<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JULY 31, 1997. OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE TRANSITION FROM TO .
Commission file number: 1-9494
TIFFANY & CO.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3228013
(State of incorporation) (I.R.S. Employer Identification No.)
727 FIFTH AVE. NEW YORK, NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 755-8000
Former name, former address and former fiscal year, if changed since last report
.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock as of the latest practicable
date: Common Stock, $.01 par value, 35,026,850 shares outstanding at the close
of business on JULY 31, 1997.
<PAGE> 2
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 1997
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - July 31, 1997
(Unaudited), January 31, 1997 and
July 31, 1996 (Unaudited) 3
Consolidated Statements of Earnings - for the
three and six months ended July 31, 1997
and 1996 (Unaudited) 4
Consolidated Statements of Stockholders' Equity -
for the three and six months ended
July 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows - for
the six months ended July 31, 1997
and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
(a) Exhibits
(b) Reports on Form 8-K
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
July 31, January 31, July 31,
1997 1997 1996*
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 61,538 $117,161 $ 20,125
Short-term investments 15,000 -- --
Accounts receivable, less allowances
of $6,774, $6,864 and $5,697 69,412 80,772 65,839
Inventories 372,787 335,389 365,676
Deferred income taxes 19,105 14,297 8,817
Prepaid expenses 31,437 21,364 30,402
-------- -------- --------
Total current assets 569,279 568,983 490,859
Property and equipment, net 134,996 129,346 124,742
Deferred income taxes 10,029 10,259 8,368
Other assets, net 30,419 30,830 34,614
-------- -------- --------
$744,723 $739,418 $658,583
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 68,489 $ 76,338 $ 62,203
Accounts payable and accrued liabilities 112,000 110,068 102,139
Income taxes payable 7,379 25,829 827
Merchandise and other customer credits 15,098 14,237 11,939
-------- -------- --------
Total current liabilities 202,966 226,472 177,108
Reserve for product return 5,622 5,800 8,261
Long-term debt 93,685 92,675 98,305
Postretirement/employment benefit obligation 19,656 19,191 18,803
Other long-term liabilities 17,235 17,016 15,924
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized
60,000 shares, issued 35,027, 34,529 and 34,405 350 345 344
Additional paid-in capital 164,581 150,045 146,484
Retained earnings 253,033 237,959 196,295
Foreign currency translation adjustments (12,405) (10,085) (2,941)
-------- -------- --------
Total stockholders' equity 405,559 378,264 340,182
-------- -------- --------
$744,723 $739,418 $658,583
======== ======== ========
</TABLE>
* Reclassified for comparative purposes.
See notes to consolidated financial statements.
- 3 -
<PAGE> 4
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
July 31, July 31,
----------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $217,149 $202,763 $416,848 $383,504
Cost of sales 100,522 95,881 193,967 183,256
-------- -------- -------- --------
Gross profit 116,627 106,882 222,881 200,248
Selling, general and administrative
expenses 97,018 89,561 186,230 170,301
Provision for uncollectible accounts 364 443 703 791
-------- -------- -------- --------
Earnings from operations 19,245 16,878 35,948 29,156
Other expenses, net 1,035 2,360 2,159 5,700
-------- -------- -------- --------
Earnings before income taxes 18,210 14,518 33,789 23,456
Provision for income taxes 7,830 6,272 14,529 10,133
-------- -------- -------- --------
Net earnings $ 10,380 $ 8,246 $ 19,260 $ 13,323
======== ======== ======== ========
Net earnings per share:
Primary $ 0.29 $ 0.24 $ 0.53 $ 0.39
======== ======== ======== ========
Fully diluted $ 0.29 $ 0.24 $ 0.53 $ 0.39
======== ======== ======== ========
Weighted average number of common shares:
Primary 36,339 34,715 36,125 34,058
Fully diluted 36,339 35,688 36,205 35,541
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE> 5
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Foreign
Total Common Stock Additional Currency
Stockholders' ------------------ Paid-In Retained Translation
Equity Shares Amount Capital Earnings Adjustments
------------- ------ ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 31, 1997 $378,264 34,529 $345 $150,045 $237,959 $(10,085)
Issuance of Common Stock 1,800 50 1 1,799 - -
Exercise of stock options 3,802 245 2 3,800 - -
Tax benefit from exercise of
stock options 2,710 - - 2,710 - -
Cash dividends on Common Stock (1,738) - - - (1,738) -
Foreign currency translation
adjustments (3,049) - - - - (3,049)
Net earnings 8,880 - - - 8,880 -
-------- ------ ---- -------- -------- --------
BALANCES, April 30, 1997 390,669 34,824 348 158,354 245,101 (13,134)
======== ====== ==== ======== ======== ========
Exercise of stock options 3,649 203 2 3,647 - -
Tax benefit from exercise of
stock options 2,580 - - 2,580 - -
Cash dividends on Common Stock (2,448) - - - (2,448) -
Foreign currency translation
adjustments 729 - - - - 729
Net earnings 10,380 - - - 10,380 -
-------- ------ ---- -------- -------- --------
BALANCES, July 31, 1997 $405,559 35,027 $350 $164,581 $253,033 $(12,405)
======== ====== ==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 6
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the
Six Months Ended
July 31,
-------------------------
1997 1996*
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 19,260 $ 13,323
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 10,811 10,390
Provision for uncollectible accounts 703 791
Reduction in reserve for product return (178) (2,977)
Provision for inventories 4,902 2,991
Deferred income taxes (4,416) 887
Provision for postretirement/employment benefits 465 772
Changes in assets and liabilities:
Accounts receivable 9,704 12,074
Inventories (42,742) (56,312)
Prepaid expenses (10,124) (10,288)
Other assets, net (324) (8,740)
Accounts payable 5,840 (2,799)
Accrued liabilities (2,383) (1,892)
Income taxes payable (18,420) (18,879)
Merchandise and other customer credits 861 885
Other long-term liabilities 885 357
-------- --------
Net cash used in operating activities (25,156) (59,417)
-------- --------
Cash Flows From Investing Activities:
Capital expenditures (16,301) (18,904)
Purchase of short-term investments (15,000) --
Proceeds from sale of fixed assets -- 19
Proceeds from lease incentives 831 1,590
-------- --------
Net cash used in investing activities (30,470) (17,295)
-------- --------
Cash Flows From Financing Activities:
Payments on short-term borrowings (8,552) (17,053)
Prepayment of long-term trade payable -- (25,649)
Proceeds from issuance of long-term debt -- 45,719
Proceeds from exercise of stock options 7,451 10,960
Tax benefit from exercise of stock options 5,290 3,745
Cash dividends on Common Stock (4,186) (2,851)
-------- --------
Net cash provided by financing activities 3 14,871
-------- --------
Net decrease in cash and cash equivalents (55,623) (61,841)
Cash and cash equivalents at beginning of year 117,161 81,966
-------- --------
Cash and cash equivalents at end of six months $ 61,538 $ 20,125
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the six months for:
Interest $ 3,643 $ 7,402
======== ========
Income taxes $ 33,439 $ 25,353
======== ========
Supplemental Schedule of Noncash Investing and
Financing Activities:
Conversion of Subordinated Debentures to Equity $ -- $ 48,343
======== ========
Issuance of Common Stock for the Employee Profit
Sharing and Retirement Savings Plan $ 1,800 $ 1,000
======== ========
</TABLE>
* Reclassified for comparative purposes.
See notes to consolidated financial statements.
- 6 -
<PAGE> 7
TIFFANY & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts
of Tiffany & Co. and all majority-owned domestic and foreign
subsidiaries (the "Company"). All material intercompany balances and
transactions have been eliminated. The statements are without audit
and, in the opinion of management, include all adjustments (which
include only normal recurring adjustments including the adjustment
necessary as a result of the use of the LIFO method of inventory
valuation, which is based on assumptions as to inflation rates and
projected fiscal year-end inventory levels) necessary to present fairly
the Company's financial position as of July 31, 1997 and the results of
operations and cash flows for the interim periods presented. The
financial statements for January 31, 1997 are derived from the audited
financial statements which are included in the Company's report on Form
10-K, which should be read in connection with these financial
statements. In accordance with the rules of the Securities and Exchange
Commission, these financial statements do not include all disclosures
required by generally accepted accounting principles.
Since the Company's business is seasonal, with a higher proportion of
sales and income generated in the last quarter of the fiscal year, the
results of operations for the three and six months ended July 31, 1997
and 1996 are not necessarily indicative of the results of the entire
fiscal year.
2. INVENTORIES
Inventories at July 31, 1997, January 31, 1997 and July 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
July 31, January 31, July 31,
(in thousands) 1997 1997 1996
-------- ----------- -------
<S> <C> <C> <C>
Finished goods $320,029 $286,109 $300,604
Raw Materials 55,488 47,969 58,983
Work-in-process 1,761 3,054 10,478
-------- -------- --------
377,278 337,132 370,065
Reserves (4,491) (1,743) (4,389)
-------- -------- -------
$372,787 $335,389 $365,676
======== ======== ========
</TABLE>
At July 31, 1997, January 31, 1997 and July 31, 1996, $283,597,000,
$249,904,000 and $276,120,000, respectively, of inventories were valued
using the LIFO method. The excess of current cost over the LIFO
inventory value was $16,670,000 at July 31, 1997, $14,870,000 at
January 31, 1997 and $13,506,000 at July 31, 1996. The LIFO valuation
method had the effect of decreasing net earnings by $0.01 per share in
each of the three month periods ended July 31, 1997 and 1996. The LIFO
valuation method had the effect of decreasing net earnings by $0.03 per
share in each of the six month periods ended July 31, 1997 and 1996.
-7-
<PAGE> 8
3. EARNINGS PER SHARE
Primary earnings per common share is computed based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, including dilutive stock options. The
computation of fully diluted earnings per common share reflects the
assumed conversion of the 6-3/8% Convertible Subordinated Debentures
for the six months ended July 31, 1996, which were converted or
redeemed during the period ended July 31, 1996.
4. FINANCIAL HEDGING INSTRUMENTS
In accordance with the Company's foreign currency hedging program, at
July 31, 1997 the Company had outstanding purchased put options
maturing at various dates through July 23, 1998, giving it the right,
but not the obligation, to sell yen 8,190,000,000 for dollars at
predetermined contract-exchange rates. The deferred unrealized gain on
the Company's purchased put options amounted to $2,904,000 at July 31,
1997. If the market yen-exchange rates at maturity are below the
contract rates, the Company will allow the options to expire.
To mitigate the exchange rate fluctuations related to intercompany
inventory purchases for the Company's business in Japan, the Company
enters into forward exchange yen contracts. At July 31, 1997, the
Company had $8,376,000 of such contracts outstanding, which
subsequently matured on August 26, 1997. At July 31, 1996, the Company
had $9,882,000 of such contracts outstanding, which subsequently
matured on August 26, 1996.
5. ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," ("SFAS No. 128") designed to improve the earnings
per share ("EPS") information provided in financial statements and
replaces the presentation of previously disclosed EPS with basic and
diluted EPS. This standard is effective for the Company's financial
statements for the fiscal year ending January 31, 1998. Based upon the
Company's current capitalization structure, the adoption of SFAS No.
128 is not expected to have a material impact on the Company's reported
EPS.
In February 1997, the FASB issued SFAS No. 129, "Disclosures of
Information About Capital Structure." SFAS No. 129 requires disclosure
for all types of securities issued and applies to all entities that
have issued securities. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 131 establishes
accounting standards for the way that public business enterprises
report information about operating segments and requires that those
enterprises report selected information about operating segments in
interim financial reports to stockholders. SFAS No. 129 is effective
for the Company's financial statements for the fiscal year ending
January 31, 1998. SFAS No. 130 and No. 131 are effective for the
Company's financial statements for the fiscal year ending January 31,
1999. The Company is currently evaluating the impact, if any, of these
new FASB statements.
6. SUBSEQUENT EVENT
On August 20, 1997, the Company's Board of Directors declared a
quarterly dividend of $0.07 per common share. This dividend will be
paid on October 10, 1997 to stockholders of record on September 19,
1997.
-8-
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company operates three channels of distribution: U.S. Retail includes retail
sales in Company-operated stores in the U.S., wholesale sales to independent
retailers in the U.S. and wholesale sales of fragrance products to independent
retailers in the Americas; Direct Marketing includes corporate
(business-to-business) and catalog sales in the U.S.; and International Retail
includes retail sales through Company-operated stores and boutiques, corporate
sales and wholesale sales to independent retailers and distributors in the
Asia-Pacific region, Europe, Canada, the Middle East and Latin America.
The Company's net sales rose 7% in the second quarter (three months ended July
31, 1997) and 9% in the first half (six months ended July 31, 1997). This sales
growth, combined with a higher gross margin and lower interest expense which
were partially offset by a slightly higher expense ratio, resulted in net
earnings growth of 26% in the second quarter and 45% in the first half.
NET SALES BY CHANNEL OF DISTRIBUTION
<TABLE>
<CAPTION>
Three Months Six Months
Ended July 31, Ended July 31,
------------------------ ------------------------
(in thousands) 1997 1996 1997 1996
- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Retail $105,244 $ 92,499 $193,193 $172,895
Direct Marketing 20,997 22,108 37,724 41,026
International Retail 90,908 88,156 185,931 169,583
-------- -------- -------- --------
$217,149 $202,763 $416,848 $383,504
======== ======== ======== ========
Percentage of Net Sales
U.S. Retail 48% 46% 46% 45%
Direct Marketing 10 11 9 11
International Retail 42 43 45 44
-------- -------- -------- --------
100% 100% 100% 100%
======== ======== ======== ========
</TABLE>
U.S. Retail sales increased 14% in the second quarter and 12% in the first half.
Due to increases in transactions and the average transaction size, comparable
store sales rose 9% in the second quarter and 8% in the first half. Sales in
the Company's flagship New York store rose 7% in the second quarter and 5% in
the first half. Comparable branch store sales rose 11% in the second quarter
and 10% in the first half. Spending by local-resident customers (representing
the largest portion of sales) increased, while spending by foreign tourists
declined. Strong performance in U.S. stores opened in the past year -- in Chevy
Chase, Maryland (May 1996), Bergen County, New Jersey (November 1996) and Palo
Alto, California (June 1997) -- also contributed to the U.S. Retail sales
increases.
The Company plans to open four TIFFANY & CO. stores in the U.S. in Fiscal 1997.
In addition to the store in Palo Alto, the Company intends to open three stores
in November: in Cincinnati, Ohio, in Chestnut Hill, Massachusetts (a suburb of
- 9 -
<PAGE> 10
Boston), and a smaller-format store in Charlotte, North Carolina. In addition,
two older, existing stores are scheduled to be relocated: the Chicago store to
larger quarters on North Michigan Avenue in November and the San Diego store to
a smaller location in January 1998.
Direct Marketing sales declined 5% in the second quarter and 8% in the first
half. Corporate and catalog sales were adversely affected by the Company's
transition to its new Customer Service/Distribution Center in Parsippany, New
Jersey which began in early April 1997 and which temporarily affected order
processing and shipping. The new Center achieved historical production and
backlog levels by the end of the second quarter. To accommodate the transition,
the Company delayed its catalog mailings and, as a result, catalog sales
declined 19% in the second quarter and 20% in the first half. Corporate sales
rose 5% in the second quarter and were unchanged in the first half. In the
Corporate division, the Company continues to establish a sales presence in
additional U.S. markets in order to increase overall market penetration while,
in the Catalog division, the Company has resumed mailings and anticipates an
annual 8-12% increase to 22-23 million catalogs for Fiscal 1997.
International Retail sales, in U.S. dollars, rose 3% in the second quarter and
10% in the first half due to local-currency sales growth in all key regions. In
Japan, the Company's largest international market, total local-currency retail
sales rose 9% and 28% in the second quarter and first half, due to comparable
store sales growth of 2% and 14% in the corresponding periods, as well as
incremental sales from the Company's Tokyo flagship store that opened in May
1996. Management believes that consumer spending in anticipation of an April 1,
1997 increase in the Japanese consumption tax adversely affected sales growth in
the second quarter. In addition, the first anniversary of the Tokyo flagship
store's opening, which had initially benefited from substantial publicity and
promotional activity, resulted in a challenging sales comparison in the second
quarter. However, the flagship store achieved sales growth by the end of the
second quarter.
The Company's reported sales and earnings results reflect either a
translation-related benefit from a strengthening Japanese yen or a detriment
from a strengthening U.S. dollar. When translated into U.S. dollars, total Japan
retail sales rose 2% in the second quarter and 14% in the first half, as
yen-denominated sales growth was partially offset by the effect of a
strengthening dollar against the yen. The Company regularly monitors its retail
and wholesale pricing in relation to changes in foreign currency rates and local
economic and competitive conditions. The Company maintains a foreign currency
hedging program for merchandise purchase transactions initiated from Japan in
order to reduce the potentially negative impact on the Company's financial
results of a significant strengthening of the U.S. dollar. In the recent past,
the hedging program has achieved its objective by stabilizing product costs
despite exchange rate fluctuations. However, as a result of the continued
weakening of the yen, effective February 1, 1997 the Company raised its retail
prices in Japan by an average of 8%, primarily on non-diamond merchandise.
Comparable store sales in the second quarter and first half increased 10% and
13% in Asia-Pacific markets outside Japan, and 23% and 27% in Europe.
GROSS MARGIN
Gross margin (gross profit as a percentage of net sales) was 53.7% and 53.5% in
1997's second quarter and first half, compared with 52.7% and 52.2% in the
corresponding prior-year periods. The increases were largely due to a shift in
sales mix toward the Company's retail businesses. The Company's ongoing gross
- 10 -
<PAGE> 11
margin and pricing strategy is to offset product-cost increases with higher
retail selling prices and thereby maintain gross margin at prior-year levels.
OPERATING EXPENSES
Selling, general and administrative expenses and the provision for uncollectible
accounts increased 8% and 9% in the second quarter and first half. The increases
were primarily due to incremental occupancy, staffing and marketing expenses
related to the Company's worldwide expansion program, as well as to
sales-related variable expenses. The ratio of operating expenses to net sales
increased slightly to 44.8% in both the second quarter and first half of 1997,
compared with 44.4% and 44.6% in the corresponding prior year periods. This was
due to Direct Marketing sales shortfalls, as well as incremental expenses (which
are expected to continue for the remainder of Fiscal 1997) related to the
customer service center transition. Management's ongoing objective is to reduce
the expense ratio for the full year by leveraging the Company's fixed-expense
base.
EARNINGS FROM OPERATIONS
As a result of the above factors, earnings from operations in the second quarter
and first half rose 14% and 23% over 1996 and increased as a percentage of net
sales.
OTHER EXPENSES, NET
Declines in Other expenses, net in both the second quarter and first half
primarily resulted from lower interest expense related to lower net-debt levels
compared with the prior year. This was due to the conversion and redemption in
June 1996 of the Company's $50,000,000 principal amount 6-3/8% Convertible
Subordinated Debentures Due 2001, as well as internally-generated cash flow
that, in turn, resulted in higher interest income. On the basis of current
plans, interest rates and foreign currency exchange rates, management expects
interest expense on net-debt in the second half of Fiscal 1997 to be below the
prior year, although by more modest amounts than in the first half.
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," ("SFAS No. 128") designed to improve the earnings per share ("EPS")
information provided in financial statements and replaces the presentation of
previously disclosed EPS with basic and diluted EPS. This standard is effective
for the Company's financial statements for the fiscal year ending January 31,
1998. Based upon the Company's current capitalization structure, the adoption
of SFAS No. 128 is not expected to have a material impact on the Company's
reported EPS.
In February 1997, the FASB issued SFAS No. 129, "Disclosures of Information
About Capital Structure." SFAS No. 129 requires disclosure for all types of
securities issued and applies to all entities that have issued securities. In
June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS No. 131 establishes
accounting standards for the way that public business enterprises report
information about operating segments and requires that those enterprises report
selected information about operating segments in interim financial reports to
stockholders. SFAS No. 129 is effective for the Company's financial statements
for the fiscal year ending January 31, 1998. SFAS No. 130 and No. 131 are
effective for the Company's financial statements for the fiscal year ending
January 31, 1999.
The Company is currently evaluating the impact, if any, of these new FASB
statements.
- 11 -
<PAGE> 12
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements which have increased due
to growth in the Company's business. Management believes that the Company's
financial condition at July 31, 1997 provides sufficient resources to support
current business activities and planned expansion. Working capital (current
assets minus current liabilities) and the corresponding current ratio (current
assets divided by current liabilities) were $366,313,000 and 2.8:1 at July 31,
1997, compared with $342,511,000 and 2.5:1 at January 31, 1997.
Inventories, which represented 50% of total assets at July 31, 1997, increased
11% from January 31, 1997 while inventory turnover was maintained at 1.0 times.
Higher inventories are required to support sales growth, new stores and expanded
product offerings. The Company's ongoing objective is to improve inventory
performance through: refinement of worldwide replenishment systems; focus on the
specialized disciplines of product development, assortment planning and
inventory management; improved presentation and management of display
inventories in each store; assortment editing by product category; and a
time-phased program of improvements in warehouse management and supply-chain
logistics.
Capital expenditures were $16,301,000 in the first half of Fiscal 1997, compared
with $18,904,000 in 1996. The decrease was due to nonrecurring expenditures
related to the opening of the Company's flagship store in Tokyo, Japan in May
1996. Based on current plans, the Company expects that capital expenditures will
be approximately $55,000,000 in Fiscal 1997, compared with $39,884,000 in Fiscal
1996, largely due to an increased number of new store openings and relocations,
as well as expanded manufacturing facilities and investments in new systems.
The Company's net cash outflow from operating activities of $25,156,000 in
1997's first half was less than the outflow of $59,417,000 in the prior year.
Primarily, this resulted from lower inventory purchases, increased net earnings
and improvements in working capital levels. Net-debt (short-term borrowings plus
long-term debt minus the sum of cash and cash equivalents and short-term
investments) and the corresponding ratio of net-debt as a percentage of total
capital (net-debt plus stockholders' equity) was $85,636,000 and 17% at July 31,
1997, compared with $51,852,000 and 12% at January 31, 1997.
The Company's sources of working capital are internally-generated cash flows and
borrowings available under a five-year, $130,000,000 multicurrency,
noncollateralized revolving credit facility which expires on June 30, 2002.
Management anticipates that internally-generated cash flows and funds available
under the revolving credit facility will be sufficient to support the Company's
planned worldwide business expansion, as well as seasonal working capital
increases typically required during the third and fourth quarters of the year.
SEASONALITY
The Company's business is seasonal in nature, with the fourth quarter typically
representing a proportionally greater percentage of annual sales, earnings from
operations and cash flow. Management expects such seasonality to continue.
- 12 -
<PAGE> 13
RISK FACTORS
This document contains certain "forward looking statements" concerning the
Company's objectives and expectations with respect to new store openings, retail
prices, gross margin, expenses, inventory performance, capital expenditures and
cash flow. In addition, management makes other forward-looking statements from
time to time concerning objectives and expectations for sales, earnings and cash
flow. As a retailer, the Company's success in achieving its objectives and
expectations is dependent upon economic conditions and consumer attitudes and,
in making forward-looking statements, management assumes that existing
conditions and attitudes will prevail. However, certain assumptions are specific
to the Company and/or the markets in which it operates. The following
assumptions, among others, are "risk factors" which could affect the likelihood
that the Company will achieve the objectives and expectations communicated by
management: (i) that new stores and other sales locations can be leased or
otherwise obtained on suitable lease terms in desired markets and that
construction can be completed on a timely basis; (ii) that existing product
supply arrangements, including license agreements with third-party designers,
will continue; (iii) that the market for high-quality cut diamonds will provide
continuity of supply and pricing; (iv) that new systems for inventory management
can be successfully integrated into the Company's operations and that
warehousing and distribution productivity can be further improved to support the
Company's worldwide distribution requirements; and (v) that the exchange
relationship between the Japanese yen and the U.S. dollar will not substantially
change during Fiscal 1997.
- 13 -
<PAGE> 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
At Registrant's Annual Meeting of Stockholders held on May 15, 1997 each of the
nominees listed below was elected a director of Registrant to hold office until
the next annual meeting of the stockholders and until his or her respective
successor has been elected and qualified. Tabulated with the name of each of the
nominees elected is the number of Common shares cast for each nominee and the
number of Common shares withholding authority to vote for each nominee. There
were no broker non-votes or abstentions with respect to the election of
directors.
<TABLE>
<CAPTION>
Nominee Voted For Withholding Authority
<S> <C> <C>
William R. Chaney 31,355,615 387,053
Samuel L. Hayes III 31,360,112 382,556
Michael J. Kowalski 31,360,301 382,367
Charles K. Marquis 31,300,612 442,056
James E. Quinn 31,361,106 381,562
Yoshiaki Sakakura 25,623,461 6,119,207
William A. Shutzer 31,367,712 374,956
Geraldine Stutz 31,345,038 397,630
</TABLE>
The stockholders approved the appointment of Coopers & Lybrand L.L.P. as
independent accountants of the Company's fiscal 1998 financial statements. With
respect to such appointment, 31,702,304 shares were voted to approve, 22,652
shares were voted against, and 17,712 shares abstained from voting. There were
no broker non-votes with respect to the approval of the appointment of Coopers &
Lybrand L.L.P.
- 14 -
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIFFANY & CO.
(Registrant)
Date: September 12, 1997 By: /s/ James N. Fernandez
-------------------------------
James N. Fernandez
Senior Vice President - Finance
and Chief Financial Officer
(principal financial officer)
- 15 -
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
<PAGE> 1
Item 6. TIFFANY & CO. AND SUBSIDIARIES
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
July 31, July 31,
---------------------- ----------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings on which primary
earnings per share are based $10,380 $ 8,246 $19,260 $13,323
======= ======= ======= =======
Weighted average number of
common shares 34,990 33,448 34,856 32,853
Add:
Weighted average effect of the
exercise of stock options 1,349 1,267 1,269 1,205
------- ------- ------- -------
Weighted average number of shares on
which primary earnings are based 36,339 34,715 36,125 34,058
======= ======= ======= =======
Primary net earnings per common share $ 0.29 $ 0.24 $ 0.53 $ 0.39
======= ======= ======= =======
FULLY DILUTED EARNINGS PER SHARE:
Net earnings on which primary earnings
per share are based $10,380 $ 8,246 $19,260 $13,323
Add:
Interest and fees on convertible
subordinated debt, net of
applicable income taxes -- 229 -- 682
------- ------- ------- -------
Net earnings on which fully diluted
earnings per share are based $10,380 $ 8,475 $19,260 $14,005
======= ======= ======= =======
Weighted average number of common shares
on which fully diluted earnings are based 36,339 34,715 36,205 34,162
Add:
Shares assumed upon conversion
of convertible debt, using the
"if converted" method -- 973 -- 1,379
------- ------- ------- -------
Weighted average number of shares
used in calculating fully diluted
earnings per share 36,339 35,688 36,205 35,541
======= ======= ======= =======
Fully diluted net earnings per common share $ 0.29 $ 0.24 $ 0.53 $ 0.39
======= ======= ======= =======
</TABLE>
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 61,538
<SECURITIES> 15,000
<RECEIVABLES> 76,186
<ALLOWANCES> (6,774)
<INVENTORY> 372,787
<CURRENT-ASSETS> 569,279
<PP&E> 220,411
<DEPRECIATION> (85,415)
<TOTAL-ASSETS> 744,723
<CURRENT-LIABILITIES> 202,966
<BONDS> 0
0
0
<COMMON> 350
<OTHER-SE> 405,209
<TOTAL-LIABILITY-AND-EQUITY> 744,723
<SALES> 217,149
<TOTAL-REVENUES> 217,149
<CGS> 100,522
<TOTAL-COSTS> 197,904
<OTHER-EXPENSES> 1,035
<LOSS-PROVISION> 364
<INTEREST-EXPENSE> 1,946
<INCOME-PRETAX> 18,210
<INCOME-TAX> 7,830
<INCOME-CONTINUING> 10,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,380
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
