SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 for the quarter ended July 31, 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, 145,202,102 shares outstanding at the close
of business on July 31, 2000.
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 2000
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - July 31, 2000
(Unaudited), January 31, 2000 and
July 31, 1999 (Unaudited) 3
Consolidated Statements of Earnings - for the
three and six month periods ended
July 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows - for
the six months ended July 31, 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 12-18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
(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>
July 31, January 31, July 31,
2000 2000 1999
-------------- -------------- --------------
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 174,662 $ 216,936 $ 151,044
Accounts receivable, less allowances
of $9,776, $9,716 and $9,167 100,526 119,356 93,229
Inventories, net 559,675 504,800 536,603
Deferred income taxes 33,131 30,212 27,214
Prepaid expenses and other current assets 33,969 20,357 32,246
---------------- ---------------- ----------------
Total current assets 901,963 891,661 840,336
Property and equipment, net 339,626 322,400 205,526
Deferred income taxes 5,681 6,235 8,620
Other assets, net 132,938 123,266 132,320
---------------- ---------------- ----------------
$ 1,380,208 $ 1,343,562 $ 1,186,802
================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 28,671 $ 20,646 $ 98,295
Accounts payable and accrued liabilities 181,246 176,101 150,474
Income taxes payable 19,067 53,954 18,119
Merchandise and other customer credits 31,569 30,275 24,174
---------------- ---------------- ----------------
Total current liabilities 260,553 280,976 291,062
Long-term debt 247,239 249,581 194,845
Postretirement/employment benefit obligations 24,684 23,165 22,435
Other long-term liabilities 34,980 32,764 33,822
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized 240,000 shares,
issued and outstanding 145,202, 144,952 and 144,248 1,452 1,450 1,442
Additional paid-in capital 305,955 293,173 280,838
Retained earnings 522,638 473,819 375,964
Accumulated other comprehensive loss -
Foreign currency translation adjustments (17,293) (11,366) (13,606)
---------------- ---------------- ----------------
Total stockholders' equity 812,752 757,076 644,638
---------------- ---------------- ----------------
$ 1,380,208 $ 1,343,562 $ 1,186,802
================ ================ ================
</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 Six Months Ended
July 31, July 31,
------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 371,977 $ 307,067 $ 715,229 $ 579,344
Cost of sales 151,272 132,030 299,006 256,011
------------ ------------- ------------- -------------
Gross profit 220,705 175,037 416,223 323,333
Selling, general and administrative expenses 153,628 133,084 295,751 251,941
------------ ------------- ------------- -------------
Earnings from operations 67,077 41,953 120,472 71,392
Other expenses, net 1,804 2,331 4,489 3,913
------------ ------------- ------------- -------------
Earnings before income taxes 65,273 39,622 115,983 67,479
Provision for income taxes 26,108 16,641 46,393 28,341
------------ ------------- ------------- -------------
Net earnings $ 39,165 $ 22,981 $ 69,590 $ 39,138
============ ============= ============= =============
Net earnings per share:
Basic $ 0.27 $ 0.16 $ 0.48 $ 0.28
============ ============= ============= =============
Diluted $ 0.26 $ 0.16 $ 0.46 $ 0.27
============ ============= ============= =============
Weighted average number of common shares:
Basic 145,165 142,180 145,132 141,170
Diluted 151,546 148,092 151,689 146,748
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
-------------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 69,590 $ 39,138
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 21,374 17,190
Loss on equity investment 893 -
Provision for uncollectible accounts 533 640
Provision for inventories 5,015 4,350
Tax benefit from exercise of stock options 5,543 11,986
Deferred income taxes (2,438) (8,678)
Loss on disposal of fixed assets 801 15
Provision for postretirement/employment benefits 1,520 896
Changes in assets and liabilities:
Accounts receivable 18,984 12,281
Inventories (66,359) (58,209)
Prepaid expenses and other current assets (13,925) (12,798)
Other assets, net (3,983) (15,690)
Accounts payable 10,385 (4,223)
Accrued liabilities (3,838) 15,881
Income taxes payable (34,410) (14,323)
Merchandise and other customer credits 1,348 1,972
Other long-term liabilities 2,425 2,019
------------------- -------------------
Net cash used in operating activities 13,458 (7,553)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equity (8,019) (70,146)
Capital expenditures (40,392) (32,800)
Acquisitions, net of liabilities assumed - (7,031)
Proceeds from lease incentives 2,476 3,204
------------------- -------------------
Net cash used in investing activities (45,935) (106,773)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock - 71,273
Proceeds from short-term borrowings 9,084 1,272
Repurchase of Common Stock (11,204) -
Proceeds from exercise of stock options 4,526 11,836
Cash dividends on Common Stock (10,152) (7,397)
------------------- -------------------
Net cash provided by financing activities (7,746) 76,984
------------------- -------------------
Effect of exchange rate changes on
cash and cash equivalents (2,051) (207)
------------------- -------------------
Net decrease in cash and cash equivalents (42,274) (37,549)
Cash and cash equivalents at beginning of year 216,936 188,593
------------------- -------------------
Cash and cash equivalents at end of six months $ 174,662 $ 151,044
=================== ===================
</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 July
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 six months ended July 31,
2000 and 1999 are not necessarily indicative of the results of the
entire fiscal year.
2. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Supplemental cash flow information:
<TABLE>
<CAPTION>
July 31, July 31,
(in thousands) 2000 1999
-------------- ---------------- ----------------
Cash paid during the six months for:
<S> <C> <C>
Interest $ 6,463 $ 6,903
================ ================
Income taxes $75,841 $38,970
================ ================
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 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". In this issue, the EITF determined that all
amounts billed related to shipping and handling should be classified as
revenue. However, no determination was made regarding the accounting
for handling costs. The Company continues to monitor discussions
surrounding this issue and will adopt the new accounting when
finalized. It is not anticipated that this issue will have a
significant impact on the Company's financial position, earnings or
cash flows.
4. INVENTORIES
-----------
<TABLE>
<CAPTION>
July 31, January 31, July 31,
(in thousands) 2000 2000 1999
-------------- ------------------- -------------------- ---------------------
<S> <C> <C> <C>
Finished goods $464,031 $438,499 $453,496
Raw materials 94,516 62,116 77,936
Work-in-process 6,291 6,810 8,460
------------------ ------------------ -------------------
564,838 507,425 539,892
Reserves (5,163) (2,625) (3,289)
------------------ ------------------ -------------------
$559,675 $504,800 $536,603
================== ================== ===================
</TABLE>
LIFO-based inventories at July 31, 2000, January 31, 2000 and July 31,
1999 were $437,899,000, $377,588,000 and $423,574,000, 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 July 31, 2000 and 1999. The LIFO
valuation method had the effect of decreasing net earnings by $0.01 per
diluted share for the six month period ended July 31, 2000 and had
no effect on net earnings per diluted share for the six month period
ended July 31, 1999.
5. FINANCIAL HEDGING INSTRUMENTS
-----------------------------
In accordance with the Company's foreign currency hedging program, at
July 31, 2000, the Company had outstanding purchased put options
maturing at various dates through July 24, 2001, giving it the right,
but not the obligation, to sell yen 11,736,000,000 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 July 31, 2000, the deferred unrealized gain on
the Company's purchased put options amounted to $990,000.
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 July 31,
2000, the Company had $13,666,000 of such contracts outstanding, which
will mature on August 28, 2000. At July 31, 1999, the Company had
$12,642,000 of such contracts outstanding, which subsequently matured
on August 26, 1999.
- 7 -
<PAGE>
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 July 31, Six Months Ended
July 31, July 31,
---------------------------- ----------------------------
(in thousands) 2000 1999 2000 1999
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings for basic
and diluted EPS $39,165 $22,981 $69,590 $39,138
============= ============== ============ ==============
Weighted average shares
for basic EPS 145,165 142,180 145,132 141,170
Incremental shares from
assumed exercise of
stock options 6,381 5,912 6,557 5,578
------------- -------------- ------------ --------------
Weighted average shares
for diluted EPS 151,546 148,092 151,689 146,748
============= ============== ============ ==============
</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.
The components of comprehensive earnings were:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
-------------------------------- ---------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
--------------
<S> <C> <C> <C> <C>
Net earnings $39,165 $22,981 $69,590 $39,138
Other comprehensive
gain(loss):
Foreign currency
translation adjustments (4,003) 2,905 (5,927) (251)
-------------- -------------- -------------- --------------
Comprehensive earnings $35,162 $25,886 $63,663 $38,887
============== ============== ============== ==============
</TABLE>
Foreign currency translation adjustments are not adjusted for income
taxes since they relate to investments that are permanent in nature.
- 8 -
<PAGE>
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 Six Months Ended
July 31, July 31,
---------------------------------- ---------------------------------
(in thousands) 2000 1999 2000 1999
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales:
U.S. Retail $ 187,927 $ 159,512 $ 357,119 $ 291,203
International Retail 153,254 121,574 300,700 239,048
Direct Marketing 30,796 25,981 57,410 49,093
-------------- -------------- -------------- --------------
$ 371,977 $ 307,067 $ 715,229 $ 579,344
============== ============== ============== ==============
Earnings from
operations*:
U.S. Retail $ 52,424 $ 32,724 $ 95,953 $ 56,429
International Retail 38,619 29,671 74,328 59,092
Direct Marketing 2,244 1,095 2,510 1,477
-------------- -------------- -------------- --------------
$ 93,287 $ 63,490 $ 172,791 $ 116,998
============== ============== ============== ==============
</TABLE>
* 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------------------------ ----------------------------------------
(in thousands) 2000 1999 2000 1999
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings from
operations for
reportable segments $ 93,287 $ 63,490 $ 172,791 $ 116,998
Unallocated
corporate expenses (26,210) (21,537) (52,319) (45,606)
Interest and other
expenses, net (1,804) (2,331) (4,489) (3,913)
-------------- -------------- -------------- --------------
Earnings before
income taxes $ 65,273 $ 39,622 $ 115,983 $ 67,479
============== ============== ============== ==============
</TABLE>
9. 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.
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.
- 10 -
<PAGE>
11. SUBSEQUENT EVENT
----------------
On August 17, 2000, the Company's Board of Directors declared a quarterly
dividend of $0.04 per common share. This dividend will be paid on October
10, 2000 to stockholders of record on September 20, 2000.
- 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.
In order to focus on Company-operated stores and to eliminate marginally
profitable operations, the Company has 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.; 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 increased 21% in the three-month period ended July 31, 2000 (second
quarter) and 23% in the six-month period ended July 31, 2000 (first half),
primarily due to worldwide comparable store sales growth of 18% and 21% in local
currencies. Sales growth and higher operating margins resulted in net earnings
growth of 70% in the second quarter and 78% in the first half.
Net sales by channel of distribution were as follows:
-----------------------------------------------------
<TABLE>
<CAPTION>
Three months Six months
Ended July 31, Ended July 31,
------------------ ------------------
(in thousands) 2000 1999 2000 1999
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Retail $187,927 $159,512 $357,119 $291,203
International Retail 153,254 121,574 300,700 239,048
Direct Marketing 30,796 25,981 57,410 49,093
-------- -------- -------- --------
$371,977 $307,067 $715,229 $579,344
======== ======== ======== ========
</TABLE>
U.S. Retail sales increased 18% in the second quarter and 23% in the first half,
due to comparable store sales growth of 19% in the second quarter and 23% in the
first half. In the second quarter and first half, sales in the Company's
flagship New York store rose 8% and 13%, while comparable branch store sales
rose 23% and 27%. Comparable store sales growth primarily resulted from
increased jewelry unit sales. Sales growth was primarily due to increased
purchases by domestic customers, although sales to foreign tourists also
increased. The
- 12 -
<PAGE>
opening of four new stores in 1999 and one 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 opened a store in Skokie, Illinois
in May 2000 and plans to open stores in September in Greenwich, Connecticut and
in November a second store in Maui, Hawaii and a store in Portland Oregon.
International Retail sales increased 26% in both the second quarter and first
half. In Japan, the Company's largest international market, sales in total and
on a comparable store basis in yen rose 12% in the second quarter and 13% in the
first half due to increased unit volume. 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
second quarter and first half was stronger than the prior year; consequently,
when translated into U.S. dollars, Japan retail sales increased 26% in both the
second quarter and first half.
In Asia-Pacific outside Japan, comparable store sales in local currencies rose
39% and 36% in the second quarter and first half due to sales growth throughout
the region. In Europe, comparable store sales in local currencies rose 21% and
23% in the second quarter and first half, due to increased retail sales in all
markets. In 2000, International Retail store expansion has or will include: a
new store in Kuala Lumpur, Malaysia; two new department store boutiques and
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 19% and 17% in the second quarter and first half. In
the second quarter and first half, corporate division sales rose 14% and 12% due
to an increased number of orders shipped, while catalog and Internet (which
commenced in November 1999) sales rose a combined 24% in both periods. 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, which includes increasing the number of products available
for purchase and has introduced an on-line wedding gift registry.
Gross Profit
------------
Gross profit as a percentage of net sales was 59.3% and 58.2% in the second
quarter and first half, compared with 57.0% and 55.8% in 1999's corresponding
periods. Management attributes the increases to favorable shifts in sales mix,
the leverage effect of fixed costs on increased sales 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 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 15% and 17% in the second
quarter and first half, primarily due to incremental occupancy, staffing and
marketing expenses related to the Company's
- 13 -
<PAGE>
worldwide expansion program, as well as to sales-related variable expenses. As
a percentage of net sales, the operating expense ratio was 41.3% and 41.4%
in the second quarter and first half, compared with 43.3% and 43.5% in
the corresponding 1999 periods. Management's ongoing objective is to further
reduce the expense ratio by leveraging sales growth against the Company's fixed-
expense base.
Other Expenses, net
-------------------
Other expenses, net declined in the second quarter and rose in the first half.
Higher interest expense and the Company's share of losses of Aber Diamond
Corporation, previously known as Aber Resources Ltd. ("Aber"), were largely
offset by higher interest income on cash and cash equivalents. Management
expects Other expenses, net for the second half of 2000 to be modestly higher
than the second half of 1999 (see Financial Condition).
Provision for Income Taxes
--------------------------
The provision for income taxes resulted in an effective tax rate of 40.0% in the
second quarter and first half, compared with 42.0% 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 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." In
this issue, the EITF determined that all amounts billed related to shipping and
handling should be classified as revenue. However, no determination was made
regarding the accounting for handling costs. The Company continues to monitor
discussions surrounding this issue and will adopt the new accounting when
finalized. It is not anticipated that this issue will 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
needs, which have increased due to the Company's expansion. Management believes
that the Company's financial condition at July 31, 2000 provides sufficient
resources to support current business activities and planned expansion.
The Company achieved a net cash inflow from operating activities of $13,458,000
in the six months ended July 31, 2000 compared with an outflow of $7,553,000 in
the corresponding 1999 period. The improved cash flow primarily resulted from
increased net earnings.
- 14 -
<PAGE>
Working capital (current assets less current liabilities) and the corresponding
current ratio (current assets divided by current liabilities) were $641,410,000
and 3.5:1 at July 31, 2000, compared with $610,685,000 and 3.2:1 at January 31,
2000 and $549,274,000 and 2.9:1 at July 31, 1999.
Accounts receivable at July 31, 2000 declined 16% from January 31, 2000 (which
is a seasonal high-point) but increased 8% from July 31, 1999 due to sales
growth.
Inventories (which represent the largest portion of assets) at July 31, 2000
were 11% higher than January 31, 2000 and were 4% higher than July 31, 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 its warehouse management and
supply-chain logistics.
Capital expenditures in the six months ended July 31, 2000 were $40,392,000,
compared with $32,800,000 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, 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
six-month period ended July 31, 2000 has been included in Other expenses, net
and amounted to a loss of $893,000.
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.
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<PAGE>
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 six months
ended July 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 $101,248,000 and 11% at July 31, 2000, compared with $53,291,000 and 7% at
January 31, 2000 and $142,096,000 and 18% at July 31, 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 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
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<PAGE>
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 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
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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.
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<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
At Registrant's Annual Meeting of Stockholders held on May 18, 2000 each of the
nominees listed below was elected a director of Registrant to hold office until
the next annual meeting of the stockholders and until his or her respective
successor has been elected and qualified. Tabulated with the name of each of the
nominees elected is the number of Common shares cast for each nominee and the
number of Common shares withholding authority to vote for each nominee. Shares
reported below have not been re-stated to reflect the subsequent stock split.
There were no broker non-votes or abstentions with respect to the election of
directors.
Nominee Voted For Withholding Authority
William R. Chaney 63,054,401 45,219
Rose Marie Bravo 63,050,672 48,948
Samuel L. Hayes III 63,023,905 75,715
Michael J. Kowalski 63,057,106 42,514
Charles K. Marquis 63,056,995 42,625
James E. Quinn 63,055,149 44,471
William A. Shutzer 63,055,980 43,640
Geraldine Stutz 62,873,376 226,244
At such meeting, the stockholders approved an amendment to the Company's
Restated Certificate of Incorporation increasing the number of authorized shares
of common stock from 120,000,000 to 240,000,000. With respect to such approval,
59,896,133 shares were voted to approve, 3,168,993 were voted against, and
34,494 shares abstained from voting. There were no broker non-votes with respect
to the approval of the amendment to the Company's Restated Certificate of
Incorporation.
The stockholders approved an amendment to the Company's 1998 Employee Incentive
Plan to increase the number of shares of common stock from 2,000,000 to
4,000,000. With respect to such approval, 56,127,001 shares were voted to
approve, 6,879,581 were voted against, and 93,036 shares abstained from voting.
There were no broker non-votes with respect to the approval of the amendment to
the Company's 1998 Employee Incentive Plan.
The stockholders also approved the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company's fiscal 2000 financial statements. With
respect to such appointment, 63,031,136 shares were voted to approve, 38,801
were voted against, and 29,683 shares abstained from voting. There were no
broker non-votes with respect to the approval of the appointment of
PricewaterhouseCoopers LLP.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation of Registrant. Incorporated
by reference from Exhibit 3.1 to Registrant's Report on Form 8-K
dated May 16, 1996 as amended by Certificate of Amendment of
Certificate of Incorporation dated May 20, 1999 incorporated by
reference to Registrant's report on Form 10-Q for the period
ended July 31, 1999 and dated September 7, 1999; and Certificate
of Amendment of Incorporation dated May 18, 2000.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On May 17, 2000 Registrant filed a report on Form 8-K reporting its
sales and earnings for the three month period ended April 30, 2000.
On May 18, 2000 Registrant filed a report on Form 8-K reporting the
announcement of a two-for-one stock split and a 33% increase in the
quarterly cash dividend rate.
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<PAGE>
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: August 30, 2000 By: /s/ James N. Fernandez
----------------------------
James N. Fernandez
Executive Vice President and
Chief Financial Officer
(principal financial officer)
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EXHIBIT INDEX
Exhibit
Number
3.1 Certificate of Amendment of Certificate of Incorporation of ,
Registrant dated May 18, 2000.
27 Financial Data Schedule
(submitted to SEC only)
