<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 COMMISSION FILE NUMBER: 1-9494
TIFFANY & CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3228013
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
727 FIFTH AVENUE, NEW YORK, NY 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 755-8000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
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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. [ ]
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STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO
THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF
SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.
As of March 25, 1998 the aggregate market value of voting stock held by
non-affiliates was $1,597,564,370.66. See Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters below.
------------------------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 35,250,627 shares of
Common Stock outstanding as of March 25, 1998.
------------------------
The following documents are incorporated by reference into this Annual
Report on Form 10-K: Registrant's Annual Report to Stockholders for the Fiscal
Year Ended January 31, 1998 (Parts I, II and IV) and Registrant's Proxy
Statement Dated April 9, 1998 (Part III).
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PART I
ITEM 1. BUSINESS
(a) General development of business.
Registrant (also referred to as the "Company") is the parent corporation
of Tiffany and Company ("Tiffany"). Charles L. Tiffany founded the business in
1837. He incorporated Tiffany in New York in 1868. Registrant acquired Tiffany
in 1984 and completed the initial public offering of Registrant's Common Stock
in 1987.
(b) Financial information about industry segments.
Industry segment information is not provided because the Registrant
operates in a single industry segment: retail and wholesale distribution of fine
jewelry, gift and fashion accessory items. Incorporated by reference from
Registrant's Annual Report to Stockholders for the fiscal year ended January 31,
1998 (Footnote Q. "Foreign Operations") is the Registrant's geographic segment
information for the fiscal years ended January 31, 1998, 1997 and 1996.
(c) Narrative description of business.
As used below, the terms "Fiscal 1995", "Fiscal 1996" and "Fiscal 1997"
refer to the fiscal years ended on January 31, 1996, 1997 and 1998,
respectively. Registrant is a holding company, and conducts all business through
its subsidiary corporations.
Products
Registrant's principal product categories are fine jewelry, timepieces,
sterling silver goods, china, crystal, stationery, writing instruments,
fragrance, and personal accessories.
Registrant offers an extensive selection of fine jewelry at a wide range
of prices. In Fiscal 1995, 1996 and 1997, approximately 70%, 70% and 73%,
respectively, of Registrant's net sales were attributable to jewelry. See
Merchandise Purchasing, Manufacturing and Raw Materials below. Designs are
developed by employees, suppliers, independent designers and independent "name"
designers. See Designer Licenses below.
In addition to jewelry, the Company sells TIFFANY & CO. brand merchandise
in the following categories: watches and clocks; sterling silver merchandise,
including flatware, hollowware (tea and coffee services, bowls, cups and trays),
trophies, key holders, picture frames and desk accessories; crystal, glassware,
china and other tableware; custom engraved stationery; writing instruments; and
fashion accessories, including handbags, wallets, scarves, and men's ties.
Fragrance products are sold under the trademarks TIFFANY, TRUESTE, and TIFFANY
FOR MEN. Tiffany also sells other brands of watches and tableware. Registrant
offers a line of commercial glassware under the JUDEL trademark.
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Distribution and Marketing
Channels of Distribution
For financial reporting purposes, Registrant segments its sales as
follows:
U.S. Retail consists of retail sales from stores in the United
States and wholesale sales to independent retailers in the United
States. Wholesale sales of fragrance products to independent
retailers in the Americas are also included (see U.S. Retail below);
Direct Marketing consists of sales in the United States through a
staff of specialized sales personnel who concentrate on business
clients, and sales through direct mail catalogs (see Direct
Marketing below); and
International Retail consists of both retail and wholesale sales to
customers located outside the United States (see International
Retail below).
U.S. Retail
Fifth Avenue Store
The Fifth Avenue store in New York accounts for the largest portion of the
Company's sales and is the focal point for marketing and public relations
efforts. Approximately 17%, 16% and 16% of total Company net sales for Fiscal
1995, 1996 and 1997, respectively, were attributable to the New York store's
retail sales. Management believes that the New York retail store will continue
to account for a substantial portion of the Company's sales. Approximately
32,450 gross square feet in the New York building are devoted to retail selling.
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U.S. Branch Stores
Prior to September 1963, when the first branch store was opened in San
Francisco, the New York store was Tiffany's sole retail location in the United
States. Since that time, branch stores have been opened in the following cities:
<TABLE>
<CAPTION>
U.S. BRANCH STORE OPENINGS
--------------------------
STORE LOCATION YEAR OPENED STORE LOCATION YEAR OPENED
-------------- ----------- -------------- -----------
<S> <C> <C> <C>
San Francisco, California 1963 Bal Harbour, Florida 1993
Beverly Hills, California 1964 Maui, Hawaii 1994
Houston, Texas 1964 Oak Brook, Illinois 1994
Chicago, Illinois 1966 King of Prussia, Pennsylvania 1995
Atlanta, Georgia 1969 Short Hills, New Jersey 1995
Dallas, Texas 1982 White Plains, New York 1995
Boston, Massachusetts 1984 Bergen County, New Jersey 1996
Costa Mesa, California 1988 Chevy Chase, Maryland 1996
Philadelphia, Pennsylvania 1990 Charlotte, North Carolina 1997
Vienna, Virginia 1990 Chestnut Hill, Massachusetts 1997
Palm Beach, Florida 1991 Cincinnati, Ohio 1997
Honolulu, Hawaii (Ala Moana) 1992 Honolulu, Hawaii (Hilton) 1997
San Diego, California 1992 Palo Alto, California 1997
Troy, Michigan 1992 Honolulu, Hawaii (Surfrider)* 1998
</TABLE>
Each of the 28 U.S. branch stores displays a representative selection of
merchandise but none maintains the extensive selection carried by the New York
store. Management currently contemplates the opening of new branch stores in the
United States at the rate of approximately three per year. Tiffany has entered
into lease agreements to open branches in 1998 in Denver, Colorado, Las Vegas,
Nevada, Scottsdale, Arizona, Seattle, Washington and Manhasset, New York. In
Fiscal 1997, the Chicago store was relocated to a larger retail location, and
the San Diego store was relocated to a smaller location. See Item 2. Properties
below for further information concerning U.S. Retail store leases. United States
branch stores range in size from approximately 900 to 16,000 gross square feet
and total approximately 242,000 gross square feet devoted to retail purposes.
Historically, an average of approximately 45% of the floor space in each branch
store has been devoted to retail selling. Newer stores range from approximately
6,000 to 8,000 gross square feet and are designed to devote approximately 60% of
total floor space to retail selling. Among new stores that will be opened, some
may be configured to be as small as 4,000 gross square feet.
* Operated by Mitsukoshi (U.S.A.) Inc. from April 1989 until January 31, 1998.
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U.S. Wholesale Distribution
Tiffany sells jewelry, watches, tableware and other products at wholesale
to approximately 270 United States independent retail locations (exclusive of
locations which sell TIFFANY fragrance products but not other TIFFANY & CO.
products). Selected merchandise is provided to these accounts at wholesale
prices that allow traditional retail jewelry mark-ups.
Fragrance Distribution
TIFFANY, TRUESTE and TIFFANY FOR MEN brand fragrance products are sold
in Registrant's own stores, through its Direct Marketing channel of
distribution and through wholesale distribution in the U.S. and many overseas
markets. TIFFANY, TRUESTE and TIFFANY FOR MEN products are now available in
approximately 3,560 retail locations in the United States and abroad.
Chanel, Inc. sells fragrance concentrates to Tiffany. A subsidiary of
Chanel, Inc. provides production, packaging, warehousing, accounting and U.S.
distribution services. Tiffany retains control of marketing and promotion
and owns all fragrance product inventories and receivables.
Direct Marketing
Corporate Division
Corporate Division sales executives call on business clients throughout
the United States, selling products drawn from the retail product line and items
specially developed for the business market, including trophies and items
designed for the particular customer. Price allowances are given to business
customers for volume purchases. Corporate Division customers purchase for
business gift giving, employee service and achievement recognition awards,
customer incentives and other purposes. Products and services are marketed
through a sales force of approximately 154 persons, through advertising in
newspapers and business periodicals and through the publication of special
catalogs.
Catalogs
Tiffany also distributes catalogs of selected merchandise to its
proprietary list of mail and telephone customers and to mailing lists rented
from third parties. Four seasonal SELECTIONS(R) catalogs are published,
supplemented by COLLECTIONS and other catalogs. The following table sets forth
certain data with respect to mail order operations for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended January 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Number of names on catalog mailing list at year-end
(consists of customers who purchased by mail or telephone
prior to the applicable date): 662,000 733,100 817,000
Total catalog mailings during fiscal year (in millions): 17.5 20.6 21.4
Total mail or telephone orders received during fiscal year: 258,879 288,133 285,992
</TABLE>
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<PAGE> 6
International Retail
Stores and boutiques included in the International Retail channel of
distribution are listed below. For locations operated by Registrant's subsidiary
corporations, Registrant records as sales the retail price charged to retail
customers. For locations operated by third-party distributors, Registrant
records as sales the wholesale price charged to the third-party distributors.
International Locations
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FREE-STANDING STORES AND BOUTIQUES OPERATED BY REGISTRANT'S SUBSIDIARIES
- --------------------------------------------------------------------------------
<S> <C>
Australia: Sydney, Chifley Plaza Italy: Milan FARAONE Store
- --------------------------------------------------------------------------------
Australia: Melbourne, Crown Casino Italy: Florence, FARAONE Store
- --------------------------------------------------------------------------------
Canada: Toronto Japan: Tokyo, Ginza Flagship Store
- --------------------------------------------------------------------------------
England: London, Old Bond Street Korea: Seoul, Grand Hyatt Hotel
- --------------------------------------------------------------------------------
Germany: Munich Singapore: Ngee Ann City
- --------------------------------------------------------------------------------
Germany: Frankfurt Singapore: Raffles Hotel
- --------------------------------------------------------------------------------
Hong Kong: Landmark Center Switzerland: Zurich
- --------------------------------------------------------------------------------
Hong Kong: Pacific Place Taiwan: Taipei, Regent Galleria
- --------------------------------------------------------------------------------
Hong Kong: Peninsula Hotel
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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JAPAN LOCATIONS OPERATED BY REGISTRANT'S SUBSIDIARY WITH MITSUKOSHI LIMITED
- ---------------------------------------------------------------------------------------
<S> <C>
Chiba, Mitsukoshi Department Store Nagoya Hoshigaoka, Mitsukoshi Dept. Store
- ---------------------------------------------------------------------------------------
Fukuoka, Mitsukoshi Department Store Nagoya Sakae, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Fukuoka Tenjin, Specialty Store Nihonbashi, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Ginza, Mitsukoshi Department Store Niigata, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Hirakata, Mitsukoshi Department Store Okinawa, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Hiroshima, Mitsukoshi Department Store Osaka, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Ikebukuro, Mitsukoshi Department Store Osaka, Righa Royal Hotel
- ---------------------------------------------------------------------------------------
Kagoshima, Mitsukoshi Department Store Sapporo, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Kanazawa, Specialty Store Sendai, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Kobe, Mitsukoshi Department Store Shinjuku, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Kobe, Hotel Okura Kobe Shinjuku Minamikan, Mitsukoshi Depart. Store
- ---------------------------------------------------------------------------------------
Kurashiki, Mitsukoshi Department Store Takamatsu, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Matsuyama, Mitsukoshi Department Store Tokyo Bay, Tokyu Hotel
- ---------------------------------------------------------------------------------------
Nagano, Specialty Store Yokohama, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------
Nagoya, Hilton Hotel Yokohama, Landmark, Specialty Store
- ---------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
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LOCATIONS OPERATED BY REGISTRANT'S SUBSIDIARIES
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<S> <C>
Australia: Melbourne, Daimaru Department Store Japan: Sagamihara, Isetan Department Store
- ---------------------------------------------------------------------------------------------------
England: London, Harrod's Department Store Japan: Shinsaibashi, Daimaru Department Store
- ---------------------------------------------------------------------------------------------------
Hong Kong: Mitsukoshi Department Store Japan: Tottori, Daimaru Department Store
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Hong Kong: Sogo Department Store Japan: Umeda, Daimaru Department Store
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Japan: Hamamatsu, Matsubishi Department Store Korea: Seoul, Hyundai Department Store
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Japan: Kawasaki, Saikaya Department Store Korea: Seoul, Lotte Downtown Department Store
- ---------------------------------------------------------------------------------------------------
Japan: Kokura, Izutsuya Department Store Mexico: Mexico City, El Palacio de Hierro
- ---------------------------------------------------------------------------------------------------
Japan: Kumamoto, Tsuruya Department Store Taiwan: Kaohsiung, Hanshin Department Store
- ---------------------------------------------------------------------------------------------------
Japan: Kyoto, Daimaru Department Store Taiwan: Tainan, Mitsukoshi Department Store
- ---------------------------------------------------------------------------------------------------
Japan: Oita, Tokiwa Department Store Taiwan: Taipei, Sogo Department Store
- ---------------------------------------------------------------------------------------------------
Japan: Osaka, Takashimaya Department Store
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LOCATIONS OPERATED BY MITSUKOSHI LIMITED
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<S> <C>
Guam: Tumon Sands Plaza Japan: Tokyo (FARAONE boutique)
- --------------------------------------------------------------------------------
Hawaii: Moana Surfrider (until 2/98) Taiwan: Taipei
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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LOCATIONS OPERATED BY OTHER THIRD PARTIES
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<S> <C>
Australia: Gold Coast, DFS Store Korea: Pusan Hotel Paradise, Lotte Duty Free
- --------------------------------------------------------------------------------------------------------------
Canada: Calgary, Holt-Renfrew Department Store Korea: Seoul Hotel Lotte, Seoul, Lotte Duty Free
- --------------------------------------------------------------------------------------------------------------
Canada: Montreal, Holt-Renfrew Department Store Korea: Seoul Lotte Department Store, Lotte Duty Free
- --------------------------------------------------------------------------------------------------------------
Canada: Ottawa, Holt-Renfrew Department Store Korea: Seoul Lotte World Dept. Store, Lotte Duty Free
- --------------------------------------------------------------------------------------------------------------
Canada: Quebec, Holt-Renfrew Department Store Macau: DFS Store
- --------------------------------------------------------------------------------------------------------------
Canada: Vancouver, Holt-Renfrew Department Store New Zealand: Auckland, DFS Store
- --------------------------------------------------------------------------------------------------------------
Hawaii: Hawaii Dolphin Galleries Philippines: Rustan's Department Store (Edsa Plaza)
- --------------------------------------------------------------------------------------------------------------
Hong Kong: DFS Store Philippines: Rustan's Makati Department Store (Makati)
- --------------------------------------------------------------------------------------------------------------
India: Bombay, Group Beautiful Saipan: DFS Store
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Indonesia: Bali, DFS Store Singapore: DFS Store
- --------------------------------------------------------------------------------------------------------------
Indonesia: Jakarta, Plaza Indonesia Department Store Taiwan: Taipei, DFS Store
- --------------------------------------------------------------------------------------------------------------
Korea: Pusan Hotel Lotte, Lotte Duty Free
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The preceding listing does not include international "trade accounts",
i.e. non-U.S. retailers to which TIFFANY & CO. or FARAONE brand merchandise
is sold on a wholesale basis, but which do not operate a dedicated TIFFANY &
CO. or FARAONE boutique within their respective stores. See International
Wholesale Distribution below.
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Business with Mitsukoshi
As of March 25, 1998, Mitsukoshi Limited of Japan and its affiliated
companies ("Mitsukoshi") owned 4,270,000 shares, or 12.2% of the Registrant's
Common Stock. Mr. Yoshiaki Sakakura, formerly Chairman and Chief Executive
Officer of Mitsukoshi, was appointed a director of the Registrant on November
15, 1989, and will continue to serve as a director if elected by Registrant's
stockholders at their annual meeting scheduled to be held on May 21, 1998.
From 1972 until July 1993, selected TIFFANY & CO. products, principally
jewelry and watches, were purchased from Tiffany by Mitsukoshi for distribution
in Japan in TIFFANY & CO. boutiques. Under the agreement with Tiffany by which
Mitsukoshi purchased and distributed TIFFANY & CO. products in Japan (the
"Distribution Agreement"), all sales transactions between Tiffany and Mitsukoshi
were denominated in U.S. dollars. Registrant recorded wholesale sales to
Mitsukoshi as revenue and Mitsukoshi received the merchandise into inventory and
recorded revenue on the final sale in Japanese yen to the ultimate consumer.
Mitsukoshi established retail prices for TIFFANY & CO. merchandise in Japan and
was responsible for management of inventory and the risk of currency
fluctuations between the Japanese yen and the U.S. dollar.
In 1992, Registrant assumed the operation of four TIFFANY & CO. boutiques
previously operated by Mitsukoshi in third-party department stores in Japan.
Registrant now operates eleven boutiques in Japan in non-Mitsukoshi department
stores.
On June 12, 1993, Registrant, through its affiliated companies, entered
into an agreement (the "93 Agreement") to realign its business relationship with
Mitsukoshi. Under the 93 Agreement, Registrant's wholly owned subsidiary,
Tiffany & Co. Japan Inc. ("Tiffany-Japan") assumed merchandising and marketing
responsibilities in the operation of TIFFANY & CO. boutiques previously operated
by Mitsukoshi in its stores and other locations in Japan. The changeover in
responsibilities from the Distribution Agreement to the 93 Agreement occurred
during July 1993. Under the 93 Agreement, Mitsukoshi no longer purchases TIFFANY
& CO. merchandise for sale in Japan. Instead, Mitsukoshi acts for Tiffany-Japan
in the sale of merchandise owned by Tiffany-Japan and Registrant recognizes as
revenues the retail price charged to the ultimate consumer in Japan.
Tiffany-Japan holds inventories for sale, establishes retail prices, bears the
risk of currency fluctuations, provides one or more brand managers in each
boutique, controls merchandising and display within the boutiques, manages
inventory and controls and funds all advertising and publicity programs with
respect to TIFFANY & CO. merchandise. Mitsukoshi provides and maintains boutique
facilities, staffs the boutiques with retail employees and assumes credit and
certain other risks. Tiffany-Japan pays Mitsukoshi fees aggregating 27% of net
retail sales made in such boutiques. Tiffany-Japan also pays Mitsukoshi an
incentive fee of 5% of the amount by which boutique sales increase year-to-year,
calculated on a per-boutique basis. In Tokyo, TIFFANY & CO. boutiques may be
established only in Mitsukoshi's stores and TIFFANY & CO. brand jewelry may be
sold only in such boutiques, or in a "flagship store" (see below). The mutual
obligations described in this paragraph will expire on October 15, 2001.
In Fiscal 1995, 1996 and 1997, respectively, sales made in TIFFANY & CO.
boutiques located in Mitsukoshi's stores constituted 21%, 18% and 17% of
Registrant's net sales and Mitsukoshi's wholesale purchases from Tiffany
constituted, respectively, 2%, 2% and 1% of
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<PAGE> 9
Registrant's net sales. In Fiscal 1995, 1996 and 1997, total Japan sales
represented 28%, 27% and 27% of Registrant's net sales.
Because the inventory repurchased by Tiffany from Mitsukoshi under the 93
Agreement was previously sold by Tiffany to Mitsukoshi, Registrant reversed the
sales and related gross profit associated with the repurchase. Accordingly, in
1993 Registrant established a $57.5 million reserve for product returns. As of
January 31, 1998 approximately (Y)684.7 million ($5.4 million) of TIFFANY & CO.
inventory remained to be repurchased by Tiffany within the period ending
February 28, 1998, payable in Japanese yen. On February 10, 1998, Tiffany
completed its repurchase obligation under the 93 Agreement by purchasing the
remaining inventory.
Under the 93 Agreement, Tiffany-Japan reserved the right to make TIFFANY &
CO. brand jewelry available for sale in Tokyo in a single "flagship store",
i.e., a TIFFANY & CO. store not located within a larger department store;
however, Tiffany-Japan was required to offer to Mitsukoshi the opportunity to
participate in the capitalization and ownership of a corporation which would
operate the flagship store.
In lieu of forming such a corporation, Mitsukoshi, Tiffany and
Tiffany-Japan entered into an Agreement dated February 23, 1996 (the "FSS
Agreement") governing the operation of a 7,700 square foot TIFFANY & CO. store
in premises (the "Premises") located in Tokyo's Ginza shopping district (the
"Flagship Store"). The FSS Agreement will expire on September 30, 2001. The
Premises are leased by a third party to Tiffany-Japan for a fixed annual rental
and subleased by Tiffany-Japan to Mitsukoshi on a percentage-of-sales basis (the
"Sublease"). Tiffany-Japan completed, at its cost, all necessary improvements to
equip the Premises and delivered the Premises to Mitsukoshi in May 1996. Under
the FSS Agreement, Tiffany-Japan bears all costs of operating the Premises.
Tiffany-Japan selects and furnishes its own merchandise for display in the
Flagship Store, prices the merchandise for retail sale, bears all risk of loss
until the merchandise is sold to a customer and determines all issues of
display, packaging, signage and advertising. Mitsukoshi acts for Tiffany-Japan
in the sale of the merchandise, collects and holds the sales proceeds, makes
credit available to customers, bears all credit losses and provides its
point-of-sale transaction processing system (the "POS System"). Tiffany-Japan
provides all necessary staff other than ten employees provided by Mitsukoshi.
After compensating Tiffany-Japan on a percentage-of-sales basis for Sublease
rent and staffing, Mitsukoshi retains 8.3% of net sales for most sales
transactions in the Flagship Store. Management of the Flagship Store, other than
with respect to the POS System, is the responsibility of Tiffany-Japan.
Under separate agreements, Mitsukoshi operates a FARAONE boutique in its
Nihombashi store in Tokyo, a TIFFANY & CO. boutique in its department store in
Taipei, and a TIFFANY & CO. boutique on the island of Guam. On February 2, 1998,
Tiffany purchased, as a going concern, the TIFFANY & CO. business operated on
the island of Oahu, Hawaii, by an affiliate of Mitsukoshi under agreement with
Tiffany. The transaction was structured as a purchase of assets. Tiffany paid a
cash price of $8.1 million and agreed to make contingent payments equal to 3.75%
of certain sales made by Tiffany on the island of Oahu after the date of the
purchase and through January 31, 2003.
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International Wholesale Distribution
Wholesale distribution of selected TIFFANY & CO. merchandise is also made
through independent distributors in the countries listed below. Multiple doors
are indicated in parentheses.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
INTERNATIONAL WHOLESALE DISTRIBUTION
- -------------------------------------------------------------------------------
EUROPE ASIA-PACIFIC AND MIDDLE EAST
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Austria (2) Monaco Bahrain (2) Lebanon (2)
England Russia (3) Egypt Oman
Germany (29) Spain (24) India Qatar (2)
Greece/Cyprus (10) Switzerland (20) Israel Saudi Arabia (5)
Italy (50) Turkey Japan (3) Syria
Luxembourg Jordan United Arab Emirates (3)
Kuwait
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CARIBBEAN CENTRAL/LATIN AMERICA
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Aruba Jamaica (2) Argentina (4) Mexico (4)
Bahamas (3) Puerto Rico (4) Brazil Panama
Bermuda St. Barthelemy Costa Rica Paraguay
Dominican Republic St. Maarten Honduras (2) Uruguay
Grand Cayman St. Thomas
- -------------------------------------------------------------------------------
</TABLE>
Management anticipates continued expansion of international wholesale
distribution as markets are developed.
FARAONE
In October 1989, Registrant completed the purchase of a controlling
interest in the parent corporation of Faraone, S.p.A. ("Faraone"), a
manufacturing jeweler which operates retail jewelry stores under the FARAONE
tradename in Milan and Florence and offers its products at wholesale to other
retailers in Europe and through a Mitsukoshi-operated FARAONE boutique in Japan.
Faraone also offers TIFFANY & CO. products in its stores and through its
wholesale distribution, and FARAONE products are offered in certain TIFFANY &
CO. stores.
Expansion of Worldwide Retail Operations
Registrant expects to continue to open stores in locations outside the
United States. However, the timing and success of this program will depend upon
many factors, including Registrant's ability to obtain suitable retail space on
satisfactory economic terms and the extent of consumer demand for TIFFANY & CO.
products in overseas markets. Such demand varies from market to market. TIFFANY
& CO. boutiques have now been installed in nearly all current Mitsukoshi
department stores in Japan. Future expansion in Japan will, to some extent, be
dependent upon Mitsukoshi opening new department stores. However, under its
agreement with Mitsukoshi, Tiffany has retained certain rights so that it may
undertake further development in
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<PAGE> 11
Japan on its own initiative, and Tiffany also operates and plans to operate
additional boutiques in stores other than Mitsukoshi in locations outside of
Tokyo.
Tiffany began its ongoing program of international expansion through
proprietary retail stores in 1986 with the establishment of the London store.
Company-operated international TIFFANY & CO. stores and boutiques range in size
from approximately 400 to 13,000 gross square feet and total approximately
156,000 gross square feet devoted to retail purposes. The following chart
details the growth in the Company's stores and boutiques since Fiscal 1987 on a
worldwide basis:
<TABLE>
<CAPTION>
===========================================================================================================
Worldwide Retail Locations
===========================================================================================================
Registrant's Subsidiary Companies Independent
---------------------------------------------------------- ----------------------
Americas and Europe Asia-Pacific, Middle-East, Americas
-------------------------------- -----------------------------------------------
End of Canada,
Fiscal: U.S. Mexico Europe Japan Elsewhere Mitsukoshi Others Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987 8 0 2 0 0 21 0 31
- ----------------------------------------------------------------------------------------------------------
1988 9 0 3 0 1 21 0 34
- ----------------------------------------------------------------------------------------------------------
1989 9 0 5 0 2 24 0 40
- ----------------------------------------------------------------------------------------------------------
1990 12 0 5 0 3 27 0 47
- ----------------------------------------------------------------------------------------------------------
1991 13 1 7 0 4 38 2 65
- ----------------------------------------------------------------------------------------------------------
1992 16 1 7 7 4 36 4 75
- ----------------------------------------------------------------------------------------------------------
1993 16 1 6 37 5 8 7 80
- ----------------------------------------------------------------------------------------------------------
1994 18 1 6 37 7 8 8 85
- ----------------------------------------------------------------------------------------------------------
1995 21 1 6 38 9 7 16 98
- ----------------------------------------------------------------------------------------------------------
1996 23 1 6 39 12 4 19 104
- ----------------------------------------------------------------------------------------------------------
1997 28 2 7 42 17 4 23 123
===========================================================================================================
</TABLE>
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Advertising and Promotion
Tiffany regularly advertises its business, primarily in newspapers and
magazines. Prior to 1996, television advertising was used only on a limited
basis in Japan. Beginning in 1996, prime-time television advertising was tested
in the New York market. This test was deemed successful, and management may
consider future use of television advertising. Cooperative advertising funds are
received from certain merchandise vendors and the Company also provides its
domestic and international third-party distributors with cooperative advertising
funds. In Fiscal 1995, 1996 and 1997, Tiffany spent approximately $37.2 million,
$43.9 million and $51.8 million, respectively, on worldwide advertising, net of
amounts contributed by vendors to Tiffany, but inclusive of cooperative
advertising funds contributed by Tiffany to third party distributors and amounts
expended to print and mail catalogs and brochures.
Public Relations (promotional) activity is also a significant aspect of
Registrant's business. Management believes that Tiffany's image is enhanced by a
program of charity sponsorships, grants and merchandise donations. The Company
also engages in an aggressive program of retail promotions and media activities
to maintain consumer awareness of the Company and its products. Each year,
Tiffany publishes its well-known Blue Book which showcases fine jewelry and
other merchandise. Tiffany's New York window displays are another important
aspect of Tiffany's promotional efforts. In its New York store, Tiffany displays
table settings created by leading interior decorators and by prominent hosts and
hostesses. John Loring, Tiffany's Design Director, is the author of several
books featuring TIFFANY & CO. products. Registrant considers these and other
promotional efforts important in maintaining Tiffany's image as an arbiter of
taste and style.
Trademarks
The designations TIFFANY(R) and TIFFANY & CO.(R) are the principal
trademarks of Tiffany, as well as serving as tradenames. Tiffany has obtained
and is the proprietor of trademark registrations for TIFFANY and TIFFANY & CO.
for a variety of product categories in the United States and in other countries.
Over the years, Tiffany has maintained a program to protect its trademarks and
has instituted legal action where necessary to prevent others either from
registering or using marks which are considered to create a likelihood of
confusion with the Company or its products. Tiffany has been generally
successful in such actions and management considers that its United States
trademark rights in TIFFANY and TIFFANY & CO. are strong. However, use of the
designation TIFFANY by third parties (often small companies) on unrelated goods
or services, frequently transient in nature, may not come to the attention of
Tiffany or may not rise to a level of concern warranting legal action. Despite
the general fame of the TIFFANY and TIFFANY & CO. name and mark for the
Company's products and services, Tiffany is not the sole person entitled to use
the name TIFFANY in every category in every country of the world; third parties
have registered the name TIFFANY in the United States in the food services
category, and in a number of foreign countries in respect of certain product
categories (including, in a few countries, the categories of fragrance,
cosmetics, jewelry, eyeglass frames, clothing and tobacco products) under
circumstances where Tiffany's rights were not sufficiently clear under local
law, and/or where management concluded that Tiffany's foreseeable business
interests did not warrant the expense of litigation.
-Page 12-
<PAGE> 13
Designer Licenses
Tiffany has been the sole licensee for jewelry designed by Elsa Peretti,
Paloma Picasso and the late Jean Schlumberger since 1974, 1980 and 1956,
respectively. In 1992, Tiffany acquired trademark and other rights necessary to
sell the designs of the late Mr. Schlumberger under the TIFFANY-SCHLUMBERGER
trademark. Ms. Peretti and Ms. Picasso retain ownership of copyrights for their
designs and of their trademarks and exercise approval rights with respect to
important aspects of the promotion, display, manufacture and merchandising of
their designs and Tiffany is required by contract to devote a portion of its
advertising budget to the promotion of their respective products; each is paid a
royalty by Tiffany for jewelry and other items designed by them and sold under
their respective names. Written agreements exist between Ms. Peretti and Tiffany
and between Ms. Picasso and Tiffany but may be terminated by either party
following six months notice to the other party. Tiffany is the sole retail
source for merchandise designed by Ms. Peretti worldwide; however, she has
reserved by contract the right to appoint other distributors in markets outside
the United States, Canada, Japan, Singapore, Australia, Italy, the United
Kingdom, Switzerland and Germany.
The designs of Ms. Peretti accounted for 13%, 14% and 14% of the Company's
net sales in Fiscal 1995, 1996 and 1997, respectively. Merchandise designed by
Ms. Picasso accounted for 4% of the Company's net sales in Fiscal 1995, 1996 and
1997, respectively. Registrant's operating results could be adversely affected
were it to cease to be a licensee of one or more of these designers or should
its degree of exclusivity in respect of their designs be diminished.
Merchandise Purchasing, Manufacturing and Raw Materials
Merchandise offered for sale by the Company is supplied from Tiffany's
workshops in New York City and Pelham, New York; Parsippany, New Jersey; Salem,
West Virginia; Paris, France; and Milan, Italy and through purchases and
consignments from others. The following table shows Tiffany's sources of
merchandise, based on cost, for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended January 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Produced by Tiffany 37% 38% 31%
Purchased from others 63 62 69
--- --- ---
Total 100% 100% 100%
</TABLE>
The preceding figures have been restated for comparative purposes to include the
cost of precious gems incorporated in such merchandise. Included in the
foregoing table is merchandise manufactured in Fiscal 1995 and 1996 for Tiffany
by Howard H. Sweet & Son, Inc., a former affiliate of the Registrant located in
Attleboro, Massachusetts ("Sweet"). At the close of Fiscal 1996, the
manufacturing assets and business of Sweet were sold to a third party. However,
such third party has contracted, subject to certain conditions, to continue to
provide the merchandise needed by Tiffany for a period of five years.
Approximately 31% of the merchandise purchased from others in Fiscal 1997 was
manufactured outside the United States.
- -Page 13-
<PAGE> 14
Gems and precious metals used in making Tiffany's jewelry may be purchased
from a variety of sources. For the most part, purchases of such materials are
from suppliers with which Tiffany enjoys long-standing relationships. Tiffany
believes that there are numerous alternative sources for gems and precious
metals and that the loss of any single supplier would not have a material
adverse effect on its operations.
Diamond jewelry accounted for approximately 22%, 21% and 21% of Tiffany's
net sales for Fiscal 1995, 1996 and 1997, respectively.
The supply and price of rough (uncut and unpolished) diamonds in the
principal world markets have been and continue to be significantly influenced by
a single entity, the Central Selling Organization (the "CSO"), of De Beers
Centenary AG, a Swiss corporation. The CSO supplies approximately 70% of the
world market for rough, gem-quality diamonds, notwithstanding that its
historical ability to control supplies has been somewhat diminished due to
changing politics in diamond-producing countries and revised contractual
arrangements with independent mine operators. Through its affiliates, the CSO
continues to exert a significant influence on the demand for polished diamonds
through its advertising and marketing efforts throughout the world.
Tiffany does not purchase rough diamonds; in consequence, Tiffany does not
purchase directly from the CSO. Some, but not all, of Tiffany's suppliers do
purchase directly from the CSO. The availability and price of diamonds to the
CSO and Tiffany's suppliers may be, to some extent, dependent on the political
situation in diamond-producing countries, the opening of new mines and the
continuance of the prevailing supply and marketing arrangements for rough
diamonds. Sustained interruption in the supply of rough diamonds, an
over-abundance of supply or a substantial change in the marketing arrangements
described above could adversely affect Tiffany and the retail jewelry industry
as a whole. The CSO has announced that it will, at some time in the future,
offer to brand cut and polished diamonds with a proprietary trademark. This
service will be offered to its direct purchasers. Such a change, coupled with a
change in the marketing and advertising policies of the CSO's affiliates, could
affect consumer demand for diamonds that do not bear the CSO's trademark.
Tiffany may or may not carry such branded diamonds in the future.
Finished jewelry is purchased from approximately 150 manufacturers, most
of which have long-standing relationships with Tiffany. Tiffany believes that
there are alternative sources for most jewelry items; however, due to the
craftsmanship involved in certain designs, Tiffany would have difficulty in
finding readily available alternatives in the short term.
TIFFANY & CO. brand clocks and components for watches are manufactured and
assembled by third parties. Approximately 59% of net watch sales during Fiscal
1997 were attributable to a single manufacturer. Tiffany contracts with a single
manufacturer to produce its silver flatware patterns from Tiffany's proprietary
tools and dies by use of Tiffany's traditional manufacturing techniques.
Likewise, engraved stationery is purchased from a single manufacturer. Loss of
any of these manufacturers could result in the unavailability of watches, silver
flatware or engraved stationery, as the case may be, during the period necessary
for Tiffany to arrange for new production.
-Page 14-
<PAGE> 15
Competition
Registrant is faced with substantial competition in all areas in which it
is active, in most cases from companies that provide competition for only a
portion of its diverse lines of merchandise. Competitors and the intensity of
competition vary across product lines, geographic locations and channels of
distribution. In the United States, TIFFANY & CO. retail stores must compete
with jewelers and other retailers whose international reputations for style,
integrity and expertise are also well established. Tiffany must also compete
with jewelers and other retailers who compete primarily on the basis of price.
However, while price promotion is common in the jewelry industry, Tiffany does
not compete through price promotion but rather on the basis of value -- the
quality of its products and designs -- and the service provided by its store
personnel.
The international marketplace for TIFFANY & CO. products is characterized
by highly competitive conditions. Although Registrant believes that the name
TIFFANY & CO. is known and respected internationally, and although Tiffany did
operate retail stores in London and Paris prior to World War II, Tiffany did not
have a retail presence in Europe in the post-war era until 1986. Accordingly,
consumer awareness of Tiffany and its products is not as strong in Europe as in
the United States or in Japan, where Tiffany has distributed its products for
many years. Registrant expects that its overseas stores have and will continue
to experience intense competition from established retailers in international
cities where TIFFANY & CO. stores are and may eventually be located.
In direct marketing, the TIFFANY & CO. reputation and diverse product line
are believed to be favorable competitive factors; nonetheless, highly
competitive conditions prevail. A growing number of direct sellers compete for
access to the same mailing lists of known purchasers of luxury goods, and
mailing and production costs are increasing. In marketing service awards and
business gifts to corporations and other organizations, Tiffany faces numerous
competitors who sell a wide variety of products. Although Tiffany offers
products retailing at a wide range of price points, in marketing to businesses,
Tiffany often must compete with competitors who offer a greater variety of
merchandise within the price range the customer demands. Tiffany chooses to
offer a more limited selection within this price range in order to adhere to its
established quality standards.
Employees
As of January 31, 1998, the Registrant's subsidiary corporations employed
an aggregate of approximately 4,360 full-time and part-time persons. Of those
employees, 3,642 are employed in the United States. Of Tiffany's total
employees, approximately 1,659 persons are salaried employees, 313 are engaged
in manufacturing and 1,977 are retail store personnel. None of the Company's
employees is represented by a union. Registrant believes that relations with its
employees are good.
- -Page 15-
<PAGE> 16
ITEM 2. PROPERTIES
All of Tiffany's principal operating facilities are leased, although
Registrant does own a small glass manufacturing facility in Salem, West
Virginia.
New York Store
Tiffany leases the land and building at 727 Fifth Avenue in New York City
for use as its main retail store and executive offices. The building was
constructed for Tiffany in 1940. Approximately 32,450 gross square feet of this
124,000 square foot building are devoted to retail selling purposes, with the
balance devoted to executive and administrative offices, certain product
services, jewelry manufacturing and storage. The building at 727 Fifth Avenue
was designed to be a retail store for Tiffany and Tiffany believes it is well
configured and located for this function.
The initial lease term for the New York store building expired on October
31, 1994 and has been renewed for an additional five year term expiring on
October 31, 1999. It may, subject to the terms of the lease, be renewed for four
more successive terms of five years each. Basic rent for the building is $7.1
million per annum. That rate will remain effective until the expiration of the
current five-year renewal term. If and when Tiffany exercises additional renewal
terms, the basic rent will be increased by the greater of (i) a proportional
increase in accordance with a consumer price index or (ii) the fair rental value
of the property as determined by an appraisal proceeding. Although Tiffany is
not privy to specific lease rates for comparable store leases in New York's
Fifth Avenue shopping district near 57th Street, it has been reported that lease
rates within the district are generally rising due to demand by other retailers.
Accordingly, rent for the building may increase in 1999 by an amount in excess
of the proportional increase in such consumer price index. Tiffany must also pay
all costs of operating the building, including real property taxes, in addition
to the basic rent.
Customer Service Center
In 1995, Tiffany entered into a lease of undeveloped property in
Parsippany, New Jersey, in order to construct and occupy a new distribution
facility designed to improve efficiency and provide capacity for future growth.
By January 31, 1997 construction on that property of a "Customer Service Center"
("CSC") was substantially completed. Tiffany commenced operations in the CSC in
April of that year. The CSC is a combined warehouse, distribution, light
manufacturing, computing and office center. It comprises approximately 269,000
square feet, of which approximately 96,000 square feet is devoted to office and
computer operations use, with the balance devoted to warehousing, shipping,
receiving, light manufacturing, merchandise processing and other distribution
functions.
The basic lease term for the CSC will expire on January 31, 2000. Subject
to the conditions stated in the lease, Tiffany may thereafter extend the term of
the lease for nine separate one year periods. The rental rate will be
approximately $13.33 per square foot throughout the 12-year maximum term of the
lease and Tiffany must also pay all expenses of operating and maintaining the
CSC, including property taxes. Subject to certain conditions stated in the lease
governing the end of the lease term and Tiffany's obligation to pay specified
costs and expenses, Tiffany has the
-Page 16-
<PAGE> 17
right to purchase the CSC in each of years 1997 through 2009 for a scheduled
purchase price that ranges from $37.5 to $27.8 million. Alternatively, if the
CSC is sold to a third party for less than such scheduled purchase price,
Tiffany would become liable for an end-of-term rental adjustment up to the
amount of such deficiency (subject to a conditional maximum deficiency), and
would, if the CSC is neither purchased by Tiffany nor sold to a third party,
become liable for an end-of-term rental adjustment that would range from $37.5
to $24.6 million in years 1997 through 2009 depending on Tiffany's compliance
with certain lease conditions. Registrant has guaranteed Tiffany's obligations
under the CSC lease and provided certain financial covenants to the landlord's
lenders in support of such guaranty consistent with financial covenants provided
to Registrant's bank lenders.
Registrant believes that the CSC has been properly designed to handle
worldwide distribution functions and that it is suitable for that purpose.
Branch and Subsidiary Retail Store Leases
Set forth below is the expiration date for each of Tiffany's existing
branch and subsidiary retail store leases (and, where applicable, optional
renewal terms):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
U.S. BRANCH STORE LEASES
- ------------------------------------------------------------------------------------------------------
CITY STATE LOCATION EXPIRATION DATE RENEWAL OPTIONS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlanta GA Phipps Plaza Shopping Center July 31, 2000 Two five-year terms
- ------------------------------------------------------------------------------------------------------
Bal Harbour FL Bal Harbour Shops May 31, 2003
- ------------------------------------------------------------------------------------------------------
Bergen County NJ Riverside Square Mall September 30, 2006
- ------------------------------------------------------------------------------------------------------
Beverly Hills CA Two Rodeo Drive October 7, 2005 Two five-year terms
- ------------------------------------------------------------------------------------------------------
Boston MA Copley Place July 31, 2009 Two five-year terms
- ------------------------------------------------------------------------------------------------------
Charlotte NC SouthPark Mall December 31, 2007 One five-year term
- ------------------------------------------------------------------------------------------------------
Chestnut Hill MA The Atrium January 31, 2008 One five-year term
- ------------------------------------------------------------------------------------------------------
Chevy Chase MD 5500 Wisconsin Avenue January 31, 2006
- ------------------------------------------------------------------------------------------------------
Chicago IL 730 North Michigan Avenue October 1, 2012 Two five-year terms
- ------------------------------------------------------------------------------------------------------
Cincinnati OH Fountain Place November 30, 2012 Two five-year terms
- ------------------------------------------------------------------------------------------------------
Costa Mesa CA South Coast Plaza January 31, 2004 One five-year term
- ------------------------------------------------------------------------------------------------------
Dallas TX The Galleria October 31, 2007
- ------------------------------------------------------------------------------------------------------
Honolulu HI Ala Moana Center January 31, 2000
- ------------------------------------------------------------------------------------------------------
Honolulu HI Hilton Hawaiian Village December 31, 2002 One five-year term
- ------------------------------------------------------------------------------------------------------
Honolulu HI Moana Surfrider January 31, 2001
- ------------------------------------------------------------------------------------------------------
Houston TX Galleria Post Oak September 30, 2001 One five-year term
- ------------------------------------------------------------------------------------------------------
King of Prussia PA King of Prussia Plaza November 30, 2005 One five-year term
- ------------------------------------------------------------------------------------------------------
Maui HI Whalers Village July 31, 1999
- ------------------------------------------------------------------------------------------------------
Oak Brook IL Oakbrook Center April 30, 2009 Two five-year terms
- ------------------------------------------------------------------------------------------------------
Palm Beach FL 259 Worth Avenue May 31, 2007 Two five-year terms
- ------------------------------------------------------------------------------------------------------
Palo Alto CA Stanford Shopping Center May 31, 2007
- ------------------------------------------------------------------------------------------------------
Philadelphia PA The Bellevue November 16, 2005 One five-year term
- ------------------------------------------------------------------------------------------------------
San Diego CA Fashion Valley December 31, 2007 One five-year term
- ------------------------------------------------------------------------------------------------------
San Francisco CA Union Square October 29, 2006 One ten-year term
- ------------------------------------------------------------------------------------------------------
Short Hills NJ The Mall at Short Hills August 31, 2005 One five-year term
- ------------------------------------------------------------------------------------------------------
Troy MI The Somerset Collection September 30, 2007
- ------------------------------------------------------------------------------------------------------
Vienna VA Fairfax Square March 31, 2000 Two five-year terms
- ------------------------------------------------------------------------------------------------------
White Plains NY The Westchester April 30, 2005 One five-year term
- ------------------------------------------------------------------------------------------------------
</TABLE>
- -Page 17-
<PAGE> 18
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
INTERNATIONAL BRANCH STORE LEASES
- -----------------------------------------------------------------------------------------------------
COUNTRY CITY LOCATION EXPIRATION DATE RENEWAL OPTIONS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia Sydney Chifley Tower October 18, 1999 Two five-year terms
- -----------------------------------------------------------------------------------------------------
Australia Melbourne Crown Casino May 7, 2000 Two three-year terms
- -----------------------------------------------------------------------------------------------------
Canada Toronto 85 Bloor Street October 15, 2006 One seven-year term
- -----------------------------------------------------------------------------------------------------
England London 25 Old Bond Street March 27, 2016
- -----------------------------------------------------------------------------------------------------
Germany Frankfurt 20 Goethestrasse January 31, 2001 One 10-year term
- -----------------------------------------------------------------------------------------------------
Germany Munich Residenzstrasse 11 January 31, 2004 One five-year term
- -----------------------------------------------------------------------------------------------------
Hong Kong The Landmark October 31, 2000
- -----------------------------------------------------------------------------------------------------
Hong Kong Kowloon The Peninsula February 28, 1999
- -----------------------------------------------------------------------------------------------------
Hong Kong Pacific Place October 31, 2000
- -----------------------------------------------------------------------------------------------------
Japan Tokyo Ginza October 24, 2002 One three-year term
- -----------------------------------------------------------------------------------------------------
Korea Seoul Grand Hyatt Hotel April 30, 2000 One two-year term
- -----------------------------------------------------------------------------------------------------
Mexico Mexico City El Palacio de Hierro January 31, 2000
- -----------------------------------------------------------------------------------------------------
Singapore Raffles Hotel September 15, 2000
- -----------------------------------------------------------------------------------------------------
Singapore Ngee Ann City September 14, 1999 One one-year term
- -----------------------------------------------------------------------------------------------------
Switzerland Zurich Bahnhofstrasse 14 September 30, 2000
- -----------------------------------------------------------------------------------------------------
Taiwan Taipei Regent Hotel October 3, 2000 One five-year term
- -----------------------------------------------------------------------------------------------------
</TABLE>
New Store Leases
In addition to the U.S. leases described above, Tiffany has entered into the
following new leases for domestic stores expected to open in the fall of 1998: a
10-year lease for a 6,500 square foot store at the Cherry Creek Mall, Denver,
Colorado; a 10-year lease for a 6,500 square foot store at The Belagio, Las
Vegas, Nevada; a 10-year lease for a 6,500 square foot store at Fashion Square,
Scottsdale, Arizona; a 10-year lease for a 7,900 square foot store at Pacific
Place, Seattle, Washington ; and a 10-year lease for a 9,900 square foot store
(including storage space) at the Americana, Manhasset, New York.
FARAONE Store Leases
Registrant also operates two FARAONE stores in Italy, one in Milan and one
in Florence. The Milan store is located on Via Montenapoleone. The present lease
expires on June 30, 1999, but may, subject to certain conditions imposed by
Italian law, including the right of the landlord to occupy the premises for its
own use, be renewed for an additional term of six years. Should the landlord
exercise this right, Registrant would be required to seek, lease and outfit new
premises. The Florence store is located on Via Tornabuoni. The present lease
expires on December 31, 2001, and may be renewed for an additional term of six
years, subject to the same conditions imposed by law upon the Milan lease.
ITEM 3. LEGAL AND ENVIRONMENTAL PROCEEDINGS
Registrant and Tiffany are from time to time involved in routine
litigation incidental to the conduct of Tiffany's business, including
proceedings to protect its trademark rights, litigation instituted by persons
alleged to have been injured upon premises within Registrant's control and
litigation with present and former employees. Although litigation with present
and former employees is routine and incidental to the conduct of Tiffany's
business as well as for any business employing significant numbers of U.S.-based
employees, such litigation can result in large
-Page 18-
<PAGE> 19
monetary awards when a civil jury is allowed to determine compensatory and/or
punitive damages for actions claiming discrimination on the basis of age,
gender, race, religion, disability or other legally protected characteristic or
for termination of employment that is wrongful or in violation of implied
contracts. However, Registrant believes that no litigation currently pending to
which it or Tiffany is a party or to which its properties are subject will have
a material adverse effect on its financial position, results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 31, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Registrant are:
<TABLE>
<CAPTION>
NAME AGE POSITION YEAR JOINED TIFFANY
- ---- --- -------- -------------------
<S> <C> <C> <C>
William R. Chaney 65 Chairman of the Board of 1980
Directors and Chief Executive
Officer
Michael J. Kowalski 46 President and Chief Operating 1983
Officer
James E. Quinn 46 Vice Chairman 1986
James N. Fernandez 42 Executive Vice President 1983
and Chief Financial Officer
Beth O. Canavan 43 Senior Vice President - Retail 1987
Sales
Patrick B. Dorsey 47 Senior Vice President - General 1985
Counsel and Secretary
Linda A. Hanson 37 Senior Vice President - 1990
Merchandising
Fernanda M. Kellogg 51 Senior Vice President - Public 1984
Relations
Caroline D. 40 Senior Vice President - Marketing 1997
Naggiar
John S. Petterson 39 Senior Vice President - Corporate 1988
Sales
Dale S. Strohl 61 Senior Vice President - Operations 1984
</TABLE>
- -Page 19-
<PAGE> 20
William R. Chaney. Mr. Chaney, Chairman and Chief Executive Officer of
Tiffany since August 1984, joined Tiffany in January 1980 as a member of its
Board. Prior to 1984 he served as an executive officer of Avon Products
Inc. Mr. Chaney also serves on the board of directors of the Bank of New
York and the Atlantic Mutual Companies.
Michael J. Kowalski. Mr. Kowalski was appointed President on January 18, 1996
and Chief Operating Officer on January 16, 1997; he has served on Registrant's
Board of Directors since January 1995. He previously served as Executive Vice
President from March 19, 1992, with overall responsibility in the following
areas: merchandising, marketing, advertising, public relations and product
design. He has held a variety of merchandising management positions since
joining Tiffany in 1983 as Director of Financial Planning.
James E. Quinn. Mr. Quinn joined the Company in July 1986 as Vice President of
branch sales for the Company's corporate sales operations. He was promoted to
Executive Vice President responsible for all United States retail and corporate
sales on March 19, 1992 and assumed responsibility for retail and corporate
sales for the Americas in 1994. In January 1995 and 1996, respectively, he
became a member of Registrant's Board of Directors and his responsibilities were
expanded to include distribution, human resources and loss prevention
operations. In January 1998, he was appointed Vice Chairman and assumed
responsibility for worldwide sales. Mr. Quinn is a member of the Board of
Directors of the BNY Hamilton Funds, Inc.
James N. Fernandez. Mr. Fernandez joined Tiffany in October 1983 and has held
various positions in financial planning and management prior to his appointment
as Senior Vice President-Chief Financial Officer in April 1989. In January 1998,
he was promoted to Executive Vice President-Chief Financial Officer, at which
time his responsibilities were expanded to include operations in addition to his
responsibilities for the accounting, treasury, investor relations, information
technology, financial planning and internal audit functions.
Beth O. Canavan. Ms. Canavan joined the Company in May 1987 as Director of
New Store Development. She assumed her current responsibilities for retail
sales throughout the United States in May 1997.
Patrick B. Dorsey. Mr. Dorsey joined the Company in July 1985 as General
Counsel and Secretary.
Linda A. Hanson Ms. Hanson joined Tiffany in April 1990 as a management
associate. She assumed her current responsibilities in July 1997.
Fernanda M. Kellogg. Ms. Kellogg joined Tiffany in October 1984 as Director
of Retail Marketing. She assumed her current responsibilities in January
1990.
Caroline D. Naggiar. Ms. Naggiar joined Tiffany in June 1997 as Vice
President - Marketing Communications. She assumed her current
responsibilities in February 1998. Prior to joining Tiffany, she served as
Vice President-Management Representative of McCann-Erickson Advertising from
January 1993, where she was responsible for the Tiffany account.
-Page 20-
<PAGE> 21
John S. Petterson. Mr. Petterson joined Tiffany in 1988 as a management
associate. He assumed his current responsibilities in May 1995.
Dale S. Strohl. Mr. Strohl assumed his current responsibilities in September
1984.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Registrant's Common Stock is traded on the New York Stock Exchange. In
consolidated trading, after adjustment for the two-for-one stock split that was
effected in Fiscal 1996, the high and low selling prices per share for shares of
such Common Stock for Fiscal 1996 were:
<TABLE>
<CAPTION>
Fiscal 1996 High Low
<S> <C> <C>
First Fiscal Quarter $33.13 $25.25
Second Fiscal Quarter $39.13 $30.25
Third Fiscal Quarter $42.25 $33.00
Fourth Fiscal Quarter $39.00 $33.50
</TABLE>
In consolidated trading, the high and low selling prices per share for
shares of such Common Stock for Fiscal 1997 were:
<TABLE>
<CAPTION>
Fiscal 1997 High Low
<S> <C> <C>
First Fiscal Quarter $42.63 $34.25
Second Fiscal Quarter $48.63 $38.50
Third Fiscal Quarter $48.63 $36.81
Fourth Fiscal Quarter $41.50 $33.75
</TABLE>
On March 25, 1998, the high and low selling prices quoted on such exchange
were $50.50 and $48.375 respectively. On March 25, 1998 there were 2,544 record
holders of Registrant's Common Stock.
It is Registrant's policy to pay a quarterly dividend of $0.07 per share
of Common Stock, subject to declaration of such dividend by Registrant's Board
of Directors. A two-for-one split of such Common Stock was effected by means of
a stock distribution (stock dividend) paid July 23, 1996. In Fiscal 1996, prior
to such stock split, a dividend of $0.07 per share was paid on April 10, 1996. A
dividend of $0.10 per share was paid on July 23, 1996, but only in respect of
shares outstanding prior to such stock distribution. Dividends of $0.05 per
share were paid on October 10, 1996 and January 10, 1997. In Fiscal 1997, a
dividend of $0.05 per share was paid on April 10, 1997. On May 15, 1997,
Registrant's Board of Directors declared an increase in the regular quarterly
dividend from $0.05 to $0.07 per share of Common Stock. Thereafter, dividends of
$0.07 per share were paid on July 10, 1997, October 10, 1997 and January 12,
1998.
In calculating the aggregate market value of the voting stock held by
non-affiliates of the Registrant shown on the cover page of this Report on Form
10-K, 5,604,194 shares of Registrant's
- -Page 21-
<PAGE> 22
Common Stock beneficially owned by Mitsukoshi Limited and by the executive
officers and directors of the Registrant (exclusive of shares which may be
acquired on exercise of employee stock options) were excluded, on the assumption
that certain of those persons could be considered "affiliates" under the
provisions of Rule 405 promulgated under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from Registrant's Annual Report to Stockholders for
the fiscal year ended January 31, 1998, pages 14-15.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from Registrant's Annual Report to Stockholders for
the fiscal year ended January 31, 1998, pages 16-20.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from Registrant's Annual Report to Stockholders for
the fiscal year ended January 31, 1998, pages 21-38.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from Registrant's Proxy Statement dated April 9, 1998,
pages 2-7.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from Registrant's Proxy Statement dated April 9, 1998,
pages 8-19.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from Registrant's Proxy Statement dated April 9, 1998,
pages 6-7.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Registrant's Proxy Statement dated April 9, 1998,
pages 16-17. See also Part I, Item 1. Distribution and Marketing, International
Retail, above, for a discussion of Registrant's business relationship with
Mitsukoshi Limited, a holder of in excess of 10% of Registrant's issued and
outstanding Common Stock.
-Page 22-
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents Filed As Part of This Report:
1. Financial Statements:
Data incorporated by reference from
the 1997 Annual Report to Stockholders
of Tiffany & Co. and Subsidiaries:
Report of Independent Accountants
(following this Form 10-K)
Consolidated statements of earnings
for the years ended January 31, 1998, 1997 and 1996
Consolidated balance sheets
as of January 31, 1998 and 1997
Consolidated statements of stockholders' equity
for the years ended January 31, 1998, 1997 and 1996
Consolidated statements of cash flows
for the years ended January 31, 1998, 1997 and 1996
Notes to consolidated financial statements
2. Financial Statement Schedules:
The following financial statement schedule should be read in
conjunction with the consolidated financial statements incorporated by reference
herein:
II. Valuation and qualifying accounts and reserves.
All other schedules have been omitted since they are either not applicable or
not required, or because the information required is included in the
consolidated financial statements and notes thereto.
- -Page 23-
<PAGE> 24
3. Exhibits:
The following exhibits have been filed with the Securities and Exchange
Commission but are not attached to copies of this Form 10-K other than complete
copies filed with said Commission and the New York Stock Exchange:
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant. Incorporated by
reference from Exhibit 3.1 to Registrant's Report on Form 8-K dated May
16, 1996.
3.2 By-Laws of Registrant (as last amended March 19, 1998).
4.1 Form of Rights Agreement Dated as of November 17, 1988 by and between
Registrant and Manufacturers Hanover Trust Company, as Rights Agent.
Incorporated by reference from Exhibit 4.1 to Registrant's Report on
Form 8-K dated November 18, 1988.
4.2 Amendment to Rights Agreement dated as of September 21, 1989 by and
between Registrant and Manufacturers Hanover Trust Company, as Rights
Agent. Incorporated by reference from Exhibit 4.2 to Registrant's
Report on Form 8-K dated September 28, 1989.
10.5 Designer Agreement between Tiffany and Paloma Picasso dated April 4,
1985. Incorporated by reference from Exhibit 10.5 filed with
Registrant's Registration Statement on Form S-1, Registration No.
33-12818 (the "Registration Statement").
10.16 Lease dated October 15, 1984 between Avon Export Corporation and
Tiffany for 727 Fifth Avenue, New York, N.Y. Incorporated by reference
from Exhibit 10.16 to the Registration Statement.
10.101 Form of Note Purchase Agreement, including the form of 7.52% Senior
Notes due 2003 issued thereunder at par by Registrant on January 31,
1993 for an aggregate principal amount of $51,500,000. Incorporated by
reference from Exhibit 10.101 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1993 and dated April 12,
1993.
10.111 Agreement made June 12, 1993 by and between Tiffany-Japan (Delaware)
Inc., Tiffany and Mitsukoshi Limited. Incorporated by reference from
Exhibit 10.111 filed with Registrant's Report on Form 8-K dated June
12, 1993.
</TABLE>
-Page 24-
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
10.116 Credit Agreement dated as of June 26, 1995 by and among Registrant,
Tiffany, Tiffany & Co. International, The Bank of New York, as Issuing
Bank and as Swing Line Lender, The Bank of New York, as Arranging Agent
and The Bank of New York as Administrative Agent, restated through
Amendment No. 5 dated as of November 20, 1997. Incorporated by
reference from Exhibit 10.116 filed with Registrant's Report on Form
10-Q for the fiscal quarter ended October 31, 1997 and dated December
10, 1997.
10.119 Amended and Restated Lease Agreement dated as of December 1, 1995,
effective as of August 1, 1995, by and between First Fidelity Bank,
National Association, not in its individual capacity, but solely as the
trustee under that certain Trust Agreement 1995-1 dated as of July 1,
1995, as amended, as Owner-Lessor and Tiffany, as Lessee; Amended and
Restated Construction Agency Agreement dated as of December 1, 1995,
effective as of December 11, 1995, by and between Tiffany, as Agent,
and First Fidelity Bank, National Association, a national banking
association, not in its individual capacity but solely as trustee
pursuant to a Trust Agreement 1995-1 dated as of July 1, 1995, as
amended, as Owner; Agreement and Consent to Assignment dated as of
December 1, 1995 among Registrant, Tiffany and Fleet National Bank of
Connecticut, as Collateral Trustee; and Definition Appendix to the
foregoing documents listed in this Exhibit 10.119. Incorporated by
reference from Exhibit 10.119 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1996 and dated April 8,
1996.
10.120 Watch Supplier Agreement as of October 30, 1995 by and among Tiffany
and Tiffany & Co. Watch Center S.A. and TWF SA. Incorporated by
reference from Exhibit 10.120 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1996 and dated April 8,
1996.
10.121 Agreement as of February 23, 1996 among Mitsukoshi Limited,
Tiffany-Japan Inc. and Tiffany. Incorporated by reference from Exhibit
10.121 filed with Registrant's Report on Form 10-K for the fiscal year
ended January 31, 1996 and dated April 8, 1996.
10.122 Agreement dated as of April 3, 1996 among American Family Life
Assurance Company of Columbus, Japan Branch, Tiffany & Co. Japan, Inc.,
Japan Branch, and Registrant, as Guarantor, for yen 5,000,000,000 Loan
Due 2011. Incorporated by reference from Exhibit 10.122 filed with
Registrant's Report on Form 10-Q for the fiscal quarter ended April 30,
1996 and dated June 13, 1996.
10.123 Agreement made effective as of February 1, 1997 by and between Tiffany
and Elsa Peretti. Incorporated by reference from Exhibit 10.123 to
Registrant's Report on Form 10-K for the fiscal year ended January 31,
1997 and dated April 8, 1997.
</TABLE>
- -Page 25-
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
10.124 Agreement in Respect of Tiffany & Co. Shares including registration
rights dated September 21, 1989, between Registrant and Mitsukoshi
Limited. Incorporated by reference from Exhibit 28.1 to Registrant's
Report on Form 8-K dated September 21, 1989.
10.125 Asset Purchase Agreement dated as of February 2, 1998 between Tiffany
and Mitsukoshi (U.S.A.), Inc.
13.1 Annual Report to Stockholders for Fiscal Year Ended January 31, 1998
(pages 14-38 of such Annual Report have been filed in electronic
format).
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants.
27 Financial Data Schedule (Exhibit 27 is submitted as an exhibit only in
the electronic format of this Annual Report on Form 10-K submitted to
the Securities and Exchange Commission).
</TABLE>
Executive Compensation Plans and Arrangements
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
10.2 Registrant's 1985 Stock Option Plan and forms of incentive stock option
agreement and stock option agreement, as last amended on January 18,
1990. Incorporated by reference from Exhibit 10.3 to Registrant's
Report on Form 10-K for the fiscal year ended January 31, 1990 and
dated April 13, 1990.
10.3 Registrant's 1986 Stock Option Plan and form of stock option agreement,
as last amended on November 21, 1996. Incorporated by reference from
Exhibit 10.3 to Registrant's Report on Form 10-K for the fiscal year
ended January 31, 1997 and dated April 8, 1997.
10.25 Deferred Compensation Agreement between William R. Chaney and Tiffany
and Company dated December 31, 1989. Incorporated by reference from
Exhibit 10.25 to Registrant's Report on Form 10-K for the fiscal year
ended January 31, 1990 and dated April 13, 1990.
10.49 Form of Indemnity Agreement, approved by the Board of Directors on
March 19, 1987. Incorporated by reference from Exhibit 10.49 to the
Registration Statement.
</TABLE>
-Page 26-
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
10.60 Registrant's 1988 Director Stock Option Plan and form of Stock Option
agreement, as last amended on November 21, 1996. Incorporated by
reference from Exhibit 10.60 to Registrant's Report on Form 10-K for
the fiscal year ended January 31, 1997 and dated April 8, 1997.
10.105 Group Long Term Disability Insurance Policy issued by The Mutual
Benefit Life Insurance Company. Policy Number: G53,152. Incorporated by
reference from Exhibit 10.105 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1993 and dated April 12,
1993.
10.106 Tiffany and Company Executive Deferral Plan. Incorporated by reference
from Exhibit 10.106 filed with Registrant's Report on Form 10-K for the
fiscal year ended January 31, 1993 and dated April 12, 1993.
10.108 Tiffany & Co. Retirement Plan for Non-Employee Directors. Incorporated
by reference from Exhibit 10.108 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1993 and dated April 12,
1993.
10.109 Summary of informal incentive cash bonus plan for managerial employees.
Incorporated by reference from Exhibit 10.109 filed with Registrant's
Report on Form 10-K for the fiscal year ended January 31, 1993 and
dated April 12, 1993.
10.113 Tiffany and Company Pension Plan, as last amended effective January 1,
1997. Incorporated by reference from Exhibit 10.113 to Registrant's
Report on Form 10-K for the fiscal year ended January 31, 1997 and
dated April 8, 1997.
10.114 1994 Tiffany and Company Supplemental Retirement Income Plan.
Incorporated by reference from Exhibit 10.114 filed with Registrant's
Report on Form 10-K for the fiscal year ended January 31, 1994 and
dated April 7, 1994.
10.115 1994 Form of Split Dollar Life Insurance Agreement entered into by
Tiffany and Company and certain Executive Officers including form of
Assignment of Life Insurance Policy as Collateral and Rider No. 1 to
1994 Form of Split Dollar Life Insurance Agreement entered into by
Tiffany and Company and certain Executive Officers. Incorporated by
reference from Exhibit 10.115 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1995 and dated April 7,
1995.
</TABLE>
REGISTRANT WILL FURNISH COPIES OF ANY OF THE FOREGOING EXHIBITS TO ANY
REGISTERED HOLDER OF THE REGISTRANT'S COMMON STOCK UPON PAYMENT OF A FEE OF $.15
PER PAGE FURNISHED, WHICH FEE REPRESENTS REGISTRANT'S EXPENSES IN FURNISHING
SUCH EXHIBIT.
- -Page 27-
<PAGE> 28
(b) Reports on Form 8-K.
None.
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.
TIFFANY & CO.
(Registrant)
Date: April 9, 1998 By: /s/ Michael J.Kowalski
-----------------------------------
Michael J. Kowalski
President and Chief Operating Officer
-Page 28-
<PAGE> 29
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.
By: /s/ William R. Chaney
----------------------------------
William R. Chaney
Chairman of the Board
(principal executive officer) (director)
By: /s/ James N. Fernandez By: /s/ Charles K. Marquis
---------------------------------- ----------------------------
James N. Fernandez Charles K. Marquis
Executive Vice President Director
(principal financial officer)
By: /s/ Warren S. Feld By: /s/ James E. Quinn
---------------------------------- ----------------------------
Warren S. Feld James E. Quinn
Vice President Vice Chairman
(principal accounting officer) (director)
By: /s/ Rose Marie Bravo By: /s/ Yoshiaki Sakakura
---------------------------------- ----------------------------
Rose Marie Bravo Yoshiaki Sakakura
Director Director
By: /s/ Samuel L. Hayes, III By: /s/ William A. Shutzer
---------------------------------- ----------------------------
Samuel L. Hayes, III William A. Shutzer
Director Director
By: /s/ Michael J. Kowalski By: /s/ Geraldine Stutz
---------------------------------- ----------------------------
Michael J. Kowalski Geraldine Stutz
President Director
(director)
April 9, 1998
- -Page 29-
<PAGE> 30
COOPERS & LYBRAND L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of Tiffany & Co.
Our report on the consolidated financial statements of Tiffany & Co. and
Subsidiaries has been incorporated by reference in this Form 10-K from Page 38
of the 1997 Annual Report to Stockholders of Tiffany & Co. and Subsidiaries. In
connection with our audits of such consolidated financial statements, we have
also audited the related financial statement schedule listed in Item 14(a)(2) of
this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 3, 1998
-Page 30-
<PAGE> 31
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------
Additions
------------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 1998:
Reserves deducted from
assets:
Accounts receivable
allowances principally
doubtful accounts $6,864,385 $2,104,590 $ - - $1,980,500 (a) $6,988,475
Allowance for inventory
liquidation and
obsolescence 13,790,944 5,885,724 - - 3,564,403 (b) 16,112,265
Allowance for inventory
shrinkage 1,743,169 2,217,964 - - 2,234,598 (c) 1,726,535
LIFO reserve 14,870,000 1,000,000 - - - - 15,870,000
</TABLE>
- -------------------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
<PAGE> 32
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------
Additions
------------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 1997:
Reserves deducted from
assets:
Accounts receivable
allowances principally
doubtful accounts $ 5,698,217 $3,128,653 $ - - $1,962,485 (a) $ 6,864,385
Allowance for inventory
liquidation and
obsolescence 10,947,815 5,219,817 - - 2,376,688 (b) 13,790,944
Allowance for inventory
shrinkage 1,674,536 2,799,295 - - 2,730,662 (c) 1,743,169
LIFO reserve 11,870,000 3,000,000 - - - - 14,870,000
</TABLE>
- -------------------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
<PAGE> 33
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------
Additions
------------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 1996:
Reserves deducted from
assets:
Accounts receivable
allowances principally
doubtful accounts $5,721,155 $3,034,423 $ - - $3,057,361 (a) $ 5,698,217
Allowance for inventory
liquidation and
obsolescence 8,602,482 3,043,617 - - 698,284 (b) 10,947,815
Allowance for inventory
shrinkage 2,468,133 2,728,866 - - 3,522,463 (c) 1,674,536
LIFO reserve 9,770,000 2,100,000 - - - - 11,870,000
</TABLE>
- -------------------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
<PAGE> 34
EXHIBIT INDEX
SEE PAGES 23 THROUGH 27 FOR A COMPLETE LIST OF EXHIBITS FILED, INCLUDING
EXHIBITS INCORPORATED BY REFERENCE FROM PREVIOUSLY FILED DOCUMENTS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
3.2 By-Laws of Registrant (as last amended March 19, 1998)
10.125 Asset Purchase Agreement dated as of February 2, 1998 between Tiffany
and Mitsukoshi (U.S.A.), Inc.
13.1 Annual Report to Stockholders for Fiscal Year Ended January 31, 1998
(pages 14 through 38 of such Annual Report have been filed in
electronic format).
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants.
</TABLE>
NOTE: ALL OTHER EXHIBITS HAVE BEEN INCORPORATED BY REFERENCE FROM EXHIBITS
TO DOCUMENTS PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
REFER TO THE LIST OF EXHIBITS ON PAGES 23 THROUGH 27 FOR REGISTRATION, FILE
AND EXHIBIT NUMBERS.
- -Page 31-
<PAGE> 1
Exhibit 3.2
Tiffany & Co.
Report on Form 10-K
Fiscal Year 1997
RESTATED BY-LAWS
AS LAST AMENDED MARCH 19, 1998
-OF-
TIFFANY & CO., A DELAWARE CORPORATION
(HEREIN CALLED THE "CORPORATION")
-OO0OO-
ARTICLE I
Stockholders
SECTION 1.01. Annual Meeting. The Board of Directors by resolution shall
designate the time, place and date of the annual meeting of the stockholders for
the election of directors and the transaction of such other business as may come
before it.
SECTION 1.02. Notice of Meetings of Stockholders. Whenever stockholders are
required or permitted to take any action at a meeting, written notice of the
meeting shall be given (unless that notice shall be waived) which shall state
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. The written notice of
any meeting shall be given, personally or by mail, not less than ten nor more
than sixty days before the date of the meeting to each stockholder entitled to
vote at such meeting. If mailed, such notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation.
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
SECTION 1.03. Quorum. At all meetings of the stockholders, the holders of a
majority of the stock issued and outstanding and entitled to vote thereat,
present in person or by proxy, shall constitute a quorum for the transaction of
any business.
When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any stockholders.
<PAGE> 2
The stockholders present may adjourn the meeting despite the absence of a
quorum and at any such adjourned meeting at which the requisite amount of voting
stock shall be represented, the Corporation may transact any business which
might have been transacted at the original meeting had a quorum been there
present.
SECTION 1.04. Method of Voting. The vote upon any question before the meeting
need not be by ballot. All elections and all other questions shall be decided by
a plurality of the votes cast, at a meeting at which a quorum is present, except
as expressly provided otherwise by the General Corporation Law of the State of
Delaware or the Certificate of Incorporation.
SECTION 1.05. Voting Rights of Stockholders and Proxies. Each stockholder of
record entitled to vote in accordance with the laws of the State of Delaware,
the Certificate of Incorporation or these By-laws, shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
stock entitled to vote standing in his name on the books of the Corporation, but
no proxy shall be voted on after three years from its date, unless the proxy
provides for a longer period.
SECTION 1.06. Ownership of its Own Stock. Shares of its own capital stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes. Nothing in this section shall be
construed as limiting the right of any corporation to vote stock, including but
not limited to its own stock, held by it in a fiduciary capacity.
SECTION 1.07. Conduct of Meetings. Each meeting of the stockholders shall be
presided over by the Chairman of the Board of Directors or such other person as
the Board of Directors may designate as chairman of such meeting. The Secretary
of the Corporation, or in his absence, an Assistant Secretary, shall act as
secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present, the chairman of the meeting shall appoint a secretary of
the meeting. In the conduct of a meeting of the stockholders, all of the powers
and authority vested in a presiding officer by law or practice shall be vested
in the chairman of the meeting.
SECTION 1.08. Notice of Business and Nominations.
A. Nominations of persons for election to the Board of Directors and
the proposal of business to be transacted by the stockholders at an annual
meeting of stockholders may be made (1) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) pursuant to a notice of
meeting or by otherwise properly bringing the matter before an annual meeting of
stockholders or (2) by any stockholder of record of the Corporation who was a
stockholder of record at the time of the giving of the notice provided for in
the following paragraph, who is entitled to vote at the meeting and who has
complied with the notice procedures set forth in this Section 1.08.
B. For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (2) of the foregoing
paragraph A., the stockholder must comply with the following provisions (1)
through (4) of this paragraph B.
Page 2
<PAGE> 3
(1) The stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation, as hereinafter provided. To be
timely, a stockholder's notice shall be delivered to the Secretary
at the principal executive offices of the Corporation not less than
90 days prior to and not more than 120 days prior to the first
anniversary of the preceding year's annual meeting of stockholders;
provided, however, that if the date of the annual meeting is
advanced more than 30 days prior to or delayed by more than 60 days
after such anniversary date, notice by the stockholder to be timely
must be so delivered not later than the close of business on the
later of the 90th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such
meeting is first made.
(2) Such business must be a proper matter for stockholder action
under the General Corporation Law of the State of Delaware.
(3) If the stockholder, or the beneficial owner on whose behalf any
such proposal or nomination is made, solicits or participates in the
solicitation of proxies in support of such proposal or nominees, the
stockholder must have timely indicated its, or such beneficial
owner's, intention to do so as provided in provision (4)(c)(iii)
below.
(4) Such stockholder's notice shall set forth the following
information: (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, all information
relating to such person as would be required to be disclosed in
solicitations of proxies for the election of such nominees as
directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and such person's
written consent to serving as a director if elected; (b) as to any
other business that the stockholder proposes to bring before the
meeting, a brief description of such business, the reasons for
conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner, (ii) the class and number of shares of the
Corporation that are owned beneficially and of record by such
stockholder and such beneficial owner, and (iii) whether either such
stockholder or beneficial owner intends to solicit or participate in
the solicitation of proxies in favor of such proposal or nominee or
nominees.
C. Notwithstanding anything in paragraph B.(1) of this Section 1.08
to the contrary, in the event that the number of directors to be elected to the
Board of Directors is increased above the number in effect at the preceding
year's annual meeting of stockholders and there is no public announcement naming
all of the nominees for director or specifying the size of the increased Board
of Directors made by the Corporation at least 100 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this By-law shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
delivered
Page 3
<PAGE> 4
to the Secretary at the principal executive offices of the Corporation not later
than the close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
D. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to a notice
of meeting issued by or at the direction of a majority vote of the Board of
Directors. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to such a notice of meeting (1) by or at the direction of the Board or
(2) by any stockholder of record of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this paragraph D., who
shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in the following sentence. The stockholder's notice must
include the information required in paragraphs B.(3) and B. (4) of this Section
1.08 and must be delivered to the Secretary at the principal executive offices
of the Corporation not later than the close of business on the later of the 90th
day prior to such special meeting or the 10th day following the day on which
public announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting and
not earlier than the 120th day prior to such special meeting.
E. Only persons nominated in accordance with the procedures set
forth in this Section 1.08 shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 1.08. The chairman of the meeting shall have the power and the duty to
determine whether a nomination or any business proposed to be brought before the
meeting has been made in accordance with the procedures set forth in these
By-laws and, if any proposed nomination or business is not in compliance with
these By-laws, to declare that such defective proposed business or nomination
shall not be presented for stockholder action at the meeting and shall be
disregarded.
F. For purposes of this Section 1.08, "public announcement " shall
mean disclosure in a press release reported by the Dow Jones New Service,
Associated Press or a comparable national news service or in a documents
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
G. Notwithstanding the foregoing provisions of this Section 1.08, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth
in this Section 1.08. Nothing in this Section 1.08 shall be deemed to excuse any
stockholder from the obligation to comply with the requirements of Rule 14a-8
under the Exchange Act with respect to proposals offered for inclusion in the
Corporation's proxy statement.
H. Paragraphs A. through G. of this Section 1.08 shall not apply
with respect to the 1998 Annual Meeting of Stockholders which shall be governed
by the following special provisions:
At the 1998 annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (i)
by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation who complies with the notice
procedures set forth in this paragraph H. For business to be
properly brought before
Page 4
<PAGE> 5
such meeting by a stockholder, the stockholder must have given
notice thereof in writing to the Secretary of the Corporation at the
principal executive offices of the Corporation, which written notice
must be received by the Secretary of the Corporation not less than
60 days in advance of such meeting or, if later, the fifteenth day
following the first public disclosure of the date of such meeting
(by mailing of notice of the meeting or otherwise). A stockholder's
notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (1) a brief
description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (2) the
name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (3) the class, series and
number of shares of the Corporation that are beneficially owned by
the stockholder, and (4) any material interest of the stockholder in
such business. In addition, the stockholder making such proposal
shall promptly provide any other information reasonably requested by
the Corporation. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at such meeting of the
stockholders except in accordance with the procedures set forth in
this paragraph H. The Chairman of such meeting shall direct that any
business not properly brought before the meeting shall not be
considered.
ARTICLE II
Directors
SECTION 2.01. Management of Business. The business of the Corporation shall
be managed by its Board of Directors.
The Board of Directors, in addition to the powers and authority
expressly conferred upon it herein, by statute, by the Certificate of
Incorporation of the Corporation or otherwise, is hereby empowered to exercise
all such powers as may be exercised by the Corporation, except as expressly
provided otherwise by the statutes of the State of Delaware, by the Certificate
of Incorporation of the Corporation or by these By-laws.
Without prejudice to the generality of the foregoing, the Board of
Directors, by resolution or resolutions, may create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securities of
the Corporation, rights or options entitling the holders thereof to purchase
from the Corporation any shares of its capital stock of any class or classes or
any other securities of the Corporation, such rights or options to be evidenced
by or in such instrument or instruments as shall be approved by the Board of
Directors. The terms upon which, including the time or times, which may be
limited or unlimited in duration, at or within which, and the price or prices at
which, any such rights or options may be issued and any such shares or other
securities may be purchased from the Corporation upon the exercise of any such
right or option shall be such as shall be fixed and stated in the resolution or
resolutions adopted by the Board of Directors providing for the creation and
issue of such rights or options, and, in every case, set forth or incorporated
by reference in the instrument or instruments evidencing such rights or options.
In the absence of actual fraud in the
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transaction, the judgment of the directors as to the consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive. In case the shares of stock of the Corporation to be issued upon the
exercise of such rights or options shall be shares having a par value, the price
or prices so to be received therefor shall not be less than the par value
thereof. In case the shares of stock to be issued shall be shares of stock
without par value, the consideration therefor shall be determined in the manner
provided in Section 153 of the General Corporation Law of the State of Delaware.
SECTION 2.02. Qualifications and Number of Directors. Directors need not be
stockholders. The number of directors which shall constitute the whole Board
shall be nine (9), but such number as determined by the Board of Directors may
be increased or decreased and subsequently again from time to time increased or
decreased by an amendment to these By-laws, provided that no decrease to such
number by action of the Board of Directors shall in itself effect the removal of
any sitting director. In order to qualify for election or appointment, directors
shall be younger than 72 years when elected or appointed, provided that the
Board of Directors may, by specific resolution, waive the provisions of this
sentence with respect to an individual director whose continued service is
deemed uniquely important to the Corporation.
SECTION 2.03. Election and Term. The directors shall be elected at the annual
meeting of the stockholders, and each director shall be elected to hold office
until his successor shall be elected and qualified, or until his earlier
resignation or removal.
SECTION 2.04. Resignations. Any director of the Corporation may resign at any
time by giving written notice to the Corporation. Such resignation shall take
effect at the time specified therein, if any, or if no time is specified
therein, then upon receipt of such notice by the Corporation; and, unless
otherwise provided therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 2.05. Vacancies and Newly Created Directorships. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until their successors shall be elected and qualified, or
until their earlier resignation or removal. When one or more directors shall
resign from the Board, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each director so chosen shall hold
office as herein provided in the filling of other vacancies.
SECTION 2.06. Quorum of Directors. At all meetings of the Board of Directors, a
majority of the entire Board, but not less than two directors, shall constitute
a quorum for the transaction of business, except that when a board of one
director is authorized, then one director shall constitute a quorum. The act of
a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors except as provided in Section 2.05
hereof.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting of the directors to another time and place.
Notice of any adjournment need not be given if
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such time and place are announced at the meeting.
SECTION 2.07. Annual Meeting. The newly elected Board of Directors shall meet
immediately following the adjournment of the annual meeting of stockholders in
each year at the same place, within or without the State of Delaware, and no
notice of such meeting shall be necessary.
SECTION 2.08. Regular Meetings. Regular meetings of the Board of Directors may
be held at such time and place, within or without the State of Delaware, as
shall from time to time be fixed by the Board and no notice thereof shall be
necessary.
SECTION 2.09. Special Meetings. Special meetings of the Board of Directors may
be called at any time by the Chairman of the Board of Directors, the Chief
Executive Officer, the President, the Vice Chairman of the Board of Directors,
any Vice-President, the Treasurer or the Secretary or by resolution of the Board
of Directors. Special meetings shall be held at such place, within or without
the State of Delaware, as shall be fixed by the person or persons calling the
meeting and stated in the notice or waiver of notice of the meeting.
Special meetings of the Board of Directors shall be held upon notice
to the directors or waiver thereof. Unless waived, notice of each special
meeting of the directors, stating the time and place of the meeting, shall be
given to each director by delivered letter, by telegram or by personal
communication either over the telephone or otherwise, in each such case not
later than the second day prior to the meeting, or by mailed letter deposited in
the United States mail with postage thereon prepaid not later than the seventh
day prior to the meeting. Notices of special meetings of the Board of Directors
and waivers thereof need not state the purpose or purposes of the meeting.
SECTION 2.10. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in a writing or writings and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
SECTION 2.11. Compensation. Directors shall receive such fixed sums and expenses
of attendance for attendance at each meeting of the Board or of any committee
and/or such salary as may be determined from time to time by the Board of
Directors; provided that nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 2.12. Committees. Whereas by resolution adopted by a majority of the
whole Board of Directors, the Corporation has elected to be governed by
paragraph (2) of Section 141(c) of the General Corporation Law of the State of
Delaware, the Board of Directors may, by resolution or resolutions, designate
one or more committees (and may discontinue any of same at any time) each to
consist of one or more of the directors of the Corporation. The members of each
committee shall be appointed by the Board and shall hold office during the
pleasure of the Board. Subject to any limitations on the delegation of power and
authority to such committee in the Corporation's Restated Certificate of
Incorporation or under applicable law, a committee may be delegated and may
exercise such powers of the Board of Directors in the management of the business
and affairs of the
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Corporation (and may authorize the seal of the Corporation to be affixed to all
papers which may require it) as may be delegated to such committee by such a
resolution of the Board of Directors. Subject to a resolution of the Board of
Directors to the contrary, in the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting of the
committee and not disqualified from voting, whether or not such present member
or members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at such meeting of the committee in the place of such
absent or disqualified member. Regular meetings of any such committee may be
held at such time and place, within or without the State of Delaware, as shall
from time to time be fixed by such committee and no notice thereof shall be
necessary. Special meetings of any such committee may be called at any time by
any officer of the Corporation or any member of any such committee. Special
meetings shall be held at such place, within or without the State of Delaware,
as shall be fixed by the person calling the meeting and stated in the notice or
waiver of the meeting. A majority of the members of any such committee shall
constitute a quorum for the transaction of business and the act of a majority
present at which there is a quorum shall be the act of such committee. Notice of
each special meeting of a committee shall be given (or waived) in the same
manner as notice of a directors' meeting. Each committee shall keep written
minutes of its meetings and report such minutes to the Board of Directors at the
next regular meeting of the Board of Directors.
ARTICLE III
Officers
SECTION 3.01. Number. The officers of the Corporation shall be chosen by the
Board of Directors. The officers shall be a Chairman of the Board of Directors,
a Chief Executive Officer, a Chief Operating Officer, a President, a Vice
Chairman of the Board of Directors, a Secretary and a Treasurer, and such number
of Vice-Presidents (including Vice-Presidents designated by the Board of
Directors as Senior Vice President and Executive Vice Presidents), Assistant
Secretaries and Assistant Treasurers, and such other officers, if any, as the
Board may from time to time determine. The Board may choose such other agents as
it shall deem necessary. Any number of offices may be held by the same person.
SECTION 3.02. Terms of Office. Each officer shall hold his office until his
successor is chosen and qualified or until his earlier resignation or removal.
Any officer may resign at any time by written notice to the Corporation.
SECTION 3.03. Removal. Any officer may be removed from office at any time
by the Board of Directors with or without cause.
SECTION 3.04. Authority. The powers and duties of the officers of the
Corporation shall be determined by resolution of the Board, or by one of the
committees of the Board. The Secretary, or some other officer designated by
resolution of the Board or by one of the committees of the Board, shall record
all of the proceedings of the meetings of the stockholders and directors in a
book to be kept for that purpose.
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SECTION 3.05. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chairman of the Board of Directors, the Chief
Executive Officer, the President , the Vice Chairman of the Board of Directors,
or any Vice-President and any such officer may, in the name of and on behalf of
the Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any corporation
in which the Corporation may own securities and at any such meeting shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
ARTICLE IV
Capital Stock
SECTION 4.01. Stock Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by, or in the name of the Corporation
by, the Chairman of the Board of Directors, the President, the Vice Chairman of
the Board of Directors or a Vice-President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
certifying the number of shares owned by him in the Corporation. Where such
certificate is signed (1) by a transfer agent other than the Corporation or its
employee, or (2) by a registrar other than the Corporation or its employee, the
signatures of the officers of the Corporation may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of issue.
SECTION 4.02. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by the laws of the State of Delaware.
SECTION 4.03. Registered Holders. Prior to due presentment for registration of
transfer of any security of the Corporation in registered form, the Corporation
shall treat the registered owner as the person exclusively entitled to vote, to
receive notifications and to otherwise exercise all the rights and powers of an
owner, and shall not be bound to recognize any equitable or other claim to, or
interest in, any security, whether or not the Corporation shall have notice
thereof, except as otherwise provided by the laws of the State of Delaware.
SECTION 4.04. New Certificates. The Corporation shall issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, if the owner: (1) so requests before the
Corporation as notice that the shares of stock represented by that certificate
have been acquired by a bona fide purchaser; (2) files with the Corporation a
bond sufficient (in the judgment of the directors) to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
theft of that certificate or the issuance of a new certificate; and (3)
satisfies any other requirements imposed by the directors that are reasonable
under the circumstances. A new certificate may be issued without requiring any
bond when, in the judgment of the directors, it is
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proper so to do.
ARTICLE V
Miscellaneous
SECTION 5.01. Offices. The registered office of the Corporation in the State of
Delaware shall be at Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801. The Corporation may also have offices at other places within
and/or without the State of Delaware.
SECTION 5.02. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words
"Corporate Seal Delaware."
SECTION 5.03. Checks. All checks or demands for money shall be signed by
such person or persons as the Board of Directors may from time to time
determine.
SECTION 5.04. Fiscal Year. The fiscal year shall begin the first day of
February in each year and shall end on the thirty-first day of January of the
following year.
SECTION 5.05. Waivers of Notice: Dispensing with Notice. Whenever any notice
whatever is required to be given under the provisions of the General Corporation
Law of the State of Delaware, of the Certificate of Incorporation of the
Corporation, or of these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
Attendance of a person at a meeting of stockholders shall constitute
a waiver of notice of such meeting, except when the stockholder attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Whenever any notice whatever is required to be given under the
provisions of the General Corporation Law of the State of Delaware, of the
Certificate of Incorporation of the Corporation, or of these By-laws, to any
person with whom communication is made unlawful by any law of the United States
of America, or by any rule, regulation, proclamation or executive order issued
under any such law, then the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person; and any
action or meeting which shall be taken or held without notice to any such person
or without giving or without applying for a license or permit to give any such
notice to any such person with whom communication is made unlawful as aforesaid,
shall have the same force and effect as if such notice had been given as
provided under the provisions of the General Corporation Law of the State of
Delaware, or under the provisions of the Certificate of Incorporation of the
Corporation or of these By-laws. In the event that the action taken by the
Corporation is such as to require the filing of a certificate under any of the
other sections of this title, the certificate shall state, if such is the fact
and if notice is required, that notice was given to all persons entitled to
receive notice except such
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persons with whom communication is unlawful.
SECTION 5.06. Loans to and Guarantees of Obligations of Employees and Officers.
The Corporation may lend money to or guaranty any obligation of, or otherwise
assist any officer or other employee of the Corporation or of a subsidiary,
including any officer or employee who is a director of the corporation or a
subsidiary, whenever, in the judgment of the Board of Directors, such loan,
guaranty or assistance may reasonably be expected to benefit the Corporation.
The loan, guaranty or other assistance may be with or without interest, and may
be unsecured, or secured in such manner as the Board of Directors shall approve,
including without limitation, a pledge of shares of stock of the Corporation.
Nothing in this Section contained shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of the Corporation at common law or under any
other statute.
SECTION 5.07. Amendment of By-laws. These By-laws may be altered, amended
or repealed at any meeting of the Board of Directors.
SECTION 5.08. Section Headings and Statutory References. The headings of the
Articles and Sections of these By-laws, and the references in brackets to
relevant sections of the General Corporation Law of the State of Delaware, have
been inserted for convenience of reference only and shall not be deemed to be a
part of these By-laws.
ARTICLE VI
SECTION 6.01. Indemnification of Directors and Officers. The Corporation shall,
to the fullest extent permitted by law, indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including without limitation an action by or in the right of the
Corporation) by reason of the fact that he is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful,
provided, however, that in the event of any action, suit or proceeding initiated
by and in the name of (or by and in the name of a nominee or agent for) a person
who would otherwise by entitled to indemnification under this Section 6.01, such
person shall be entitled to indemnification hereunder only in the event such
action, suit or proceeding was initiated on the authorization of the Board of
Directors. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
The right of indemnity provided herein shall not be exclusive and
the Corporation may provide indemnification to any person, by agreement or
otherwise, on such terms and conditions as the
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Board of Directors may approve. Any agreement for indemnification of any
director, officer, employee or other person may provide indemnification rights
which are broader or otherwise different from those set forth herein.
No repeal or modification of this Article or of relevant provisions
of the General Corporation Law of the State of Delaware or any other applicable
laws shall affect or diminish in any way the rights of any person to
indemnification under the provisions hereof with respect to any action, suit,
proceeding or investigation arising out of, or relating to, any actions,
transactions or facts occurring prior to the final adoption of such repeal or
modification.
SECTION 6.02. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
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Exhibit 10.125
Tiffany & Co.
Report on Form 10-K
Fiscal Year 1997
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made and entered into as of
the 2nd day of February 1998 between TIFFANY AND COMPANY, a New York corporation
with its executive offices and principal place of business at 727 Fifth Avenue,
New York, NY 10022 (hereinafter referred to as "TIFFANY") and MITSUKOSHI
(U.S.A.), INC., a corporation organized and existing under the laws of the State
of New York, with its executive offices at 12 East 49th Street, New York City,
N.Y., 10017, the successor by merger to the Hawaii corporation of the same name
(hereinafter referred to as "MITSUKOSHI").
W I T N E S S E T H:
WHEREAS, Tiffany desires to acquire from Mitsukoshi, and Mitsukoshi
desires to sell and transfer to Tiffany, certain of Mitsukoshi's assets and
properties used solely in the operation of a TIFFANY & CO. retail boutique
located in Moana Shops Nos. 3 & 4 (including associated non-retail space in
Diamond Head Wing Room No. 3223), at the Sheraton Moana Surfrider Hotel on
Waikiki Beach on the Island of Oahu, State of Hawaii (the "PREMISES"), and the
goodwill and going-concern value associated therewith (collectively the
"BUSINESS"), upon the terms and conditions herein set forth.
WHEREAS, Mitsukoshi and Tiffany each acknowledge and agree that the letter
agreement concerning access and confidentiality entered into between them and
dated September 25, 1997 remains valid and states the binding obligations of the
parties.
WHEREAS, contemporaneous with the transactions evidenced hereby,
Mitsukoshi has surrendered its lease for the Premises and Tiffany has entered
into a new lease for the Premises.
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties agree as follows:
SECTION 1. Transactions on Closing
IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, THE PARTIES HEREBY
CONSUMMATE, ON THE CLOSING DATE (AS DEFINED IN SECTION 2.1 BELOW), THE FOLLOWING
TRANSACTIONS:
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1.1 Sale and Purchase of Assets. Subject to the terms and conditions set forth
in this Agreement and on the basis of and in reliance upon the representations,
warranties, obligations and agreements set forth in this Agreement, Mitsukoshi
hereby sells, assigns, transfers, conveys and delivers to Tiffany and Tiffany
hereby purchases, acquires and accepts the assets owned by Mitsukoshi as of the
Closing Date and used solely in connection with the Business, except for the
Excluded Assets (as described in SCHEDULE 1.1 attached), (the assets conveyed
hereunder hereinafter shall collectively be referred to as the "ASSETS"), free
and clear of all liens, charges and encumbrances except for "Permitted
Exceptions" (as described in SCHEDULE 3.8(a) attached) as shall exist on the
Closing Date. The Assets include the following assets:
(a) All Mitsukoshi's leasehold improvements, furniture, tools, workbenches,
lighting equipment, samples, furnishings, office equipment, computers
(excluding point of sale transaction processing equipment), and telephone
systems used in the operation of the Business and kept, in the ordinary
course of the Business, at the Premises, including but not limited to the
equipment listed in SCHEDULE 1.1(a) attached hereto and any claim to
insurance proceeds in respect of the foregoing items;
(b) All Mitsukoshi's rights, claims and interests to and with respect to
pending or executory contracts entered into in the ordinary course of the
Business including, without limitation, orders placed by customers for
merchandise, contracts to sell and deliver merchandise, service contracts
for equipment, equipment leases, distribution agreements, trade
association memberships, advertising agreements, licenses, permits and
other documents or agreements to which Mitsukoshi is a party or by which
it has rights, in each case to the extent they are assignable to Tiffany;
(c) The following records, files and papers, if any, in each case relating to
the Assets or the Business, wherever located: customer lists, sales and
delivery records, catalogs, quotations for the sale of products,
maintenance and warranty records with respect to equipment, promotional
and advertising materials;
(d) All Mitsukoshi's inventories, materials and supplies related to the
Business including, without limitation, packaging materials for the
Business;
(e) All Mitsukoshi's prepaid expenses related to the Business and that were
paid by Mitsukoshi in connection with any of the "Assumed Liabilities" (as
defined in Section 1.2 below);
(f) All Mitsukoshi's rights under or pursuant to all warranties,
representations and guarantees made by suppliers in connection with
products or services furnished to Mitsukoshi for the Business or affecting
the Assets to the extent such warranties and guarantees are transferable;
(g) All of Mitsukoshi's interest in the trade names and trademarks TIFFANY and
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TIFFANY & CO., any variations of such names and any goodwill associated
with any of the foregoing; and
(h) The Business as a going concern and all intangible property and rights of
Mitsukoshi therein, including goodwill.
1.2 Limited Assumption of Liabilities. Except for the liabilities and
obligations set forth in SCHEDULE 1.2 attached, to the extent that such
liabilities and obligations may exist on the Closing Date (the "ASSUMED
LIABILITIES") which Tiffany hereby assumes, agrees to pay, perform and discharge
in due course, or liabilities or obligations otherwise expressly stated to be
assumed by Tiffany in this Agreement or in any Exhibit or Schedule hereto, it is
understood and agreed that Tiffany does not assume and will not be responsible
to pay any debts, liabilities, obligations, contracts, leases, commitments and
other undertakings of Mitsukoshi as each of the foregoing exists on the Closing
Date or, except as otherwise specifically provided for in this Agreement or any
Exhibit or Schedule hereto, by reason of Mitsukoshi's acts or omissions prior
to, on or after the Closing Date, including, but not limited to, liabilities of
the following types, all of which shall remain the liability and responsibility
of Mitsukoshi: (i) liabilities arising out of the relationship between
Mitsukoshi and its employees, including, but not limited to, liabilities for
payroll, payroll withholding taxes, unfunded pension liabilities, liabilities
under health and welfare plans, and employment termination liabilities; (ii)
taxes payable by Mitsukoshi (other than Hawaii's General Excise Tax on the
transactions contemplated herein which shall be reimbursed by Tiffany to
Mitsukoshi as provided in Section 8 below); (iii) tort liabilities; (iv)
criminal claims; (v) claims arising out of actual or alleged pollution of the
environment; (vi) pending litigation, whether disclosed or undisclosed; (vii)
any undisclosed liabilities; and (viii) any debts owed by Mitsukoshi.
1.3 Purchase Price and Payment.
(a) The price payable for the Assets acquired pursuant to Section 1.1 hereof
shall be EIGHT MILLION ONE HUNDRED TWELVE THOUSAND TWO HUNDRED TEN DOLLARS
AND 80/100 (U.S. $8,112,210.80) (the "BASE PURCHASE PRICE") PLUS the
"Percentage Payments" to be paid in the future as provided for in Section
1.3(c) below.
(b) The Base Purchase Price shall be paid at the Closing as follows: by wire
transfer in immediately available federal funds to the following bank
account of Mitsukoshi: Central Pacific Bank, Transit ABA No. 121301578;
Account Name: Mitsukoshi USA Inc.; Account Number: 06-70121-3; Contact
Person, Mr. Kazuichi Masuda, Vice President & Manager, International
Business Development, Corporate Banking Division, 808-544-0661.
(c) Subsequent and in addition to payment of the Base Purchase Price, Tiffany
agrees to pay to Mitsukoshi the "PERCENTAGE PAYMENTS" as follows:
(i) the Percentage Payments shall be equal to Three and Seventy-five
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Hundredths Percent (3.75%) of "Net Oahu Retail Sales" (as defined
below) made by Tiffany or any "Tiffany Affiliate" (as defined below)
during the period commencing February 1, 1998 and ending January 31,
2003 (the "PAY-OUT PERIOD");
"NET OAHU RETAIL SALES" for the purposes of this Agreement is
hereby defined to mean and include:
(1) the aggregate gross selling price (exclusive of any
packing and shipping charges and any taxes with respect
to sales which are either added to or are included in
the sales price) for all merchandise sold in, through
or from the "Stores" (as hereinafter defined). The term
"STORES" means any TIFFANY & CO. retail store operated
by Tiffany or Tiffany's Affiliate on the Island of
Oahu, excluding any store operated by Tiffany or a
Tiffany Affiliate at the Ala Moana Shopping Center (or,
should Tiffany or a Tiffany Affiliate cease to operate
a store at the Ala Moana Shopping Center, any store
opened by Tiffany or a Tiffany Affiliate on the Island
of Oahu to replace such store);
(2) charges made by Tiffany or a Tiffany Affiliate or by
anyone on behalf of Tiffany or a Tiffany Affiliate or
by or on behalf of any other person for the rendition
of any service of any kind whatsoever to Tiffany's or a
Tiffany Affiliate's customers and any other persons in,
on, through or from the Stores, including repair work,
and charges made by or on behalf of Tiffany or a
Tiffany Affiliate or any other persons in the course of
any other business done in, on, through or from the
Stores, but only to the extent that Tiffany or a
Tiffany Affiliate would otherwise include such charges
in "net sales" at the Stores by application of its
standard U.S. accounting principles, consistently
applied;
(3) the amount of all orders for merchandise or other
property or services taken at the Stores by any person
whether the merchandise or other property or services
which are the subject of such orders are delivered or
rendered from or at the Stores or from or at a place
other than the Stores, but only to the extent that
Tiffany or a Tiffany Affiliate would otherwise include
such amounts in "net sales" at the Stores by
application of its standard U.S. accounting principles,
consistently applied;
(4) the selling price of all merchandise and other property
and all services delivered from or rendered at the
Stores at the request or order of Tiffany or a Tiffany
Affiliate or any
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other person to a customer or other person pursuant to
an order placed elsewhere, but only to the extent that
Tiffany or a Tiffany Affiliate would otherwise include
such selling price in "net sales" at the Stores by
application of its standard U.S. accounting principles,
consistently applied;
(5) all other sums received or charged during the period
referred to in Section 1.3(c)(i) above by Tiffany or a
Tiffany Affiliate, or any other person, for goods,
services, or things of value in the course of the
conduct of any business on or about the Stores, or in
conjunction with any such business, but only to the
extent that Tiffany or a Tiffany Affiliate would
otherwise include such sums in "net sales" at the
Stores by application of its standard U.S. accounting
principles, consistently applied;
(6) without in any way limiting or qualifying any of the
provisions of the foregoing, it is understood that Net
Oahu Retail Sales for the purposes of this Agreement
include "gross proceeds of sale" and "gross income"
resulting from all sales of goods and services made by
Tiffany or a Tiffany Affiliates or any other person in,
on, through or from the Stores for cash or credit, as
said terms are presently defined in, and/or which are
taxable under, the provisions of Chapter 237 (General
Excise Tax Law), Hawaii Revised Statutes, as the same
shall be amended from time to time, provided, however,
for the purposes of this Agreement, Net Oahu Retail
Sales shall not include wholesale sales (sales for
retail) or "Corporate Sales" meaning transactions
credited to Tiffany's "Corporate Division" by
application of Tiffany's or a Tiffany Affiliate's
standard U.S. accounting principles, consistently
applied; Tiffany or a Tiffany Affiliate may also deduct
from Net Oahu Retail Sales any cash refund or credit
(including merchandise credits, house account credits
and charge and credit card credits) made or given to a
customer at the Stores, provided that the cost of any
premiums, advertising or other promotional devices
shall not be deductible or construed as a discount,
refund, allowance or credit, but only to the extent
that Tiffany or the Tiffany Affiliate would otherwise
deduct such refund or credit from "net sales" at the
Stores by application of its standard U.S. accounting
principles, consistently applied.
(7) For the purposes of this definition, no item will be
excluded from "net sales" at the Store by application
of Tiffany's standard U.S. accounting principles,
consistently applied,
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unless such exclusion would be consistent with generally
accepted U.S. accounting principles.
(ii) Percentage Payments will be made for Net Oahu Retail Sales in
each fiscal quarter ending as of the last day of January,
April, July and October and will be due and payable within
thirty (30) days following the end of each fiscal quarter
during the Pay-out Period. Percentage Payments which have not
been paid within five (5) days after the same shall have
become due and payable shall bear interest at the rate of one
percent (1%) per month from the date the same became due and
payable until paid, whether or not demand be made therefore;
(iii) the term "TIFFANY AFFILIATE" means any corporation or business
entity controlling, controlled by or under common control with
Tiffany, directly or indirectly, through control of voting
stock of 50% or greater.
(iv) Mitsukoshi shall be entitled at any time within two (2) years
after the receipt of any Percentage Payments to cause an audit
to be made by any person authorized by Mitsukoshi of all
records and books of account of Tiffany or a Tiffany Affiliate
relating to the Stores together with any supporting data
relating thereto, and if such audit discloses that Tiffany or
a Tiffany Affiliate's Net Oahu Retail Sales as previously
reported for the period audited were under- or overstated,
then Tiffany shall immediately pay to Mitsukoshi the
additional Percentage Payments due for the period audited
together with interest thereon as provided for in Section
1.3(c)(ii) above and Mitsukoshi will refund any overpayment.
All audit costs shall be for Mitsukoshi's account unless such
audit discloses a deficiency in excess of three percent (3%)
of the amount originally reported, in which case Tiffany will
pay to Mitsukoshi its out-of-pocket costs of conducting such
audit.
(v) Mitsukoshi shall be entitled to receive any and all monthly,
year end and other periodic sales reports or statements
provided by Tiffany or a Tiffany Affiliate to the landlords or
owners of the Sheraton Moana Hotel and Hilton Hawaiian Village
which describe or detail the amount of total sales or receipts
generated by Tiffany or any Tiffany Affiliate. If Tiffany or a
Tiffany Affiliate shall open another store or location on the
Island of Oahu, then Mitsukoshi and Tiffany shall agree on the
manner of reporting the sales and receipts for the such store
or location, which reporting shall be substantially similar to
such reporting provided for the Sheraton Moana Hotel and
Hilton Hawaiian Village.
(vi) Mitsukoshi shall be entitled to receive any documentation
relating
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to any adjustment made by Tiffany or a Tiffany Affiliate to
its calculation of total sales or receipts for its current
stores at the Sheraton Moana Hotel and Hilton Hawaiian Village
and any future Tiffany stores or locations on the Island of
Oahu. Any such adjustment shall also be made to the
calculation of Net Oahu Retail Sales and Tiffany shall
immediately pay to Mitsukoshi any additional Percentage
Payment, together with interest thereon as provided for in
Section 1.3(c)(ii) above, and Mitsukoshi shall immediately
refund any overpayment. The documentation described in this
Section 1.3(c)(vi) shall mean any documentation resulting from
an audit, examination or review of the total sales or receipts
generated by Tiffany or a Tiffany Affiliate.
(vii) Tiffany agrees that any transfer of goods by Tiffany between
any of the Stores, on the one hand, and any store operated by
Tiffany or a Tiffany Affiliate at the Ala Moana Shopping
Center (or any store opened by Tiffany or a Tiffany Affiliate
on the Island of Oahu to replace such store) (either of the
foregoing an "Excluded Location"), on the other hand, shall
not be made for the purpose of, or where such transfer would
have the effect of, depriving Mitsukoshi of the benefit of a
sale to an interested customer which otherwise would have been
made at, in, or from the Stores, provided that this section
shall not apply to a transfer of goods made in the ordinary
course of business from a Store to the Excluded Location for
the convenience of an interested customer if such interested
customer would have purchased at the Excluded Location but for
an out-of-stock situation. Tiffany agrees that transfers of
goods from the Excluded Location to the Stores shall be made
available on the same basis that transfers of goods from the
Stores to the Excluded Location are made, in either case, for
the purpose of remedying out-of-stock situations
SECTION 2. Closing
THE TRANSACTIONS EVIDENCED BY THIS AGREEMENT HAVE BEEN CONSUMMATED AT A
CLOSING AS FOLLOWS, IT BEING AGREED THAT ALL DELIVERIES AT SUCH CLOSING SHALL BE
DEEMED TO HAVE OCCURRED SIMULTANEOUSLY AND SIMULTANEOUSLY WITH THE EXECUTION AND
DELIVERY OF THIS AGREEMENT:
2.1 Closing Date. The closing of the transactions evidenced by this Agreement
(the "CLOSING") commenced at 10:00 A.M. local time at the offices of Kobayashi,
Sugita & Goda, 999 Bishop Street, Suite 2600, Honolulu, Hawaii 96813 on the date
of this Agreement (such date, together with any adjournment thereof is
hereinafter referred to as the "CLOSING DATE").
2.2 Closing Deliveries of Mitsukoshi. At Closing, Mitsukoshi delivered the
following documents to Tiffany, each duly executed on behalf of Mitsukoshi
(except for
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documents described in (f) below and in a form reasonably satisfactory to
counsel for Tiffany:
(a) a BILL OF SALE substantially in the form attached hereto as EXHIBIT 2.2(a)
conveying title to Tiffany of the Assets;
(b) SURRENDERS OF LEASE substantially in the forms attached hereto as EXHIBIT
2.2(b) duly executed by the landlord for the Premises;
(c) certified copies of appropriate resolutions adopted by Mitsukoshi's Board
of Directors providing for the execution and delivery of this Agreement
and the performance of the obligations contained therein;
(d) counterpart to the PAYROLL AGREEMENT substantially in the form attached
hereto as EXHIBIT 2.2(d);
(e) counterpart to the ASSIGNMENT AND ASSUMPTION OF ASSUMED LIABILITIES
substantially in the form attached hereto as EXHIBIT 2.2(e);
(f) termination statements or releases in respect of all liens, mortgages,
pledges, encumbrances, conditional sales agreements, security interests,
title retention devices or charges over or upon the Assets except as
permitted by Section 3.8 below, each duly executed by those persons
necessary to make such statement or release effective; and
(g) counterpart of this Agreement.
2.3 Closing Deliveries of Tiffany. At Closing, Tiffany delivered the following
consideration and documents to Mitsukoshi, each duly executed on behalf of
Tiffany and in a form reasonably satisfactory to counsel for Mitsukoshi:
(a) the Closing Purchase Price;
(b) counterpart to the Payroll Agreement;
(c) certified copies of appropriate resolutions adopted by Tiffany's board of
directors providing for the execution and delivery of this Agreement and
the performance of the obligations contained therein;
(d) counterpart to the Assignment and Assumption of Assumed Liabilities; and
(e) counterpart of this Agreement.
2.4 No Agreed Allocation of Purchase Price. Mitsukoshi and Tiffany acknowledge
and agree that each party waives any requirement to agree to the allocation of
the aggregate purchase price paid for the Assets. Mitsukoshi and Tiffany further
acknowledge and agree that there is no allocation of such purchase price which
is
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binding on either party for federal income tax purposes.
SECTION 3. Representations, Warranties and Agreements of Mitsukoshi.
AS AN INDUCEMENT TO TIFFANY TO ENTER INTO THIS AGREEMENT AND TO
CONSUMMATE THE TRANSACTIONS EVIDENCED HEREBY, MITSUKOSHI REPRESENTS AND WARRANTS
TO TIFFANY AND AGREES AS FOLLOWS, EACH SUCH REPRESENTATION, WARRANTY AND
AGREEMENT TO BE EFFECTIVE AS OF THE CLOSING DATE:
3.1 Organization. Mitsukoshi is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York and has full
corporate power to own the Assets and conduct the Business.
3.2 Corporate Authority. The execution, delivery and performance of this
Agreement by Mitsukoshi has been duly authorized and approved by all requisite
corporate action on the part of Mitsukoshi.
3.3 Trademarks and Trade Names etc. Mitsukoshi has not licensed anyone to use
the trademarks or trade names TIFFANY or TIFFANY & CO.
3.4 Leases, Contracts and Commitments. SCHEDULE 3.4 attached hereto sets forth a
list of each lease (under which Mitsukoshi is either lessee or lessor), contract
or other commitment of Mitsukoshi being assigned to Tiffany.
3.5 Employees. SCHEDULE 3.5 sets forth a list of the names and current annual or
hourly salary or pay rates of each of the employees actively employed by
Mitsukoshi at the Business as of November 30, 1997 and not then on a leave of
absence.
3.6 Compliance with Laws. Except as set forth in SCHEDULE 3.6 hereto, to the
best of Mitsukoshi's knowledge, there has not been any non-compliance or alleged
non-compliance with applicable statutes, orders, rules or regulations
promulgated by governmental authorities relating in any respect to the Assets or
the operation of the Business which non-compliance or alleged non-compliance
would, if successfully prosecuted or otherwise determined, materially and
adversely affect the Business or the Assets.
3.7 Litigation. SCHEDULE 3.7 sets forth a brief description of each pending
lawsuit, civil proceeding instituted by a governmental agency, criminal
proceeding, indictment, administrative proceeding, governmental investigation,
demand letter or arbitration (i) to which Mitsukoshi is a party (ii) or of which
Mitsukoshi is a subject or (iii) to which the Assets are subject and which, in
respect of items (i) through (iii) inclusive, relates to the Business,
specifying the damage or relief sought, the name of counsel for Mitsukoshi in
charge of such matter and the current status of such action. Except as set forth
in Schedule 3.7, to the best of Mitsukoshi's knowledge there is no such lawsuit,
proceeding, indictment, investigation, demand or arbitration pending, or, to the
knowledge of Mitsukoshi, threatened, which, if decided adversely against
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Mitsukoshi, would have a material adverse effect upon the Assets or upon the
Business.
3.8 Assets. Mitsukoshi owns, leases or has legal right to use all of the Assets
to be acquired hereunder. All equipment referred to in Section 1.1(a) is being
sold to Tiffany in operating condition. Except as set forth in SCHEDULE 3.8(a)
(the "PERMITTED EXCEPTIONS"), Mitsukoshi has good and marketable title to all of
the Assets, which shall be conveyed free and clear of all liens, mortgages,
deeds of trust, pledges, encumbrances, conditional sales agreements, security
interests, title retention devices or charges of any kind except (a) liens for
current taxes or assessments not yet due and payable and (b) statutory liens
arising in the ordinary course of business. All of the Assets are located on the
Premises other than such Assets listed on SCHEDULE 3.8(b) attached, which are
located as indicated in said schedule.
3.9 Material Changes Since November 30, 1997. Except as otherwise set forth in
SCHEDULE 3.9 attached, since November 30, 1997 Mitsukoshi has not, except in the
ordinary course of business, (a) made any material change in the property, plant
or equipment or its other assets or properties employed in the Business; (b)
sold or otherwise disposed of any of the leases pertaining to such property,
plant or equipment, entered into any renewals or extensions of existing leases
or entered into any new leases; (c) entered into any contract, license,
franchise, or commitment, or made any capital expenditures or commitment
therefor or waived any rights relating to Mitsukoshi's property, plant or
equipment or its other assets or properties employed in the Business; or (d)
removed, or permitted to be removed, from any building, facility or real
property, any inventory, supplies, machinery, equipment, fixture, vehicle, or
other similar personal property or parts thereof used in the Business.
3.10 Labor Matters. To the best of Mitsukoshi's knowledge, there is no labor
strike, disturbance, union recognition campaign, National Labor Relations
Board-supervised election proceeding or unfair labor practice proceeding pending
or threatened against Mitsukoshi in respect of the Business and none of the
Employees listed in SCHEDULE 13.4(a) was represented in its employment relations
with Mitsukoshi by a union or other labor organization. Mitsukoshi, to the best
of its knowledge, is not aware of any pending or threatened investigation by the
United States Occupational Safety and Health Administration or any state or
local governmental agency or authority concerned with work-place health or
safety in respect of the Business. Mitsukoshi's employees have not presented to
Mitsukoshi any concerted protest or complaint concerning work-place health,
safety or hygiene in the Business.
3.11 Investment Banking and Other Fees. Mitsukoshi has not dealt with any
investment banking firm, finder, broker or dealer in connection with the
transactions contemplated hereby.
3.12 Disclosure. No representation or warranty by Mitsukoshi herein contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein not misleading.
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3.13 Employee Benefit Plans and Similar Arrangements.
(a) SCHEDULE 3.13 lists all employee benefit plans and collective bargaining,
labor and employment agreements relating to the Business or other similar
arrangements relating to the Business in effect as of January 31, 1998,
including, without limitation, any profit-sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consulting,
retirement, severance, welfare or incentive plan or agreement; any plan,
agreement or arrangement providing for fringe benefits or perquisites to
employees, officers, directors or agents, including but not limited to
benefits relating to employer-supplied automobiles, clubs, medical,
dental, hospitalization, life insurance and other types of insurance; any
employment agreement; or any other "employee benefit plan" (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended through the date of this Agreement ("ERISA")).
(b) Mitsukoshi has delivered to Tiffany true and complete copies of all
documents and summary plan descriptions with respect to such plans,
agreements and arrangements, or summary descriptions of any such plans,
agreements or arrangements not otherwise in writing to the extent that
same may exist.
3.14 Environmental Warranty. Mitsukoshi has not disposed of, at the Leased
Premises or elsewhere, any hazardous materials generated as a result of the
Business or any construction or demolition activity at the Premises except in
compliance with applicable law.
3.15 Conduct of Business Since November 30, 1997. SINCE NOVEMBER 30, 1997
MITSUKOSHI HAS:
(a) carried on the Business in the regular course and substantially in the
same manner as heretofore carried on by Mitsukoshi;
(b) satisfied obligations under all agreements and commitments related to the
Business; specifically, all valid invoices submitted by suppliers or
contractors to the Business have been paid in accordance with past
practices;
(c) maintained its books of account and records for the Business in the usual,
regular and ordinary manner in accordance with generally accepted
accounting principles applied on a consistent basis;
(d) withheld and deposited all payroll withholding taxes as and when due;
(e) maintained the Premises in customary repair, order and condition,
reasonable wear and tear excepted; and
(f) maintained the confidentiality of all trade secrets and proprietary
business information related to the Business.
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3.16 Negative Covenants. SINCE NOVEMBER 30, 1997, MITSUKOSHI HAS NOT, EXCEPT IN
THE ORDINARY AND USUAL COURSE OF THE BUSINESS:
(a) altered or modified its pricing policies with respect to the sales of
merchandise in the Business or the terms of any such sales;
(b) made or contracted for any acquisition of assets for the Business, or
entered into or amended any contracts, agreements or leases;
(c) waived any rights of substantial value in connection with the Business;
(d) allowed any liens, charges, mortgages or security interests to attach to
the Assets; or
(e) taken any act or omitted to do any act, or permitted any act or omission
to act, which has caused a breach of any of its contracts or leases if
such default would, if enforced against Mitsukoshi, have a material
adverse effect on the Business or the Assets.
SECTION 4. Representations, Warranties and Agreements of Tiffany.
AS AN INDUCEMENT TO MITSUKOSHI TO ENTER INTO THIS AGREEMENT AND TO
CONSUMMATE THE TRANSACTIONS EVIDENCED HEREBY, TIFFANY REPRESENTS AND WARRANTS TO
MITSUKOSHI AND AGREES AS FOLLOWS EACH SUCH REPRESENTATION, WARRANTY AND
AGREEMENT TO BE EFFECTIVE AS OF THE CLOSING DATE:
4.1 Organization of Tiffany. Tiffany is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York.
4.2 Corporate Authority. The execution, delivery and performance by Tiffany of
this Agreement has been duly authorized and approved by all requisite corporate
action on the part of Tiffany.
4.3 Investment Banking and Other Fees. Tiffany has not dealt with any investment
banking firm, finder, broker or dealer in connection with the transactions
contemplated hereby.
4.4 Disclosures. No representation or warranty by Tiffany herein contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein not misleading.
4.5 No Pending Actions. No action or other proceeding whatsoever is now pending
or threatened in writing against Tiffany or any shareholders of the foregoing
which call into question or seeks to set aside or enjoin any of the approvals or
authorizations of the transactions evidenced by this Agreement, or the
performance of Tiffany's obligations hereunder.
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SECTION 5.
[intentionally deleted]
SECTION 6.
[intentionally deleted]
SECTION 7.
[intentionally deleted]
SECTION 8. Transfer Expense.
Tiffany will pay any excise, sales or transfer taxes payable in connection
with the transactions contemplated hereby. At the Closing, Tiffany delivered to
Mitsukoshi a check in the amount of THIRTY-EIGHT THOUSAND THREE HUNDRED
THIRTY-EIGHT AND 78/100 DOLLARS (U.S. $38,338.78), the amount shown as due on
the excise, sales or transfer tax return prepared by Mitsukoshi reporting the
sale evidenced hereby. Tiffany has furnished Mitsukoshi with a properly
completed resale certificate at the Closing in connection with the transfer of
inventory. In the event that any such tax liability is subsequently adjusted,
Tiffany shall pay any amount due (including interest and penalties, if any) and
shall be entitled to any overpayment. Tiffany will also pay any filing or
recording fees, license, transfer fees and similar asset transfer expenses
relating to the transactions contemplated hereby in connection with the
instruments of transfer herein.
SECTION 9. Indemnification.
9.1 Mitsukoshi's Indemnification. Mitsukoshi hereby agrees to indemnify,
defend and hold harmless Tiffany, its officers, directors, shareholders,
employees and authorized agents, and each other person who controls Tiffany, at
all times from and after the date of this Agreement, against and in respect of
any claims by third parties, and all suits, actions, proceedings, demands,
assessments, judgments, costs, reasonable attorneys' fees and expenses incident
to such third party claims for any loss, cost, damage or deficiency arising from
or related to: (i) Mitsukoshi's breach or non-performance of any agreement,
representation, warranty or undertaking contained in this Agreement, (ii)
Mitsukoshi's acts or omissions in connection with the operation of the Business
(except to the extent Tiffany shall have expressly assumed Mitsukoshi's
obligations to a third party in connection with such acts or omissions) or (iii)
any lawsuit or any court, administrative or other proceeding now pending against
Mitsukoshi or subsequently initiated against Tiffany by third parties in
connection with the operation of the Business by Mitsukoshi.
9.2 Tiffany's Indemnification. Tiffany hereby agrees to indemnify, defend
and hold harmless Mitsukoshi, its officers, directors, shareholders, employees
and authorized agents, and each other person who controls Mitsukoshi, at all
times from and after the date of this Agreement, against and in respect of any
claims by third parties, and all suits, actions, proceedings, demands,
assessments, judgments, costs,
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reasonable attorneys' fees and expenses incident to such third party claims, for
any loss, cost, damage or deficiency arising from or related to: (i) the failure
by Tiffany to duly perform and discharge any Assumed Liability or arising out of
or in any way related to the acts or omissions of Tiffany in connection with the
operation of the Business on or after the Closing Date or (ii) from Tiffany's
breach or non-performance of any agreement, representation, warranty or
undertaking contained in this Agreement.
9.3 Third Party Claims. If a claim by a third party is made against an
indemnified party, and if the indemnified party intends to seek indemnity with
respect thereto under this Section 9, such indemnified party shall promptly
notify the indemnifying party of such claim. The indemnifying party shall have
thirty (30) days after receipt of such notice to undertake, conduct and control,
through counsel of its own choosing (subject to the consent of the indemnified
party, such consent not to be unreasonably withheld) and at its expense, the
settlement or defense therefor, and the indemnified party shall co-operate with
it in connection therewith; provided that: (i) the indemnifying party shall not
thereby permit to exist any lien, encumbrance or other adverse charge upon any
assets of any indemnified party; (ii) the indemnifying party shall permit the
indemnified party to participate in such settlement or defense through counsel
chosen by the indemnified party, provided that the fees and expenses of such
counsel shall be borne by the indemnified party, and provided further that such
participation shall not affect the control of the matter by the indemnifying
party; and (iii) the indemnifying party shall promptly reimburse the indemnified
party for the full amount of any loss resulting from such claim and all related
expense incurred by the indemnified party within the limits of this Section 9.
If the indemnifying party does not notify the indemnified party within thirty
(30) days after receipt of the indemnified party's notice of a claim of
indemnity hereunder that it elects to undertake the defense thereof, the
indemnified party shall have the right to contest, settle or compromise the
claim in the exercise of its exclusive discretion at the expense of the
indemnifying party. So long as the indemnifying party is reasonably contesting
any such claim in good faith, the indemnified party shall not pay or settle any
such claim. Notwithstanding the foregoing, the indemnified party shall have the
right to pay or settle any such claim if, in the reasonable judgement of the
indemnifying party (consent to such payment or settlement not to be unreasonably
denied or delayed) the payment or settlement of such claim will not adversely
affect the indemnifying party, provided that in the event of such payment or
settlement it shall waive any right to indemnity therefor by the indemnifying
party. The indemnified party shall join in a settlement of a third party claim
proposed by the indemnifying party, provided that such settlement shall be at
the expense of the indemnifying party, that such settlement shall achieve the
release and discharge of the indemnified party by such third party and that such
settlement shall not prejudice the indemnified party's rights against such third
party claimant or any other third party with respect to matters unrelated to the
third party claim in issue. The indemnified party shall provide reasonable
cooperation in the defense of any third party claim and shall, at its own
expense, make available its employees and such books and records as may be
within its control.
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SECTION 10. Termination of Distribution Agreement.
The parties hereby mutually agree that the Distribution Agreement made 28
November 1988, as amended, and all appurtenant agreements thereto between the
parties hereto (hereinafter the "Distribution Agreement") shall be, as and at
the Closing, deemed mutually terminated and discharged, provided, however, that
all obligations of the parties which, pursuant to the Distribution Agreement,
were intended to survive the termination, expiration or cancellation of the
Distribution Agreement shall survive, including, but not limited to,
Mitsukoshi's obligation to satisfy its payment obligations to Tiffany with
respect to merchandise sold and delivered by Tiffany to Mitsukoshi. All purchase
orders issued by Mitsukoshi to Tiffany for merchandise needed in connection with
the Business but undelivered as of the Closing shall be, as of the Closing,
deemed cancelled and discharged and neither party shall have any further rights
or obligations thereunder, including but not limited to Mitsukoshi's prior
obligation to make payment under such purchase orders.
SECTION 11.
[Intentionally Deleted]
SECTION 12.
[Intentionally Deleted]
SECTION 13. Other Provisions
13.1 Further Assurances. At its own expense, each party will, at such time and
from time to time on and after the Closing Date, upon request by the other
party, execute, acknowledge and deliver or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances that may be reasonably
required for the conveying, transferring, assigning, delivering, assuring and
confirming to Tiffany, or to its respective successors and assigns, or for
aiding and assisting in collecting or reducing to possession, any or all of the
properties and assets of Mitsukoshi sold hereunder or for the carrying out of
the purposes of this Agreement.
13.2 Bulk Sales Law. Article 6 of the Uniform Commercial Code as in effect in
Hawaii shall be satisfied or counsel for Tiffany and Mitsukoshi shall agree that
the same need not be complied with. Tiffany shall file the bulk sales report to
the Department of Taxation of the State of Hawaii not later than ten (10) days
after the Closing Date.
13.3 Complete Agreement. This Agreement, including the Exhibits and Schedules
attached hereto and the documents referred to herein shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and shall supersede all previous negotiations, commitments, and writings with
respect to such subject matter.
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13.4 Employees and Employment Benefits.
(a) Tiffany has extended an offer of employment to each of Mitsukoshi's
employees listed on SCHEDULE 13.4(a) and actively employed on January 31,
1998 on the following terms and conditions: (i) employment pursuant to
such offer shall commence at 12:01 a.m. Hawaii Standard Time on February
1, 1998 (the "EMPLOYMENT DATE"); (ii) the salary or wages payable to each
such employee by Tiffany shall be at least equal to the salary or wages
now paid by Mitsukoshi; (iii) such employees shall be provided with
welfare benefits substantially equivalent to those provided by Mitsukoshi,
including continued participation, by those employees participating as of
January 31, 1998, and their dependents, if any, in a health care plan
substantially equivalent to the plan now maintained by Mitsukoshi for
those employees and their dependents which plan to be provided by Tiffany
shall cover pre-existing conditions covered by the former plan and which
coverage shall be effective immediately upon the commencement of
employment of each of the persons so hired without any waiting period,
pre-existing condition limitations and/or exclusions, loss of coverage, or
any gap in coverage. Pursuant to Section 13.18 of this Agreement, the
foregoing undertaking is not intended by the parties to this Agreement to
provide any third party with rights as a beneficiary of such undertaking.
(b) Effective with the Employment Date each of such employees so listed on
Schedule 13.4(a) who has accepted employment with Tiffany shall cease to
be an employee of Mitsukoshi. Mitsukoshi acknowledges the obligation to
provide any required notices and continuation coverage under the
Comprehensive Budget Reconciliation Act ("COBRA", Public Law No. 99-272)
or regulations and/or proposed regulations promulgated thereunder to all
employees of Mitsukoshi listed on Schedule 13.4(a) whose employment with
Mitsukoshi is terminated as a consequence of the transactions evidenced by
this Agreement, to give such required notices and provide such coverage to
the dependents of such employees, and to give copies of such notices and
the names and addresses of the persons to whom such notices were sent to
Tiffany promptly after giving such notices. Mitsukoshi agrees to indemnify
and defend Tiffany against any liability, cost or expense which Tiffany
might incur as a result of Mitsukoshi's failure to comply with it
obligations under COBRA, if any, with respect to qualifying events that
may occur prior to the Employment Date.
(c) Except as expressly provided in this Section 13.4, Tiffany shall have no
liability with respect to any Employee Benefit Plan or any claims related
thereto. For the purposes of this Section 13.4(c), the term "EMPLOYEE
BENEFIT PLAN" includes each pension, retirement, profit-sharing, deferred
compensation, bonus or other incentive plan, or other employee benefit
program, arrangement, agreement or understanding, or medical, vision,
dental or other health plan, or vacation or severance plan, understanding
or arrangement, or any other employee benefit plan, including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of
ERISA to which Mitsukoshi contributes or is a party or is bound
16
<PAGE> 17
or under which it may have liability and under which employees or former
employees of Mitsukoshi engaged in the Business (or their beneficiaries)
are eligible to participate or derive a benefit.
(d) Coverage for the employees accepting employment with Tiffany (the
"TRANSFERRED EMPLOYEES") under the welfare, vacation and fringe benefit
plans maintained by Mitsukoshi, including but not limited to life
insurance, severance pay and medical, hospitalization, disability, dental
or vision plans, and vacation plans (the "WELFARE PLANS"), shall continue
through January 31, 1998 and shall be the responsibility of Mitsukoshi
through that date, but only to the extent that the Transferred Employees
remain eligible to participate in the Welfare Plans. Coverage under the
Welfare Plans for any employee who is retired or terminated from
Mitsukoshi on or before the Employment Date, or who is on disability leave
on or before the Employment Date, shall remain the responsibility of
Mitsukoshi to the extent that such former employees and/or retirees are
eligible participants and/or beneficiaries under the Welfare Plans.
Mitsukoshi shall not be responsible for providing coverage to the
Transferred Employees under the Welfare Plans on or after the Employment
Date, except as provided in Section 13.4(e) below. Mitsukoshi shall in all
events be responsible for the payment of benefits under the Welfare Plans
based on occurrences prior to the Employment Date, and Mitsukoshi shall
not be responsible for the payment of future retiree medical benefits
under its medical plan to any Transferred Employee except to the extent
that such medical benefits are payable with respect to occurrences prior
to the Employment Date. For the purposes of this Section 13.4, an
"occurrence" for medical plan purposes shall be the provision of treatment
or medication, not an event which precipitates the need for such treatment
or medication.
(e) Notwithstanding any other provisions of this Agreement, Mitsukoshi agrees
to indemnify and hold Tiffany harmless from and against any liabilities or
obligations, including reasonable attorneys' fees and disbursements,
resulting from (i) any and all claims for life insurance, disability and
medical benefits based on occurrences before the Employment Date, whether
such claims are asserted before, on or after the Employment Date, (ii) any
and all other welfare and fringe benefits claims based on occurrences
before the Employment Date, whether such claims are asserted before, on or
after the Employment Date, (iii) any and all life insurance, disability,
severance (including severance claims based upon the transactions
contemplated hereunder), medical or other welfare and fringe benefit
claims of any individual (or his covered dependents) who retired from
Mitsukoshi before the Employment Date or who died before the Employment
Date and who had been employed at any time by Mitsukoshi, regardless of
whether such claim is asserted before, on or after the Employment Date and
(iv) any and all claims (including third party claims) under or with
respect to any pension or retirement plan or any plan of deferred
compensation contributed to or maintained by Mitsukoshi. The provisions of
Section 9.3 above shall apply to the obligation of indemnity provided in
this Section 13.4(e) as well.
17
<PAGE> 18
(f) Notwithstanding any other provisions of this Agreement, Tiffany agrees to
indemnify and hold Mitsukoshi harmless from and against any cost,
liabilities or obligations, including attorney's fees and disbursements,
resulting from (i) any and all claims asserted by the Transferred
Employees and/or their eligible dependents and/or beneficiaries, if any,
for life insurance, disability and medical benefits based on occurrences
on or after the Employment Date under any plan maintained or sponsored by
Tiffany on or after the Employment Date, (ii) any and all other welfare
and fringe benefit claims asserted by the Transferred Employees and/or
their eligible dependents and/or beneficiaries, if any, based on
occurrences on or after the Employment Date under any such welfare and
fringe benefit plans provided by Tiffany to the Transferred Employees,
(iii) any and all claims (including third party claims) under or with
respect to any pension or retirement plan or any plan of deferred
compensation which Tiffany sponsors, contributes to or otherwise
participates in on or after the Employment Date, and (iv) any and all
liability, cost or expense arising out of or related to or as a result of
Tiffany's failure to comply with its obligations under COBRA, if any, with
respect to qualifying events regarding the Transferred Employees and their
eligible dependents, if any, that may occur on or after the Employment
Date. The provisions of Section 9.3 above shall apply to the obligation of
indemnity provided in this Section 13.4(f) as well.
(g) Mitsukoshi represents and warrants that the forty-five (45) day notice
period as set forth in the Hawaii Dislocated Workers Act, Chapter 394B of
the Hawaii Revised Statutes, as amended, has expired.
13.5 Survival of Representations and Warranties.
(a) The representations and warranties and indemnities set forth in this
Agreement shall survive the Closing Date.
(b) Any claim between the parties hereto (other than a claim for
indemnification in respect of third party claims) predicated on a breach
of warranty or representation contained in this Agreement shall survive
the Closing Date but shall be barred after January 31, 1999.
(c) Claims for indemnification in respect of third party claims, including
third party claims for taxes, shall survive the Closing Date but shall be
barred: (i) after the applicable statute of limitations, with respect to
claims for unpaid taxes of any type; (ii) after January 31, 2001, with
respect to third-party claims arising out of a breach of the warranty set
forth in Section 3.14 above; and (iii) after January 31, 1999, with
respect to any other third party claim.
18
<PAGE> 19
13.6 Waiver, Discharge, etc. This Agreement may not be released, discharged,
abandoned, changed or modified in any manner, except by an instrument in writing
signed on behalf of each of the parties hereto by their duly authorized
representatives.
13.7 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given and effective when
delivered by telegram, telex or telecopier, or by Express Mail, Federal Express
or like service, or on the third mail delivery date after it is deposited in the
United States mail, postage prepaid by certified or registered mail, return
receipt requested, addressed to the parties as follows:
If to Tiffany: Tiffany and Company
727 Fifth Avenue
New York, NY 10022
Attention: Legal Department
Telecopier Number: 212-605-4177
If to Mitsukoshi Mitsukoshi (U.S.A.), Inc.
2255 Kuhio Avenue, Suite 920
Honolulu, Hawaii 96815
Attention: Executive Vice President
Telecopier Number: 808-926-0723
with a copy to: Kobayashi, Sugita & Goda
999 Bishop Street, Suite 2600
Honolulu, Hawaii 96813
Attention: Mr. Alan Goda
Telecopier Number: 808-539-8799
or at such other address as either party hereto may designate in writing to the
other party hereto in the aforesaid manner.
13.8 Expenses. Except as provided in Section 8 hereof, each party hereto shall
pay its own expenses incident to this Agreement and the preparation to
consummate the transactions provided for herein.
13.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Hawaii. The venue for any action with
respect to this Agreement shall be in the courts in Honolulu, Hawaii.
19
<PAGE> 20
13.10 Successors and Assigns. Subject to Section 13.12 below, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, and the
successors or assigns of the parties hereto.
13.11 Execution in Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become a binding agreement when one or more counterparts have been signed
by each party and delivered to the other party.
13.12 Permitted Assigns. Mitsukoshi may not assign this Agreement, or any of the
rights or benefits provided hereunder, or delegate any of its duties hereunder,
except with the express written permission of Tiffany, which may be withheld or
granted in its sole discretion; provided, however, Mitsukoshi shall have the
right at any time, to assign, in whole or in part, the Percentage Payments at
any time payable hereunder to such assignee or assignees as may be designated by
Mitsukoshi in a written notice to Tiffany. In the event of such assignment of
the Percentage Payments, Tiffany shall pay to Mitsukoshi's designee at the
address mentioned in any such notice for the period covered by such assignment
each installment of the Percentage Payments when due, subject to the terms of
this Agreement. Tiffany may not assign this Agreement, or any of the rights or
benefits provided hereunder, or delegate any of its duties hereunder, except
with the express written permission of Mitsukoshi, which may be withheld or
granted in its sole discretion.
13.13 Records Retained by Mitsukoshi. For at least five (5) years after the
Closing Date, Mitsukoshi shall preserve and keep, free of charge, all of its
business, tax and personnel records which are not transferred to Tiffany
pursuant to this Agreement and which relate to the Business (the "RETAINED
RECORDS"); provided, however, that such obligation of preservation shall be
suspended if such preservation is prevented by war, strike, fire, flood, act of
God or any other cause not within the reasonable control of Mitsukoshi and which
by the exercise of reasonable diligence Mitsukoshi is unable to prevent.
Mitsukoshi agrees to permit Tiffany, and its attorneys, accountants, agents and
designees, such access to the Retained Records from and after the Closing Date
as Tiffany may deem necessary or desirable and the right to make copies
therefrom. Any such examination shall be at the expense of Tiffany, shall be
performed at the place where the Retained Records are regularly maintained by
Mitsukoshi and shall not unreasonably interfere with Mitsukoshi's normal
business activities.
13.14 Records Transferred to Tiffany. For at least five (5) years after the
Closing Date, Tiffany shall preserve and keep, free of charge, all of the
records transferred by Mitsukoshi to Tiffany pursuant to this Agreement (the
"TRANSFERRED RECORDS"); provided, however, that such obligation of preservation
shall be suspended if such preservation is prevented by war, strike, fire,
flood, act of God or any other cause not within the reasonable control of
Tiffany and which by the exercise of reasonable diligence Tiffany is unable to
prevent. Tiffany agrees to permit Mitsukoshi, and its attorneys, accountants,
agents and designees, such access to the Transferred Records from and after the
Closing Date as Mitsukoshi may deem necessary or desirable and the right to make
copies therefrom. Any such examination shall be at
20
<PAGE> 21
the expense of Mitsukoshi, shall be performed at the place where the Records are
regularly maintained by Tiffany and shall not unreasonably interfere with
Tiffany's normal business activities.
13.15 Filing of Tax Returns. Mitsukoshi agrees to file on a timely basis all tax
returns in connection with the Business that Mitsukoshi may be required to file
by any law or regulation to file in respect of all periods prior to or including
the Closing Date.
13.16 Singular and Plural. As used in this Agreement reference to the singular
shall include reference to the plural and reference to the plural shall include
reference to the singular, unless the context clearly requires otherwise.
13.17 Attorneys Fees. In the event that any party to this Agreement is required
to resort to any action or proceeding in order to enforce any provision of this
Agreement, including the indemnity provisions hereof, the prevailing party in
each such action or proceeding shall be entitled, in addition to such other
relief as may be granted, to a reasonable sum as and for its attorneys' fees and
costs in connection with such action or proceeding; provided that this provision
shall not diminish the right of any indemnified party to receive a full defense
at the expense of the indemnifying party, as otherwise provided for herein.
13.18 Third Party Beneficiaries. No provision in this Agreement shall confer any
third-party beneficiary rights to any party not a signatory hereto.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed these presents the day and
year first written above.
TIFFANY AND COMPANY
("Tiffany")
By: s/s James N. Fernandez
-----------------------------
Name: James N. Fernandez
Title: Executive Vice President - Chief Financial Officer
Duly Authorized
MITSUKOSHI (U.S.A.), INC.
("Mitsukoshi")
By: s/s Yoichi Chikaoka
-----------------------------
Name: Yoichi Chikaoka
Title: Executive Vice President
Duly Authorized
22
<PAGE> 1
SELECTED FINANCIAL DATA
The following table sets forth selected financial data, which have been derived
from the Company's audited financial statements, with respect to the Company for
Fiscal 1988-1997. Basic and diluted earnings (loss) per share and the weighted
average number of common shares have been retroactively restated to comply with
the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," adopted by the Company in Fiscal 1997
(see Notes A and G to consolidated financial statements). During Fiscal 1993,
the Company realigned its operations in Japan (see Note L to consolidated
financial statements). All share and per share data have been retroactively
adjusted to reflect the two-for-one split in Fiscal 1996 and the three-for-two
split in Fiscal 1989 of the Company's Common Stock effected in the form of share
distributions ("stock dividends"):
<TABLE>
<CAPTION>
FISCAL Fiscal Fiscal Fiscal
(in thousands, except per share amounts, percentages and employees) 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS DATA
Net sales $1,017,616 $922,108 $803,292 $682,831
Gross profit 564,208 499,694 427,370 358,202
Earnings (loss) from operations 133,422 109,413 80,013 64,655
Earnings (loss) before accounting change and
extraordinary item 72,822 58,439 39,215 29,341
Earnings (loss) per share before accounting
change and extraordinary item:
Basic 2.08 1.74 1.24 0.93
Diluted 2.02 1.66 1.21 0.93
Weighted average number of common shares (diluted) 36,104 35,690 34,020 33,582
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $ 827,067 $739,418 $654,257 $556,672
Inventories 386,431 335,389 311,252 270,075
Working capital 381,084 342,511 284,102 242,779
Capital expenditures 50,565 39,884 26,455 19,227
Short-term borrowings 90,054 76,338 78,967 60,696
Long-term debt 90,930 92,675 101,500 101,500
Stockholders' equity 443,724 378,264 264,378 221,697
Cash dividends per share 0.260 0.185 0.140 0.140
- --------------------------------------------------------------------------------------------------------------------------------
RATIO ANALYSIS
As a percentage of net sales:
Earnings (loss) from operations 13.1% 11.9% 10.0% 9.5%
Earnings (loss) before accounting change and
extraordinary item 7.2% 6.3% 4.9% 4.3%
Return on average assets 9.3% 8.4% 6.5% 5.5%
Return on average stockholders' equity 17.7% 18.2% 16.1% 14.3%
Net-debt to total capital 14.2% 12.1% 27.1% 34.7%
Book value per share $ 12.70 $ 10.95 $ 8.27 $ 7.06
Number of employees 4,360 3,892 3,656 3,306
</TABLE>
14 Tiffany & Co. and Subsidiaries
<PAGE> 2
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$566,501 $486,396 $491,906 $455,712 $383,964 $290,344
232,882 237,033 243,009 223,600 191,683 144,511
(10,029) 26,741 61,028 67,806 60,977 44,193
(10,242) 15,712 31,805 36,661 33,305 24,901
(0.33) 0.50 1.03 1.20 1.10 0.94
(0.33) 0.50 1.00 1.17 1.07 0.81
33,348 33,358 33,236 31,388 31,302 30,774
- ----------------------------------------------------------------------------------------------------------------------------
$504,409 $419,355 $394,882 $307,268 $237,061 $162,648
262,282 224,151 213,435 173,964 142,545 103,771
212,266 199,334 159,466 131,219 112,735 81,829
18,103 22,754 41,385 24,835 14,040 9,680
59,289 22,458 43,566 31,046 14,339 7,253
101,500 101,500 50,000 18,226 18,226 --
189,081 204,806 200,039 176,183 135,568 99,193
0.140 0.140 0.140 0.130 0.090 0.050
- ----------------------------------------------------------------------------------------------------------------------------
(1.8)% 5.5% 12.4% 14.9% 15.9% 15.2%
(1.8)% 3.2% 6.5% 8.0% 8.7% 8.6%
(2.2)% 3.9% 7.3% 13.5% 16.7% 17.2%
(5.2)% 7.8% 13.5% 23.5% 28.4% 29.2%
45.2 % 36.4% 30.9% 20.2% 18.1% 5.4%
$ 6.04 $ 6.56 $ 6.30 $ 5.62 $ 4.36 $ 3.23
3,133 2,865 2,735 2,379 2,085 1,741
</TABLE>
NET SALES
(in millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$1,200
$ 900 1,017.6
922.1
803.3
$ 600
$ 300
0 1995 1996 1997
</TABLE>
NET EARNINGS
(in millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$80
72.8
$60
58.4
$40
39.2
$20
0 1995 1996 1997
</TABLE>
STOCKHOLDERS' EQUITY
(in millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$500
443.7
$375
378.3
$250 264.4
$125
0 1995 1996 1997
</TABLE>
15
<PAGE> 3
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 10% in Fiscal 1997 and 15% in Fiscal 1996. In both
years, sales rose in all three channels of distribution. This sales growth,
combined with higher operating margins and lower interest expense, resulted in
net earnings growth of 25% in Fiscal 1997 and 49% in Fiscal 1996.
NET SALES
Net sales by channel of distribution were as follows:
<TABLE>
<CAPTION>
FISCAL Fiscal Fiscal
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Retail $ 491,459 $ 424,185 $ 364,158
Direct Marketing 105,103 100,582 93,281
International Retail 421,054 397,341 345,853
--------------------------------------------
$1,017,616 $ 922,108 $ 803,292
============================================
FISCAL Fiscal Fiscal
(percentage of net sales) 1997 1996 1995
- -------------------------------------------------------------------------------------
U.S. Retail 48% 46% 45%
Direct Marketing 10 11 12
International Retail 42 43 43
--------------------------------------------
100% 100% 100%
============================================
</TABLE>
U.S. Retail sales rose 16% in Fiscal 1997 and 1996. These increases were
primarily generated by comparable store sales growth of 11% in Fiscal 1997 and
1996, and also from the opening of five new U.S. stores in Fiscal 1997 and two
new stores in Fiscal 1996. Comparable store sales growth has primarily resulted
from an increased number of sales transactions. In addition, domestic U.S.
customers (representing the largest portion of sales) accounted for the sales
growth, as opposed to sales to foreign tourists, which have declined in recent
years.
Sales in the Company's flagship Fifth Avenue, New York store rose 8% in Fiscal
1997 and 9% in Fiscal 1996 and represented 16%, 16% and 17% of net sales in
Fiscal 1997, 1996 and 1995. Comparable branch store sales increased 12% in
Fiscal 1997 and 13% in Fiscal 1996. The Company's newer U.S. branch stores are
designed in a "smaller-size" format to generate increased sales productivity and
profitability by increasing selling space as a percentage of total space. The
Company plans to open five new U.S. stores in Fiscal 1998. Wholesale sales
increased 14% and 19% in Fiscal 1997 and 1996 and represented 7%, 8% and 7% of
U.S. Retail sales in Fiscal 1997, 1996 and 1995.
Direct Marketing sales increased 4% in Fiscal 1997 and 8% in Fiscal 1996.
Corporate Division sales rose 9% in Fiscal 1997 and 4% in Fiscal 1996, primarily
due to higher transactional volume. In both years, the Corporate Division added
sales executives in new U.S. markets to increase overall market penetration.
Catalog Division sales declined 2% in Fiscal 1997 and increased 15% in Fiscal
1996. The Company mailed 21.4 million catalogs in Fiscal 1997, 20.6 million in
Fiscal 1996 and 17.5 million in Fiscal 1995. The Company plans to increase
mailings in Fiscal 1998 by at least 15%. In Fiscal 1997, Corporate and Catalog
sales were adversely affected by the transition to the Company's new Customer
Service/Distribution Center in Parsippany, New Jersey. Beginning in April and
through the end of the second quarter, the transition affected order processing
and shipping and led, in part, to management's decision to cancel catalog
mailings during that period.
International Retail sales rose 6% in Fiscal 1997 and 15% in Fiscal 1996 due to
local-currency sales growth in most markets that was partially offset by the
translation of sales into U.S. dollars. In Japan, the Company's largest
international market, total retail sales in local currency rose 23% in Fiscal
1997 and 28% in Fiscal 1996. This largely resulted from comparable store sales
growth of 13% in Fiscal 1997 and 1996 as well as incremental sales from the
Company's Tokyo flagship store on the Ginza that opened in May 1996. In 1997,
the Company opened three new boutiques in department stores in Japan and plans
to open three locations in Fiscal 1998. In U.S. dollars, total Japan sales
represented 27%, 27% and 28% of net sales in Fiscal 1997, 1996 and 1995.
16 Tiffany & Co. and Subsidiaries
<PAGE> 4
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 10% and 9% in Fiscal 1997 and 1996, as yen-denominated sales
growth was partially offset by the effect of a strengthening dollar. 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. The hedging program has achieved its objective by stabilizing
product costs, over the short term, despite exchange rate fluctuations (see Note
I to consolidated financial statements). However, as a result of the continued
weakening of the yen versus the U.S. dollar, the Company raised its retail
prices in Japan by an average of 10%, effective February 1, 1998, and by an
average of 8%, primarily on non-diamond merchandise, effective February 1, 1997.
Sales in the Asia-Pacific region outside Japan accounted for 8%, 10% and 9% of
total Company sales in Fiscal 1997, 1996 and 1995. Local-currency comparable
sales in Company-operated locations increased 1% in Fiscal 1997 and increased
15% in Fiscal 1996. Fiscal 1997's comparable store sales growth was adversely
affected by reduced spending by Japanese travelers and weak local economic
conditions in several markets.
Europe represented 4% of net sales in Fiscal 1997, 1996 and 1995. Higher sales
were achieved largely due to comparable store sales growth in local currencies
of 17% and 22% in Fiscal 1997 and 1996. The Company opened its second location
in London (a department-store boutique) in Fiscal 1997.
GROSS PROFIT
Gross profit as a percentage of net sales increased to 55.4% in Fiscal 1997,
compared with 54.2% and 53.2% in Fiscal 1996 and 1995. The increases were
largely due to shifts in sales mix toward the Company's retail businesses. The
Company's ongoing gross margin and pricing strategy is to pass through
product-cost increases with higher retail selling prices.
OPERATING EXPENSES
Operating expenses (Selling, general and administrative expenses plus the
Provision for uncollectible accounts) increased 10% and 12% in Fiscal 1997 and
1996. The increases were primarily due to incremental occupancy, staffing and
marketing expenses related to the Company's worldwide expansion program,
sales-related variable expenses and costs related to operating the new Customer
Service/Distribution Center which opened in Fiscal 1997. However, the rate of
operating expense growth in both years was moderated by the weakening of the yen
and its effect when translating yen-denominated expenses into U.S. dollars.
Fiscal 1996 expenses included nonrecurring pretax charges of $4,400,000 for the
closing and relocation of the San Diego store and the impairment of certain
European assets. The ratio of operating expenses to net sales was 42.3%, 42.3%
and 43.2% in Fiscal 1997, 1996 and 1995. Management's ongoing objective is to
reduce the expense ratio by leveraging the Company's fixed-expense base.
EARNINGS FROM OPERATIONS
As a result of the above factors, earnings from operations rose 22% and 37% in
Fiscal 1997 and 1996 and represented 13.1%, 11.9% and 10.0% of net sales in
Fiscal 1997, 1996 and 1995.
INTEREST EXPENSE AND FINANCING COSTS
In both Fiscal 1997 and 1996, interest expense was lower than the previous year
primarily 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
(the "Debentures"). A significant portion of the Company's short-term borrowings
at January 31, 1998 and 1997 was denominated in yen and used to support the
local working capital requirements of the Company's Japanese operations. On the
basis of current plans, anticipated share repurchases, interest rates and
foreign currency exchange rates, management expects higher interest expense and
financing costs in Fiscal 1998.
OTHER INCOME
In Fiscal 1997, interest income was higher than the previous year, primarily
resulting from internally-generated cash flows. Fiscal 1996 included the
recognition of a pretax gain of $4,500,000 that resulted from the sale of the
assets and business of Howard H. Sweet and Son, Inc., one of the Company's
manufacturing affiliates (see Note B to consolidated financial statements).
PROVISION FOR INCOME TAXES
The provision for income taxes resulted in an effective tax rate of 43.0% in
Fiscal 1997, compared with 43.2% in Fiscal 1996 and 1995.
17
<PAGE> 5
NEW ACCOUNTING STANDARDS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," ("SFAS No. 132") which
revises employers' disclosures about pension and other postretirement benefit
plans but does not change the measurement or recognition of those plans. SFAS
No. 132 standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable and requires additional
information on the changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis. SFAS No. 132 also eliminates
certain disclosures that are no longer as useful as they were when SFAS No. 87,
"Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," were issued. In June 1997, the
FASB issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") and Statement of Financial Accounting
Standards No. 131, "Disclosure About Segments of an Enterprise and Related
Information," ("SFAS No. 131"). SFAS No. 130 establishes standards for the
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 reporting of
information about operating segments by public business enterprises in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports to
stockholders. These new standards are effective for the Company's financial
statements for the fiscal year ending January 31, 1999. The adoption of these
new accounting standards will not impact the Company's consolidated financial
position, results of operations or cash flows, and any effect will be limited to
the form and content of its disclosures.
YEAR 2000
The Company recognizes the need to ensure that its operations will not be
adversely affected by year 2000 computer hardware and software failures. Certain
systems will, unless modified, be unable to process date-sensitive calculations
using the year 2000. Such failures are a known risk to the future integrity of
the Company's financial reports and to virtually all aspects of the Company's
operations, including the Company's ability to process sales transactions,
fulfill customer orders and receive and manage inventories and other assets.
Accordingly, the Company has established a disciplined process to identify,
prioritize and evaluate year 2000 problems, and to program, install and test
revised computer software and operating procedures. The objective of these
efforts is to achieve year 2000 compliance with minimal effect on customer
service or other disruption to, or loss of integrity in, business or financial
operations. At this date, sources of potential failure in internal systems have
been identified and initial conversion efforts are underway. The Company is also
in the process of evaluating year 2000 issues that may be experienced by key
merchandise and service vendors in order to evaluate the potential effect of
vendor failure on the Company's operations; at this date, that evaluation has
not been completed. Successful remediation of year 2000 issues will depend, to
some extent, on the Company's ability to retain or otherwise secure sufficient
programming resources to timely complete this process given the high demand for
such resources throughout the world.
In addition to the cost of internal resources, the Company's cost of achieving
year 2000 compliance is estimated to be $8,000,000 for third-party service
providers and will be incurred through the year ending January 31, 2000. Year
2000 costs for such providers are charged to operations and amounted to $586,000
as of January 31, 1998.
18
<PAGE> 6
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 the growth of the Company's business. Management believes that the Company's
financial condition at January 31, 1998 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 $381,084,000 and 2.5:1 at January
31, 1998, compared with $342,511,000 and 2.5:1 at January 31, 1997.
Inventories increased 15% in Fiscal 1997 and represented 47% and 45% of total
assets at January 31, 1998 and 1997. Higher inventories were required to support
sales growth, new stores and expanded product offerings, while inventory
turnover was maintained at 1.0 times. 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.
The Company achieved net cash inflows from operating activities of $29,652,000,
$24,784,000 and $35,981,000 in Fiscal 1997, 1996 and 1995. The increased inflow
in Fiscal 1997 compared with Fiscal 1996 was largely due to increased net
earnings, partially offset by an increased use of working capital. The smaller
inflow in Fiscal 1996 compared with Fiscal 1995 resulted from an increased use
of working capital.
Capital expenditures were $50,565,000, $39,884,000 and $26,455,000 in Fiscal
1997, 1996 and 1995. The increase in Fiscal 1997 reflected a greater number of
store openings, while Fiscal 1996 included the opening of the Company's flagship
store in Tokyo. In all three years, expenditures also included renovations
and/or relocations of existing stores, expansion and/or renovation of
administrative, distribution and manufacturing facilities and investments in new
systems. Based on current plans, the Company expects that capital expenditures
will be approximately $70,000,000 in Fiscal 1998, largely due to additional
store openings, expansion and renovation of administrative office and
manufacturing facilities and new systems.
Cash dividends were $9,097,000, $6,303,000 and $4,424,000 in Fiscal 1997, 1996
and 1995. In May 1997 and 1996, the Board of Directors declared increases of 40%
and 43% in the quarterly dividend rates, which became effective in July 1997 and
1996. The dividend payout ratio (dividends as a percentage of net earnings) was
12.5%, 10.8% and 11.3% in Fiscal 1997, 1996 and 1995 and the Company expects to
continue to retain the majority of its earnings to support its business and
future expansion.
In November 1997, the Board of Directors authorized the repurchase of up to
$100,000,000 of the Company's outstanding Common Stock in the open market over a
three-year period. The timing and actual number of shares purchased will depend
on a variety of factors such as price and other market conditions. In Fiscal
1997, the Company repurchased and retired 225,000 shares of its Common Stock at
an aggregate cost of $8,672,000, or an average cost of $38.54 per share.
Net-debt (short-term borrowings plus long-term debt less cash and cash
equivalents) and the corresponding ratio of net-debt as a percentage of total
capital (net-debt plus stockholders' equity) were $73,732,000 and 14.2% at
January 31, 1998, compared with $51,852,000 and 12.1% at January 31, 1997.
The level of net-debt at January 31, 1997 was affected by several factors. In
the first quarter of Fiscal 1996, the Company prepaid its long-term trade
payable of yen 2,750,000,000 which was due on or before February 28, 1998 and
which related to certain merchandise repurchased from Mitsukoshi Limited in
Fiscal 1993 as part of the Company's realignment of its Japan business. Also
during the first quarter of Fiscal 1996, the Company entered into a 15-year, yen
5,000,000,000 loan in Japan bearing interest at a rate of 4.50%. The proceeds
were used for working capital and construction costs associated with the
Company's flagship store in Tokyo which opened in May 1996, as well as to reduce
short-term indebtedness
19
<PAGE> 7
in Japan that was incurred to prepay the long-term trade payable. During the
second quarter of Fiscal 1996, the Company redeemed $916,000 of its Debentures
and the remaining $49,084,000 were converted, at the option of the holders, into
shares of the Company's Common Stock.
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. In August 1997, this facility was
amended to extend the maturity date to 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 and 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.
RISK FACTORS
This document contains certain "forward-looking statements" concerning the
Company's objectives and expectations with respect to store expansion, retail
prices, gross profit, 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 partially dependent upon economic conditions and consumer
attitudes. 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, particularly 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
1998.
20
<PAGE> 8
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------------------
(in thousands, except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,017,616 $ 922,108 $ 803,292
Cost of sales 453,408 422,414 375,922
------------------------------------------
Gross profit 564,208 499,694 427,370
Selling, general and administrative expenses 429,531 388,143 345,612
Provision for uncollectible accounts 1,255 2,138 1,745
------------------------------------------
Earnings from operations 133,422 109,413 80,013
Interest expense and financing costs 8,037 9,480 12,338
Other income 2,373 2,953 1,360
------------------------------------------
Earnings before income taxes 127,758 102,886 69,035
Provision for income taxes 54,936 44,447 29,820
------------------------------------------
NET EARNINGS $ 72,822 $ 58,439 $ 39,215
------------------------------------------
Net earnings per share:
Basic $ 2.08 $ 1.74 $ 1.24
==========================================
Diluted $ 2.02 $ 1.66 $ 1.21
==========================================
Weighted average number of common shares:
Basic 34,953 33,682 31,600
Diluted 36,104 35,690 34,020
</TABLE>
See notes to consolidated financial statements.
Tiffany & Co. and Subsidiaries 21
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
-------------------------
(in thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 107,252 $ 117,161
Accounts receivable, less allowances of $6,988 and $6,864 99,492 80,772
Inventories 386,431 335,389
Deferred income taxes 17,373 14,297
Prepaid expenses 20,539 21,364
-------------------------
Total current assets 631,087 568,983
Property and equipment, net 156,367 129,346
Deferred income taxes 8,859 10,259
Other assets, net 30,754 30,830
-------------------------
$ 827,067 $ 739,418
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 90,054 $ 76,338
Accounts payable and accrued liabilities 118,456 110,068
Income taxes payable 23,501 25,829
Merchandise and other customer credits 17,992 14,237
-------------------------
Total current liabilities 250,003 226,472
Reserve for product return 2,580 5,800
Long-term debt 90,930 92,675
Postretirement/employment benefit obligations 20,121 19,191
Other long-term liabilities 19,709 17,016
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized 60,000 shares, issued
34,930 and 34,529 349 345
Additional paid-in capital 168,085 150,045
Retained earnings 293,689 237,959
Foreign currency translation adjustments (18,399) (10,085)
-------------------------
Total stockholders' equity 443,724 378,264
-------------------------
$ 827,067 $ 739,418
=========================
</TABLE>
See notes to consolidated financial statements.
22 Tiffany & Co. and Subsidiaries
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------------
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 72,822 $ 58,439 $ 39,215
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 22,058 20,828 18,790
Provision for uncollectible accounts 1,255 2,138 1,745
Reduction in reserve for product return (3,220) (5,438) (1,865)
Provision for inventories 6,019 5,220 3,044
Tax benefit from exercise of stock options 6,875 4,805 2,233
Deferred income taxes (1,782) (6,695) (7,528)
Income tax receivable -- -- 7,925
Gain on sale of subsidiary's net assets -- (4,500) (2,330)
Impairment loss on certain assets -- 2,281 2,419
Loss on disposal of fixed assets -- -- 2,956
Provision for postretirement/employment benefits 930 1,160 1,450
Changes in assets and liabilities:
Accounts receivable (18,734) (9,439) (15,830)
Inventories (70,697) (53,176) (54,746)
Prepaid expenses 288 (1,688) (2,674)
Other assets, net (1,879) (7,557) 2,203
Accounts payable 4,724 2,139 13,037
Accrued liabilities 8,132 4,932 15,449
Income taxes payable (1,873) 6,867 6,893
Merchandise and other customer credits 3,755 3,183 2,525
Other long-term liabilities 979 1,285 1,070
-----------------------------------------
Net cash provided by operating activities 29,652 24,784 35,981
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (50,565) (39,884) (26,455)
Proceeds from lease incentives 851 1,590 1,729
Proceeds from sale of subsidiary's net assets -- 15,000 --
Other -- -- 174
-----------------------------------------
Net cash used in investing activities (49,714) (23,294) (24,552)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 18,913 7,089 22,826
Prepayment of long-term trade payable -- (26,029) --
Proceeds from issuance of long-term debt -- 46,625 --
Repurchase of Common Stock (8,672) -- --
Proceeds from exercise of stock options 10,046 13,462 7,971
Cash dividends on Common Stock (9,097) (6,303) (4,424)
Redemption of Convertible Subordinated Debentures -- (916) --
-----------------------------------------
Net cash provided by financing activities 11,190 33,928 26,373
-----------------------------------------
Effect of exchange rate changes on cash and cash equivalents (1,037) (223) (154)
-----------------------------------------
Net (decrease) increase in cash and cash equivalents (9,909) 35,195 37,648
Cash and cash equivalents at beginning of year 117,161 81,966 44,318
-----------------------------------------
Cash and cash equivalents at end of year $ 107,252 $ 117,161 $ 81,966
-----------------------------------------
</TABLE>
See notes to consolidated financial statements.
Tiffany & Co. and Subsidiaries 23
<PAGE> 11
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
Total Additional Currency
Stockholders' Common Stock Paid-in Retained Translation
(in thousands) Equity Shares Amount Capital Earnings Adjustments
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 31, 1995 $221,697 15,703 $157 $ 71,821 $151,032 $ (1,313)
Exercise of stock options 7,971 266 3 7,968 -- --
Tax benefit from exercise of stock options 2,233 -- -- 2,233 -- --
Issuance of Common Stock 598 19 -- 598 -- --
Cash dividends on Common Stock (4,424) -- -- -- (4,424) --
Foreign currency translation adjustments (2,912) -- -- -- -- (2,912)
Net earnings 39,215 -- -- -- 39,215 --
-----------------------------------------------------------------------------
Balances, January 31, 1996 264,378 15,988 160 82,620 185,823 (4,225)
Two-for-one stock split -- 17,197 172 (172) -- --
Exercise of stock options 13,462 449 4 13,458 -- --
Tax benefit from exercise of stock options 4,805 -- -- 4,805 -- --
Issuance of Common Stock 1,000 18 -- 1,000 -- --
Conversion of Convertible
Subordinated Debentures 49,084 877 9 49,075 -- --
Bond fees relating to the conversion of
Convertible Subordinated Debentures (741) -- -- (741) -- --
Cash dividends on Common Stock (6,303) -- -- -- (6,303) --
Foreign currency translation adjustments (5,860) -- -- -- -- (5,860)
Net earnings 58,439 -- -- -- 58,439 --
-----------------------------------------------------------------------------
Balances, January 31, 1997 378,264 34,529 345 150,045 237,959 (10,085)
Exercise of stock options 10,046 576 6 10,040 -- --
Tax benefit from exercise of stock options 6,875 -- -- 6,875 -- --
Issuance of Common Stock 1,800 50 -- 1,800 -- --
Purchase and retirement of Common Stock (8,672) (225) (2) (675) (7,995) --
Cash dividends on Common Stock (9,097) -- -- -- (9,097) --
Foreign currency translation adjustments (8,314) -- -- -- -- (8,314)
Net earnings 72,822 -- -- -- 72,822 --
-----------------------------------------------------------------------------
BALANCES, JANUARY 31, 1998 $443,724 34,930 $349 $168,085 $293,689 $(18,399)
=============================================================================
</TABLE>
See notes to consolidated financial statements.
24 Tiffany & Co. and Subsidiaries
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BUSINESS
Tiffany & Co. is the internationally renowned jeweler and specialty retailer.
Sales are made through TIFFANY & CO. stores and boutiques and to select
retailers and distributors in the Americas, the Asia-Pacific region, Europe and
the Middle East. Direct Marketing sales are made through Tiffany's Corporate and
Catalog Divisions.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tiffany & Co. and
all majority-owned domestic and foreign subsidiaries (the "Company").
Intercompany accounts, transactions and profits have been eliminated in the
consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. The most significant estimates
include valuation of inventories, provision for uncollectible accounts and the
recoverability of long-lived assets. Actual results could differ from estimates
and assumptions made. Periodically, the Company reviews all significant
estimates and assumptions affecting the financial statements and records the
effect of any adjustments when necessary.
CASH AND CASH EQUIVALENTS AND
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company's cash and cash equivalents include highly liquid investments with
an original maturity of three months or less when purchased.
Supplemental cash flow information for the years ended January 31, 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 7,242 $10,985 $11,372
=================================
Income taxes $49,827 $39,001 $15,188*
=================================
</TABLE>
*Net of $7,925 Federal income tax refund.
Supplemental Noncash Investing and Financing Activities for the years ended
January 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
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 $ 598
=================================
</TABLE>
RECEIVABLES AND FINANCE CHARGES
Accounts receivable finance charge income on retail revolving charge accounts
was not material and has been accounted for as a reduction of Selling, general
and administrative expenses.
The Company's domestic and international presence and large, diversified
customer base serve to limit overall credit risk. The Company maintains reserves
for potential credit losses and such losses, in the aggregate, have not exceeded
expectations.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost for domestic and
foreign branch inventories is determined by the LIFO (last-in, first-out)
method. Cost for inventory held by foreign subsidiaries is determined by the
FIFO (first-in, first-out) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and is
depreciated on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the estimated
useful lives of the improvements or the terms of the related leases.
Expenditures for major renewals and improvements are capitalized, while costs
for maintenance and repairs are expensed when incurred. Upon retirement or
disposition of property and equipment, the applicable cost and accumulated
depreciation are removed from the accounts and any resulting gains or losses are
included in the results of operations.
Tiffany & Co. and Subsidiaries 25
<PAGE> 13
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying values of long-lived assets, such as property
and equipment, goodwill and other intangibles, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an impairment loss has occurred, the
loss would be recognized during that period.
PREOPENING COSTS
Costs associated with the opening of new retail stores are expensed in the
period incurred.
ADVERTISING
Advertising costs, which include media, production and catalogs, aggregated
$51,800,000, $43,900,000 and $37,200,000 for the years ended January 31, 1998,
1997 and 1996. Media and production costs are expensed as incurred, while
catalog costs are expensed upon mailing.
INCOME TAXES
The Company provides for income taxes based upon the tax rate at which the items
of income and expense are expected to be settled in the Company's tax return.
The Company, its domestic subsidiaries and its foreign branches file a
consolidated Federal income tax return. Certain items of revenue and expense are
reported for income tax purposes in different periods than for financial
reporting purposes, thereby resulting in deferred income tax items.
FOREIGN CURRENCY
The financial position and results of operations and cash flows of the Company's
foreign subsidiaries are measured using local currency as the functional
currency. Assets and liabilities are translated into U.S. dollars using the
current exchange rates in effect at the balance sheet date, while revenue and
expense amounts are translated at the average exchange rates prevailing during
the period. Adjustments resulting from such translation are included as a
separate component of stockholders' equity.
The Company recognized $(317,000), $315,000 and $(67,000) of net foreign
currency transaction (losses) gains, included in Other income for the years
ended January 31, 1998, 1997 and 1996.
REVENUE RECOGNITION
The Company recognizes revenue at the "point of sale," which occurs when
merchandise is taken in an "over-the-counter" transaction or upon shipment to a
customer. For the years ended January 31, 1998, 1997 and 1996, the largest
portion of the Company's sales were denominated in U.S. dollars.
GOODWILL
Goodwill represents the excess of cost over fair value of net assets acquired
and is being amortized over 20 years using the straight-line method. Management
periodically reviews goodwill for impairment based upon estimated undiscounted
future cash flows from operations of the subsidiaries to which goodwill relates.
At January 31, 1998 and 1997, the remaining unamortized amounts of $4,455,000
and $4,794,000 are included in Other assets, net.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for retired
employees and accrues the cost of providing these benefits throughout the
employees' active service periods until they attain full eligibility for those
benefits. Substantially all of the Company's U.S. employees may become eligible
for these benefits if they reach normal or early retirement age while working
for the Company. The Company's employee and retiree health care benefits are
administered by an insurance company and premiums on life insurance are based on
prior years' claims experience.
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits for former employees after
employment but before retirement and accrues the cost of these benefits as they
are earned rather than expensing the costs when paid. These benefits include
salary continuation, severance payments, disability benefits and continuation of
health care benefits and life insurance coverage.
STOCK-BASED COMPENSATION
The Company accounts for stock options under the intrinsic value method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Under the intrinsic value method, compensation
cost is the excess, if any, of the quoted market price of the stock at grant
date over the amount an employee must pay to acquire the stock. The
26
<PAGE> 14
Company makes pro forma disclosures of net earnings and earnings per share as if
the fair-value-based method of accounting had been applied as required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123").
EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," ("SFAS No. 128"). Under the
requirements of SFAS No. 128, basic earnings per share are computed as net
earnings divided by the weighted average number of common shares outstanding for
the period. Diluted earnings per share includes the dilutive effect of stock
options and, through the second quarter of 1996, reflects the assumed conversion
of the Debentures. All per share data and the weighted average number of common
shares have been retroactively restated to conform to the requirements of SFAS
No. 128.
STOCK SPLIT
On May 16, 1996, the Board of Directors declared a two-for-one split of the
Company's Common Stock, effected in the form of a share distribution (stock
dividend) paid on July 23, 1996 to stockholders of record on June 28, 1996. All
share and per share data have been restated to reflect the split.
RECLASSIFICATIONS
To conform to 1998's presentation, certain reclassifications were made to prior
years' consolidated financial statements.
NEW ACCOUNTING STANDARDS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," ("SFAS No. 132") which
revises employers' disclosures about pension and other postretirement benefit
plans but does not change the measurement or recognition of those plans. SFAS
No. 132 standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable and requires additional
information on the changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis. SFAS No. 132 also eliminates
certain disclosures that are no longer as useful as they were when SFAS No. 87,
"Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," were issued. In June 1997, the
FASB issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") and Statement of Financial Accounting
Standards No. 131, "Disclosure About Segments of an Enterprise and Related
Information," ("SFAS No. 131"). SFAS No. 130 establishes standards for the
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 reporting of
information about operating segments by public business enterprises in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports to
stockholders. These new standards are effective for the Company's financial
statements for the fiscal year ending January 31, 1999. The adoption of these
new accounting standards will not impact the Company's consolidated financial
position, results of operations or cash flows, and any effect will be limited to
the form and content of its disclosures.
B. BUSINESS DISPOSITION/RESTRUCTURING
During the year ended January 31, 1997, the Company sold the assets and business
of Howard H. Sweet & Son, Inc., a manufacturer of gold and silver components and
finished products located in Massachusetts, for $15,000,000. As a result of this
sale, the Company recorded a pretax gain of $4,500,000 which is included in
Other income.
During the year ended January 31, 1996, the Company restructured its watch
operations in Switzerland by divesting its assembly operations and outsourcing
those activities to a third-party watch manufacturer. In conjunction with this
transaction, the Company repatriated $15,700,000 in cash dividends from its
Swiss subsidiary, sold its Swiss subsidiary for $3,500,000 and recorded a pretax
gain of $2,300,000 which is included in Other income. This gain was primarily
due to the recognition of previously deferred foreign currency translation
adjustments relating to the Swiss subsidiary's equity.
27
<PAGE> 15
C. INVENTORIES
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Finished goods $327,314 $286,109
Raw materials 57,926 47,969
Work-in-process 2,918 3,054
------------------------
388,158 337,132
Reserves (1,727) (1,743)
------------------------
$386,431 $335,389
========================
</TABLE>
At January 31, 1998 and 1997, $292,353,000 and $249,904,000 of inventories were
valued using the LIFO method. The excess of current cost over the LIFO inventory
value was $15,870,000 and $14,870,000 at January 31, 1998 and 1997. The LIFO
valuation method had the effect of decreasing net earnings by $0.02 and $0.05
per share for the years ended January 31, 1998 and 1997.
D. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $135,290 $118,805
Office equipment 53,469 33,462
Machinery and equipment 63,060 52,460
------------------------
251,819 204,727
Accumulated depreciation
and amortization (95,452) (75,381)
------------------------
$156,367 $129,346
========================
</TABLE>
For the years ended January 31, 1998, 1997 and 1996, the provision for
depreciation and amortization amounted to $22,745,000, $19,835,000 and
$17,117,000.
E. IMPAIRMENT OF LONG-LIVED ASSETS
During the years ended January 31, 1997 and 1996, the Company recorded a pretax
charge of $2,300,000 and $2,500,000, included in Selling, general and
administrative expenses, as a result of evaluating future cash flows estimated
to be generated by its long-lived assets at the retail store level and continued
difficult operating conditions in certain of its European markets. The
impairment loss was calculated as the difference between the asset carrying
values and the present value of estimated net cash flows or comparable market
values, giving consideration to recent operating performance and pricing trends.
F. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Accounts payable - trade $ 51,283 $ 48,585
Accrued rent payable 8,832 9,961
Accrued compensation
and commissions 10,977 11,150
Other 47,364 40,372
------------------------
$118,456 $110,068
========================
</TABLE>
G. EARNINGS PER SHARE
The following table summarizes the reconciliation of the numerators and
denominators, as required by SFAS No. 128, for the basic and diluted EPS
computations for the years ended January 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings for
basic EPS $72,822 $58,439 $39,215
Dilutive securities:
Debentures -- 682 1,811
---------------------------------
Net earnings for
diluted EPS $72,822 $59,121 $41,026
=================================
Weighted average shares
for basic EPS 34,953 33,682 31,600
Incremental shares upon conversions:
Debentures -- 690 1,786
Stock options 1,151 1,318 634
---------------------------------
Weighted average shares
for diluted EPS 36,104 35,690 34,020
=================================
Net earnings per share:
Basic $ 2.08 $ 1.74 $ 1.24
=================================
Diluted $ 2.02 $ 1.66 $ 1.21
=================================
</TABLE>
28
<PAGE> 16
H. DEBT
During the year ended January 31, 1998, the Company's multicurrency revolving
credit facility (the "Credit Facility") was amended to extend the maturity date
to June 30, 2002 and to decrease the number of participating banks from five to
four. The Credit Facility entitles the Company to borrow up to $31,250,000 on a
pro-rata basis from each of three banks and up to $36,250,000 from an agent bank
at interest rates based on a prime rate or a reserve-adjusted LIBOR. At January
31, 1998 and 1997, the amounts outstanding under the Company's new Credit
Facility amounted to $87,734,000 and $76,338,000 and interest rates ranged from
0.70% to 21.00% and 0.69% to 16.50%. The weighted average interest rate was
1.71% for the years ended January 31, 1998 and 1997.
The Credit Facility requires the payment of an annual fee based on the total
amount of available credit and contains covenants that require maintenance of
certain debt-equity and interest coverage ratios, as well as other requirements
customary to loan facilities of this nature. In addition, such agreement
contains a cross-default provision relating to an event of default under any
debt of the Company or its subsidiaries which exceeds $5,000,000.
During the year ended January 31, 1997, the Company entered into a yen
5,000,000,000, 15-year term loan agreement bearing interest at a rate of 4.50%.
The proceeds from this loan were used for working capital and construction costs
associated with the Company's flagship store in Tokyo, which opened in May 1996,
as well as to reduce short-term indebtedness in Japan.
On June 24, 1996 (the "Redemption Date"), the Company redeemed $916,000 of its
$50,000,000 principal amount 6 3/8% Convertible Subordinated Debentures Due 2001
(the "Debentures"). The remaining $49,084,000 principal amount of the Debentures
was converted, at the option of the holders, into shares of the Company's Common
Stock. In accordance with the terms of the Debentures, the redemption price was
101% of their principal amount, subject to conversion of principal at the rate
of $28.00 per share (adjusted to reflect the two-for-one stock split in July
1996). The right of conversion expired at the close of business on the
Redemption Date. If the Debentures had been converted on February 1, 1996, basic
earnings per share would have been reduced by $0.03 per share.
On January 29, 1993, the Company entered into an agreement with a group of
lenders to issue, at par, $51,500,000 of 7.52% Senior Notes Due 2003. The Note
Purchase Agreements require lump sum repayment upon maturity, maintenance of
specific financial covenants and ratios and limit certain payments, investments
and indebtedness, in addition to other requirements customary in such
circumstances. The Note Purchase Agreements also provide that, in the event a
default has occurred under any debt of the Company in excess of $1,000,000, the
unpaid principal amount of these Senior Notes may become immediately due and
payable.
I. FINANCIAL HEDGING INSTRUMENTS
The Company manages a foreign currency hedging program intended to reduce the
Company's risk in foreign currency-denominated (primarily yen) transactions in
order to minimize the potentially negative impact on the Company's financial
statements of a significant strengthening of the U.S. dollar against the yen. In
connection with this program, the Company, from time to time, enters into
foreign currency-purchased put options and forward-exchange contracts that are
designated as hedges of commitments to purchase merchandise and settle
liabilities in foreign currencies. The market value gains and losses on these
foreign exchange contracts are initially deferred and then recognized in income
or as adjustments of carrying amounts of inventories and liabilities when the
related transactions are settled. At January 31, 1998, the Company had
outstanding purchased put options maturing at various dates through January 22,
1999, giving it the right, but not the obligation, to sell yen 8,826,000,000 at
predetermined contract-exchange rates. The deferred unrealized gain on the
Company's purchased put options amounted to $2,398,000 at January 31, 1998. If
the market yen-exchange rates at maturity are below the contract rates, the
Company will allow the options to expire. The Company's pretax expense related
to its hedging program was $1,631,000, $1,827,000 and $1,127,000 for the years
ended January 31, 1998, 1997 and 1996. At January 31, 1998 and 1997, the Company
also had $7,483,000 and $5,864,000 of outstanding forward exchange yen
contracts, which matured on February 26, 1998 and 1997, to support the
settlement of merchandise liabilities for the Company's business in Japan.
29
<PAGE> 17
J. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table sets forth the carrying amounts and estimated fair values of
the Company's financial instruments at January 31, 1998 and 1997:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- --------------------------------------------------- -------------------------------
CARRYING FAIR Carrying Fair
Asset (liability) AMOUNT VALUE Amount Value
- --------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Cash and cash
equivalents $ 107,252 $ 107,252 $ 117,161 $ 117,161
Senior Notes (51,500) (54,358) (51,500) (52,267)
Japan long-
term debt (39,430) (45,904) (41,175) (45,414)
</TABLE>
The carrying amounts of the Company's Senior Notes and Japan long-term debt in
the above table are included in Long-term debt in the consolidated balance
sheets at January 31, 1998 and 1997.
The fair values of these financial instruments at January 31, 1998 and 1997 were
estimated as follows: the Cash and cash equivalents approximate carrying amount
due to their short-term maturity; the Senior Notes were based upon the quoted
market prices of comparable instruments and the Japan long-term debt was based
upon discounted cash flow analysis for securities with similar characteristics.
K. COMMITMENTS AND CONTINGENCIES
The Company leases certain office, distribution, retail and manufacturing
facilities. The lease agreements, which expire at various dates through 2016,
are subject in some cases to renewal options and also provide for the payment of
taxes, insurance and maintenance. Certain leases contain escalation clauses
resulting from the pass-through of increases in operating costs, property taxes
and the effect on costs from changes in consumer price indices.
During the year ended January 31, 1996, the Company entered into a lease
agreement for a 269,000 square-foot distribution, office and manufacturing
facility that consolidated the Company's then existing New Jersey facilities.
Under the terms of the agreement, the Company's operating lease commitment is
$3,600,000 annually and commenced during the fourth quarter of 1996. The lease
consists of an initial term of three years followed by nine consecutive one-year
renewal terms, up to a maximum of 12 years.
Rent-free periods and other incentives granted under certain leases, and
scheduled rent increases, are charged to rent expense on a straight-line basis
over the related terms of such leases. Rent expense under leases, including
escalations, for the years ended January 31, 1998, 1997 and 1996 amounted to
$39,239,000, $37,078,000 and $32,686,000.
Future minimum annual rental payments under noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
Minimum Annual
Fiscal Year Ending Rental Payments
January 31, (in thousands)
- -------------------------------------------------------------
<S> <C>
1999 $ 41,672
2000 38,225
2001 28,370
2002 26,613
2003 25,964
2004 and thereafter 141,063
</TABLE>
The Company is, from time to time, involved in routine litigation incidental to
the conduct of its business including proceedings to protect its trademark
rights, litigation instituted by persons injured upon premises within the
Company's control and litigation with present and former employees. Management
believes that such pending litigation will not have a material adverse effect on
the Company's consolidated financial position, results of operations or cash
flows.
L. RELATED PARTY TRANSACTIONS
Mitsukoshi Limited ("Mitsukoshi"), a leading Japanese department store group,
owns approximately 12% of the Company's outstanding Common Stock. Until July
1993, Mitsukoshi served as the Company's principal distributor in Japan.
Pursuant to a written agreement, the Company now operates TIFFANY & CO.
boutiques in Mitsukoshi's stores and a flagship store in Tokyo and, in exchange,
pays Mitsukoshi fees based on a percentage of net retail sales; such fees
amounted to $50,300,000, $47,500,000 and $46,500,000 for the years ended January
31, 1998, 1997 and 1996. Mitsukoshi continues to operate certain boutiques,
primarily outside of Japan. Wholesale sales to Mitsukoshi amounted to
$14,700,000, $21,400,000 and $17,000,000 for the years ended January 31, 1998,
1997 and 1996. Trade receivables due from Mitsukoshi were $2,295,000 and
$3,220,000 at January 31, 1998 and 1997.
30
<PAGE> 18
During the year ended January 31, 1994, the Company realigned its primary
Japanese distribution arrangement and assumed full merchandising and marketing
responsibility for 29 TIFFANY & CO. boutiques previously operated by Mitsukoshi
in Japan. As part of the transaction, the Company agreed to repurchase over the
following four years approximately $115,000,000 of TIFFANY & CO. merchandise
previously sold to Mitsukoshi. On February 10, 1998, the Company repurchased all
remaining merchandise under this agreement.
On February 15, 1996, the Company prepaid its long-term trade payable to
Mitsukoshi which amounted to yen 2,750,000,000, and was due on or before
February 28, 1998.
On February 2, 1998, at a cost of $8,150,000 plus additional payments to be made
based on the performance of the store over a five-year period, the Company
acquired substantially all of the assets and assumed certain liabilities of a
TIFFANY & CO. retail boutique operated by Mitsukoshi and located in Honolulu,
Hawaii.
M. STOCKHOLDERS' EQUITY
STOCK REPURCHASE PROGRAM
On November 20, 1997, the Board of Directors authorized the repurchase of up to
$100,000,000 of the Company's outstanding Common Stock in the open market during
a three-year period. The timing and actual number of shares purchased will
depend on a variety of factors such as price and other market conditions. During
the year ended January 31, 1998, the Company repurchased and retired 225,000
shares of its Common Stock at an aggregate cost of $8,672,000, or an average
cost of $38.54 per share.
AUTHORIZED STOCK
On May 16, 1996, the stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to increase the number of common shares
authorized from 30,000,000 shares to 60,000,000 shares. On that date, the Board
of Directors declared a two-for-one split of the Company's Common Stock, which
was effected in the form of a share distribution (stock dividend); paid on July
23, 1996 to stockholders of record on June 28, 1996. All applicable share and
per share data have been retroactively adjusted to reflect the stock split.
PREFERRED STOCK
The Board of Directors is authorized to issue, without further action by the
stockholders, shares of Preferred Stock, and to fix and alter the rights related
to such stock. In March 1987, the stockholders authorized 2,000,000 shares of
Preferred Stock, par value $0.01 per share. In November 1988, the Board of
Directors designated certain shares of such Preferred Stock as Series A Junior
Participating Cumulative Preferred Stock, par value $0.01 per share, to be
issued in connection with the exercise of certain stock purchase rights under
the Stockholder Rights Plan. At January 31, 1998 and 1997, there were no shares
of Preferred Stock issued or outstanding.
STOCKHOLDER RIGHTS PLAN
Under the Company's Stockholder Rights Plan, each outstanding share of Common
Stock has a stock purchase right which will become exercisable should certain
take-over-related events occur. The rights expire on November 17, 1998, and are
subject to redemption at $0.01 per right. Following such events, but before any
person has acquired beneficial ownership of 20% of the common shares, each right
may be used to purchase one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock at an exercise price of $140 (subject
to adjustment); after such an acquisition, each right may be used to purchase
for the exercise price common shares having a market value equal to two times
such exercise price. If, after such an acquisition, a merger of the Company
occurs (or 50% of the Company's assets are sold), each right may be exercised to
purchase, for the exercise price, common shares of the acquiring corporation
having a market value equal to two times the exercise price. Rights held by such
a 20% owner may not be exercised.
CASH DIVIDENDS
In May 1997 and 1996, the Company's Board of Directors approved increases of 40%
and 43% in the quarterly cash dividend on its Common Stock, increasing it from
$0.05 per share to $0.07 per share and from $0.035 per share to $0.05 per share.
Cash dividends declared and paid during the years ended January 31, 1998, 1997
and 1996 amounted to $9,097,000, $6,303,000 and $4,424,000. On February 19,
1998, the Company's Board of Directors declared a regular quarterly dividend of
$0.07 per common share, for stockholders of record on March 20, 1998, to be paid
on April 10, 1998.
31
<PAGE> 19
STOCK COMPENSATION PLANS
Under the terms of the Company's 1986 fixed Stock Option Plan, a maximum of
6,418,000 options to purchase shares of Common Stock may be granted to certain
key employees of the Company at prices not less than 100% of the fair market
value at the date of option grant. All options are exercisable in installments
within a period not to exceed 11 years from the date of grant.
On May 19, 1988, the stockholders of the Company approved the Tiffany & Co. 1988
Director Option Plan, under which options to acquire 300,000 shares of Common
Stock may be granted to nonemployee directors of the Company at a price equal to
50% of the fair market value on the date of grant. Each director may elect to
receive options in lieu of all or 50% of an annual retainer fee. Options granted
under this plan have a maximum term of 15 years and are exercisable in full one
year following the date of grant. The Company has recognized compensation
expense relating to the Director Option Plan based on the difference between the
option price and the fair market value at the date of grant. No further options
may be issued under this plan.
As permitted under SFAS No. 123, the Company continues to account for
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost is recognized for stock option
awards granted at or above fair market value. Had the fair-value-based method of
accounting been applied at grant date to the Company's stock-based compensation
plans, net earnings and earnings per share would have been reduced to pro forma
amounts for the years ended January 31, 1998, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
(in thousands,
except per share amounts) 1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Net earnings:
As reported $72,822 $58,439 $39,215
Pro forma 71,469 57,680 39,188
Basic earnings per share:
As reported 2.08 1.74 1.24
Pro forma 2.04 1.71 1.24
Diluted earnings per share:
As reported 2.02 1.66 1.21
Pro forma 1.98 1.64 1.21
</TABLE>
The pro forma effect of applying SFAS No. 123 only takes into account options
granted since January 1, 1995 and is likely to increase in future years as
additional options are granted and amortized on a pro-rata basis over the
vesting period of such options.
The fair value of each option grant under all plans is estimated on the date of
grant using the Black-Scholes option-pricing model based on the following
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 0.8% 0.8% 0.8%
Expected volatility 21.5% 20.0% 18.6%
Risk-free interest rate 5.5% 6.2% 5.4%
Expected life (years) 5 5 5
</TABLE>
Stock option share activity and weighted average exercise price under these
plans for the years ended January 31, 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Shares Price
- -------------------------------------------------------------
<S> <C> <C>
Outstanding, January 31, 1995 3,530,250 $16.36
Granted 754,110 26.30
Exercised (531,902) 14.84
Forfeited (189,922) 17.58
---------
Outstanding, January 31, 1996 3,562,536 18.90
Granted 427,961 36.54
Exercised (763,147) 17.48
Forfeited (120,663) 19.20
---------
Outstanding, January 31, 1997 3,106,687 21.46
Granted 623,198 38.60
Exercised (576,002) 16.68
Forfeited (128,948) 27.41
---------
OUTSTANDING, JANUARY 31, 1998 3,024,935 25.52
=========
</TABLE>
The weighted average fair value of options granted during the years ended
January 31, 1998, 1997 and 1996 was $11.07, $10.78 and $6.93. The number of
options exercisable at January 31, 1998, 1997 and 1996 was 1,676,377, 1,745,551
and 1,896,776.
32
<PAGE> 20
The following table summarizes information concerning currently outstanding
options at January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------
Weighted
Average Weighted
Remaining Average
Range of Number Contractual Exercise
Exercise Prices Outstanding Life (years) Price
- -------------------------------------------------------------
<S> <C> <C> <C>
$ 3.00 - $15.00 207,530 4.2 $ 9.97
$15.00 - $25.00 1,282,270 6.4 17.55
$25.00 - $47.00 1,535,135 9.9 34.29
-----------------------------------------
3,024,935 8.0 $25.52
=========================================
</TABLE>
The following table summarizes information concerning currently exercisable
options at January 31, 1998:
<TABLE>
<CAPTION>
Options Exercisable
-----------------------------------------
Weighted
Average
Range of Number Exercise
Exercise Prices Exercisable Price
- ----------------------------------------------------------------
<S> <C> <C>
$ 3.00 - $15.00 207,530 $ 9.97
$15.00 - $25.00 1,057,324 17.78
$25.00 - $47.00 411,523 29.55
-----------------------------------
1,676,377 $19.70
===================================
</TABLE>
N. POSTRETIREMENT HEALTH CARE AND
LIFE INSURANCE BENEFITS
The actuarial present value of accumulated postretirement benefit obligations
and the amounts recognized in the Company's consolidated balance sheets at
January 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(in thousands, except percentages) 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Retirees $ 6,050 $ 6,114
Fully eligible active plan participants 2,528 2,436
Other active plan participants 6,486 6,103
-----------------------
Total accumulated postretirement
benefit obligation 15,064 14,653
Unrecognized gain 5,195 4,681
-----------------------
Postretirement benefit obligation $20,259 $19,334
=======================
Discount rate 7.00% 7.50%
Health-care-cost trend rate 6.50% 6.50%
</TABLE>
Postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during period $ 979 $1,101 $1,016
Interest cost on accumulated
benefit obligation 604 804 717
----------------------------------
Total postretirement
benefit cost $1,583 $1,905 $1,733
==================================
</TABLE>
Based on current estimates, increasing the health-care-cost trend rate by one
percentage point would increase the Company's accumulated postretirement benefit
obligation by $900,000 and the aggregate service and interest cost components of
net periodic postretirement benefit for the year ended January
31, 1998 by $100,000.
O. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan (the "Pension
Plan") covering substantially all domestic salaried and full-time hourly
employees. The Company accounts for pension expense using the projected unit
credit actuarial method for financial reporting purposes. Pension Plan benefits
are based on the highest five consecutive years of compensation or as a
percentage of actual compensation, as applicable in the circumstances, and the
number of years of service. The actuarial present value of the vested benefit
obligation is calculated based on the expected date of separation or retirement
of the Company's eligible employees.
33
<PAGE> 21
Net periodic pension expense included the following components:
<TABLE>
<CAPTION>
(in thousands,
except percentages) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits
earned during period $ 3,123 $ 2,989 $ 2,272
Interest cost on projected
benefit obligation 3,693 3,317 3,026
Actual return on assets (10,830) (6,372) (7,852)
Net amortization
and deferrals 7,548 3,952 5,532
-------- -------- --------
Net periodic
pension expense $ 3,534 $ 3,886 $ 2,978
======== ======== ========
Discount rate 7.50% 7.00% 8.50%
Rate of increase
in compensation 5.00% 4.50% 5.50%
Long-term rate of
return on assets 9.00% 9.00% 9.00%
</TABLE>
The following table sets forth the funded status of the Pension Plan and amounts
recognized in the Company's consolidated balance sheets at January 31, 1998 and
1997:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
-------- --------
<S> <C> <C>
Actuarial present value of
benefit obligation:
Vested $ 45,456 $ 38,378
Nonvested 5,983 4,595
-------- --------
Accumulated benefit obligation $ 51,439 $ 42,973
======== ========
Projected benefit obligation $ 58,748 $ 49,991
Plan assets at fair value,
primarily stocks and fixed
income securities 56,803 48,511
-------- --------
Projected benefit obligation
in excess of Plan assets 1,945 1,480
Unrecognized net gain (loss) 1,355 (1,610)
Unrecognized net obligation (341) (445)
-------- --------
Pension liability (prepaid
pension cost) recognized in
the consolidated balance sheets $ 2,959 $ (575)
======== ========
</TABLE>
The assumptions used in the calculation of the projected benefit obligation are
as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Discount rate 7.00% 7.50%
Rate of increase in compensation 4.50% 5.00%
</TABLE>
The Company has an Employee Profit Sharing and Retirement Savings Plan (the
"EPSRS Plan") that covers substantially all U.S.-based employees of the Company.
Under the profit sharing portion of the EPSRS Plan, the Company makes
contributions to the employees' accounts based upon the achievement of certain
targeted earnings objectives established by the Board of Directors. The
Company's contribution for the years ended January 31, 1998, 1997 and 1996
amounted to $1,400,000, $1,800,000 and $1,000,000 in the form of newly issued
Company Common Stock. Under the retirement savings feature, employees who meet
certain eligibility requirements can participate in the EPSRS Plan by
contributing up to 15% of their annual compensation and the Company provides a
50% matching contribution up to 6% of each participant's total compensation. The
Board of Directors approved the annual 50% matching contribution feature of the
EPSRS Plan during the year ended January 31, 1997. The Company's contribution
amounted to $2,152,000 and $1,631,000 for the years ended January 31, 1998 and
1997.
34
<PAGE> 22
P. INCOME TAXES
Earnings before income taxes consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States $102,032 $ 76,357 $ 48,702
Foreign 25,726 26,529 20,333
-------- -------- --------
$127,758 $102,886 $ 69,035
======== ======== ========
</TABLE>
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 32,934 $ 27,637 $ 17,444
State 11,263 9,896 4,649
Foreign 12,621 12,771 14,605
-------- -------- --------
56,818 50,304 36,698
-------- -------- --------
Deferred:
Federal (106) (3,160) (4,087)
State (130) (1,469) (686)
Foreign (1,646) (1,228) (2,105)
-------- -------- --------
(1,882) (5,857) (6,878)
-------- -------- --------
$ 54,936 $ 44,447 $ 29,820
======== ======== ========
</TABLE>
During the year ended January 31, 1996, the Company received an income tax
refund amounting to $7,925,000, primarily due to the recognition of a tax
benefit from its year ended January 31, 1994, for domestic net operating losses
and foreign tax credits that were carried back to prior tax years.
Deferred tax assets (liabilities) as of January 31, 1998 and 1997 consisted of
the following:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
<S> <C> <C>
Postretirement/employment benefits $ 9,515 $ 9,091
Product return reserves 1,601 4,004
Inventory reserves 7,784 8,085
Accrued expenses 4,388 3,018
Financial hedging instruments 2,449 1,687
Depreciation (603) 558
Pension contribution 537 (1,071)
Undistributed earnings
of foreign subsidiaries (4,937) (3,819)
Other 5,498 3,003
-------- --------
$ 26,232 $ 24,556
======== ========
</TABLE>
The income tax effects of items comprising the deferred income tax benefit are
as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Postretirement/employment
benefit obligation $ (424) $ (528) $ (634)
Product return reserves 2,403 1,821 849
Undistributed earnings of
foreign subsidiaries 1,118 1,840 (1,722)
Accelerated depreciation 219 (856) (1,475)
Inventory reserves (744) (1,399) (1,764)
Financial hedging instruments (762) (1,687) --
Excess pension contribution (1,608) (1,768) 530
Other (2,084) (3,280) (2,662)
------- ------- -------
$(1,882) $(5,857) $(6,878)
======= ======= =======
</TABLE>
A reconciliation of the provision for income taxes at the statutory Federal
income tax rate to the Company's effective tax rate as reported is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income
tax rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal benefit 5.7 5.8 6.4
Foreign losses with
no tax benefit 0.7 1.1 1.2
Other 1.6 1.3 0.6
---- ---- ----
43.0% 43.2% 43.2%
==== ==== ====
</TABLE>
35
<PAGE> 23
Q. FOREIGN OPERATIONS
Certain information relating to the Company's foreign operations is set forth
below:
<TABLE>
<CAPTION>
International
--------------------------
(in thousands) U.S. Japan Other Unallocated Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1998
Sales $ 839,066 $ 270,487 $ 126,198 $ -- $ 1,235,751
Eliminations (209,630) (15) (8,490) -- (218,135)
----------- ----------- ----------- ----------- -----------
Net sales $ 629,436 $ 270,472 $ 117,708 $ -- $ 1,017,616
=========== =========== =========== =========== ===========
Operating profit* $ 98,432 $ 89,539 $ 16,131 $ -- $ 204,102
Corporate expenses -- -- -- (70,680) (70,680)
Interest and other expenses, net -- -- -- (5,664) (5,664)
----------- ----------- ----------- ----------- -----------
Earnings before income taxes $ 98,432 $ 89,539 $ 16,131 $ (76,344) $ 127,758
=========== =========== =========== =========== ===========
Identifiable assets $ 597,236 $ 182,481 $ 121,096 $ -- $ 900,813
Eliminations -- (72,392) (1,354) -- (73,746)
----------- ----------- ----------- ----------- -----------
Identifiable assets $ 597,236 $ 110,089 $ 119,742 $ -- $ 827,067
=========== =========== =========== =========== ===========
YEAR ENDED JANUARY 31, 1997
Sales $ 764,885 $ 246,579 $ 125,432 $ -- $ 1,136,896
Eliminations (199,333) (27) (15,428) -- (214,788)
----------- ----------- ----------- ----------- -----------
Net sales $ 565,552 $ 246,552 $ 110,004 $ -- $ 922,108
=========== =========== =========== =========== ===========
Operating profit* $ 86,168 $ 79,086 $ 14,441 $ -- $ 179,695
Corporate expenses -- -- -- (70,282) (70,282)
Interest and other expenses, net -- -- -- (6,527) (6,527)
----------- ----------- ----------- ----------- -----------
Earnings before income taxes $ 86,168 $ 79,086 $ 14,441 $ (76,809) $ 102,886
=========== =========== =========== =========== ===========
Identifiable assets $ 523,484 $ 162,278 $ 116,653 $ -- $ 802,415
Eliminations -- (62,277) (720) -- (62,997)
----------- ----------- ----------- ----------- -----------
Identifiable assets $ 523,484 $ 100,001 $ 115,933 $ -- $ 739,418
=========== =========== =========== =========== ===========
YEAR ENDED JANUARY 31, 1996
Sales $ 639,840 $ 226,076 $ 92,826 $ -- $ 958,742
Eliminations (145,204) -- (10,246) -- (155,450)
----------- ----------- ----------- ----------- -----------
Net sales $ 494,636 $ 226,076 $ 82,580 $ -- $ 803,292
=========== =========== =========== =========== ===========
Operating profit* $ 68,316 $ 68,006 $ (1,475) $ -- $ 134,847
Corporate expenses -- -- -- (54,834) (54,834)
Interest and other expenses, net -- -- -- (10,978) (10,978)
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes $ 68,316 $ 68,006 $ (1,475) $ (65,812) $ 69,035
=========== =========== =========== =========== ===========
Identifiable assets $ 462,616 $ 119,218 $ 115,364 $ -- $ 697,198
Eliminations -- (43,405) 464 -- (42,941)
----------- ----------- ----------- ----------- -----------
Identifiable assets $ 462,616 $ 75,813 $ 115,828 $ -- $ 654,257
=========== =========== =========== =========== ===========
</TABLE>
*Represents earnings from operations before Corporate expenses and Interest and
other expenses, net.
36
<PAGE> 24
R. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal 1997 Quarter Ended
---------------------------------------------
(in thousands, except per share amounts) April 30 July 31 October 31 January 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $199,699 $217,149 $233,074 $367,694
Gross profit 106,254 116,627 126,879 214,448
Earnings from operations 16,703 19,245 21,426 76,048
Net earnings 8,880 10,380 11,463 42,099
Net earnings per share:*
Basic $ 0.26 $ 0.30 $ 0.33 $ 1.20
======== ======== ======== ========
Diluted $ 0.25 $ 0.29 $ 0.32 $ 1.17
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996 Quarter Ended
---------------------------------------------
(in thousands, except per share amounts) April 30 July 31 October 31 January 31**
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $180,741 $202,763 $210,985 $327,619
Gross profit 93,366 106,882 114,284 185,162
Earnings from operations 12,278 16,878 18,643 61,614
Net earnings 5,077 8,246 9,347 35,769
Net earnings per share:*
Basic $ 0.16 $ 0.25 $ 0.27 $ 1.04
======== ======== ======== ========
Diluted $ 0.16 $ 0.24 $ 0.26 $ 1.00
======== ======== ======== ========
</TABLE>
* Basic and diluted earnings per share have been retroactively restated to
comply with the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," adopted by the Company in
Fiscal 1997 (see Notes A and G to consolidated financial statements).
** Nonrecurring pretax charges of $4,400 for the closing and relocation of the
San Diego store and the impairment of certain European assets are included in
Earnings from operations and a nonrecurring pretax gain of $4,500 resulting from
the sale of certain manufacturing assets (see Note B to consolidated financial
statements) is included in Other income.
The sum of the quarterly net earnings per share amounts may not equal the
full-year amounts since the computations of the weighted average number of
common and common-equivalent shares outstanding for each quarter and the full
year are made independently.
37
<PAGE> 25
REPORT OF MANAGEMENT
The Company's consolidated financial statements were prepared by management, who
are responsible for their integrity and objectivity. The financial statements
have been prepared in accordance with generally accepted accounting principles
and, as such, include amounts based on management's best estimates and
judgments.
Management is further responsible for maintaining a system of internal
accounting control designed to provide reasonable assurance that the Company's
assets are adequately safeguarded and that the accounting records reflect
transactions executed in accordance with management's authorization. The system
of internal control is continually reviewed and is augmented by written policies
and procedures, the careful selection and training of qualified personnel and a
program of internal audit.
The consolidated financial statements have been audited by Coopers & Lybrand
L.L.P., Independent Accountants. Their report is shown on this page.
The Audit Committee of the Board of Directors, which is composed solely of
independent directors, meets regularly to discuss specific accounting, financial
reporting and internal control matters. Both the independent accountants and the
internal auditors have full and free access to the Audit Committee. Each year
the Audit Committee selects the firm that is to perform audit services for the
Company.
/s/ William R. Chaney
William R. Chaney
Chairman of the Board and
Chief Executive Officer
/s/ Michael J. Kowalski
Michael J. Kowalski
President and
Chief Operating Officer
/s/ James N. Fernandez
James N. Fernandez
Executive Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Tiffany & Co.
We have audited the accompanying consolidated balance sheets of Tiffany & Co.
and Subsidiaries as of January 31, 1998 and 1997, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
three years in the period ended January 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tiffany & Co. and
Subsidiaries as of January 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1998, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
March 3, 1998
38
<PAGE> 1
Exhibit 21.1
Tiffany & Co.
Tiffany & Co. Report on Form 10-K
Subsidiaries Fiscal Year 1997
<TABLE>
<CAPTION>
TIFFANY & CO.
Delaware
August 16, 1984
|
-------------------------------------------------------------------------
| |
TIFFANY AND COMPANY TIFFANY & CO.
INTERNATIONAL
New York DELAWARE
May 30, 1868 October 11, 1984
| |
<S> | <C> <C> | <C>
Domestic Subsidiaries | International Subsidiaries Domestic Subsidiaries | International Subsidiaries
- --------------------------|------------------------------------- -----------------------------|-------------------------------
TIFFANY & CO. | TIFFANY & CO. TIFFANY & CO. | TIFFANY & CO.
ICT, INC. | (NEW YORK) PTY. LTD. JAPAN INC. | OF NEW YORK LIMITED
__|__ __|__
Delaware | Australia Delaware | Hong Kong
| |
| |
| |
JUDEL PRODUCTS CORP. | SOCIETE FRANCAISE POUR LE | TIFFANY-FARAONE
(Formerly Glassware | DEVELOPPEMENT DE LA | S.p.A.
Acquisition Inc.) __|__ PORCELAINE D'ART |__
West Virginia | France | Italy
| |
| |
| |
| TIFFANY & CO. | TIFFCO KOREA LTD.
| (Unlimited Liability) |
|__ |__
| United Kingdom | Republic of Korea
| |
| |
| |
| TIFFANY & CO. K.K. |TIFFANY & Co. Mexico, S.A. de C.V.
| [Tiffany and Company 51% |
|__ Mitsukoshi, Ltd. 49%] |__
Japan | Mexico
|
|
|
|
| TIFFANY & CO.
| OVERSEAS FINANCE B.V.
|__
| Netherlands
|
|
|
| TIFFANY & CO.
| PTE. LTD.
|__
| Singapore
| |
| |
| |
| UPTOWN ALLIANCE
| (M) sdn. bhd.
|
| Malaysia
|
|
|
| TIFFANY & CO.
| A.G.
|__
| Switzerland-Canton Zurich
|
|
|
| TIFFANY & CO.
| WATCH CENTER S.A.
|__
Switzerland-Canton Vaud
</TABLE>
<PAGE> 1
Exhibit 23.1
Tiffany & Co.
Report on Form 10-K
Fiscal Year 1997
COOPERS & LYBRAND L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Tiffany & Co. and Subsidiaries on Form S-8 of our report, dated March 3, 1998,
on our audits of the consolidated financial statements and financial statement
schedule of Tiffany & Co. and Subsidiaries as of January 31, 1998 and 1997, and
for each of the three years in the period ended January 31, 1998, which report
is incorporated by reference in the Company's Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
New York, New York
April 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 107,252,000
<SECURITIES> 0
<RECEIVABLES> 106,480,000
<ALLOWANCES> 6,988,000
<INVENTORY> 386,431,000
<CURRENT-ASSETS> 631,087,000
<PP&E> 251,819,000
<DEPRECIATION> 95,452,000
<TOTAL-ASSETS> 827,067,000
<CURRENT-LIABILITIES> 250,003,000
<BONDS> 0
0
0
<COMMON> 349,000
<OTHER-SE> 443,375,000
<TOTAL-LIABILITY-AND-EQUITY> 827,067,000
<SALES> 1,017,616,000
<TOTAL-REVENUES> 1,017,616,000
<CGS> 453,408,000
<TOTAL-COSTS> 884,194,000
<OTHER-EXPENSES> 5,664,000
<LOSS-PROVISION> 1,255,000
<INTEREST-EXPENSE> 8,037,000
<INCOME-PRETAX> 127,758,000
<INCOME-TAX> 54,936,000
<INCOME-CONTINUING> 72,822,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,822,000
<EPS-PRIMARY> 2.08<F1>
<EPS-DILUTED> 2.02
<FN>
<F1>The amount reported for EPS primary and fully diluted is in compliance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," and
represents the Basic and Diluted calculation as required by this standard.
</FN>
</TABLE>
