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 October 31, 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, 145,867,047 shares outstanding at the close
of business on October 31, 2000.
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 2000
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets - October 31, 2000
(Unaudited), January 31, 2000 and
October 31, 1999 (Unaudited) 3
Consolidated Statements of Earnings - for the
three and nine month periods ended
October 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows - for
the nine months ended October 31, 2000
and 1999 (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>
October 31, January 31, October 31,
2000 2000 1999
---------------- ---------------- ----------------
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 121,143 $ 216,936 $ 155,937
Accounts receivable, less allowances
of $9,490, $9,716 and $9,176 100,662 119,356 107,006
Inventories, net 657,106 504,800 575,962
Deferred income taxes 36,525 30,212 30,251
Prepaid expenses and other current assets 42,499 20,357 34,502
---------------- ---------------- ----------------
Total current assets 957,935 891,661 903,658
Property and equipment, net 356,847 322,400 217,004
Deferred income taxes 5,046 6,235 8,037
Other assets, net 132,831 123,266 133,692
---------------- ---------------- ----------------
$ 1,452,659 $ 1,343,562 $ 1,262,391
================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 36,850 $ 20,646 $ 43,959
Accounts payable and accrued liabilities 213,848 176,101 194,253
Income taxes payable 5,750 53,954 10,370
Merchandise and other customer credits 32,679 30,275 26,353
---------------- ---------------- ----------------
Total current liabilities 289,127 280,976 274,935
Long-term debt 247,859 249,581 251,618
Postretirement/employment benefit obligations 25,444 23,165 22,990
Other long-term liabilities 36,170 32,764 34,651
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized 240,000 shares,
issued and outstanding 145,867, 144,952 and 144,716 1,459 1,450 1,448
Additional paid-in capital 320,891 293,173 289,671
Retained earnings 553,126 473,819 393,587
Accumulated other comprehensive loss -
Foreign currency translation adjustments (21,417) (11,366) (6,509)
---------------- ---------------- ----------------
Total stockholders' equity 854,059 757,076 678,197
---------------- ---------------- ----------------
$ 1,452,659 $ 1,343,562 $ 1,262,391
================ ================ ================
</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 Nine Months Ended
October 31, October 31,
------------------------------ -------------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 369,736 $ 322,706 $ 1,084,965 $ 902,050
Cost of sales 154,370 141,216 453,376 397,227
------------ ------------ ------------- -------------
Gross profit 215,366 181,490 631,589 504,823
Selling, general and administrative expenses 152,314 142,008 448,065 393,949
------------ ------------ ------------- -------------
Earnings from operations 63,052 39,482 183,524 110,874
Other expenses, net 2,516 2,257 7,005 6,170
------------ ------------ ------------- -------------
Earnings before income taxes 60,536 37,225 176,519 104,704
Provision for income taxes 24,216 15,263 70,609 43,604
------------ ------------ ------------- -------------
Net earnings $ 36,320 $ 21,962 $ 105,910 $ 61,100
============ ============ ============= =============
Net earnings per share:
Basic $ 0.25 $ 0.15 $ 0.73 $ 0.43
============ ============ ============= =============
Diluted $ 0.24 $ 0.15 $ 0.70 $ 0.41
============ ============ ============= =============
Weighted average number of common shares:
Basic 145,809 144,660 145,357 142,332
Diluted 152,136 151,204 151,853 148,234
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
-------------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 105,910 $ 61,100
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Depreciation and amortization 33,360 26,902
Loss on equity investment 1,064 250
Provision for uncollectible accounts 809 992
Provision for inventories 12,926 5,776
Tax benefit from exercise of stock options 15,288 17,676
Deferred income taxes (5,163) (10,786)
Loss on disposal of fixed assets 866 -
Provision for postretirement/employment benefits 2,279 1,451
Changes in assets and liabilities:
Accounts receivable 17,756 2,240
Inventories (174,756) (79,628)
Prepaid expenses and other current assets (22,730) (13,963)
Other assets, net (4,460) (16,789)
Accounts payable 28,154 8,746
Accrued liabilities 11,907 39,357
Income taxes payable (47,646) (22,587)
Merchandise and other customer credits 2,509 3,438
Other long-term liabilities 3,220 2,439
------------------- -------------------
Net cash (used in) provided by operating activities (18,707) 26,614
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equity (8,014) (70,636)
Capital expenditures (70,878) (52,743)
Acquisitions, net of liabilities assumed - (7,031)
Proceeds from lease incentives 3,761 4,316
------------------- -------------------
Net cash used in investing activities (75,131) (126,094)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock - 71,426
Proceeds from (repayments of) short-term borrowings 19,530 (55,435)
Proceeds from issuance of long-term debt - 47,498
Repurchase of Common Stock (11,204) -
Proceeds from exercise of stock options 9,726 14,832
Cash dividends on Common Stock (15,985) (11,736)
------------------- -------------------
Net cash provided by financing activities 2,067 66,585
------------------- -------------------
Effect of exchange rate changes on
cash and cash equivalents (4,022) 239
------------------- -------------------
Net decrease in cash and cash equivalents (95,793) (32,656)
Cash and cash equivalents at beginning of year 216,936 188,593
------------------- -------------------
Cash and cash equivalents at end of nine months $ 121,143 $ 155,937
=================== ===================
See notes to consolidated financial statements.
</TABLE>
- 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 October 31, 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 operations for the three and nine months ended October 31, 2000 and 1999
are not necessarily indicative of the results of the entire fiscal year.
Certain reclassifications were made to the prior year's consolidated
financial statements to conform to the current year's presentation.
2. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
Supplemental cash flow information:
October 31, October 31,
(in thousands) 2000 1999
-------------- ---------------- -----------------
Cash paid during the nine months for:
<S> <C> <C>
Interest $ 7,406 $ 8,258
================ =================
Income taxes $106,126 $59,171
================ =================
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
================ =================
</TABLE>
- 6 -
<PAGE>
3. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In June 1998, 1999 and 2000, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
SFAS No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of SFAS No.
133." These statements outline the accounting treatment for all
derivative activity. The Company is required to, and will, adopt these
statements in the first quarter of Fiscal 2001 and does not expect a
significant impact on its financial position, earnings or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which provides guidelines in
applying generally accepted accounting principles to certain revenue
recognition issues. Subsequently, the SEC has issued related guidance,
which has extended the implementation date of SAB 101 until the fourth
quarter of 2000. The Company does not expect this statement to have a
significant impact on its financial position, earnings or cash flows.
In July 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue 00-10, "Accounting for Shipping and Handling
Revenues and Costs" and determined that all amounts billed related to
shipping and handling should be classified as revenue. Subsequently,
the EITF determined that the classification of shipping and handling
costs is an accounting policy decision that should be disclosed. If
handling costs are significant and not included in cost of sales, the
amount of such costs and the line item on the income statement that
includes that amount should also be disclosed. The Company does not
expect this issue to have a significant impact on the Company's
financial position, earnings or cash flows.
4. INVENTORIES
-----------
<TABLE>
<CAPTION>
October 31, January 31, October 31,
2000 2000 1999
(in thousands)
-------------- ------------------ -------------------- ---------------------
<S> <C> <C> <C>
Finished goods $524,263 $438,499 $507,933
Raw materials 131,413 62,116 64,338
Work-in-process 6,540 6,810 7,127
------------------ -------------------- ---------------------
662,216 507,425 579,398
Reserves (5,110) (2,625) (3,436)
------------------ -------------------- ---------------------
$657,106 $504,800 $575,962
================== ==================== =====================
</TABLE>
LIFO-based inventories at October 31, 2000, January 31, 2000 and
October 31, 1999 were $516,673,000, $377,588,000 and $432,860,000, with
the current cost exceeding the LIFO inventory value by approximately
$14,958,000, $13,492,000 and $16,870,000 at the end of each period. The
LIFO valuation method had no effect on net earnings per diluted share
for the three month periods ended October 31, 2000 and 1999. The LIFO
valuation method had the effect of decreasing net earnings by $0.01 per
diluted share for the nine month period ended October 31, 2000 and had
no effect on net earnings per diluted share for the nine month period
ended October 31, 1999.
- 7 -
<PAGE>
5. FINANCIAL HEDGING INSTRUMENTS
-----------------------------
In accordance with the Company's foreign currency hedging program, at
October 31, 2000, the Company had outstanding purchased put options
maturing at various dates through October 24, 2001, giving it the
right, but not the obligation, to sell yen 11,637,000,000 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 October 31, 2000, the deferred unrealized
gain on the Company's purchased put options amounted to $1,207,000.
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 October 31,
2000, the Company had $30,082,000 of such contracts outstanding, which
will mature on November 27, 2000. At October 31, 1999, the Company had
$19,421,000 of such contracts outstanding, which subsequently matured
on November 26, 1999.
6. 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
---------------------------- ----------------------------
(in thousands) 2000 1999 2000 1999
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings for basic
and diluted EPS $36,320 $21,962 $105,910 $61,100
============= ============== ============= ==============
Weighted average shares
for basic EPS 145,809 144,660 145,357 142,332
Incremental shares from
assumed exercise of
stock options 6,327 6,544 6,496 5,902
------------- -------------- ------------- --------------
Weighted average shares
for diluted EPS 152,136 151,204 151,853 148,234
============= ============== ============= ==============
</TABLE>
7. 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.
- 8 -
<PAGE>
The components of comprehensive earnings were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------------------- ----------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
--------------
<S> <C> <C> <C> <C>
Net earnings $36,320 $21,962 $105,910 $61,100
Other comprehensive
gain(loss):
Foreign currency
translation adjustments (4,124) 7,097 (10,051) 6,846
-------------- -------------- --------------- --------------
Comprehensive earnings $32,196 $29,059 $ 95,859 $67,946
============== ============== =============== ==============
</TABLE>
Foreign currency translation adjustments are not adjusted for income
taxes since they relate to investments that are permanent in nature.
8. 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------------------- ------------------------------------
(in thousands) 2000 1999 2000 1999
-------------- ---- ---- ---- ----
Net sales:
<S> <C> <C> <C> <C>
U.S. Retail $ 181,699 $ 161,491 $ 538,818 $ 452,694
International Retail 154,730 132,869 455,430 371,917
Direct Marketing 33,307 28,346 90,717 77,439
----------- ------------ -------------- -----------
$ 369,736 $ 322,706 $ 1,084,965 $ 902,050
=========== ============ ============== ===========
Earnings from
Operations*:
U.S. Retail $ 45,941 $ 30,065 $ 139,611 $ 86,701
International Retail 40,161 29,503 115,420 89,185
Direct Marketing 2,904 1,413 5,402 3,039
------------ ------------ -------------- -----------
$ 89,006 $ 60,981 $ 260,433 $ 178,925
============ ============ ============== ===========
</TABLE>
* Represents earnings from operations before unallocated corporate
expenses and interest and other expenses, net.
- 9 -
<PAGE>
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.
The following table sets forth a reconciliation of the reportable
segment's earnings from operations to the Company's consolidated
earnings before income taxes:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
----------------------------------- --------------------------------------
(in thousands) 2000 1999 2000 1999
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings from
operations for
reportable segments $ 89,006 $ 60,981 $ 260,433 $ 178,925
Unallocated
corporate expenses (25,954) (21,499) (76,909) (68,051)
Interest and other
expenses, net (2,516) (2,257) (7,005) (6,170)
-------------- -------------- ---------------- ---------------
Earnings before
income taxes $ 60,536 $ 37,225 $ 176,519 $ 104,704
============== ============== ================ ===============
</TABLE>
9. INVESTMENT
----------
On February 24, 2000, the Company announced the acquisition of 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 merged with and into Wedcom Inc. with the
consequence that the Company's equity interest in Della 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.
10. COMMON STOCK
------------
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, effected in the form of a share
distribution (stock dividend) paid on July 20, 2000 to stockholders of
record on June 20, 2000. Stock options and per share data have been
retroactively adjusted to reflect the split.
11. SUBSEQUENT EVENT
----------------
On November 16, 2000, the Company's Board of Directors declared a
quarterly dividend of $0.04 per common share. This dividend will be
paid on January 10, 2001 to stockholders of record on December 20,
2000.
- 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. 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
(business-to-business) 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, catalog and Internet
sales in the U.S.
In order to focus on Company-operated stores and to eliminate marginally
profitable operations, the Company decided to eliminate certain wholesale
selling operations. Therefore, effective January 2000 wholesale sales of jewelry
and other non-jewelry items were discontinued in the U.S.(included in the U.S.
Retail channel); effective July 2000 wholesale sales of such items were
discontinued in Europe; and effective January 2001 wholesale sales of fragrance
products will be discontinued in the U.S. and most international markets.
Management does not expect these decisions, singularly or in the aggregate, to
significantly affect the Company's financial position, earnings or cash flows,
although the elimination of wholesale sales and accounts receivable does have a
modest effect on year-over-year comparisons.
All references to full years relate to the fiscal year that ends on January 31
of the following calendar year.
Net Sales
Net sales increased 15% in the three-month period ended October 31, 2000 (third
quarter) and 20% in the nine-month period ended October 31, 2000 (year-to-date).
Worldwide comparable store sales in local currencies rose 17% in the third
quarter and 19% in the year-to-date. Sales growth and higher operating margins
resulted in net earnings growth of 65% in the third quarter and 73% in the
year-to-date.
Net sales by channel of distribution were as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended October 31, ended October 31,
----------------- ------------------
(in thousands) 2000 1999 2000 1999
-------------- ------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Retail $181,699 $161,491 $ 538,818 $452,694
International Retail 154,730 132,869 455,430 371,917
Direct Marketing 33,307 28,346 90,717 77,439
-------- -------- ---------- --------
$369,736 $322,706 $1,084,965 $902,050
======== ======== ========== =========
</TABLE>
U.S. Retail sales increased 13% in the third quarter and 19% in the
year-to-date. Comparable store sales increased 18% in the third quarter and 21%
in the year-to-date, due to increases of 11% and 12% in the Company's flagship
New York store and increases of 21% and 25% in comparable branch store sales.
Sales growth primarily resulted from increased unit sales of jewelry. Purchases
by domestic customers generated the largest portion of the increase, although
- 11 -
<PAGE>
sales to foreign tourists also increased. The opening of four new stores in 1999
and two in 2000 also contributed to U.S. Retail sales growth. As part of the
Company's strategy to open three to five new U.S. stores each year, the Company
has opened stores in 2000 in: Skokie, Illinois in May, Greenwich, Connecticut in
September, Portland, Oregon in November and a second store in Maui, Hawaii in
December.
International Retail sales increased 16% in the third quarter and 22% in the
year-to-date. In Japan, the Company's largest international market, total sales
in yen rose 13% in both the third quarter and year-to-date primarily due to
increased unit sales of jewelry. Comparable store sales rose 10% in the third
quarter and 12% in the year-to-date. 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 third quarter
and year-to-date was stronger than the prior year; consequently, when translated
into U.S. dollars, total Japan retail sales increased 14% in the third quarter
and 22% in the year-to-date. In Asia-Pacific outside Japan, comparable store
sales in local currencies rose 31% and 34% in the third quarter and
year-to-date. In Europe, comparable store sales in local currencies rose 35% and
27% in the third quarter and year-to-date. In 2000, International Retail store
expansion has included: a new store in Kuala Lumpur, Malaysia; two new
department store boutiques and three boutique expansions in Japan; an additional
store in Hong Kong and in Korea; and an additional department-store boutique in
Mexico City.
Direct Marketing sales rose 18% and 17% in the third quarter and year-to-date.
Corporate division sales rose 15% and 13% in the third quarter and year-to-date
due to an increased number of orders shipped, while Internet sales (which
commenced in November 1999) and catalog sales rose a combined 21% and 23% in the
respective periods. The Company has slightly reduced its catalog mailings in
2000. The Company has also enhanced its Internet operations by increasing the
number of products available for purchase and by introducing an on-line wedding
gift registry.
Gross Profit
Gross profit as a percentage of net sales was 58.2% in both the third quarter
and year-to-date, compared with 56.2% and 56.0% in 1999's corresponding periods.
Management attributes the increases to favorable shifts in sales mix, the
leverage effect of fixed costs on increased sales, selective price increases and
product manufacturing/sourcing efficiencies. The Company's hedging program uses
yen put options to stabilize product costs in Japan 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 order to maintain overall gross margin at, or above,
prior-year levels, the Company's strategy includes selective price adjustments,
achieving further product manufacturing/sourcing efficiencies and leveraging its
fixed costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 7% and 14% in the third
quarter and year-to-date, primarily due to incremental occupancy,staffing and
- 12 -
<PAGE>
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 was 41.2% and 41.3% in the third quarter and
year-to-date, compared with 44.0% and 43.7% in the corresponding 1999 periods.
Management's ongoing objective is to further reduce the expense ratio by
leveraging the Company's fixed-expense base against sales growth.
Other Expenses, net
Other expenses, net increased in the third quarter and the year-to-date. Higher
interest expense and the Company's share of losses of Aber Diamond Corporation,
previously known as Aber Resources Ltd. ("Aber"), were partially offset by
higher interest income on cash and cash equivalents. (see Financial Condition).
Provision for Income Taxes
The provision for income taxes resulted in an effective tax rate of 40.0% in the
third quarter and year-to-date, compared with 41.0% and 41.6% in 1999's
corresponding periods. 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.
New Accounting Pronouncements
In June 1998, 1999 and 2000, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133," and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of SFAS No. 133." These statements outline the accounting treatment
for all derivative activity. The Company is required to, and will, adopt these
statements in the first quarter of Fiscal 2001 and does not expect a significant
impact on its financial position, earnings or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101") which provides guidelines in applying generally
accepted accounting principles to certain revenue recognition issues.
Subsequently, the SEC has issued related guidance, which has extended the
implementation date of SAB 101 until the fourth quarter of 2000. The Company
does not expect this statement to have a significant impact on its financial
position, earnings or cash flows.
In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue 00-10, "Accounting for Shipping and Handling Revenues and Costs," and
determined that all amounts billed related to shipping and handling should be
classified as revenue. Subsequently, the EITF determined that the classification
of shipping and handling costs is an accounting policy decision that should be
disclosed. If handling costs are significant and not included in cost of sales,
the amount of such costs and the line item on the income statement that includes
that amount should also be disclosed. The Company does not expect this issue to
have a significant impact on the Company's financial position, earnings or cash
flows.
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
- 13 -
<PAGE>
needs, which have increased due to the Company's expansion. Management believes
that the Company's financial condition at October 31, 2000 provides sufficient
resources to support current business activities and planned expansion.
The Company incurred a net cash outflow from operating activities of $18,707,000
in the nine months ended October 31, 2000 compared with an inflow of $26,614,000
in the corresponding 1999 period. Higher inventory purchases were partially
offset by increased net earnings.
Working capital (current assets less current liabilities) and the corresponding
current ratio (current assets divided by current liabilities) were $668,808,000
and 3.3:1 at October 31, 2000, compared with $610,685,000 and 3.2:1 at January
31, 2000 and $628,723,000 and 3.3:1 at October 31, 1999.
Accounts receivable at October 31, 2000 declined 16% from January 31, 2000
(which is a seasonal high-point) and declined 6% from October 31, 1999, largely
due to the effect of discontinued wholesale trade sales.
Inventories (which represent the largest portion of assets) at October 31, 2000
were 30% higher than January 31, 2000 and were 14% higher than October 31, 1999.
Finished goods increased to support planned sales growth, new stores and new
product introductions, while raw materials increased in support of the Company's
initiative to increase its internal jewelry manufacturing and planned sales
growth in the fourth quarter. In addition, Management has seen a tightening in
the market supply of high quality diamonds and, therefore, the Company increased
its purchases of high quality diamonds to ensure an adequate inventory position
in the future. 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
its warehouse management and supply-chain logistics.
Capital expenditures in the nine months ended October 31, 2000 were $70,878,000,
compared with $52,743,000 in the prior-year period. Based on current plans,
management expects that capital expenditures will be approximately $110 million
in 2000, compared with $171 million in 1999. Management's prior forecast for
capital expenditures in 2000 was $135 million. This revision represents timing
differences in spending that will be incurred in 2001. Capital expenditures in
2000 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 November 2000, the Company announced that it would renovate and reconfigure
its New York flagship store over the next three years, in order to increase the
total sales area by approximately 25% and provide additional space for customer
service and special exhibitions. The Company anticipates no disruption to the
delivery of sales or customer service during the construction. At the present
time, the Company estimates the overall cost of the project to be approximately
$71 million. In order to begin construction, the Company's executive offices
have been relocated from the store to a nearby office building that already
houses certain of Tiffany's marketing, merchandising and administrative
functions.
- 14 -
<PAGE>
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, 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
diamond reserves. Production is expected to commence in 2003. 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. 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 for the
nine-month period ended October 31, 2000 has been included in Other expenses,
net and amounted to a loss of $1,064,000.
In February 2000, the Company announced the acquisition of 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, which was launched in August 2000. In April 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. In September 2000, the Board of Directors extended the original program
by authorizing the repurchase of up to $100,000,000 of the Company's Common
Stock in the open market over a three-year period that will expire in November
2003. 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 nine months
ended October 31, 2000, the Company purchased 390,000 shares at a cost of
$11,204,000, or an average cost of $28.73 per share. On a cumulative basis, the
Company has purchased 4,484,400 shares at a total cost of $49,913,000, or an
average of $11.13 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.
As a result of many of the above factors, 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 $163,566,000 and 16% at October 31, 2000, compared with $53,291,000 and 7%
at January 31, 2000 and $139,640,000 and 17% at October 31, 1999.
- 15 -
<PAGE>
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 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.
- 16 -
<PAGE>
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 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 and that the Company can successfully increase its internal
jewelry manufacturing capacity and production; (vii) that the wholesale market
for high-quality cut diamonds will provide continuity of supply and pricing;
(viii) that worldwide consumer demand for diamonds remains strong; (ix) that the
investment in Aber achieves its financial and strategic objectives; (x) 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; (xi) 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 (xii) 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 August 17, 2000 Registrant filed a report on Form 8-K
reporting its sales and earnings for the three-month period
ended July 31, 2000.
On September 22, 2000 Registrant filed a report on Form 8-K
reporting the announcement of the increase and extension of
its stock repurchase program.
October 12, 2000 Registrant filed a report on Form 8-K
reporting its third quarter to-date sales are strong and
earnings are projected to exceed 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: December 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
27.1 Financial Data Schedule
(submitted to SEC only)
