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, 1996. 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, 16,194,778 shares outstanding at the close
of business on April 30, 1996.
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - April 30, 1996
(Unaudited), January 31, 1996
and April 30, 1995 (Unaudited) 3
Consolidated Statements of Income - for the
three months ended April 30, 1996
and 1995 (Unaudited) 4
Consolidated Statements of Stockholders' Equity -
for the three months ended
April 30, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows - for
the three months ended April 30, 1996
and 1995 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits
(b) Reports on Form 8-K
- 2 -
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
April 30, January 31, April 30,
1996 1996 1995*
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 40,168 $ 81,966 $ 16,631
Accounts receivable, less allowances of $5,753, $5,698 and $5,051 68,161 80,084 58,216
Income tax receivable - - 7,925
Inventories 349,017 311,252 295,370
Deferred income taxes 8,438 8,060 5,532
Prepaid expenses 24,067 20,584 16,786
----------- ---------- -----------
Total current assets 489,851 501,946 400,460
Property and equipment, net 118,933 115,214 116,399
Deferred income taxes 8,796 10,033 5,875
Other assets, net 35,837 27,064 32,740
------------ ----------- ----------
$653,417 $654,257 $555,474
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 62,005 $ 78,967 $ 58,122
Accounts payable and accrued liabilities 108,266 108,829 76,673
Income taxes payable 1,940 19,672 4,383
Merchandise and other customer credits 11,253 11,054 8,606
------------ ----------- -----------
Total current liabilities 183,464 218,522 147,784
Long-term trade payable - 25,688 32,659
Reserve for product return 9,537 11,238 13,103
Long-term debt 149,085 101,500 101,500
Postretirement/employment benefit obligation 18,513 18,031 17,015
Other long-term liabilities 14,744 14,900 11,828
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized
60,000 shares, issued 32,390, 31,976 and 31,474 324 320 314
Additional paid-in capital 91,568 82,460 72,600
Retained earnings 189,769 185,823 152,091
Foreign currency translation adjustments (3,587) (4,225) 6,580
------------ ------------ -----------
Total stockholders' equity 278,074 264,378 231,585
------------ ------------ -----------
$653,417 $654,257 $555,474
======= ======= =======
Reclassified for comparative purposes
See notes to consolidated financial statements
- 3 -
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
For the
Three Months Ended
April 30, April 30,
1996 1995
-------- --------
Net sales $180,741 $150,144
Cost of goods sold 87,375 72,781
-------- --------
Gross profit 93,366 77,363
Selling, general and administrative
expenses 80,740 70,272
Provision for uncollectible accounts 348 334
-------- -------
Income from operations 12,278 6,757
Other expenses, net 3,340 2,961
-------- -------
Income before income taxes 8,938 3,796
Provision for income taxes 3,861 1,636
---------- --------
Net income $ 5,077 $ 2,160
======== ========
Net income per share:
Primary $ 0.15 $ 0.07
======== ========
Fully diluted $ 0.15 $ 0.07
======== ========
Weighted average number of common shares:
Primary 33,400 31,724
Fully diluted 35,396 33,518
See notes to consolidated financial statements.
- 4 -
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
Foreign
Total Additional Currency
Stockholders' Common Stock Paid-In Retained Translation
Equity Shares Amount Capital Earnings Adjustments
------------- ------ ------ ---------- -------- -----------
BALANCES, January 31, 1996 $264,378 15,988 $160 $82,620 $185,823 $(4,225)
Two-for-one stock split - 16,195 162 (162) - -
Issuance of Common Stock 1,000 18 - 1,000 - -
Exercise of stock options 6,809 189 2 6,807 - -
Tax benefit from exercise of
stock options 1,303 - - 1,303 - -
Cash dividends on Common Stock (1,131) - - - (1,131) -
Foreign currency translation
adjustments 638 - - - - 638
Net income 5,077 - - - 5,077 -
-------- ------ ----- ------- -------- -------
BALANCES, April 30, 1996 $278,074 32,390 $324 $91,568 $189,769 $(3,587)
======== ====== ==== ======= ======== =======
See notes to consolidated financial statements
- 5 -
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the
Three Months Ended
April 30,
1996 1995*
--------- --------
Cash Flows From Operating Activities:
Net income $ 5,077 $ 2,160
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 4,752 4,167
Provision for uncollectible accounts 348 334
Reduction in reserve for product return (1,701) -
Provision for inventories 1,657 212
Deferred income taxes 861 (711)
Loss on disposal of fixed assets - 357
Provision for postretirement/employment benefits 482 434
(Increase)/decrease in assets and increase/ (decrease) in liabilities:
Accounts receivable 11,738 6,196
Inventories (37,758) (6,176)
Prepaid expenses (3,446) 1,640
Other assets, net (9,223) (627)
Accounts payable 7,441 2,394
Accrued liabilities (7,218) (8,989)
Income taxes payable (17,806) (9,867)
Merchandise and other customer credits 199 77
Other long-term liabilities 135 141
------- -------
Net cash used in operating activities (44,462) (8,258)
------- -------
Cash Flows From Investing Activities:
Capital expenditures (8,077) (7,203)
------- -------
Net cash used in investing activities (8,077) (7,203)
------- -------
Cash Flows From Financing Activities:
Decrease in short-term borrowings (17,411) (11,463)
Prepayment of long-term trade payable (25,876) -
Increase in long-term debt 47,047 -
Proceeds from exercise of stock options 6,809 231
Tax benefit from exercise of stock options 1,303 107
Cash dividends on Common Stock (1,131) (1,101)
------- -------
Net cash provided by/(used in) financing activities 10,741 (12,226)
------- -------
Net decrease in cash and short-term investments (41,798) (27,687)
Cash and short-term investments at beginning of year 81,966 44,318
------- -------
Cash and short-term investments at end of three months $40,168 $16,631
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the three months for:
Interest expense $ 4,181 $ 3,670
======= =======
Income taxes $19,311 $12,179
======= =======
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Issuance of Common Stock for the Employee Profit
Sharing and Retirement Savings Plan $ 1,000 $ 600
======= =======
*Reclassified for comparative purposes
See notes to consolidated financial statements
- 6 -
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 statements are without audit
and, in the opinion of management, include all adjustments (which
include only normal recurring adjustments except for the adjustment
necessary as a result of the LIFO 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, 1996 and the results of operations
and cash flows for the interim periods presented. The financial
statements for January 31, 1996 are derived from the audited financial
statements which are included in the Company's Form 10-K filing, but 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 income generated in the last quarter of the fiscal year, the
results of operations for the three months ended April 30, 1996 and
1995 are not necessarily indicative of the results of the entire fiscal
year.
2. INVENTORIES
Inventories at April 30, 1996, January 31, 1996 and April 30, 1995, are
summarized as follows:
April 30, January 31, April 30,
(in thousands) 1996 1996 1995
---------------------- ---------- ---------- ---------
Finished goods $291,727 $257,344 $248,706
Raw materials 52,296 48,366 43,128
Work in process 8,693 7,217 6,476
---------- ---------- ---------
352,716 312,927 298,310
Reserves (3,699) (1,675) (2,940)
---------- ---------- ---------
$349,017 $311,252 $295,370
========== ======== ========
At April 30, 1996, January 31, 1996 and April 30, 1995, $256,800,000,
$229,300,000 and $198,321,000, respectively, of inventories were valued
using the LIFO method. The excess of such inventories valued at
replacement cost over the value based upon the LIFO method was
$12,935,000, $11,870,000 and $10,670,000 at April 30, 1996, January 31,
1996 and April 30, 1995, respectively. The LIFO valuation method had
the effect of decreasing net income by $0.02 per share in each of the
three month periods ended April 30, 1996 and 1995.
3. EARNINGS PER SHARE
Primary earnings per common share is computed by dividing net income by
the weighted average number of shares outstanding during the period,
including dilutive stock options. Fully diluted earnings per common
share is computed by dividing net income, after giving effect to the
- 7 -
elimination of interest expense and bond amortization fees, net of
income tax effect, applicable to the convertible subordinated
debentures, by the weighted average number of shares outstanding,
including dilutive stock options and the assumed conversion of the
subordinated debentures using the "if converted" method.
4. LONG TERM DEBT
In the first quarter of 1996, the Company borrowed yen 5,000,000,000
($47,585,000) from a lender in Japan. The loan has a 15-year term at a
rate of 4.50%. The proceeds have been and will be used for working
capital and construction costs associated with the Company's flagship
store in Tokyo which opened in May 1996, as well as to reduce
short-term indebtedness in Japan.
5. FINANCIAL HEDGING INSTRUMENTS
In accordance with the Company's foreign currency hedging program, at
April 30, 1996, the Company had $17,470,000 of outstanding forward
exchange yen contracts, which matured on May 28, 1996, to support
inventory purchases primarily for the Company's flagship store in
Tokyo. There were no material outstanding forward exchange contracts at
April 30, 1995.
6. SUBSEQUENT EVENTS
On May 16, 1996, the shareholders approved an amendment to the
Company's Restated Certificate of Incorporation to increase the number
of common shares authorized from 30,000,000 to 60,000,000.
On May 16, 1996, 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 23, 1996 to stockholders
of record on June 28, 1996. Accordingly, April 30, 1996 balances
reflect the split with an increase in Common Stock and a reduction in
paid-in-capital representing par value of approximately $162,000. Stock
options and per share data have also been retroactively adjusted to
reflect the split.
In addition, the Board of Directors approved a 43 percent increase in
the Company's quarterly cash dividend to $0.10 per share on "pre-split"
shares to be paid on July 23, 1996, to holders of record on June 28,
1996. Future quarterly dividends, subject to declaration by the Board
of Directors, are expected to be paid at the rate of $0.05 per share
following the stock split.
On May 16, 1996, the Board of Directors declared that on June 24, 1996
(the "Redemption Date"), the Company will redeem Tiffany's $50,000,000
principal amount 6-3/8% Convertible Subordinated Debentures Due 2001.
In accordance with their terms, the redemption price for the Debentures
is 101 percent of their principal amount but, at the option of their
holders, may be converted at their principal amount for shares of
Tiffany's Common Stock at a conversion price of $56.00 per share. The
right of conversion will expire at the close of business on the
Redemption Date.
- 8 -
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company operates three channels of distribution: U.S. Retail includes retail
sales in Company-operated stores in the U.S. and wholesale sales to independent
retailers in the Americas; Direct Marketing includes corporate
(business-to-business) and catalog sales in the U.S.; and International Retail
includes retail sales through Company-operated stores and boutiques, corporate
sales, and wholesale sales to independent retailers and distributors in the
Asia-Pacific region, Europe, Canada and the Middle East.
Net sales in the three months ended April 30, 1996 (first quarter)
increased 20% over 1995's first quarter. Net sales by channel of distribution
were as follows:
Three months ended April 30,
(in thousands) 1996 1995
- -------------- --------- ---------
U.S. Retail $ 80,396 $ 61,769
Direct Marketing 18,918 18,763
International Retail 81,427 69,612
-------- --------
$180,741 $150,144
======== ========
U.S. Retail sales increased 30% in the first quarter of 1996. This included a
20% comparable store sales increase made up of 17% growth in the flagship New
York store's sales and a 21% increase in comparable branch store sales.
Comparable store sales growth was due to a higher number of transactions as well
as an increased average transaction size. While most retail sales in the U.S.
were made to local-resident customers, comparable store sales growth benefited
from increased sales to foreign visitors. Also contributing to U.S. Retail sales
growth were the sales in three new stores opened in 1995 and growth in wholesale
sales.
Direct Marketing sales increased 1% in the first quarter of 1996. Corporate
sales declined 4% due to a decline in the average corporate order size.
Management believes sales have been primarily affected by cautious spending by
the Company's corporate division customers. Catalog sales increased 11%
primarily due to a higher number of orders reflecting an increase in catalog
circulation.
International Retail sales rose 17% in the first quarter of 1996. The Company
achieved sales growth in most international markets in which it operates. In
Japan, the Company's largest international market, comparable store sales
increased 16% in local currency; however, when translated into U.S. dollars, the
yen-denominated sales increase was offset by a weakening of the yen versus the
dollar in comparison to 1995's first quarter. In addition, strong sales growth
was also achieved in other Asia-Pacific markets and comparable store sales in
Europe increased 23% in local currencies.
The Company's reported sales and earnings results benefit from a
strengthening Japanese yen and are adversely affected by a strengthening U.S.
dollar. The Company maintains a foreign currency hedging program for merchandise
purchase
- 9 -
transactions initiated from Japan in order to reduce the potential negative
impact on the Company's financial results of a significant strengthening of the
U.S. dollar against the yen. At April 30, 1996, the Company had $17,470,000 of
outstanding forward exchange yen contracts, which matured on May 28, 1996, to
support inventory purchases primarily for the Company's flagship store in Tokyo.
There were no material outstanding forward exchange contracts at April 30, 1995.
Gross margin (gross profit as a percentage of net sales) of 51.7% in 1996's
first quarter compared with 51.5% in the prior year. The modest increase
reflected favorable shifts in sales mix toward the Company's retail businesses
that achieve above-average gross margins.
Operating expenses (selling, general and administrative expenses and the
provision for uncollectible accounts) increased 15% in the first quarter. The
increase was largely due to incremental occupancy, staffing and marketing
expenses related to the Company's worldwide expansion program, as well as to
sales-related variable expenses (including fees paid to department stores in
Japan). As a percentage of net sales, operating expenses were 44.9% in 1996's
first quarter compared with 47.0% in the prior year.
As a result of the above factors, the Company's income from operations increased
82% in 1996's first quarter and the operating margin (income from operations as
a percentage of net sales) increased to 6.8% from 4.5% in the prior year. Net
income of $5,077,000 in the first quarter was 135% above the prior year, and the
net margin (net income as a percentage of net sales) increased to 2.8% from 1.4%
in the prior year.
FINANCIAL CONDITION
Management believes that the Company's financial condition at April 30, 1996
provides sufficient liquidity and resources to support current business activity
and planned expansion. Working capital and the corresponding current ratio were
$306,387,000 and 2.7:1 at April 30, 1996 compared with $283,424,000 and 2.3:1 at
January 31, 1996. Accounts receivable of $68,161,000 at April 30, 1996 were 15%
lower than at January 31, 1996 due to strong, as well as seasonal, collection
performance. Inventories (representing the largest component of working capital
and assets) were $349,017,000 at April 30, 1996, or 12% higher than at January
31, 1996. The increase was due to merchandise purchases to support sales growth,
new stores (including the Company's new flagship store in Tokyo, Japan) and
expanded product offerings. Inventory turnover was 1.0 times at April 30, 1996
and January 31, 1996. The Company's objective is to improve inventory
performance through: refinement of worldwide replenishment systems; focus on the
specialized disciplines of product development, assortment planning and
inventory management; improved presentation and management of display
inventories in each store; assortment editing by product category; and a
time-phased program of improvements in warehouse management and supply chain
logistics.
Capital expenditures were $8,077,000 in 1996's first quarter compared with
$7,203,000 in the first quarter of 1995. On the basis of current plans, the
Company expects capital expenditures in fiscal 1996 to be approximately
$41,000,000 compared with $26,455,000 in fiscal 1995. The increase is
- 10 -
primarily related to the opening of new retail stores (particularly the
Company's flagship store in Tokyo, Japan), expansion of administrative and
office facilities and costs associated with development of the Company's new
customer service distribution center in Parsippany, New Jersey.
The Company incurred a net cash outflow from operating activities of $44,462,000
in 1996's first quarter compared with an outflow of $8,258,000 in 1995's first
quarter. The increased cash outflow was largely due to higher inventory
purchases compared with 1995's first quarter. Net-debt (short-term borrowings
and long-term debt, less cash and short-term investments) and the ratio of
net-debt to total capital (net-debt and stockholders' equity) was $170,922,000
and 38% at April 30, 1996 compared with $98,501,000 and 27% at January 31, 1996.
The increase in net-debt was largely due to completion of a yen-denominated
borrowing in Japan (described below), as well as to support seasonal working
capital increases. It is management's goal, on an annual basis, to generate cash
flow that is sufficient to finance the Company's business activities and planned
expansion.
In the first quarter of 1996, the Company borrowed yen 5,000,000,000
($47,585,000) from a lender in Japan. The loan has a 15-year term at a rate of
4.50%. The proceeds have been and will be used for working capital and
construction costs associated with the Company's flagship store in Tokyo which
opened in May 1996, as well as to reduce short-term indebtedness in Japan. The
Company also prepaid a long-term trade payable of yen 2,750,000,000
($25,807,000) which related to certain merchandise repurchased in 1993 as part
of the Company's realignment of its Japan business and which was due on or
before February 28, 1998.
On May 16, 1996, the Board of Directors declared that on June 24, 1996 (the
"Redemption Date"), the Company will redeem Tiffany's $50,000,000 principal
amount 6-3/8% Convertible Subordinated Debentures Due 2001. In accordance with
their terms, the redemption price for the Debentures is 101 percent of their
principal amount but, at the option of their holders, may be converted at their
principal amount for shares of Tiffany's Common Stock at a conversion price of
$56.00 per share. The right of conversion will expire at the close of business
on the Redemption Date.
The Company's sources of working capital are internally generated cash flows and
funds available under a five-year, $130,000,000 multicurrency revolving credit
facility established in June 1995. This facility replaced a $100,000,000
revolving credit facility and a yen 2,500,000,000 noncollateralized line of
credit, both of which expired in July 1995. 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, as well as seasonal working capital increases typically required
during the third and fourth quarters of each year.
The Company's business is seasonal in nature, with the fourth quarter typically
representing a proportionally greater percentage of annual sales, income from
operations and cash flow. Management expects such seasonality to continue in the
future.
- 11 -
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.122 Agreement dated as of April 3, 1996 among American Family Life
Assurance Company of Columbus, Japan Branch, Tiffany & Co. Japan Inc.,
Japan Branch, and Tiffany & Co., as Guarantor, for yen 5,000,000,000
Loan Due 2011;
11 Statement re Computation of Per Share Earnings.
(b) Reports on form 8-K
Report on Form 8-K dated May 16, 1996 reporting that Registrant's Board
of Directors had resolved: (a) (subsequent to Registrant's
Stockholders' approval of an amendment to Registrant's Restated
Certificate of Incorporation increasing the number of authorized shares
of Registrant's Common Stock from 30,000,000 to 60,000,000) to effect a
two-for-one split of Registrant's Common Stock, such split to be
effected by a share distribution (stock dividend) on July 23, 1996 (the
"Payment Date") to holders of record on June 28, 1996 (the "Record
Date"); (b) to pay an increased cash dividend of $.10 per share on the
Payment Date to holders of record on the Record Date (pre-split shares
only); and (c) to effect a redemption of Registrant's U.S.$50,000,000
6-3/8% Convertible Subordinated Debentures due 2001 (the "Debentures").
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 13, 1996 By: /s/ James N. Fernandez
------------------------
James N. Fernandez
Senior Vice President - Finance
and Chief Financial Officer
(principal financial officer)
- 12 -
EXHIBIT INDEX
Exhibit
Number
10.122 Agreement dated as of April 3, 1996 among American Family Life
Assurance Company of Columbus, Japan Branch, Tiffany & Co.Japan Inc.,
Japan Branch, and Tiffany & Co., as Guarantor, for yen 5,000,000,000
Loan Due 2011
11 Statement re Computation of Per Share Earnings
- 13 -