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, 2000. 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, 72,634,551 shares outstanding at the close
of business on April 30, 2000.
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 2000
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets - April 30, 2000
(Unaudited), January 31, 2000 and
April 30, 1999 (Unaudited) 3
Consolidated Statements of Earnings - for the
three months ended April 30, 2000
and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows - for
the three months ended April 30, 2000
and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-17
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,
2000 2000 1999
-------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 199,167 $ 216,936 $ 140,250
Accounts receivable, less allowances
of $10,578, $9,716 and $9,149 106,423 119,356 92,599
Inventories, net 525,594 504,800 523,480
Deferred income taxes 35,005 30,212 23,393
Prepaid expenses and other current assets 26,591 20,357 24,887
---------------- --------------- ----------------
Total current assets 892,780 891,661 804,609
Property and equipment, net 326,368 322,400 194,352
Deferred income taxes 6,141 6,235 8,574
Other assets, net 132,336 123,266 47,022
---------------- --------------- ----------------
$ 1,357,625 $ 1,343,562 $ 1,054,557
================ =============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 28,964 $ 20,646 $ 82,729
Accounts payable and accrued liabilities 178,897 176,101 144,897
Income taxes payable 25,146 53,954 9,896
Merchandise and other customer credits 30,060 30,275 22,619
---------------- --------------- ----------------
Total current liabilities 263,067 280,976 260,141
Long-term debt 250,179 249,581 193,465
Postretirement/employment benefit obligations 23,924 23,165 21,908
Other long-term liabilities 33,854 32,764 32,946
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized 240,000 shares,
issued and outstanding 145,269, 144,952 and 140,798 1,453 1,450 1,408
Additional paid-in capital 303,994 293,173 203,978
Retained earnings 494,444 473,819 357,222
Accumulated other comprehensive loss -
Foreign currency translation adjustments (13,290) (11,366) (16,511)
---------------- --------------- ----------------
Total stockholders' equity 786,601 757,076 546,097
---------------- --------------- ----------------
$ 1,357,625 $ 1,343,562 $ 1,054,557
================ =============== ================
</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>
Three Months Ended
April 30,
-----------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Net sales $ 343,252 $ 272,277
Cost of sales 147,734 123,981
--------------- --------------
Gross profit 195,518 148,296
Selling, general and administrative expenses 142,123 118,857
--------------- --------------
Earnings from operations 53,395 29,439
Other expenses, net 2,685 1,582
--------------- --------------
Earnings before income taxes 50,710 27,857
Provision for income taxes 20,285 11,700
--------------- --------------
Net earnings $ 30,425 $ 16,157
=============== ==============
Net earnings per share:
Basic $ 0.21 $ 0.12
=============== ==============
Diluted $ 0.20 $ 0.11
=============== ==============
Weighted average number of common shares:
Basic 145,098 140,160
Diluted 151,836 145,404
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-----------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 30,425 $ 16,157
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,565 8,216
Loss on equity investment 993 -
Provision for uncollectible accounts 256 296
Provision for inventories 5,010 2,985
Tax benefit from exercise of stock options 4,363 9,056
Deferred income taxes (4,664) (4,917)
Loss on disposal of fixed assets 32 -
Provision for postretirement/employment benefits 759 369
Changes in assets and liabilities:
Accounts receivable 14,260 12,542
Inventories (26,914) (49,151)
Prepaid expenses and other current assets (6,265) (5,750)
Other assets, net (2,625) (378)
Accounts payable 7,783 5,795
Accrued liabilities (4,597) 299
Income taxes payable (28,613) (22,228)
Merchandise and other customer credits (185) 417
Other long-term liabilities 1,646 1,000
------------------ ------------------
Net cash provided by (used in) operating activities 2,229 (25,292)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,261) (12,719)
Equity investment (8,019) -
Acquisitions, net of liabilities assumed - (7,031)
Proceeds from lease incentives 1,500 2,684
------------------ ------------------
Net cash used in investing activities (21,780) (17,066)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) short-term borrowings, net 9,385 (12,310)
Repurchase of Common Stock (5,757) -
Proceeds from exercise of stock options 3,462 9,145
Cash dividends on Common Stock (4,348) (3,158)
------------------ ------------------
Net cash provided by (used in) financing activities 2,742 (6,323)
------------------ ------------------
Effect of exchange rate changes on
cash and cash equivalents (960) 338
------------------ ------------------
Net decrease in cash and cash equivalents (17,769) (48,343)
Cash and cash equivalents at beginning of year 216,936 188,593
------------------ ------------------
Cash and cash equivalents at end of three months $ 199,167 $ 140,250
================== ==================
</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, 2000
and the results of its operations and cash flows for the interim
periods presented. The consolidated balance sheet data for January 31,
2000 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 its operations for the three months ended April 30, 2000
and 1999 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) 2000 1999
--------------
----------- -----------
Cash paid during the three months for:
Interest $ 744 $ 1,223
=========== ===========
Income taxes $47,802 $28,316
=========== ===========
Details of businesses acquired
in Purchase transactions:
Fair value of assets acquired $ - $ 7,048
Less: liabilities assumed - 17
----------- -----------
Net cash paid for acquisitions $ - $ 7,031
=========== ===========
Supplemental Noncash Investing
And Financing Activities:
Issuance of Common Stock for the
Employee Profit Sharing and
Retirement Savings Plan $ 3,300 $ 1,600
=========== ===========
- 6 -
<PAGE>
3. INVENTORIES
<TABLE>
<CAPTION>
April 30, January 31, April 30,
(in thousands) 2000 2000 1999
--------------
------------------ ------------------- -------------------
<S> <C> <C> <C>
Finished goods $448,383 $438,499 $439,466
Raw materials 75,666 62,116 81,492
Work-in-process 7,330 6,810 4,954
------------------ ------------------ -------------------
531,379 507,425 525,912
Reserves (5,785) (2,625) (2,432)
------------------ ------------------ -------------------
$525,594 $504,800 $523,480
================== ================== ===================
</TABLE>
LIFO-based inventories at April 30, 2000, January 31, 2000 and April
30, 1999 were $400,261,000, $377,588,000 and $411,328,000, with the
current cost exceeding the LIFO inventory value by approximately
$14,446,000, $13,492,000 and $16,521,000 for the periods then ended.
The LIFO valuation method had no effect on net earnings for the three
months ended April 30, 2000 and had the effect of decreasing net
earnings by $0.01 per diluted share in the three month period ended
April 30, 1999.
4. FINANCIAL HEDGING INSTRUMENTS
-----------------------------
In accordance with the Company's foreign currency hedging program, at
April 30, 2000, the Company had outstanding purchased put options
maturing at various dates through April 24, 2001, giving it the right,
but not the obligation, to sell yen 12,114,000,000 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, 2000 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,
2000, the Company had $30,762,000 of such contracts outstanding, which
will mature on May 26, 2000. At April 30, 1999, the Company had
$13,540,000 of such contracts outstanding which matured on May 26,
1999.
- 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:
Three Months Ended
April 30,
--------------------------------
(in thousands) 2000 1999
-------------- ---- ----
Net earnings for basic
and diluted EPS $30,425 $16,157
============== ============
Weighted average shares
for basic EPS 145,098 140,160
Incremental shares from
assumed exercise of
stock options 6,738 5,244
-------------- ------------
Weighted average shares
for diluted EPS 151,836 145,404
============== ============
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:
Three Months Ended
April 30,
--------------------------------
(in thousands) 2000 1999
-------------- ---- ----
Net earnings $30,425 $16,157
Other comprehensive
loss:
Foreign currency
translation adjustments (1,924) (3,156)
-------------- -------------
Comprehensive earnings $28,501 $13,001
============== =============
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, service, marketing and distribution strategies. In
deciding how to allocate resources and assess performance, the
Company's Executive Officers regularly 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:
Three Months Ended
April 30,
------------------------------------
(in thousands) 2000 1999
----------------------- --------------- ---------------
Net sales:
U.S. Retail $ 169,192 $ 131,691
International Retail 147,446 117,474
Direct Marketing 26,614 23,112
--------------- ---------------
$ 343,252 $ 272,277
=============== ===============
Earnings from operations*:
U.S. Retail $ 43,356 $ 24,124
International Retail 35,988 28,964
Direct Marketing 220 382
--------------- ---------------
$ 79,564 $ 53,470
=============== ===============
* 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:
Three months Ended
April 30,
----------------------------------
(in thousands) 2000 1999
--------------------- ----------------- ----------------
Earnings from operations
for reportable segments $ 79,564 $ 53,470
Unallocated corporate expenses (26,169) (24,031)
Interest and other expenses, net (2,685) (1,582)
----------------- ----------------
Earnings before income taxes $ 50,710 $ 27,857
================= ================
8. INVESTMENT
----------
On February 24, 2000, the Company announced an approximate 5.4% equity
interest in Della.com, Inc. ("Della") a provider of on-line wedding
gift registry services. Immediately thereafter, the Company entered
into a Gift Registry Service Agreement, whereby the Company agreed to
offer products through Della's site and whereby Della agreed to develop
an on-line wedding gift registry for the Company.
On April 27, 2000, Della.com merged with and into Wedcom Inc. with the
consequence that the Company's equity interest in Della.com was
converted to an approximate 2.7% interest in Wedcom Inc., assuming the
conversion of all outstanding preferred shares to common. The Company
is accounting for this investment in accordance with the cost method as
provided in Accounting Principles Board Opinion No. 18, as amended.
9. SUBSEQUENT EVENTS
-----------------
On May 18, 2000, the stockholders approved an amendment to the
Company's Restated Certificate of Incorporation to increase the number
of common shares authorized from 120,000,000 shares to 240,000,000
shares.
On May 18, 2000, 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 20, 2000 to stockholders
of record on June 20, 2000. Accordingly, April 30, 2000 balances
reflect the split with an increase in Common Stock and a corresponding
reduction in paid-in capital that represents the increase in par value
of approximately $726,350. Stock options and per share data have also
been retroactively adjusted to reflect the split.
- 10 -
<PAGE>
9. SUBSEQUENT EVENTS (continued)
-----------------------------
In addition, the Board of Directors approved a 33% increase in the
Company's quarterly cash dividend to $0.08 per share on "pre-split"
shares to be paid on July 20, 2000 to stockholders of record on June
20, 2000. Future quarterly dividends, subject to declaration by the
Board of Directors, are expected to be paid at the rate of $0.04 per
share following the stock split.
- 11 -
<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. 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), catalog and Internet 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.
Net sales increased 26% in the three-month period (first quarter) ended April
30, 2000. Sales growth and a higher operating margin resulted in an 88% increase
in net earnings.
Net sales by channel of distribution were as follows:
-----------------------------------------------------
Three months
Ended April 30,
------------------
(in thousands) 2000 1999
-------------- -------- --------
U.S. Retail $169,192 $131,691
International Retail 147,446 117,474
Direct Marketing 26,614 23,112
------------------
$343,252 $272,277
==================
U.S. Retail sales rose 28% in the first quarter due to 28% growth in comparable
store sales. Sales in the Company's flagship New York store rose 19% while
comparable branch store sales increased 32%. Comparable store sales growth
resulted from an increased number of transactions and an increase in the average
price per unit sold. Sales growth was primarily due to increased purchases by
domestic customers, although sales to foreign tourists also increased. Four new
stores opened in 1999 also contributed to U.S. Retail sales growth. Effective
January 2000, the Company discontinued wholesale sales to independent retailers
in the U.S., in order to focus on Company-operated stores. The elimination of
wholesale shipments offset incremental retail sales from new stores. As part of
the Company's strategy to open three to five new U.S. stores each year, the
Company opened a store in Skokie, Illinois in May 2000 and plans to open stores
in Greenwich, Connecticut and Maui, Hawaii in late-summer and late-fall,
respectively.
International Retail sales increased 26% in the first quarter. In Japan, the
Company's largest international market, total and comparable store sales in yen
rose 15% primarily due to increased unit transactions. 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
yen in 2000's first quarter was stronger than the prior year and, as a result,
total Japan retail sales, when translated into U.S. dollars, increased 27% in
the
- 12 -
<PAGE>
first quarter. The Company's hedging program uses yen put options to
stabilize product costs over the short-term despite exchange rate fluctuations.
Also, the Company adjusts its retail prices from time to time to address changes
in the yen/dollar relationship and local competitive pricing. In the
Asia-Pacific region outside Japan, comparable store sales in local currencies
rose 32% in the first quarter due to increased sales in Company-operated stores.
In Europe, comparable store sales in local currencies rose 25% in the first
quarter, due to strength in London and increased sales in most other markets. On
March 2, 2000, the Company announced that, effective July 2000, it will
discontinue wholesale distribution of jewelry, watches and accessories in Europe
in order to focus on Company-operated stores. Management does not expect this
decision to significantly impact the Company's financial position, earnings or
cash flows. International Retail expansion plans in 2000 include: a new store in
Kuala Lumpur, Malaysia (which opened in the first quarter); opening two new
department store boutiques (one opened in the first quarter) and
renovating/expanding three existing boutiques in Japan; opening/replacing
locations in Hong Kong, Taiwan and Korea; and opening an additional
department-store boutique in Mexico City.
Direct Marketing sales increased 15% in the first quarter. Corporate division
sales rose 10% due to an increased number of orders. Catalog and Internet (which
commenced in November 1999) sales rose a combined 23%. The Company anticipates a
slight decline in its catalog mailings in 2000 to improve mailing productivity.
The Company is also in the process of enhancing its Internet operations, and
plans to increase the number of products available for purchase by customers in
2000.
Gross Profit
------------
Gross profit as a percentage of net sales was 57.0% in the first quarter,
compared with 54.5% in the prior-year. Management attributes the increase to
favorable shifts in sales mix and to the leverage effect of fixed costs on
increased sales, as well as product manufacturing/sourcing efficiencies. In
order to maintain gross margin at, or above, prior-year levels, the Company's
strategy includes selective price adjustments, achieving further product
manufacturing/sourcing efficiencies and leveraging fixed costs.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses increased 20% 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
41.4% in the first quarter represented a 2.3 point improvement from 1999's first
quarter. Management's ongoing objective is to reduce the expense ratio by
leveraging the Company's fixed-expense base.
Other Expenses, net
-------------------
Other expenses, net rose in the first quarter, due to higher interest expense
and the Company's share of the results of operations of Aber Resources Ltd.
("Aber"), partly offset by higher interest income. Management expects Other
expenses, net for the remainder of 2000 to be higher than 1999 (see Financial
Condition).
- 13 -
<PAGE>
Provision for Income Taxes
--------------------------
The provision for income taxes resulted in an effective tax rate of 40.0% in the
first quarter, compared with 42.0% in 1999'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. Management expects a
similar rate for the remainder of 2000.
FINANCIAL CONDITION
-------------------
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements and capital expenditure
needs, which have increased due to the Company's expansion. Management believes
that the Company's financial condition at April 30, 2000 provides sufficient
resources to support current business activities and planned expansion.
The Company incurred a net cash inflow from operating activities of $2,229,000
in the three months ended April 30, 2000 compared with an outflow of $25,292,000
in the three months ended April 30, 1999. The improved cash flow primarily
resulted from increased net earnings, as well as improved inventory
productivity.
Working capital (current assets less current liabilities) and the corresponding
current ratio (current assets divided by current liabilities) were $629,713,000
and 3.4:1 at April 30, 2000, compared with $610,685,000 and 3.2:1 at January 31,
2000 and $544,468,000 and 3.1:1 at April 30, 1999.
Accounts receivable at April 30, 2000 were 11% lower than at January 31, 2000
(which is a seasonal high-point) but were 15% higher than at April 30, 1999 due
to sales growth.
Inventories (which represent the largest portion of assets) at April 30, 2000
were 4% higher than at January 31, 2000 but increased less than 1% over April
30, 1999. The Company's ongoing objectives are: to refine worldwide
replenishment systems; to focus on the specialized disciplines of product
development, category management and sales demand forecasting; to improve
presentation and management of display inventories in each store; and to improve
warehouse management and supply-chain logistics.
Capital expenditures in the three months ended April 30, 2000 were $15,261,000,
compared with $12,719,000 in the prior-year period. Based on current plans,
management expects that capital expenditures will be approximately $135 million
in 2000, compared with $171 million in 1999. Capital expenditures in 2000 will
include costs related to openings, renovations and expansions of stores,
distribution and office facilities, as well as the cost related to construction
of a jewelry manufacturing facility in Rhode Island. The largest portion of
capital expenditures in 1999 was for the Company's purchase of the land and
building for its flagship store at Fifth Avenue and 57th Street, New York City.
In July 1999, the Company made a strategic investment in Aber, a publicly-traded
company headquartered in Canada, by purchasing 8 million shares of its common
stock at a cost of $70,636,000,
- 14 -
<PAGE>
representing approximately 14.9% of Aber's outstanding shares. Aber holds a 40%
interest in the Diavik Diamonds Project in Canada's Northwest Territories, an
operation being developed to mine gem-quality reserves. Production is expected
to commence in 2003. The investment is included in Other assets, net and is
being accounted for under the equity method. The Company's share of Aber's
results from operations has been included in Other expenses, net and amounted to
a loss of $993,000. In addition, the Company will form a joint venture and enter
into a diamond-purchase agreement with Aber. It is expected that this commercial
relationship will enable the Company to secure a considerable portion of its
future diamond needs.
On February 24, 2000, the Company announced an approximate 5.4% equity interest
in Della.com, Inc. ("Della"), a provider of on-line wedding gift registry
services. Immediately thereafter, the Company entered into a Gift Registry
Service Agreement, whereby the Company agreed to offer products through Della's
site and whereby Della agreed to develop an on-line wedding gift registry for
the Company. On April 27, 2000, Della.com merged with and into Wedcom Inc. with
the consequence that the Company's equity interest in Della.com was converted to
an approximate 2.7% interest in Wedcom Inc., assuming the conversion of all
outstanding preferred shares to common.
In November 1997, the Board of Directors authorized the repurchase of up to
$100,000,000 of the Company's Common Stock in the open market over a three-year
period. The timing and actual number of shares to be purchased depends on a
variety of factors such as price and other market conditions. In the first
quarter of 2000, the Company purchased 200,000 shares at a cost of $5,757,000,
or an average cost of $28.78 per share. On a cumulative basis, the Company has
purchased 4,294,400 shares at a total cost of $44,464,000, or an average of
$10.35 per share. Shares and per share data have been adjusted for the July 2000
and 1999 two-for-one splits of the Company's Common Stock.
In July 1999, the Company issued 2,900,000 shares of its Common Stock at a price
of $24.69 per share, resulting in net proceeds of $71,426,000. The net proceeds
from the issuance were added to the Company's working capital and have been used
to support strategic initiatives and ongoing business expansion.
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 $79,976,000 and 9% at April
30, 2000, compared with $53,291,000 and 7% at January 31, 2000 and $135,944,000
and 20% at April 30, 1999.
In October 1999, the Company entered into a yen 5,500,000,000, five-year loan
agreement, bearing interest at the six-month Japanese LIBOR plus 50 basis
points, adjusted every six months (the "floating rate"). The proceeds from this
loan were used to reduce short-term indebtedness in Japan. Concurrently, the
Company entered into a yen 5,500,000,000 five-year interest rate swap agreement
whereby the Company will pay a fixed rate of 1.815% and receive the floating
rate.
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
- 15 -
<PAGE>
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 that
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 and to minimize the impact of a significant
strengthening of the U.S. dollar on foreign currency-denominated transactions.
Gains or losses on these instruments substantially offset losses or 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 nor expect any significant changes in foreign currency exposure in the
near future.
The Company also 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 or 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 nor expect any significant changes in its exposure
to interest rate fluctuations, or in how such exposure is managed in the near
future.
The Company uses an interest rate swap to manage its yen-denominated floating
rate long-term debt in order to reduce the impact of interest rate changes on
earnings and cash flows and to lower overall borrowing costs.
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 and cash flow. In addition, management makes other forward-looking
statements from time to time
- 16 -
<PAGE>
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 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 or stagnant department store
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 the
investment in Aber achieves its financial and strategic objectives; (ix) 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; (x) 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 (xi) 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, 2000 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, 2000.
On April 18, 2000 Registrant filed a report on Form 8-K
reporting that Registrant issued a press release announcing
its first quarter to-date sales were strong and earnings were
projected to exceed security analysts' expectations.
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 06, 2000 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
