SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 for the quarter ended April 30, 1999. OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 for the transition from ________ to _____________.
Commission file number: 1-9494
TIFFANY & CO.
(Exact name of registrant as specified in its charter)
Delaware 13-3228013
(State of incorporation) (I.R.S. Employer
Identification No.)
727 Fifth Ave. New York, NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 755-8000
Former name, former address and former fiscal year, if changed since last report
_________.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock as of the latest practicable
date: Common Stock, $.01 par value, 35,199,461 shares outstanding at the close
of business on April 30, 1999.
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1999
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - April 30, 1999
(Unaudited), January 31, 1999 and
April 30, 1998 (Unaudited) 3
Consolidated Statements of Earnings - for the
three months ended April 30, 1999
and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows - for
the three months ended April 30, 1999
and 1998 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
(a) Exhibits
(b) Reports on Form 8-K
- 2 -
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
April 30, January 31, April 30,
1999 1999 1998
------------- -------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 140,250 $ 188,593 $ 74,609
Accounts receivable, less allowances
of $9,149, $8,106 and $7,762 92,599 108,381 79,983
Inventories 523,480 481,439 422,441
Deferred income taxes 23,393 18,061 20,402
Prepaid expenses and other current assets 24,887 19,170 25,676
--------------- ---------------- ---------------
Total current assets 804,609 815,644 623,111
Property and equipment, net 194,352 189,795 163,460
Deferred income taxes 8,574 9,032 7,451
Other assets, net 47,022 42,552 38,980
--------------- ---------------- ---------------
$ 1,054,557 $ 1,057,023 $ 833,002
=============== ================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 82,729 $ 97,370 $ 92,271
Accounts payable and accrued liabilities 144,897 140,660 119,302
Income taxes payable 9,896 32,485 6,850
Merchandise and other customer credits 22,619 22,202 18,099
--------------- ---------------- ---------------
Total current liabilities 260,141 292,717 236,522
Long-term debt 193,465 194,420 89,280
Postretirement/employment benefit obligations 21,908 21,539 20,456
Other long-term liabilities 32,946 31,894 24,326
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized 120,000 shares,
issued and outstanding 70,399, 69,466 and 70,520 704 695 706
Additional paid-in capital 204,682 184,890 180,242
Retained earnings 357,222 344,223 300,234
Accumulated other comprehensive loss -
Foreign currency translation adjustments (16,511) (13,355) (18,764)
--------------- ---------------- ---------------
Total stockholders' equity 546,097 516,453 462,418
--------------- ---------------- ---------------
$ 1,054,557 $ 1,057,023 $ 833,002
=============== ================ ===============
</TABLE>
See notes to consolidated financial statements
- 3 -
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Three Months Ended
April 30,
-----------------------------
1999 1998
------------ -----------
<S> <C> <C>
Net sales $ 272,277 $ 226,159
Cost of sales 123,981 105,151
----------- -----------
Gross profit 148,296 121,008
Selling, general and administrative expenses 118,857 100,542
------------ -----------
Earnings from operations 29,439 20,466
Other expenses, net 1,582 1,129
------------ -----------
Earnings before income taxes 27,857 19,337
Provision for income taxes 11,700 8,217
------------ -----------
Net earnings $ 16,157 $ 11,120
============ ===========
Net earnings per share:
Basic $ 0.23 $ 0.16
============ ============
Diluted $ 0.22 $ 0.15
============ ============
Weighted average number of common shares:
Basic 70,080 70,348
Diluted 72,702 72,686
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the
Three Months Ended
April 30,
---------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 16,157 $ 11,120
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 8,216 6,758
Provision for uncollectible accounts 296 347
Reduction in reserve for product return - (2,580)
Provision for inventories 2,985 1,715
Tax benefit from exercise of stock options 9,056 4,400
Deferred income taxes (4,917) (1,792)
Provision for postretirement/employment benefits 369 335
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 12,542 18,314
Inventories (49,151) (38,597)
Prepaid expenses (5,750) (5,062)
Other assets, net (378) (1,234)
Accounts payable 6,133 7,124
Accrued liabilities 299 (4,666)
Income taxes payable (22,228) (16,558)
Merchandise and other customer credits 417 107
Other long-term liabilities 1,000 1,774
------------ ------------
Net cash used in operating activities (24,954) (18,495)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,719) (13,460)
Acquisitions, net of liabilities assumed (7,031) (8,150)
Proceeds from lease incentives 2,684 -
------------ ------------
Net cash used in investing activities (17,066) (21,610)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments on) proceeds from short-term borrowings (12,310) 5,323
Repurchase of Common Stock - (2,264)
Proceeds from exercise of stock options 9,145 6,864
Cash dividends on Common Stock (3,158) (2,461)
------------ ------------
Net cash (used in) provided by financing activities (6,323) 7,462
------------ ------------
Net decrease in cash and cash equivalents (48,343) (32,643)
Cash and cash equivalents at beginning of year 188,593 107,252
------------ ------------
Cash and cash equivalents at end of three months $ 140,250 $ 74,609
============ ============
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts
of Tiffany & Co. and all majority-owned domestic and foreign
subsidiaries (the "Company"). All material intercompany balances and
transactions have been eliminated. The interim statements are unaudited
and, in the opinion of management, include all adjustments (which
include only normal recurring adjustments including the adjustment
necessary as a result of the use of the LIFO(last-in, first-out) method
of inventory valuation, which is based on assumptions as to inflation
rates and projected fiscal year-end inventory levels) necessary to
present fairly the Company's financial position as of April 30, 1999
and the results of operations and cash flows for the interim periods
presented. The consolidated balance sheet data for January 31, 1999 are
derived from the audited financial statements which are included in the
Company's report on Form 10-K, which should be read in connection with
these financial statements. In accordance with the rules of the
Securities and Exchange Commission, these financial statements do not
include all disclosures required by generally accepted accounting
principles.
Since the Company's business is seasonal, with a higher proportion of
sales and earnings generated in the last quarter of the fiscal year,
the results of operations for the three months ended April 30, 1999 and
1998 are not necessarily indicative of the results of the entire fiscal
year.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information:
April 30, April 30,
(in thousands) 1999 1998
-------------- --------- ---------
Cash paid during the three months for:
Interest $ 1,223 $ 1,307
========= =========
Income taxes $28,316 $20,998
========= =========
Details of businesses acquired
in purchase transactions:
Fair value of assets acquired $ 7,048 $12,302
Less: liabilities assumed 17 4,152
--------- ---------
Net cash paid for acquisitions $ 7,031 $ 8,150
========= =========
Supplemental Noncash Investing
and Financing Activities:
Issuance of Common Stock for the
Employee Profit Sharing and
Retirement Savings Plan $ 1,600 $ 1,400
========= =========
- 6 -
<PAGE>
3. INVENTORIES
<TABLE>
<CAPTION>
April 30, January 31, April 30,
(in thousands) 1999 1999 1998
-------------- --------------- ----------------- --------------
<S> <C> <C> <C>
Finished goods $439,466 $413,371 $353,015
Raw materials 81,492 66,258 68,698
Work-in-process 4,954 3,599 3,157
--------------- ----------------- --------------
525,912 483,228 424,870
Reserves (2,432) (1,789) (2,429)
--------------- ----------------- --------------
$523,480 $481,439 $422,441
=============== ================= ==============
</TABLE>
LIFO-based inventories at April 30, 1999, January 31, 1999 and April
30, 1998 were $411,328,000, $363,322,000 and $322,765,000, with the
current cost exceeding the LIFO inventory value by approximately
$16,521,000, $15,870,000 and $16,521,000 for the periods then ended.
The LIFO valuation method had the effect of decreasing net earnings by
$0.01 per diluted share in each of the three-month periods ended April
30, 1999 and 1998.
4. FINANCIAL HEDGING INSTRUMENTS
In accordance with the Company's foreign currency hedging program, at
April 30, 1999, the Company had outstanding purchased put options
maturing at various dates through April 24, 2000, giving it the right,
but not the obligation, to sell yen 13,567,000,000 for dollars at
predetermined contract-exchange rates. If the market yen-exchange rates
at maturity are below the contract rates, the Company will allow the
options to expire. At April 30, 1999, there were no deferred unrealized
gains on the Company's purchased put options.
To mitigate the exchange rate fluctuations primarily related to
intercompany inventory purchases for the Company's business in Japan,
the Company enters into forward exchange yen contracts. At April 30,
1999, the Company had $13,540,000 of such contracts outstanding, which
will mature on May 26, 1999. At April 30, 1998, the Company had
$14,693,000 of such contracts outstanding, which subsequently matured
on May 26, 1998.
- 7 -
<PAGE>
5. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net earnings by the
weighted average number of shares outstanding during the period.
Diluted earnings per share are calculated to give effect to potentially
dilutive stock options that were outstanding during the period.
The following table summarizes the reconciliation of the numerators and
denominators for the basic and diluted earnings per share ("EPS")
computations:
For the
Three Months Ended
April 30,
---------------------------
(in thousands) 1999 1998
-------------- ---- ----
Net earnings for basic
and diluted EPS $16,157 $11,120
============ ============
Weighted average shares
for basic EPS 70,080 70,348
Incremental shares from
assumed exercise of
stock options 2,622 2,338
------------ ------------
Weighted average shares
for diluted EPS 72,702 72,686
============ ============
6. COMPREHENSIVE EARNINGS
Comprehensive earnings include all changes in equity during a period
except those resulting from investments by and distributions to
stockholders. The Company's foreign currency translation adjustments,
reported separately in stockholders' equity, are required to be
included in the determination of comprehensive earnings.
The components of comprehensive earnings were:
For the
Three Months Ended
April 30,
-------------------------------
(in thousands) 1999 1998
-------------- ---- ----
Net earnings $16,157 $11,120
Other comprehensive
loss:
Foreign currency (3,156) (365)
translation adjustments
------------- -------------
Comprehensive earnings $13,001 $10,755
============= =============
Foreign currency translation adjustments are not adjusted for income
taxes since they relate to investments that are permanent in nature.
- 8 -
<PAGE>
7. OPERATING SEGMENTS
The Company operates its business in three reportable segments: U.S.
Retail, International Retail and Direct Marketing (see Management's
Discussion and Analysis of Financial Condition and Results of Operations
for an overview of the Company's business). The Company's reportable
segments represent channels of distribution that offer similar merchandise
and service and marketing and distribution strategies. The Company's
Executive Officers evaluate the performance of its operating segments on
the basis of net sales and earnings from operations after the elimination
of intersegment sales and transfers.
Certain information relating to the Company's reportable operating segments
is set forth below:
For the
Three Months Ended
April 30,
---------------------------
(in thousands) 1999 1998
---------------------- ---- ----
Net sales:
U.S. Retail $ 131,691 $ 108,024
International Retail 117,474 96,472
Direct Marketing 23,112 21,663
------------ ------------
$ 272,277 $ 226,159
============ ============
Earnings from operations*:
U.S. Retail $ 23,756 $ 19,731
International Retail 30,133 22,124
Direct Marketing 4,348 3,992
------------ ------------
$ 58,237 $ 45,847
============ ============
* Represents earnings from operations before unallocated
corporate expenses and interest and other expenses, net.
Executive Officers of the Company evaluate the performance of the
Company's assets on a consolidated basis. Therefore, separate financial
information for the Company's assets on a segment basis is not
available.
- 9 -
<PAGE>
The following table sets forth a reconciliation of the reportable
segment's earnings from operations to the Company's consolidated
earnings before income taxes:
For the
Three Months Ended
April 30,
------------------------------------
(in thousands) 1999 1998
--------------- ---- ----
Earnings from operations
For reportable segments $ 58,237 $ 45,847
Unallocated corporate expenses (28,798) (25,381)
Interest and other expenses, net (1,582) (1,129)
------------- -------------
Earnings before income taxes $ 27,857 $ 19,337
============= =============
8. SUBSEQUENT EVENT
On May 20, 1999, the stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to increase the number of common
shares authorized from 60,000,000 shares to 120,000,000 shares.
On May 20, 1999, the Board of Directors declared a two-for-one split of the
Company's Common Stock, to be effected in the form of a share distribution
(stock dividend) payable on July 21, 1999 to stockholders of record on June
23, 1999. Accordingly, April 30, 1999 balances reflect the split with an
increase in Common Stock and a corresponding reduction in paid-in capital
representing the increase in par value of approximately $352,000. Stock
options and per share data have also been retroactively adjusted to reflect
the split.
In addition, the Board of Directors approved a 33% increase in the
Company's quarterly cash dividend to $0.12 per share on "pre-split" shares
to be paid on July 21, 1999 to stockholders of record on June 23, 1999.
Future quarterly dividends, subject to declaration by the Board of
Directors, are expected to be paid at the rate of $0.06 per share following
the stock split.
- 10 -
<PAGE>
PART I. Financial Information
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
- ---------------------
Overview
- --------
The Company operates three channels of distribution: U.S. Retail includes retail
sales in Company-operated stores in the U.S., wholesale sales to independent
retailers in the U.S. and wholesale sales of fragrance products to independent
retailers in the Americas; International Retail includes retail sales in
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; and Direct Marketing includes
corporate (business-to-business) sales and catalog sales in the U.S.
All references to full years relate to the fiscal year that ends on January 31
of the following calendar year.
The Company's net sales increased 20% in the three months (first quarter) ended
April 30, 1999. This sales growth and a higher operating margin resulted in a
45% increase in net earnings.
Net sales by channel of distribution were as follows:
- -----------------------------------------------------
Three months
Ended April 30,
(in thousands) 1999 1998
- -------------- -------- -------
U.S. Retail $131,691 $108,024
International Retail 117,474 96,472
Direct Marketing 23,112 21,663
-------- --------
$272,277 $226,159
U.S. Retail sales increased 22% in the first quarter of 1999, resulting from 12%
comparable store sales growth as well as sales from stores opened during the
past year. Sales in the Company's flagship New York store rose 12% in the first
quarter and comparable branch store sales increased 12%. Comparable store sales
growth resulted from an increased number of transactions. Purchases by domestic
customers continued to account for the largest portion of the sales growth,
although there was a modest increase in sales to foreign tourists. The Company's
plan is to open three additional U.S. branch stores in 1999, including a second
store in Dallas, TX that opened in May, as well as a second store in Los
Angeles, CA and a store in Boca Raton, FL.
- 11 -
<PAGE>
International Retail sales increased 22% in 1999's first quarter. In Japan, the
Company's largest international market, sales in local currency increased 16% in
total and 14% on a comparable store basis due to sales growth in Tokyo and
throughout Japan. The Company's reported sales and earnings reflect either a
translation-related benefit from a strengthening Japanese yen or a detriment
from a strengthening U.S. dollar. The average yen rate in 1999's first quarter
was approximately 9% stronger than in the first quarter of 1998. The Company's
hedging program utilizes yen put options in order to stabilize product costs
over the short-term, to minimize the effect of exchange rate fluctuations.
However, as a result of changes in the relationships between the yen and the
dollar, the Company adjusts its retail prices when necessary to maintain its
gross margin over the longer term.
In other international regions, comparable store sales in local currencies
increased 26% in the Asia-Pacific region outside Japan due to accelerating
trends in most markets and 18% in Europe principally on the strength of sales in
London.
The Company's international retail expansion plans for 1999 include opening two
new department store boutiques in Japan (one of which opened in the first
quarter), renovating/expanding several existing boutiques and its Tokyo Ginza
flagship store in Japan, expanding one of its Hong Kong stores and opening a
store in both Mexico City and Paris.
Direct Marketing sales increased 7% in the first quarter of 1999. Corporate
sales increased 3% and catalog sales rose 13%, due to a higher number of orders
in both areas. The Company anticipates increasing its catalog mailings by
approximately 5-10% in 1999.
Gross Profit
- ------------
Gross profit as a percentage of net sales was 54.5% in the first quarter,
compared with 53.5% in the prior year. Management attributes the increase to
favorable shifts in sales mix and leveraging of fixed costs, as well as product
manufacturing/sourcing efficiencies and selective price increases. The Company's
ongoing gross margin and pricing strategy is to pass product-cost increases on
to customers through higher retail selling prices in order to maintain gross
margin at, or above, prior-year levels.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased 18% in the first quarter,
primarily due to incremental occupancy, staffing and marketing expenses related
to the Company's worldwide expansion program, as well as to sales-related
variable expenses. As a percentage of net sales, the operating expense ratio of
43.7% in the first quarter improved from 44.5% in the prior year. Management's
ongoing objective is to reduce the expense ratio by leveraging the Company's
fixed-expense base.
- 12 -
<PAGE>
Other Expenses, net
- -------------------
Other expenses rose in the first quarter primarily due to higher interest
expense related to a $100,000,000 long-term financing that the Company completed
in December 1998. Based on current plans, as well as the incremental interest
cost of the long-term financing and potential share repurchases, management
expects interest expense in the remainder of 1999 to be higher than in the prior
year.
Provision for Income Taxes
- --------------------------
The provision for income taxes resulted in an effective tax rate of 42.0% in the
first quarter of 1999, compared with 42.5% in 1998's first quarter. The lower
rate was due to a shift in the geographical business mix toward lower-tax
jurisdictions as a result of the Company's ongoing expansion program.
Year 2000
- ---------
The Company recognizes the need to ensure that its operations will not be
adversely impacted by year 2000 computer hardware and software failures
(information technology systems) and embedded chip or processor failures
(non-information technology systems). 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 reporting
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 replace or modify and test
computer software and operating procedures. The objective of these efforts is to
achieve year 2000 compliance with minimal impact on customer service or other
disruption to, or loss of integrity in, business or financial operations.
Sources of potential failure in internal systems have been identified and
conversion efforts are underway. These conversion efforts are scheduled to be
completed in the summer of 1999. By that time, the Company will have been
required to remediate or replace (i) internally-developed computer code and (ii)
code purchased from third-party software vendors. At April 30, 1999, these
efforts were 97% complete in category (i) and 78% complete in category (ii), on
schedule with the Company's timetable for completion.
The foregoing conversion efforts address "information technology" systems (i.e.,
those operated and maintained by the Company's U.S. based Information Technology
staff, such as financial, order entry, inventory
- 13 -
<PAGE>
control and forecasting systems). An analysis has also been completed of all
"non-information technology" systems (i.e., those using embedded microprocessor
technology such as security systems, safes, telephone systems and warehouse
automation equipment) and upgrades or replacements are being deployed as
required. Other applications software is maintained on personal computers by
end-users in the U.S. and by wholly-owned Company subsidiaries outside the U.S.
Typically, such software has been purchased from third-party vendors and
specific applications have been developed by the end-user. The Information
Technology staff together with end-users have completed the determination of the
materiality of these applications to the Company and their status regarding year
2000 compliance. As required, remediation and testing plans have been initiated.
At April 30, 1999, these efforts were 84% complete, on schedule with the
Company's timetable for completion.
The Company has also evaluated year 2000 issues that may be experienced by key
merchandise and service vendors in order to assess the potential effect of
vendor failure on the Company's operations. The responses from key vendors and
suppliers indicate that 99% are year 2000 compliant at this time, will be year
2000 compliant before December 31, 1999, or are not dependent on computer
technology to deliver products and services to the Company. To further clarify
the extent to which vendors and suppliers have tested and confirmed their year
2000 readiness, a detailed questionnaire has been distributed and responses are
being analyzed to further determine risk and potential remedial action.
Contingency plans for manual and delayed information processing are now being
finalized because of the possibility of year 2000 failures or service
interruptions within the domestic and international network communications
infrastructure that the Company relies upon for daily operations. These plans
and procedures address both proactive and reactive measures that may be deployed
to provide merchandise to stores and customers and continue domestic and
international operations. Due to the thorough project approach and rigorous
testing that the Company has performed and continues to perform on its own
information technology systems, the Company believes that any failures should be
quickly rectifiable.
In addition to the cost of internal resources, the Company's total cost for
achieving year 2000 compliance is estimated to be $8,500,000 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 as incurred and
amounted to $796,000 in the first quarter of 1999 and $7,756,000 on a cumulative
basis.
- 14 -
<PAGE>
FINANCIAL CONDITION
- -------------------
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 Company's expansion. Management believes that the Company's financial
condition at April 30, 1999 provides sufficient resources to support current
business activities and planned expansion.
Working capital (current assets less current liabilities) and the corresponding
current ratio (current assets divided by current liabilities) were $544,468,000
and 3.1:1 at April 30, 1999, compared with $522,927,000 and 2.8:1 at January 31,
1999 and $386,589,000 and 2.6:1 at April 30, 1998.
Accounts receivable at April 30, 1999 were 15% lower than at January 31, 1999
(which is a seasonal high-point) and were 16% higher than the level at April 30,
1998 primarily due to sales growth.
Inventories (which represent the largest portion of assets) at April 30, 1999
were 9% higher than at January 31, 1999 and were 24% above the April 30, 1998
level. The increases were due to higher finished goods to support sales growth,
new stores and new/expanded product offerings, as well as higher raw materials
to support expanded internal manufacturing. 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. As a result, management expects a decelerating rate of year-over-year
inventory growth during the remainder of 1999.
The Company incurred net cash outflows from operating activities of $24,954,000
in the three months ended April 30, 1999 and $18,495,000 in the three months
ended April 30, 1998. The increased outflow resulted from an increased use of
working capital, primarily higher inventory purchases, partially offset by
increased net earnings.
Capital expenditures in the three months ended April 30, 1999 were $12,719,000,
compared with $13,460,000 in the prior-year period. Based on current plans,
management expects that capital expenditures will be approximately $77,000,000
in 1999.
Net-debt (short-term borrowings and 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 $135,944,000 and
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<PAGE>
20% at April 30, 1999, compared with $103,197,000 and 17% at January 31, 1999
and $106,942,000 and 19% at April 30, 1998.
The Company's sources of working capital are internally-generated cash flows and
borrowings available under a five-year, $160,000,000 multicurrency,
noncollateralized, five-bank revolving credit facility which expires on June 30,
2002. Management anticipates that internally-generated cash flows and funds
available under the revolving credit facility will be sufficient to support the
Company's planned worldwide business expansion and the seasonal working capital
increases that are typically required during the third and fourth quarters of
the year.
Market Risk
- -----------
The Company is exposed to market risk from fluctuations in foreign currency
exchange rates and interest rates, which could impact its consolidated financial
position, results of operations and cash flows. The Company manages its exposure
to market risk through its regular operating and financing activities and, when
deemed appropriate, through the use of derivative financial instruments. The
Company uses derivative financial instruments as risk management tools and not
for trading or speculative purposes and does not maintain such instruments which
may expose the Company to significant market risk.
The Company uses foreign currency-purchased put options and, to a lesser extent,
foreign-exchange forward contracts to reduce its risk in foreign
currency-denominated transactions in order to minimize the impact of a
significant strengthening of the U.S. dollar against other foreign currencies.
Gains and losses on these instruments substantially offset losses and gains on
the assets, liabilities and transactions being hedged. The Company's primary net
foreign currency market exposure is the Japanese yen. Management does not
foresee or expect any significant changes in foreign currency exposure in the
near future.
The Company manages its portfolio of fixed-rate debt to reduce its exposure to
interest rate changes. The fair value of the Company's fixed-rate long-term debt
is sensitive to interest rate changes. Interest rate changes would result in
gains/losses in the market value of this debt due to differences between market
interest rates and rates at the inception of the debt obligation. Management
does not foresee or expect any significant changes in its exposure to interest
rate fluctuations or in how such exposure is managed in the near future .
- 16 -
<PAGE>
Seasonality
- -----------
As a jeweler and specialty retailer, 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 openings, catalog
mailings, retail prices, gross profit, expenses, inventory performance, capital
expenditures, cash flow and year-2000 compliance. In addition, management makes
other forward-looking statements from time to time concerning objectives and
expectations. As a jeweler and specialty retailer, the Company's success in
achieving its objectives and expectations is partially dependent upon economic
conditions, competitive developments 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 sales made in Japan will not decline
substantially; (ii) that there will not be a substantial adverse change in the
exchange relationship between the Japanese yen and the U.S. dollar; (iii) that
the Company's commercial relationship with Mitsukoshi, Ltd. ("Mitsukoshi") and
Mitsukoshi's ability to continue as a leading department store operator in Japan
will continue; (iv) that Mitsukoshi and other department store operators in
Japan, in the face of declining sales, will not close or consolidate stores in
which TIFFANY & CO. boutiques are located; (v) that low or negative growth in
the economy or in the financial markets will not occur and reduce discretionary
spending on goods that are, or are perceived to be, "luxuries"; (vi) that
existing product supply arrangements, including license agreements with
third-party designers Elsa Peretti and Paloma Picasso, will continue; (vii) that
the wholesale market for high-quality cut diamonds will provide continuity of
supply and pricing; (viii) that new stores and other sales locations can be
leased or otherwise obtained on suitable terms in desired markets and that
construction can be completed on a timely basis; (ix) that new systems,
particularly for inventory management, can be successfully integrated into the
Company's operations, and that warehousing and distribution productivity and
capacity can be further improved to support the Company's worldwide distribution
requirements; and (x) that no downturn in consumer spending will occur during
the fourth quarter of any year.
- 17 -
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (SEC/EDGAR only).
(b) Reports on Form 8-K
On March 3, 1999 Registrant filed a report on Form 8-K
reporting that Registrant issued a press release announcing
its sales and earnings for the three-month period and fiscal
year ended January 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIFFANY & CO.
(Registrant)
Date: June 10, 1999 By: /s/ James N. Fernandez
----------------------------------
James N. Fernandez
Executive Vice President and
Chief Financial Officer
(principal financial officer)
- 18 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Note: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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> $140,250,000
<SECURITIES> 0
<RECEIVABLES> 101,748,000
<ALLOWANCES> 9,149,000
<INVENTORY> 523,480,000
<CURRENT-ASSETS> 804,609,000
<PP&E> 321,884,000
<DEPRECIATION> 127,532,000
<TOTAL-ASSETS> 1,054,557,000
<CURRENT-LIABILITIES> 260,141,000
<BONDS> 0
0
0
<COMMON> 704,000
<OTHER-SE> 545,393,000
<TOTAL-LIABILITY-AND-EQUITY> 1,054,557,000
<SALES> 272,277,000
<TOTAL-REVENUES> 272,277,000
<CGS> 123,981,000
<TOTAL-COSTS> 242,838,000
<OTHER-EXPENSES> 1,582,000
<LOSS-PROVISION> 296,000
<INTEREST-EXPENSE> 3,586,000
<INCOME-PRETAX> 27,857,000
<INCOME-TAX> 11,700,000
<INCOME-CONTINUING> 16,157,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,157,000
<EPS-BASIC> .23
<EPS-DILUTED> .22
</TABLE>
