140 $15.63
Granted............................. 2,717,900 $21.10
Exercised........................... (616,810) $ 9.22
Canceled............................ (625,160) $20.23
----------------
Outstanding as of March 31, 1998 5,253,070 $18.67
Granted............................. 3,713,600 $26.00
Exercised........................... (1,116,360) $13.50
Canceled............................ (876,860) $22.71
----------------
Outstanding as of March 31, 1999 6,973,450 $22.89
Granted............................. 4,757,125 $16.69
Exercised........................... (506,550) $17.59
Canceled............................ (1,160,120) $25.65
----------------
Outstanding as of March 31, 2000 10,063,905 $19.92
================
</TABLE>
Options exercisable at March 31, 2000, 1999 and 1998 were 982,620, 623,870
and 1,055,140, respectively, at weighted average exercise prices of $18.78,
$15.54 and $12.43, respectively.
F-20
<PAGE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.75 - $11.53 3,659,805 9.46 $11.34 211,350 $ 8.50
$11.94 - $23.00 2,221,140 7.33 $19.07 536,220 $19.67
$23.06 - $25.23 2,446,050 8.19 $25.08 155,810 $25.04
$25.69 - $40.06 1,736,910 8.49 $31.82 79,240 $27.89
---------- ---- ------ ------- ------
10,063,905 8.52 $19.92 982,620 $18.78
========== ==== ====== ======= ======
</TABLE>
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock option
awards. Accordingly, no compensation expense has been recognized for stock
options granted in 2000, 1999 and 1998. Had compensation cost been recorded
based upon the fair value at the grant dates as an alternative provided by SFAS
No. 123, "Accounting for Stock Based Compensation", the Company's net income and
diluted earnings per share would have been reduced by approximately $10,153 and
$0.10, respectively, in 2000, $8,221 and $0.09, respectively, in 1999 and $4,824
and $0.06, respectively, in 1998. These amounts are for disclosure purposes
only and may not be representative of future calculations since the estimated
fair value of stock options is amortized to expense over the vesting period, and
additional options may be granted in future years. The fair values of options
granted were estimated at $8.24 in 2000, $14.70 in 1999 and $10.69 in 1998 on
the dates of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for 2000, 1999 and 1998, respectively:
volatility of 44%, 43% and 43%; risk free interest rate of 6.4%, 5.4% and 6.5%;
expected life of 5.6 years, 6.0 years and 5.9 years; and no future dividends.
F-21
<PAGE>
Note 13 - Statements of Cash Flows
Fiscal Year Ended March 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Supplemental disclosure of cash
flow information:
Cash paid during the year:
Interest $ 41,349 $ 28,018 $ 1,142
========== ========== =========
Income Taxes $114,702 $ 89,189 $54,749
========== ========== =========
The impact of exchange rate movements on cash balances was insignificant in
fiscal 2000, fiscal 1999 and fiscal 1998.
Note 14 - 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 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"), for an
aggregate purchase price of $755,760 in cash plus 18,091,860 Ordinary Shares of
the Company (the "Acquisition"). The cash portion of the purchase price was
funded from a combination of debt financing and cash on hand. The Ordinary
Shares were valued at $23.185 per share, the average closing price for the five
days before and after the announcement of the Acquisition, reduced by a
valuation adjustment of $41,946 to reflect the restriction on the shares.
At the date of the Acquisition, the licenses between the Acquired Companies
and the Company consisted of: a license with Pepe USA covering jeans and jeans
related apparel and women's and girls' casualwear in the United States (the
"Pepe United States License"); a license with T.H. International N.V., a
subsidiary of PJLC, covering jeans and jeans related apparel and women's and
girls' casualwear worldwide (other than in the United States and certain
specified countries) (the "Pepe International License"); a geographic license
with Tommy Hilfiger Europe B.V., a subsidiary of PJLC, covering men's and boys'
sportswear lines in Europe and certain other countries (the "Pepe European
License"); and a master geographic license for Canada with TH Canada (the
"Canadian License").
In connection with the Acquisition, the Company acquired the businesses
operated under the Pepe United States License and the Canadian License, the Pepe
International License was canceled and the license arrangements for Europe
previously covered by the Pepe International License were consolidated under the
Pepe European License. Accordingly, the Pepe European License was amended to,
among other things, include in its scope men's, women's and children's jeanswear
and jeans related apparel (including women's and girls' casualwear) and to
increase the minimum sales levels, guaranteed minimum royalties and minimum
advertising payments required thereunder. The Pepe European License was also
amended to provide the Company certain additional rights in connection with any
proposed future transfer of the business conducted under the Pepe European
License. In addition, in connection with the Acquisition, a $5,000 note was
canceled in
F-22
<PAGE>
consideration for a capital contribution being made to Pepe USA in the same
amount as the receivable.
The Acquisition has been accounted for using the purchase method of
accounting 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:
Cash...................................................... $ 19,252
Account receivable........................................ 57,343
Inventories............................................... 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
==========
The unaudited pro forma combined condensed results of operations of the
Company and the Acquired Companies for the years ended March 31, 1999 and 1998,
after giving effect to certain pro forma adjustments, are as follows:
Fiscal Year Ended March 31,
---------------------------
1999 1998
---------- ----------
Net revenue $1,685,523 $1,270,811
Gross profit 786,657 590,412
Income from operations 290,089 212,679
Income before taxes 251,833 166,405
Provision for income taxes 74,383 50,236
Net income 177,450 116,169
Diluted earnings per share $ 1.87 $ 1.24
The foregoing unaudited pro forma statement of operations data reflect (a)
the elimination of certain revenues, cost of sales and royalty expense, (b)
amortization of intangible assets, principally over 40 years, (c) incremental
management compensation and net interest expense and (d) applicable income tax
effects.
F-23
<PAGE>
Note 15 - Special Charges
During the quarter ended March 31, 2000, the Company recorded a special
charge of $62,153, before income taxes, principally related to the following: a
re-direction of the Company's full-price retail store program, which includes
the closure of its flagship stores in Beverly Hills, California and London,
England; the postponement of the launch of a new women's dress-up division; and
the consolidation of the junior sportswear and junior jeans divisions. This
charge consisted of provisions of $44,857 for the write-off of fixed assets and
operating leases of the Company's flagship stores and the write-off of fixed
assets related to the dress-up and junior sportswear divisions, $11,700 for
inventory of the junior sportswear division and, to a lesser extent, the
flagship stores, and $5,596 for severance and other costs. Inventory provisions
have been included in cost of sales. As of March 31, 2000, the balance in the
accrued special charge liability of $12,047 consists of $1,652 for severance,
$4,416 for adverse inventory commitments and $5,979 for operating leases and
other expenses.
The Company will incur approximately $14,000 of cash charges related to the
fiscal 2000 special charges of which approximately $2,500 was paid in the fourth
quarter of fiscal 2000. The remaining cash charges are expected to be
substantially paid by the end of fiscal year 2001.
During the first quarter of fiscal 1999, 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. As of March 31, 2000, the Company has
utilized the full provision recorded in fiscal 1999.
Note 16 - Summarized Financial Information
The following presents summarized financial information of TH USA, a wholly
owned subsidiary of THC, and its consolidated subsidiaries, as of March 31, 2000
and 1999 and for each of the three years in the period ended March 31, 2000. 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.
F-24
<PAGE>
March 31,
----------------------------------------
2000 1999
---------------- ----------------
Current assets $ 611,967 $ 595,819
Noncurrent assets 1,501,533 1,478,790
Current liability due to THC 7,843 26,494
Other current liabilities 269,593 240,851
Noncurrent liability due to THC 798,472 801,511
Other noncurrent liabilities 801,827 852,329
Fiscal Year Ended March 31,
----------------------------
2000 1999 1998
---------- ---------- --------
Net revenue $1,966,086 $1,625,407 $838,622
Gross profit 834,742 734,157 384,190
Net income 81,350 74,751 72,415
Note 17 - Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
2000
----
Net revenue............................. $419,103 $561,623 $521,204 $475,250
Gross profit............................ 197,497 269,187 227,034 179,880
Net income (loss)....................... 38,729 76,031 59,117 (1,519)
Basic earnings (loss) per share......... 0.41 0.80 0.62 (0.02)
Diluted earnings (loss) per share....... 0.40 0.79 0.62 (0.02)
1999
----
Net revenue............................. $287,656 $465,324 $463,233 $420,860
Gross profit............................ 134,668 216,546 214,817 198,435
Net income.............................. 12,975 56,750 57,759 46,233
Basic earnings per share................ 0.15 0.61 0.62 0.49
Diluted earnings per share.............. 0.15 0.60 0.61 0.48
</TABLE>
Fiscal 2000 fourth quarter financial data reflects special charges of
$62,153, ($36,360 after tax, or $0.38 per diluted share). Fiscal 1999 first
quarter financial data reflects special acquisition-related charges of $19,800
($11,900 after-tax, or $0.13 per diluted share).
F-25
<PAGE>
The quarterly financial data for the years ended March 31, 2000 and 1999
are unaudited; however, in the opinion of the Company, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary to
present such data fairly.
Note 18 - Share Split
On June 4, 1999, the Company announced that its Board of Directors had
approved and declared a two-for-one split of the Company's Ordinary Shares, par
value $.01 per share (the "Ordinary Shares"). The split was effected in the
form of a dividend of one Ordinary Share per Ordinary Share issued and
outstanding or held by the Company in its treasury (the "Share Split"), and was
paid on July 9, 1999 to shareholders of record at the close of business on June
18, 1999. In connection with the Share Split, the Board of Directors of the
Company also approved an increase in the number of authorized Ordinary Shares to
150,000,000 from 75,000,000. All earnings per share and share equivalents have
been restated to reflect the Share Split.
Note 19 - Share Repurchase Program
On April 7, 2000 the Company announced that its Board of Directors
authorized the repurchase of up to $150 million of its outstanding shares over a
period of up to 18 months using available cash.
F-26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors and Executive Officers
<TABLE>
<CAPTION>
Name Age Present Position
---- --- ----------------
<S> <C> <C>
Silas K.F. Chou 53 Co-Chairman of the Board and Director
Lawrence S. Stroll 40 Co-Chairman of the Board and Director
Thomas J. Hilfiger 49 Honorary Chairman of the Board, Principal Designer and Director
Joel J. Horowitz 49 Chief Executive Officer, President and Director
Benjamin M.T. Ng 37 Chief Financial Officer, Executive Vice President-Strategic Development,
Assistant Secretary and Director
Ronald K.Y. Chao 61 Director
Lester M.Y. Ma 53 Director
Joseph M. Adamko 67 Director
Clinton V. Silver 70 Director
Simon Murray 60 Director
Joel H. Newman 59 Chief Administrative Officer and Executive Vice President-Finance
Arthur Bargonetti 66 Senior Vice President-Operations
Joseph Scirocco 43 Senior Vice President and Treasurer
Lawrence T.S. Lok 43 Secretary
</TABLE>
Silas K.F. Chou has been Co-Chairman of the Board of the Company since 1998 and
served as Chairman of the Board from 1992 to 1998. Mr. Chou has been a Director
of the Company since 1992. Mr. Chou also has served as an Executive Director of
Novel Enterprises Limited ("Novel Enterprises"), where he was appointed as
Managing Director in 1996, for more than the past five years and as Chairman of
the Board of Novel Denim Holdings Limited, a manufacturer of garments and fabric
quoted on the Nasdaq National Market and an affiliate of Novel Enterprises
("Novel Denim"), since 1996. In addition, Mr. Chou has served as Chief
Executive Officer of AIHL Investment Holdings Limited, its predecessors and
certain of its affiliates (collectively, "AIHL") since 1992 and was Chairman of
the Board of Pepe Jeans London Corporation and its predecessor (collectively,
"PJLC") from 1992 to 1998.
Lawrence S. Stroll has been Co-Chairman of the Board of the Company since 1998
and served as Chief Executive Officer of Tommy Hilfiger (HK) Limited, a
subsidiary of THC ("THHK"), from 1993 to 1998. Mr. Stroll has been a Director of
the Company since 1992. In addition, Mr. Stroll
26
<PAGE>
has served as Chairman of the Board of AIHL since 1992 and was Group Chief
Executive Officer of PJLC from 1993 to 1998.
Thomas J. Hilfiger has been a Director of the Company since 1992 and Honorary
Chairman of the Board of the Company since 1994. Mr. Hilfiger was Vice Chairman
of the Board of the Company and its predecessors from 1989 to 1994, and
President of Tommy Hilfiger, Inc. from 1982 to 1989. Mr. Hilfiger has been
designing clothes under the Tommy Hilfiger trademarks since 1984.
Joel J. Horowitz is Chief Executive Officer and President of the Company. Mr.
Horowitz has served as Chief Executive Officer since 1994 and as President since
1995. From 1989 to 1994, Mr. Horowitz served as President and Chief Operating
Officer of the Company and its predecessors. Mr. Horowitz has been a Director
of the Company since 1992.
Benjamin M.T. Ng has been a Director of the Company since 1992 and its Chief
Financial Officer and Executive Vice President-Strategic Development since 1998.
From 1992 to 1998, Mr. Ng served as Executive Vice President-Corporate Finance
of the Company. From 1988 to 1991, Mr. Ng was employed in the mergers and
acquisitions department at Goldman, Sachs & Co. Mr. Ng devotes a significant
portion of his time to matters related to AIHL and its affiliates other than the
Company.
Ronald K.Y. Chao has been a Director of the Company since 1992. In 1996, Mr.
Chao was appointed as Vice Chairman of Novel Enterprises. For more than five
years prior thereto, Mr. Chao served as the Managing Director of Novel
Enterprises. In addition, Mr. Chao has served as a director of Novel Denim
since 1997.
Lester M.Y. Ma has been a Director of the Company since 1992 and served as its
Treasurer from 1996 to 1997. Mr. Ma has been an Executive Director and Group
Chief Accountant of Novel Enterprises for more than the past five years. In
addition, Mr. Ma has been a director of Novel Denim since 1992 and its Treasurer
since 1997.
Joseph M. Adamko has been a Director of the Company since 1993. Since 1992, Mr.
Adamko has been Vice Chairman and a director of Sterling Bancorp and Sterling
National Bank. Prior thereto, Mr. Adamko was employed by Manufacturers Hanover
Trust Company of New York in a variety of positions for over 30 years, including
most recently as a Managing Director.
Clinton V. Silver has been a Director of the Company since 1994. Mr. Silver was
employed by Marks & Spencer plc, an international retailer based in London, as
Deputy Chairman from 1991 to 1994 and as a consultant from 1994 to 1999. In
addition, Mr. Silver served as a director of Marks & Spencer plc from 1974 to
1994 and as Joint Managing Director from 1990 to 1994.
Simon Murray has been a Director of the Company since 1997. From 1993 to 1997,
Mr. Murray was the Executive Chairman Asia Pacific of Deutsche Bank AG and he is
currently the Chairman of General Enterprise Management Services Limited, a
private equity fund management company sponsored by Simon Murray & Company Ltd
and Deutsche Bank. Mr. Murray is also a director of a number of public
companies in the Far East, including Hutchison Whampoa Limited and Orient
Overseas (International) Limited, and other companies in Europe, including
Hermes International and Vivendi of France.
Joel H. Newman has been the Company's Chief Administrative Officer and Executive
Vice President-Finance since 1998. From 1997 to 1998, Mr. Newman served as
Executive Vice
27
<PAGE>
President-Operations of the Company. Since 1993, Mr. Newman has also held
various senior operations and financial positions with TH USA. Prior to joining
the Company, Mr. Newman held various senior operations and financial positions
with major companies in the apparel wholesale and retail industries.
Arthur Bargonetti has been Senior Vice President-Operations of the Company since
1998. From 1994 to 1998, Mr. Bargonetti served as Chief Operating Officer and
Executive Vice President of Pepe USA. Prior thereto, Mr. Bargonetti was the
Chief Operating Officer and Executive Vice President of Bidermann Industries
U.S.A., Inc.
Joseph Scirocco has been Senior Vice President and Treasurer of the Company
since 1997. Prior to joining the Company, Mr. Scirocco was employed in the
Retail and Consumer Products Group of Price Waterhouse LLP, where he served as
an Audit Partner since 1990.
Lawrence T.S. Lok has been Secretary of the Company and Novel Enterprises since
1994. In addition, Mr. Lok has been Secretary of Novel Denim since 1997. Mr.
Lok has also been Deputy Financial Controller of Novel Enterprises for more than
the past five years.
Ronald K.Y. Chao and Silas K.F. Chou are brothers.
Terms of Directors
The Company's Board of Directors is divided into three classes with staggered
three-year terms. At each Annual Meeting of Shareholders, the successors of the
class of directors whose terms expire at such meeting are elected for three-year
terms. The terms of Messrs. Stroll, Ng, Ma and Silver expire in 2000; the terms
of Messrs. Horowitz, Chao and Murray expire in 2001; and the terms of Messrs.
Chou, Hilfiger and Adamko expire in 2002.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and certain persons who own more than ten percent of a registered
class of the Company's equity securities (collectively, "Reporting Persons"), to
file reports of ownership and changes in ownership ("Section 16 Reports") with
the Securities and Exchange Commission (the "SEC") and the New York Stock
Exchange. Reporting Persons are required by the SEC to furnish the Company with
copies of all Section 16 Reports they file.
Based solely on its review of the copies of such Section 16 Reports received
by it, or written representations received from certain Reporting Persons, all
Section 16(a) filing requirements applicable to the Company's Reporting Persons
during and with respect to the fiscal year ended March 31, 2000 have been
complied with on a timely basis.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth the compensation paid and accrued by the
Company and its subsidiaries for the fiscal years ended March 31, 2000, 1999 and
1998 to the Company's chief executive officer and the four other most highly
compensated executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ------------
Awards
------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Stock Options (#) Compensation ($)
--------------------------- --- ---------- --------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Joel J. Horowitz..................... 2000 581,600 16,631,000 -- 5,100(1)
Chief Executive Officer and 1999 540,000 15,374,000 -- 4,000
President 1998 505,000 9,343,000 -- --
Thomas J. Hilfiger................... 2000 26,851,000 -- -- 5,100(1)
Honorary Chairman and 1999 22,275,000 -- -- 4,000
Principal Designer 1998 10,464,000 3,500,000(2) -- --
Silas K.F. Chou...................... 2000 750,000(3) 750,000 -- --
Co-Chairman of the Board 1999 750,000(3) 1,750,000 -- --
1998 750,000(3) 325,000 -- --
Lawrence S. Stroll................... 2000 750,000(4) 750,000
Co-Chairman of the Board 1999 750,000(4) 1,750,000 -- --
1998 625,000(4) 325,000 -- --
Benjamin M.T. Ng..................... 2000 625,000 1,093,750 35,000 5,100(1)
Chief Financial Officer 1999 257,500 1,442,500 -- 4,742
and Executive Vice President- 1998 257,500 700,000 10,000 4,629
Strategic Development
</TABLE>
________
(1) Amount represents employer matching contribution under the Tommy Hilfiger
U.S.A. 401(k) Profit Sharing Plan.
(2) This bonus is payable on a deferred basis. See "Certain Employment
Agreements."
(3) Includes 50% of the fees paid pursuant to a consulting agreement between
Tommy Hilfiger (Eastern Hemisphere) Limited, a subsidiary of THC ("THEH"),
and Fasco International, Inc. ("Fasco International"), a subsidiary of
Sportswear Holdings Limited ("Sportswear"). See "Certain Relationships and
Related Transactions."
(4) Includes (i) 50% of the fees paid pursuant to a consulting agreement
between THEH and Fasco International, and (ii) all of the fees paid
pursuant to a consulting agreement between THEH and another affiliate of
Mr. Stroll. See "Certain Relationships and Related Transactions."
29
<PAGE>
Stock Option Grants
The following table sets forth information regarding grants of stock
options during fiscal year 2000 made to the only Named Executive Officer who has
received Company option grants.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Grant Date Value (1)
------------------------------------------------------------------ --------------------
Number of Percent of
Securities Total Stock
Underlying Options
Stock Granted to Exercise or
Options Employees in Base Price Expiration Grant Date
Name Granted (#) Fiscal Year (2) ($/Sh) Date Present Value($)
---- ---------- -------------- -------- ---- -----------------
<S> <C> <C> <C> <C> <C>
Benjamin M.T. Ng 35,000 0.73% 11.53125 02/25/10 186,981
</TABLE>
________________
(1) The fair value of these options on the date of grant was estimated using
the Black-Scholes option-pricing model with the following assumptions:
volatility of 44%; risk-free interest rate of 6.7%; expected life of 5
years; and no future dividends. The dollar amount in this column is not
intended to forecast potential future appreciation, if any, of the
Company's Ordinary Shares.
(2) This percentage is calculated with respect to stock options granted under
the Plans (as defined under "Stock Option Plans" below) during the last
fiscal year. The stock options granted to Mr. Ng during the last fiscal
year were non-qualified options granted pursuant to the Plans. Such
options become exercisable in 20% increments each April 30, commencing
April 30, 2000. See "Stock Option Plans".
Stock Option Exercises and Fiscal Year-End Option Values
The following table sets forth information regarding stock option exercises
during fiscal year 2000 by the only Named Executive Officer who has received
Company option grants, and the values of such officer's unexercised options as
of March 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Stock Value of Unexercised In-the-
Shares Options at Money Stock Options at
Acquired on Value Fiscal Year-End (#) Fiscal Year-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C>
Benjamin M.T. Ng 120,000 3,122,738 60,000/45,000 0/103,906
</TABLE>
Certain Employment Agreements
Subsidiaries of the Company had employment agreements with Messrs. Hilfiger
and Horowitz during fiscal year 2000.
The employment agreement with Tommy Hilfiger, the Company's Honorary
Chairman of the Board and Principal Designer, provides for his employment as the
designer of all products carrying the Tommy Hilfiger trademarks until his death,
disability or incompetence. Mr. Hilfiger receives an annual base salary of
$900,000, subject to adjustments. If net sales of TH USA and its subsidiaries
are less than $48,333,333 in any year, Mr. Hilfiger's base salary for such year
is reduced by 1.5% of such shortfall, to not less than $500,000. If net sales
are greater than
30
<PAGE>
$48,333,333 in any fiscal year, Mr. Hilfiger receives an additional payment
equal to 1.5% of such excess. If Mr. Hilfiger terminates his employment without
the consent of TH USA other than by reason of his death, disability or
incompetence, TH USA will have no further obligations under the agreement. The
employment agreement provides that TH USA and its subsidiaries cannot enter into
any line of business without the consent of Mr. Hilfiger if he shall reasonably
determine that such line of business would be detrimental to the Tommy Hilfiger
trademarks.
The employment agreement with Mr. Horowitz provides for his employment as
Chief Executive Officer of the Company and TH USA until March 31, 2004. The
agreement provided for an annual base salary in fiscal year 2000 of $581,600.
The base salary is subject to increase each year by the average percentage
increase for all employees of TH USA.
Beginning in fiscal 1995, the Company became subject to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), under which public
companies are not permitted to deduct annual compensation paid to certain
executive officers in excess of $1,000,000 per executive, unless such excess is
paid pursuant to an arrangement based upon performance and approved by
shareholders and provided that the other requirements set forth in Section
162(m) and related regulations are met. Payments required to be made pursuant
to the aforementioned employment agreement with Mr. Hilfiger, which was entered
into prior to the effective date of Section 162(m), are not subject to such
restrictions.
On August 6, 1998, the Company's Compensation Committee approved and the
Board of Directors adopted, and on November 2, 1998, the shareholders approved,
the renewal of the Tommy Hilfiger U.S.A., Inc. Supplemental Executive Incentive
Compensation Plan (the "SEIC Plan"), which was scheduled to terminate on April
1, 1999, for each of the five fiscal years in the period ending March 31, 2004.
The purpose of the SEIC Plan is to provide a significant and flexible economic
opportunity to Mr. Horowitz, Chief Executive Officer and President of the
Company and Chief Executive Officer of TH USA, in an effort to reward his
contribution to the Company and its subsidiaries. The SEIC Plan is administered
by the Company's Compensation Committee and provides for a cash award to Mr.
Horowitz equal to 5 percent of the Company's consolidated earnings before
depreciation, interest on financing of fixed assets, non-operating expenses and
taxes ("operating earnings"). Awards under the plan are calculated and paid
quarterly based on 3.75 percent of operating earnings for the first three fiscal
quarters, with the remaining amount of the bonus (based on the 5 percent rate)
payable at the end of the fiscal year. The amount of the award is reduced by
the amount of any other bonuses paid or payable under any employment or bonus
agreement between the Company or TH USA and Mr. Horowitz. The SEIC Plan does
not contain any cap on the maximum amount of the bonus payable thereunder. The
SEIC Plan bonus payable to Mr. Horowitz in respect of fiscal year 2000 was
$16,631,000. While the Company believes that compensation payable pursuant to
the SEIC Plan will be deductible for federal income tax purposes pursuant to
Section 162(m), there can be no assurance in this regard.
The employment agreements with Messrs. Hilfiger and Horowitz also provide
that such executives are eligible to receive additional annual bonuses at the
discretion of TH USA's Board of Directors or Compensation Committee. If,
however, compensation is awarded based on an arrangement that does not satisfy
the requirements of Section 162(m), the Company would not be allowed to deduct
for tax purposes any payments in excess of the $1,000,000 limitation. The
Compensation Committee approved a discretionary bonus of $3,500,000 for Mr.
Hilfiger in fiscal year 1998, which was granted on a deferred basis as described
below (the "Deferred Bonus").
31
<PAGE>
The Deferred Bonus (and any interest accrued thereon) will be paid in
annual installments on the last day of each fiscal year of the Company in the
largest possible amounts that can be paid, after taking into account any base
salary and other compensation in that fiscal year which would be counted for
purposes of Section 162(m), and still be fully deductible under such
regulations. The unpaid portion of the Deferred Bonus accrues interest at a
rate equal to TH USA's bank borrowing rate. While the Company believes that
such Deferred Bonus payments will be deductible for federal income tax purposes
pursuant to Section 162(m), there can be no assurance in this regard.
Stock Option Plans
Tommy Hilfiger U.S.A. and Tommy Hilfiger (Eastern Hemisphere) Limited 1992
Stock Incentive Plans
In September 1992, the Company and its subsidiaries adopted stock options
plans (collectively, the "Plans") authorizing the issuance of an aggregate of up
to 5,940,000 Ordinary Shares to directors, officers and employees of the Company
and its subsidiaries. Through March 2000, a total of 13,500,000 additional
Ordinary Shares were authorized and reserved for issuance under the Plans. The
number of Ordinary Shares subject to the Plans is subject to certain adjustments
as provided in the Plans.
Currently, over half of the full-time employees of the Company and its
subsidiaries are participants in the Plans. Messrs. Chou, Stroll, Hilfiger,
Horowitz and Chao are not eligible for grants under the Plans.
The Plan for employees of TH USA and its subsidiaries is administered by
the Compensation Committee of the Board of Directors of TH USA and the Plan for
employees of the Company's Far East subsidiaries is administered by the
Company's Compensation Committee. Under the Plans, awards may include stock
options, stock appreciation rights and restricted stock. An option or right
granted under the Plans must have an exercise price of not less than market
value at the date of grant.
Options may be exercisable at such times, in such amounts, in accordance
with such terms and conditions and subject to such restrictions as are set forth
in the option agreement evidencing the grant of such options. In addition, the
grants may provide for acceleration or immediate vesting in the event of a
change of control of the Company or its subsidiaries.
Non-Employee Directors Stock Option Plan
In August 1994, the Board of Directors and shareholders of the Company
approved the Tommy Hilfiger Corporation Non-Employee Directors Stock Option Plan
(the "Directors Option Plan"). Options for up to 400,000 Ordinary Shares,
subject to certain adjustments, may be granted under the Directors Option Plan.
Each director who is not an officer or employee of the Company or any subsidiary
of the Company (a "Non-Employee Director") receives an initial stock option to
purchase 20,000 Ordinary Shares, and subsequent annual grants of options to
purchase 2,000 Ordinary Shares, in each case at a price equal to the fair market
value at the time of the grant of the Ordinary Shares subject to such stock
option.
32
<PAGE>
The Directors Option Plan is administered by the Company's Compensation
Committee. However, grants of stock options to participants under the Plan and
the amount, nature and timing of the grants are not subject to the determination
of such committee.
The term of each stock option granted under the Directors Option Plan is 10
years unless earlier terminated by termination of the director status of a Non-
Employee Director, and the stock options are exercisable in equal installments
over five years from the date of grant.
Director Compensation
Directors who are officers or employees of the Company or any of its
subsidiaries receive no additional compensation for their service on the Board
and its Committees. All Non-Employee Directors receive the following retainers:
$40,000 per annum for members of the Board; $5,000 per annum for members of
standing committees; and $3,000 per annum for Chairmen of standing committees.
The Non-Employee Directors also receive $2,000 for attendance at each meeting of
the Board or a Committee. In addition, the Non-Employee Directors participate
in the Directors Option Plan. See "Stock Option Plans."
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee consists of Mr. Adamko, who is the
Chairman, Mr. Silver and Mr. Murray.
Sportswear, a British Virgin Islands corporation, is indirectly 50% owned
by Westleigh Limited, a British Virgin Islands corporation privately owned by
members of the Chao family (including Messrs. Silas K.F. Chou, Co-Chairman of
the Board and a Director of the Company, and Ronald K.Y. Chao, a Director of the
Company) and an affiliate of Novel Enterprises ("Westleigh"), and 50% owned by
Flair Investment Holdings Limited, a British Virgin Islands corporation in which
Mr. Stroll, Co-Chairman of the Board and a Director of the Company, has an
indirect beneficial ownership interest ("Flair"). AIHL is owned 67.9% by
Sportswear, 21.825% by Mr. Hilfiger, Honorary Chairman of the Board, Principal
Designer and a Director of the Company, 7.275% by Mr. Horowitz, Chief Executive
Officer, President and a Director of the Company, and 3% by an affiliate of Mr.
Chou (the "Chou Affiliate").
Mr. Ng, Chief Financial Officer, Executive Vice President-Strategic
Development and a Director of the Company, and Mr. Ma, a Director of the
Company, may have certain economic interests based on the performance of AIHL
and its affiliates. Novel Enterprises and its affiliates also hold other
interests in the apparel industry, including an approximately 48% ownership
interest in Novel Denim.
Messrs. Chou, Stroll, Hilfiger, Horowitz, Ng and Ma are executive officers
and directors of AIHL. Messrs. Chou and Stroll are executive officers and
directors of Sportswear and Mr. Chao is a director of Sportswear. Messrs. Chou
and Chao are directors of Westleigh Limited. Messrs. Chou, Chao and Ma are
executive officers and directors of Novel Enterprises. Mr. Chou is an executive
officer, director and Chairman of the compensation committee of Novel Denim. Mr.
Chao is a director of Novel Denim and Mr. Ma is an executive officer and
director of Novel Denim.
See "Certain Relationships and Related Transactions" in Item 13.
33
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth data as of May 31, 2000 concerning the
beneficial ownership of Ordinary Shares by (i) the persons known to the Company
to beneficially own more than five percent of the outstanding Ordinary Shares of
the Company, (ii) all directors and nominees and each Named Executive Officer
and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount Percent
Beneficially Owned of Class(1)
------------------ -----------
<S> <C> <C>
AIHL Investment Holdings Limited(2)
Craigmuir Chambers
P.O. Box 71
Road Town, Tortola
British Virgin Islands....................... 18,091,860 19.4%
AXA Financial, Inc.(3)
1290 Avenue of the Americas
New York, NY 10104........................... 14,670,640 15.7%
PRIMECAP Management Company(4)
225 South Lake Avenue #400
Pasadena, CA 91101.......................... 9,996,400 10.8%
Directors and Named Executive Officers:
Silas K.F. Chou................................. ---(5) ---
Lawrence S. Stroll.............................. ---(5) ---
Thomas J. Hilfiger.............................. 20,000(5) *
Joel J. Horowitz................................ 21,200(5) *
Benjamin M.T. Ng................................ 71,000(6) *
Ronald K.Y. Chao................................ 9,600(5)(7) *
Lester M.Y. Ma.................................. 23,200(8) *
Joseph M. Adamko................................ 22,800(9) *
Clinton V. Silver............................... 5,600(7) *
Simon Murray.................................... 12,400(7) *
All directors and executive officers as a group
(including Ordinary Shares owned by AIHL)
(14 persons)(2)................................ 18,432,660(10) 19.8%
--------
</TABLE>
* Less than 1%.
(1) Shares outstanding with respect to each person includes the right to
acquire beneficial ownership of Ordinary Shares pursuant to currently
exercisable stock options, if any, held by such person under Company stock
option plans. See footnotes 6, 7, 8, 9 and 10. For purposes of this
table, "currently exercisable" stock options includes options becoming
vested and exercisable within 60 days from May 31, 2000.
(2) Information based on Amendment No. 2 to Schedule 13D dated September 7,
1998 filed with the SEC by AIHL. According to the Schedule 13D, AIHL has
shared dispositive power and shared voting power over all of the shares.
As set forth in the Schedule 13D, AIHL is owned 67.9% by Sportswear,
21.825% by Mr. Hilfiger, 7.275% by Mr. Horowitz and 3% by the Chou
Affiliate, and Sportswear is indirectly 50% owned by Westleigh, which is
privately owned by members of the Chao family (including Messrs. Chou and
Chao), and 50% owned by Flair, in which Mr. Stroll has an indirect
beneficial ownership interest. According to the Schedule 13D, each of
Sportswear, Westleigh, Flair, the Chou Affiliate, Mr. Hilfiger and Mr.
Horowitz may be deemed to have shared dispositive power and shared voting
power over, and thus to beneficially own, all of the Ordinary Shares owned
by AIHL through their respective direct or indirect ownership of the
capital stock of AIHL.
34
<PAGE>
(3) Information based on Amendment No. 4 to Schedule 13G dated February 10,
2000 filed with the SEC by AXA Financial, Inc. (formerly known as The
Equitable Companies Incorporated, "AXA Financial"). According to the
Schedule 13G, subsidiaries of AXA Financial, a parent holding company, had
sole dispositive power over 14,669,556 of the shares, shared dispositive
power over 1,084 of the shares, sole voting power over 3,848,870 of the
shares and shared voting power over 6,973,600 of the shares.
(4) Information based on Amendment No. 1 to Schedule 13G dated May 31, 2000
filed with the SEC by PRIMECAP Management Company ("PRIMECAP"). According
to the Schedule 13G, PRIMECAP, an investment adviser, had sole dispositive
power over all of the shares and sole voting power over 3,996,400 of the
shares.
(5) Not including Ordinary Shares owned by AIHL. See footnote 2.
(6) Issuable upon the exercise of currently exercisable stock options under the
Plans.
(7) Issuable upon the exercise of currently exercisable stock options under the
Directors Option Plan.
(8) Issuable upon the exercise of currently exercisable stock options under the
Plans and the Directors Option Plan.
(9) Includes 16,000 Ordinary Shares issuable upon the exercise of currently
exercisable stock options under the Directors Option Plan.
(10) Includes 340,800 Ordinary Shares issuable upon the exercise of currently
exercisable stock options held by all directors and executive officers
under the Plans and the Directors Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and transactions between the Company and certain
directors and officers of the Company and certain of their affiliates are
described below.
The Company is a party to a lock-up agreement (the "Lock-Up Agreement") and
a registration rights agreement (the "Registration Rights Agreement"), in each
case with AIHL, the Chou Affiliate, Sportswear, Westleigh, Flair, Mr. Hilfiger
and Mr. Horowitz (collectively, the "AIHL Affiliates"), relating to the
18,091,860 Ordinary Shares of the Company paid by the Company as part of the
purchase price consideration for the Acquisition (the "Purchase Price Shares").
The Lock-Up Agreement prohibited the transfer of the Purchase Price Shares until
May 8, 2000, and imposes additional restrictions until May 8, 2003 on transfers
of the shares as a block, subject to certain exceptions. Under the Registration
Rights Agreement, the AIHL Affiliates, along with their successors and permitted
transferees under the Lock-Up Agreement, have the right to require the Company
to register sales of the Purchase Price Shares. At the time of the Acquisition,
Messrs. Chou and Stroll also entered into a non-competition agreement with the
Company restricting their ability to compete in the United States or Canada with
the Pepe USA businesses until May 8, 2002.
The Company is party to a geographic license agreement for Europe and
certain other countries with Tommy Hilfiger Europe B.V., a subsidiary of AIHL
(the "Pepe European License"). Under this agreement, the licensee pays THLI a
royalty based on a percentage of the value of licensed products sold by the
licensee. Except with the approval of THLI, all products sold by or through the
licensee must be purchased through THEH or TH USA pursuant to buying agency
agreements. Under these agreements, THEH and TH USA are paid a buying agency
commission based on a percentage of the cost of products sourced through them.
For the fiscal year ended March 31, 2000, results of operations include
$6,372,000 of royalties and commissions under this arrangement.
The Company is party to a geographic license agreement for Japan with
Novel-ITC Licensing Limited ("NIL"), a company jointly controlled by Itochu
Corporation and Novel Enterprises. Mr. Stroll indirectly owns a 3.5% equity
interest in NIL. Under the license agreement, NIL pays THLI a royalty based on
a percentage of the value of licensed products sold by THMJ Incorporated
("THMJ"), NIL's sublicensee. Novel Enterprises and its affiliates and Messrs.
Stroll, Hilfiger and Horowitz indirectly own equity interests of 15.2%, 15.2%,
9.7% and 3.2%, respectively, in THMJ. Except with the approval of THLI, all
products sold by or through NIL or THMJ must be purchased through THEH or TH USA
pursuant to buying agency
35
<PAGE>
agreements. Under these agreements, THEH and TH USA are paid a buying agency
commission based on a percentage of the cost of products sourced through them.
Pursuant to this arrangement, royalties and commissions totaled $3,429,000
during fiscal 2000.
TH USA purchases finished goods in the ordinary course of business from
affiliates of Novel Enterprises. Such purchases amounted to $64,670,000 during
the fiscal year ended March 31, 2000. In addition, contractors of the Company
purchase raw materials in the ordinary course of business from affiliates of
Novel Enterprises pursuant to the Company's designation of such sources as
acceptable suppliers. Such purchases amounted to $9,364,000 during the fiscal
year ended March 31, 2000.
The Company sells merchandise in the ordinary course of business to a
retail store that is owned by Mr. Hilfiger's sister. Sales to this customer
amounted to approximately $522,000 during fiscal 2000.
In April 1999, TH USA sold to Mr. Hilfiger a whole life insurance policy
under which he is the named insured for its cash surrender value of $290,000.
THEH has a consulting agreement with Fasco International, an affiliate of
Messrs. Chou and Stroll. The fees under this agreement totaled $500,000 during
fiscal 2000.
THEH has a consulting agreement with another affiliate of Mr. Stroll. THEH
paid fees under this Agreement of $500,000 in fiscal 2000.
Under the terms of an agreement with Novel Enterprises, THHK reimburses
Novel Enterprises for certain general and administrative expenses incurred by it
on behalf of THHK. Payments made to Novel Enterprises under this Agreement for
the fiscal year ended March 31, 2000 were $401,000.
The Audit Committee of the Board of Directors monitors and approves
transactions between the Company and its affiliates to seek to provide that such
transactions are on terms which are no less favorable as a whole to the Company
than could be obtained from unaffiliated parties.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Index to Financial Statements and Financial Statement Schedules
(a) 1. Financial Statements
The following consolidated financial statements of the Company are included
in Item 8:
Consolidated Statements of Operations for the years ended March 31,
2000, 1999 and 1998
Consolidated Balance Sheets as of March 31, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended March 31,
2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for the
years ended March 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Form 10-K
Page
----
Schedule I - Condensed Financial
Information of Registrant 42
All other schedules have been omitted because of the absence of the
conditions under which they are required or because the required information is
included in the Consolidated Financial Statements or Notes thereto.
(a) 3. Exhibits
Exhibit
Number Description
------ -----------
3. -- Memorandum of Association and Articles of Association of THC,
as amended (conformed to reflect all amendments to date)
(previously filed as Exhibit 3.4 to THC's Annual Report on
Form 10-K for the fiscal year ended March 31, 1999 and
incorporated herein by reference)
4.1 -- Indenture, dated as of May 1, 1998, among TH USA, as Issuer,
THC, as Guarantor, and The Chase Manhattan Bank, as Trustee
(previously filed as Exhibit 4.2 to THC's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998 and
incorporated herein by reference)
4.2 -- Forms of TH USA 6.50% Note due 2003 and 6.85% Note due 2008
(previously filed as Exhibit 4.1 to THC's Current Report on
Form 8-K dated May 5, 1998 and incorporated herein by
reference)
37
<PAGE>
*10.1 -- TH USA 1992 Stock Incentive Plan, as amended and restated
(previously filed as Exhibit 4.1 with Registration No.
333-96011 and incorporated herein by reference)
*10.2 -- THEH 1992 Stock Incentive Plan, as amended and restated
(previously filed as Exhibit 4.2 with Registration No. 333-
96011 and incorporated herein by reference)
*10.3 -- THC Non-Employee Directors Stock Option Plan (previously
filed as Exhibit 10.3 with Registration No. 33-88906 and
incorporated herein by reference)
*10.4 -- TH USA Supplemental Executive Incentive Compensation Plan
(previously filed as Exhibit A to THC's Proxy Statement dated
September 25, 1998 and incorporated herein by reference)
*10.5 -- TH USA Voluntary Deferred Compensation Plan (previously filed
as Exhibit 10.8 to THC's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 and incorporated herein by
reference)
*10.6 -- TH USA Supplemental Executive Retirement Plan (previously
filed as Exhibit 10.9 to THC's Annual Report on Form 10-K for
the fiscal year ended March 31, 1998 and incorporated herein
by reference)
*10.7 -- Amended and Restated Employment Agreement, dated as of June
30, 1992, between TH USA and Thomas J. Hilfiger (previously
filed as Exhibit 10.3 with Registration No. 33-48587 and
incorporated herein by reference)
*10.8 -- Amended and Restated Employment Agreement, dated as of June
30, 1992, between TH USA and Joel J. Horowitz (the "Horowitz
Employment Agreement") (previously filed as Exhibit 10.4 with
Registration No. 33-48587 and incorporated herein by
reference)
*10.9 -- Amendment, dated as of March 8, 1994, to the Horowitz
Employment Agreement (previously filed as Exhibit 7 to THC's
Annual Report on Form 20-F for the fiscal year ended March
31, 1994 and incorporated herein by reference)
*10.10 -- Amendment No. 2, dated as of August 7, 1998, to the Horowitz
Employment Agreement (previously filed as Exhibit 10(b) to
THC's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998 and incorporated herein by
reference)
*10.11 -- Consulting Agreement, dated April 1, 1991, between Polostro
Limited and THEH (the "Polostro Consulting Agreement")
(previously filed as Exhibit 10.13 with Registration No. 33-
48587 and incorporated herein by reference)
*10.12 -- Amendment, dated April 1, 1993, to the Polostro Consulting
Agreement (previously filed as Exhibit 18 to THC's Annual
Report on Form 20-F for the fiscal year ended March 31, 1994
and incorporated herein by reference)
*10.13 -- Amendment No. 2, dated November 2, 1998, to the Polostro
Consulting Agreement (previously filed as Exhibit 10(c) to
THC's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998 and incorporated herein by
reference)
*10.14 -- Consulting Agreement, dated April 1, 1996, between Fasco
International, Inc. and THEH (previously filed as Exhibit
10.25 to THC's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996 and incorporated herein by reference)
38
<PAGE>
10.15 -- Credit Agreement, dated as of May 8, 1998, among THC, as
Guarantor, TH USA, as Borrower, the several Lenders from
time to time parties thereto, Fleet Bank, N.A., as
Documentation Agent, Nationsbank, N.A., as Syndication
Agent, and The Chase Manhattan Bank, as Administrative
Agent (previously filed as Exhibit 10.4 to THC's Annual
Report on Form 10-K for the fiscal year ended March 31,
1998 and incorporated herein by reference)
10.16 -- Amended and Restated Factoring Agreement, dated as of
April 1, 1998, between TH USA and Century Business Credit
Corporation (the "Factoring Agreement") (previously filed
as Exhibit 10.16 to THC's Annual Report on Form 10-K for
the fiscal year ended March 31, 1998 and incorporated
herein by reference)
10.17 -- Amendment, dated March 30, 2000 to the Factoring
Agreement
10.18 -- Purchase and Sale Agreement, dated as of February 2,
2000, between Northstar 485 5/th/ Holding LLC and TH USA
10.19 -- Lease, dated April 24, 1995, between Forsgate Industrial
Complex L.P. and TH USA (previously filed as Exhibit
10.25 to THC's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995 and incorporated herein by
reference)
10.20 -- Lease, dated June 10, 1997, between Hartz Mountain
Industries, Inc. and Tommy Hilfiger Wholesale, Inc.
(f/k/a Pepe USA) (previously filed as Exhibit 10.19 to
THC's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 and incorporated herein by
reference)
10.21 -- Memorandum of Agreement, January 28, 1999, between Tandem
Distribution Services, Inc. and TH USA (previously filed
as Exhibit 10(c) to THC's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1999 and
incorporated herein by reference)
10.22 -- Trademark Agreement, dated June 30, 1992, between Thomas
J. Hilfiger and Tommy Hilfiger, Inc. (previously filed as
Exhibit 10.15 with Registration No. 33-48587 and
incorporated herein by reference)
10.23 -- License Agreement, dated June 24, 1996 (the "Japan
License"), between THLI and NIL (portions of this
exhibit, which have been filed separately with the
Securities and Exchange Commission, have been omitted
pursuant to an order of the Commission granting
confidential treatment) (previously filed as Exhibit
10(a) to THC's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 and incorporated
herein by reference)
10.24 -- First Amendment, dated September 14, 1998, to the Japan
License (previously filed as Exhibit 10(d) to THC's
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998 and incorporated herein by
reference)
10.25 -- License Agreement, dated as of February 1, 1997 (the
"Pepe European License"), between THLI and PJLC (as
assigned to Tommy Hilfiger Europe B.V.) (portions of this
exhibit, which have been filed separately with the
Securities and Exchange Commission, have been omitted
pursuant to an order of the Commission granting
confidential treatment) (previously filed as Exhibit
10.31 to THC's Annual Report on Form 10-K for the fiscal
year ended March 31, 1997 and incorporated herein by
reference)
39
<PAGE>
10.26 -- First Amendment, dated December 1, 1997, to the Pepe
European License (previously filed as Exhibit 10(d) to
THC's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1997 and incorporated herein by
reference)
10.27 -- Second Amendment, dated May 8, 1998, to the Pepe European
License (portions of this exhibit, which have been filed
separately with the Securities and Exchange Commission,
have been omitted pursuant to an order of the Commission
granting confidential treatment) (previously filed as
Exhibit 10.24 to THC's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 and incorporated herein
by reference)
10.28 -- Lock-Up Agreement, dated as of January 31, 1998, by and
among THC, PJLC, Blackwatch Investments Limited, AIHL,
the Chou Affiliate, Sportswear, Westleigh, Flair, Thomas
J. Hilfiger and Joel J. Horowitz (previously filed as
Exhibit 10.1 to THC's Current Report on Form 8-K dated
April 1, 1998 and incorporated herein by reference)
10.29 -- Registration Rights Agreement, dated as of May 8, 1998,
by and among THC, PJLC, Blackwatch Investments Limited,
AIHL, the Chou Affiliate, Sportswear Holdings Limited,
Westleigh Limited, Flair Investment Holdings Limited,
Thomas J. Hilfiger and Joel J. Horowitz (previously filed
as Exhibit 10.26 to THC's Annual Report on Form 10-K for
the fiscal year ended March 31, 1998 and incorporated
herein by reference)
10.30 -- Non-Competition Agreement, dated as of May 8, 1998, among
THC, Silas K.F. Chou and Lawrence S. Stroll (previously
filed as Exhibit 10.27 to THC's Annual Report on Form 10-
K for the fiscal year ended March 31, 1998 and
incorporated herein by reference)
11. -- Statement re: Computation of Per Share Earnings
21. -- Subsidiaries of THC
23. -- Consent of PricewaterhouseCoopers LLP
24. -- Powers of Attorney
27. -- Financial Data Schedule
________
* Management contract or compensatory plan or arrangement.
(b) 1. Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
three months ended March 31, 2000.
40
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOMMY HILFIGER CORPORATION
/s/ Joel J. Horowitz
--------------------
Joel J. Horowitz
Chief Executive Officer and President
June 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
* Director and Co-Chairman of the Board June 26, 2000
---------------
(Silas K.F. Chou)
* Director and Co-Chairman of the Board June 26, 2000
-------------------
(Lawrence S. Stroll)
* Director and Honorary Chairman June 26, 2000
------------------
(Thomas J. Hilfiger)
/s/ Joel J. Horowitz Director, Chief Executive Officer and June 26, 2000
-------------------- President (principal executive officer)
(Joel J. Horowitz)
*
---------------- Director, Chief Financial Officer, Executive June 26, 2000
(Benjamin M.T. Ng) Vice President-Strategic Development
(principal financial officer)
* Director June 26, 2000
----------------
(Ronald K.Y. Chao)
* Director June 26, 2000
--------------
(Lester M.Y. Ma)
* Director June 26, 2000
-------------
(Joseph Adamko)
* Director June 26, 2000
-----------------
(Clinton V. Silver)
* Director June 26, 2000
------------
(Simon Murray)
* Senior Vice President and Treasurer (principal June 26, 2000
--------------- accounting officer)
(Joseph Scirocco)
</TABLE>
*/s/ Joel J. Horowitz
--------------------
Joel J. Horowitz
(Attorney-in-Fact)
41
<PAGE>
SCHEDULE I
TOMMY HILFIGER CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
------------- ------------- -------------
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Equity in income of subsidiaries............. $227,531 $246,371 $168,770
Income before income taxes................... 227,531 246,371 168,770
Provision for income taxes................... 55,173 72,654 55,590
------------- ------------- -------------
Net income................................... $172,358 $173,717 $113,180
============= ============= =============
</TABLE>
Note 1
Registrant is a British Virgin Islands holding company formed in June 1992.
See Notes 1(a) and 1(b) to the Consolidated Financial Statements.
Note 2
Certain provisions of the agreements governing indebtedness of the Company
and its subsidiaries restrict the distribution of income and assets by the
Company's subsidiaries. See Note 6 to the Consolidated Financial Statements.
42
<PAGE>
SCHEDULE I
(continued)
TOMMY HILFIGER CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Investment in subsidiaries......................................... $ 1,277,714 $ 1,092,249
------------ ------------
Total Assets................................................... $ 1,277,714 $ 1,092,249
============ ============
LIABILITIES AND SHAREHOLDERS EQUITY
Shareholders' equity
Preference shares, $0.01 par value-shares authorized
5,000,000; none issued............................................. $ - $ -
Common shares, $0.01 par value-shares authorized
150,000,000; issued and outstanding 94,830,638
and 94,324,088, respectively...................................... 948 943
Capital in excess of par value.................................... 584,920 572,809
Retained earnings.................................................. 691,270 518,912
Accumulated other comprehensive income (loss)..................... 576 (415)
------------ ------------
Total Shareholders' Equity..................................... 1,277,714 1,092,249
------------ ------------
Total Liabilities and Shareholders' Equity................. $ 1,277,714 $ 1,092,249
============ ============
</TABLE>
43
<PAGE>
SCHEDULE I
(continued)
TOMMY HILFIGER CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended March 31,
-----------------------------------------------------
2000 1999 1998
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income......................................... $ 172,358 $ 173,717 $ 113,180
Adjustments to reconcile net income to net cash from
operating activities:
Net equity in income of subsidiaries............. (172,358) (173,717) (113,180)
-------------- --------------- ---------------
Net cash provided by operating activities........ - - -
-------------- --------------- ---------------
Cash flows from investing activities................. - - -
-------------- --------------- ---------------
Cash flows from financing activities................. - - -
-------------- --------------- ---------------
Net change in cash................................... - - -
Cash at beginning of year............................ - - -
-------------- --------------- ---------------
Cash at end of year.................................. $ - $ - $ -
============== =============== ===============
</TABLE>
44
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
--------- -----------
3. -- Memorandum of Association and Articles of Association of
THC, as amended (conformed to reflect all amendments to
date) (previously filed as Exhibit 3.4 to THC's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999
and incorporated herein by reference)
4.1 -- Indenture, dated as of May 1, 1998, among TH USA, as Issuer,
THC, as Guarantor, and The Chase Manhattan Bank, as Trustee
(previously filed as Exhibit 4.2 to THC's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998 and
incorporated herein by reference)
4.2 -- Forms of TH USA 6.50% Note due 2003 and 6.85% Note due 2008
(previously filed as Exhibit 4.1 to THC's Current Report on
Form 8-K dated May 5, 1998 and incorporated herein by
reference)
*10.1 -- TH USA 1992 Stock Incentive Plan, as amended and restated
(previously filed as Exhibit 4.1 with Registration No. 333-
96011 and incorporated herein by reference)
*10.2 -- THEH 1992 Stock Incentive Plan, as amended and restated
(previously filed as Exhibit 4.2 with Registration No. 333-
96011 and incorporated herein by reference)
*10.3 -- THC Non-Employee Directors Stock Option Plan (previously
filed as Exhibit 10.3 with Registration No. 33-88906 and
incorporated herein by reference)
*10.4 -- TH USA Supplemental Executive Incentive Compensation Plan
(previously filed as Exhibit A to THC's Proxy Statement
dated September 25, 1998 and incorporated herein by
reference)
*10.5 -- TH USA Voluntary Deferred Compensation Plan (previously
filed as Exhibit 10.8 to THC's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998 and incorporated
herein by reference)
*10.6 -- TH USA Supplemental Executive Retirement Plan (previously
filed as Exhibit 10.9 to THC's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998 and incorporated
herein by reference)
*10.7 -- Amended and Restated Employment Agreement, dated as of June
30, 1992, between TH USA and Thomas J. Hilfiger (previously
filed as Exhibit 10.3 with Registration No. 33-48587 and
incorporated herein by reference)
*10.8 -- Amended and Restated Employment Agreement, dated as of June
30, 1992, between TH USA and Joel J. Horowitz (the "Horowitz
Employment Agreement") (previously filed as Exhibit 10.4
with Registration No. 33-48587 and incorporated herein by
reference)
*10.9 -- Amendment, dated as of March 8, 1994, to the Horowitz
Employment Agreement (previously filed as Exhibit 7 to THC's
Annual Report on Form 20-F for the fiscal year ended March
31, 1994 and incorporated herein by reference)
*10.10 -- Amendment No. 2, dated as of August 7, 1998, to the Horowitz
Employment Agreement (previously filed as Exhibit 10(b) to
THC's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998 and incorporated herein by
reference)
45
<PAGE>
*10.11 -- Consulting Agreement, dated April 1, 1991, between Polostro
Limited and THEH (the "Polostro Consulting Agreement")
(previously filed as Exhibit 10.13 with Registration No. 33-
48587 and incorporated herein by reference)
*10.12 -- Amendment, dated April 1, 1993, to the Polostro Consulting
Agreement (previously filed as Exhibit 18 to THC's Annual
Report on Form 20-F for the fiscal year ended March 31, 1994
and incorporated herein by reference)
*10.13 -- Amendment No. 2, dated November 2, 1998, to the Polostro
Consulting Agreement (previously filed as Exhibit 10(c) to
THC's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998 and incorporated herein by
reference)
*10.14 -- Consulting Agreement, dated April 1, 1996, between Fasco
International, Inc. and THEH (previously filed as Exhibit
10.25 to THC's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996 and incorporated herein by
reference)
10.15 -- Credit Agreement, dated as of May 8, 1998, among THC, as
Guarantor, TH USA, as Borrower, the several Lenders from
time to time parties thereto, Fleet Bank, N.A., as
Documentation Agent, Nationsbank, N.A., as Syndication
Agent, and The Chase Manhattan Bank, as Administrative Agent
(previously filed as Exhibit 10.4 to THC's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998 and
incorporated herein by reference)
10.16 -- Amended and Restated Factoring Agreement, dated as of April
1, 1998, between TH USA and Century Business Credit
Corporation (the "Factoring Agreement") (previously filed as
Exhibit 10.16 to THC's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 and incorporated herein by
reference)
10.17 -- Amendment, dated March 30, 2000 to the Factoring Agreement
10.18 -- Purchase and Sale Agreement, dated as of February 2, 2000,
between Northstar 485 5th Holding LLC and TH USA
10.19 -- Lease, dated April 24, 1995, between Forsgate Industrial
Complex L.P. and TH USA (previously filed as Exhibit 10.25
to THC's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995 and incorporated herein by reference)
10.20 -- Lease, dated June 10, 1997, between Hartz Mountain
Industries, Inc. and Tommy Hilfiger Wholesale, Inc. (f/k/a
Pepe USA) (previously filed as Exhibit 10.19 to THC's Annual
Report on Form 10-K for the fiscal year ended March 31, 1998
and incorporated herein by reference)
10.21 -- Memorandum of Agreement, January 28, 1999, between Tandem
Distribution Services, Inc. and TH USA (previously filed as
Exhibit 10(c) to THC's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999 and incorporated herein
by reference)
46
<PAGE>
10.22 -- Trademark Agreement, dated June 30, 1992, between Thomas J.
Hilfiger and Tommy Hilfiger, Inc. (previously filed as
Exhibit 10.15 with Registration No. 33-48587 and
incorporated herein by reference)
10.23 -- License Agreement, dated June 24, 1996 (the "Japan
License"), between THLI and NIL (portions of this exhibit,
which have been filed separately with the Securities and
Exchange Commission, have been omitted pursuant to an order
of the Commission granting confidential treatment)
(previously filed as Exhibit 10(a) to THC's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1996
and incorporated herein by reference)
10.24 -- First Amendment, dated September 14, 1998, to the Japan
License (previously filed as Exhibit 10(d) to THC's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1998 and incorporated herein by reference)
10.25 -- License Agreement, dated as of February 1, 1997 (the "Pepe
European License"), between THLI and PJLC (as assigned to
Tommy Hilfiger Europe B.V.) (portions of this exhibit, which
have been filed separately with the Securities and Exchange
Commission, have been omitted pursuant to an order of the
Commission granting confidential treatment) (previously
filed as Exhibit 10.31 to THC's Annual Report on Form 10-K
for the fiscal year ended March 31, 1997 and incorporated
herein by reference)
10.26 -- First Amendment, dated December 1, 1997, to the Pepe
European License (previously filed as Exhibit 10(d) to THC's
Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1997 and incorporated herein by reference)
10.27 -- Second Amendment, dated May 8, 1998, to the Pepe European
License (portions of this exhibit, which have been filed
separately with the Securities and Exchange Commission, have
been omitted pursuant to an order of the Commission granting
confidential treatment) (previously filed as Exhibit 10.24
to THC's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 and incorporated herein by reference)
10.28 -- Lock-Up Agreement, dated as of January 31, 1998, by and
among THC, PJLC, Blackwatch Investments Limited, AIHL, the
Chou Affiliate, Sportswear, Westleigh, Flair, Thomas J.
Hilfiger and Joel J. Horowitz (previously filed as Exhibit
10.1 to THC's Current Report on Form 8-K dated April 1, 1998
and incorporated herein by reference)
10.29 -- Registration Rights Agreement, dated as of May 8, 1998, by
and among THC, PJLC, Blackwatch Investments Limited, AIHL,
the Chou Affiliate, Sportswear Holdings Limited, Westleigh
Limited, Flair Investment Holdings Limited, Thomas J.
Hilfiger and Joel J. Horowitz (previously filed as Exhibit
10.26 to THC's Annual Report on Form 10-K for the fiscal
year ended March 31, 1998 and incorporated herein by
reference)
10.30 -- Non-Competition Agreement, dated as of May 8, 1998, among
THC, Silas K.F. Chou and Lawrence S. Stroll (previously
filed as Exhibit 10.27 to THC's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998 and incorporated
herein by reference)
11. -- Statement re: Computation of Per Share Earnings
21. -- Subsidiaries of THC
47
<PAGE>
23. -- Consent of PricewaterhouseCoopers LLP
24. -- Powers of Attorney
27. -- Financial Data Schedule
________
* Management contract or compensatory plan or arrangement.
48
