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MANUALLY SIGNED ORIGINAL
Page 1 of 58 Sequentially Numbered Pages
Exhibit Index on Page 13
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(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, 1994. 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, 15,663,438 shares outstanding at the close
of business on APRIL 30, 1994.
2
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1994
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - April 30, 1994
(Unaudited) and January 31, 1994 3
Consolidated Statements of Income - for the
three months ended April 30, 1994
and 1993 (Unaudited) 4
Consolidated Statements of Stockholders'
Equity - for the three months ended
April 30, 1994 (Unaudited) 5
Consolidated Statements of Cash Flows - for
the three months ended April 30, 1994
and 1993 (Unaudited) 6
Notes to Consolidated Financial Statements 7-8
(Unaudited)
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
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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,
1994 1994
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 8,260 $ 4,994
Accounts receivable, less allowances of
$4,144 and $4,170 54,971 67,330
Income tax receivable 15,489 12,517
Inventories 282,054 262,282
Prepaid expenses 18,292 17,718
-------- --------
Total current assets 379,066 364,841
Property and equipment, net 96,697 97,365
Deferred income taxes 15,681 15,404
Other assets, net 30,137 26,799
-------- --------
$521,581 $504,409
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 74,599 $ 59,289
Accounts payable and accrued liabilities 80,558 79,980
Income taxes payable 2,392 6,359
Merchandise and other customer credits 6,924 6,947
------- --------
Total current liabilities 164,473 152,575
Long-term trade payable 27,101 25,394
Reserve for product return 13,479 13,663
Long-term debt 101,500 101,500
Deferred income taxes 6,702 6,758
Postretirement benefit obligation 14,746 14,320
Other long-term liabilities 947 1,118
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value; authorized
30,000 shares, issued 15,663 and 15,660 157 157
Additional paid-in capital 70,572 70,498
Retained earnings 126,862 126,082
Foreign currency translation adjustments (4,958) (7,656)
-------- --------
Total stockholders' equity 192,633 189,081
-------- --------
$521,581 $504,409
======== ========
See notes to consolidated financial statements
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TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
For the
Three Months Ended
April 30,
--------------------------
1994 1993
---- ----
Net sales $131,207 $109,481
Cost of goods sold 64,007 58,700
-------- --------
Gross profit 67,200 50,781
Selling, general and administrative
expenses 60,783 46,523
Provision for uncollectible accounts 303 553
-------- --------
Income from operations 6,114 3,705
Other expenses, net 2,817 1,870
-------- --------
Income before income taxes 3,297 1,835
Provision for income taxes 1,421 798
-------- --------
Net income $ 1,876 $ 1,037
======== ========
Net income per share:
Primary $ 0.12 $ 0.07
======== ========
Fully diluted $ 0.12 $ 0.07
======== ========
Weighted average number of common shares:
Primary 15,803 15,755
Fully diluted 16,696 16,648
See notes to consolidated financial statements.
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TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
Foreign
Total CommonStock Additional Currency
Stockholders' ------------------ Paid-In Retained Translation
Equity Shares Amount Capital Earnings Adjustments
------------ ------ ------ ---------- -------- -----------
BALANCES, January 31, 1994 $189,081 15,660 $157 $70,498 $126,082 $(7,656)
Exercise of stock options 70 3 - 70 - -
Tax benefit from exercise of
stock options 4 - - 4 - -
Cash dividends on common stock (1,096) - - - (1,096) -
Foreign currency translation
adjustments 2,698 - - - - 2,698
Net income 1,876 - - - 1,876 -
-------- ------ ---- ------- -------- ------
BALANCES, April 30, 1994 $192,633 15,663 $157 $70,572 $126,862 $(4,958)
======== ====== ==== ======= ======== =======
See notes to consolidated financial statements
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TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the
Three Months Ended
April 30,
-----------------------
1994 1993
---- ----
Cash Flows From Operating Activities:
Net income $ 1,876 $ 1,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,196 2,721
Provision for uncollectible accounts 303 553
Reduction in reserve for product return (184) -
Deferred income taxes (362) (1,083)
Postretirement benefit provision 426 475
(Increase)/decrease in assets and increase/
(decrease) in liabilities
Accounts receivable 12,957 (783)
Inventories (12,386) 3,668
Income tax receivable (2,972) -
Prepaid expenses (109) (224)
Other assets, net (3,386) (169)
Accounts payable and accrued liabilities (686) (7,291)
Income taxes payable (4,055) (730)
Merchandise and other customer credits (23) 263
Other long-term liabilities 332 (686)
-------- --------
Total adjustments to net income (5,949) (3,286)
-------- --------
Net cash used in operating activities (4,073) (2,249)
-------- --------
Cash Flows From Investing Activities:
Capital expenditures (2,495) (2,780)
Other (127) 0
-------- --------
Net cash used in investing activities (2,622) (2,780)
-------- --------
Cash Flows From Financing Activities:
Increase in short-term borrowings 10,983 9,294
Proceeds from exercise of stock options 70 143
Tax benefit from exercise of stock options 4 1
Cash dividends on common stock (1,096) (1,093)
-------- --------
Net cash provided by financing activities 9,961 8,345
-------- --------
Net increase in cash and short-term investments 3,266 3,316
Cash and short-term investments at beginning
of year 4,994 6,672
-------- --------
Cash and short-term investments at end of three
months $ 8,260 $ 9,988
======== ========
Supplemental Disclosure Of Cash Flow Information:
Cash paid during the three months for:
Interest expense $ 3,102 $ 3,483
======== ========
Income taxes $ 8,816 $ 2,655
======== ========
See notes to consolidated financial statements
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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, 1994 and the results of operations
and cash flows for the interim periods presented. The audited
financial statements for January 31, 1994 are presented without
accompanying footnotes which are included in the Company's Form 10-K
filing.
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, 1994 and
1993 are not necessarily indicative of the results of the entire
fiscal year.
2. INVENTORIES
Inventories at April 30, 1994 and January 31, 1994 are summarized as
follows:
April 30, January 31,
1994 1994
----------- -----------
(in thousands)
Finished goods $237,698 $219,010
Raw materials 41,408 40,210
Work in process 5,860 5,097
-------- --------
284,966 264,317
Reserves (2,912) (2,035)
-------- --------
$282,054 $262,282
======== ========
At April 30, and January 31, 1994, $197,799,000 and $177,379,000,
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 approximately $9,370,000 and $8,470,000
at April 30, 1994 and January 31, 1994, respectively. The LIFO
valuation method had the effect of decreasing net income by $0.03 and
$0.05 per share, for the three month periods ended April 30, 1994 and
1993, respectively.
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3. POSTEMPLOYMENT BENEFITS
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Accounting for Postemployment Benefits"
("SFAS No. 112"), which requires the accrual of the cost of
postemployment benefits rather than expensing the costs when incurred.
These benefits include salary continuation, severance benefits,
disability benefits and continuation of health care benefits and life
insurance coverage for former employees after employment but before
retirement. The adoption of this standard did not have a material
impact on the Company's reported results of operation or financial
condition.
5. FOREIGN CURRENCY HEDGING PROGRAM
During the first quarter, the Company initiated a foreign currency
hedging program intended to minimize its risk on foreign currency
denominated transactions. In connection with this program, the
Company will from time to time enter into foreign currency purchased
put options and forward exchange contracts, which are designated as
hedges of commitments to purchase merchandise and settle liabilities
in foreign currencies. The market value gains and losses on these
foreign exchange contracts are deferred and then recognized when the
related transactions are settled. At April 30, 1994, the Company had
purchased put options maturing at various dates through March 23,
1995, giving it the right, but not the obligation, to sell
47,520,000,000 yen at certain predetermined rates.
6. EARNINGS PER SHARE
Primary earnings per common share data has been 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 has been computed by dividing net income, after
giving effect to the 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.
7. SUBSEQUENT EVENT
On May 19, 1994, Tiffany's Board of Directors declared a quarterly
dividend of $0.07 per common share. This dividend will be paid on
July 11, 1994 to stockholders of record on June 20, 1994.
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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 North America; Direct Marketing includes corporate
(business-to-business) and catalog sales; and International Retail includes
retail sales through Company-operated stores and boutiques, corporate sales,
and wholesale sales to independent retailers and distributors, primarily in
Asia-Pacific, Europe, Canada and the Middle East.
Net sales increased 20% to $131,207,000 in the three months (first quarter)
ended April 30, 1994.
U.S. Retail sales increased 18% to $57,223,000 in 1994's first quarter.
Comparable U.S. store sales rose 16% due to sales increases in all U.S. branch
stores and in New York. Sales growth was primarily generated by local-market
customers and secondarily by higher sales to foreign tourists. Management
attributes the increase to the success of its merchandising and marketing
programs, as well as to an improved economy and higher levels of consumer
confidence.
Direct Marketing sales increased 4% to $18,807,000 in the first quarter due to
strong catalog sales and a modest increase in corporate sales to businesses.
International Retail sales were $55,177,000, compared with $42,870,000 in the
first quarter of 1993, or a 29% increase. International Retail sales in both
periods are not comparable, due to the Company's realignment of its Japan
business in July 1993 (discussed below). However, weak economic conditions and
cautious consumer spending are continuing to affect the Company's sales in
Japan and Europe. When measured in Japanese yen, sales in Company-operated
boutiques that were open more than one year declined 11% in the first quarter
below the comparable 1993 period (which included retail sales in boutiques then
operated by Mitsukoshi). Outside Japan, the Company's Asian-Pacific stores
experienced strong sales growth in the first quarter. In Europe, lower
comparable store sales reflected declines in Italy and Germany.
In July 1993, the Company effected a realignment of its business in Japan by
assuming the merchandising and marketing responsibilities for each of the 29
TIFFANY & CO. boutiques in Japan previously operated by Mitsukoshi Ltd., an
operator of department stores in Japan. As part of this transaction, the
Company agreed to repurchase $115,000,000 of merchandise previously sold to
Mitsukoshi. As a consequence, the Company recorded a $115,000,000 provision for
product return in the second quarter of 1993 which reduced gross profit by
$57,500,000 and reduced net income by $32,700,000 (net of income tax benefit of
$24,800,000), or $2.07 per share. At April 30, 1994, approximately $30,000,000
of merchandise remained to be repurchased throughout the period ending February
28, 1998. No further charges or sales reversals are anticipated in connection
with this transaction.
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Under the new arrangement, Mitsukoshi no longer purchases TIFFANY & CO.
merchandise on a wholesale basis for resale in Japan. Instead, Mitsukoshi acts
for the Company in the sale of merchandise owned by the Company and the Company
recognizes as revenues the retail price charged to the ultimate consumer in
Japan, as opposed to the wholesale price previously charged to Mitsukoshi. As a
result, the Company's reported sales in the first quarter of 1994 showed a
significant increase due to the Japan realignment. The Company now holds
inventories for sale, establishes retail prices, bears the risk of currency
fluctuations, provides one or more brand managers in each boutique, controls
merchandising and display within the boutiques, manages inventory and controls
and funds all advertising and publicity programs with respect to TIFFANY & CO.
merchandise. Mitsukoshi is paid at the rate of approximately 27% of retail
sales in compensation for providing boutique facilities and sales and clerical
staff, as well as for the collection of receivables and security of store
inventories. The new arrangement entails greater seasonality in sales for the
Company than did the prior wholesale arrangement with Mitsukoshi. The Company
is experiencing greater expenses in Japan under the new arrangement, but is
also recording higher revenues at the retail level. In general, management
believes that the Company's increased revenues and corresponding gross profit
more than offset the increased expenses. In addition, as a result of this
business realignment in Japan, the Company's reported sales and earnings
results benefit from a strengthening Japanese yen and are adversely affected by
a strengthening U.S. dollar. However, in early Fiscal 1994, the Company
initiated a foreign currency hedging program intended to minimize the negative
impact of changes in the dollar-yen relationship on the Company's financial
results.
Since the realignment, the Company has initiated a number of changes in its
Japan business, including: the establishment of model stock unit inventories
for each boutique; the installation of the Company's merchandise replenishment
system, which significantly expedites the flow of merchandise to the boutiques;
and a retail price reduction of approximately 20% for solitaire diamond rings
which resulted in substantially increased unit volume. During the second
quarter of 1994 the Company plans to introduce several new jewelry collections
in Japan, increase its advertising expenditures and reduce retail prices for
substantially all other product categories. Typically, retail prices of
imported luxury goods in Japan have reflected a premium to "home market"
prices, although a recent trend has been to reduce that premium. The Company
plans to reduce prices by approximately 25% on products that represent
approximately 55% of its Japan retail sales. After the price reduction, the
premium over U.S. prices will be approximately 50%, based on current exchange
rates. Management believes the resultant pricing will be competitive with both
local and foreign brands. As a result of its experience with the solitaire
diamond ring price reduction, management believes that planned price
reductions, despite reduced gross margins, will positively affect sales and
earnings in Japan. The Company is also currently in the process of
remerchandising its product line and enhancing product displays in its
boutiques in Japan.
Gross margin (gross profit as a percentage of sales) was 51.2% in the first
quarter, compared with 46.4% in 1993's first quarter. The increase was
primarily attributable to the effect of recording retail sales as part of the
Japan realignment.
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Operating expenses (selling, general and administrative expenses and the
provision for uncollectible accounts) in the first quarter increased 30% over
the prior-year period. The increase was primarily attributable to increased
expenses related to the Japan realignment. The ratio of operating expenses to
net sales was 46.6% and 43.0% in the first quarters of 1994 and 1993,
respectively.
Other expense (primarily interest expense) increased in the first quarter,
primarily due to interest expense on higher average short-term borrowings.
As a result of the above factors, net income in the first quarter of 1994 rose
81% to $1,876,000, or $0.12 per share, compared with $1,037,000, or $0.07 per
share, in 1993's first quarter.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company's financial condition at April 30, 1994
provides sufficient liquidity and resources to support current business
activity and planned expansion.
Working capital and the corresponding current ratio were $214,593,000 and 2.3:1
at April 30, 1994, compared with $212,266,000 and 2.4:1 at January 31, 1994.
Accounts receivable at April 30, 1994 were 18% lower than January 31, 1994,
primarily due to seasonal reductions from payments received for purchases that
were made in the preceding fourth quarter. Inventories (the largest component
of working capital) at April 30, 1994 were 8% higher than at January 31, 1994
due to increased merchandise purchases to support the Company's growth and the
effect of translating foreign inventories into U.S. dollars. The Company's
objective continues to be to reduce worldwide comparable store inventory levels
in Fiscal 1994 in order to improve inventory turnover and asset productivity.
Capital expenditures were $2,495,000 and $2,780,000 in the first quarters of
1994 and 1993, respectively.
Total debt (short-term borrowings and long-term debt) and its corresponding
ratio to total capital (total debt and stockholders' equity) were $176,099,000
and 47.8% at April 30, 1994, compared with $160,789,000 and 46.0% at January
31, 1994.
The Company's sources of working capital continue to be internally generated
funds, as well as funds available under a $100,000,000 revolving credit
facility and a yen 2,500,000,000 (approximately $24,600,000) line of credit.
Management anticipates that these sources of funds will be sufficient to
support planned worldwide business expansion, as well as seasonal working
capital increases typically required during the third and fourth quarters of
the year.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.3 Tiffany & Co. 1986 Stock Option Plan, as amended and
restated, approved by the Registrant's stockholders
on May 19, 1994.
10.116 Tiffany & Co. Employee Profit Sharing and Retirement
Savings Plan, effective August 1, 1994.
11 Statement re Computation of Per
Share Earnings.
(b) Reports on form 8-K
None.
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 2, 1994 By:/s/ James N. Fernandez
------------------------------------
James N. Fernandez
Senior Vice President - Finance
and Chief Financial Officer
(principal financial officer)
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EXHIBIT INDEX
Exhibit Sequentially
Number Numbered Page
- - ----------- -------------
10.3 Tiffany & Co. 1986 Stock Option Plan, as amended
and restated, approved by the Registrant's
stockholders on May 19, 1994 . . . . . . . . . . . . . . . . . . . 14
10.116 Tiffany & Co. Employee Profit Sharing
and Retirement Savings Plan, effective August 1, 1994 . . . . . . . . . . . . . . 17
11 Statement re Computation of
Per Share Earnings . . . . . . . . . . . . . . . . . . . 58
- - ---------------------------------
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