UNITED STATES
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 quarterly period ended October 31, 2008.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the transition period 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 .
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One).
Large Accelerated filer X Accelerated filer ___ Non-Accelerated filer ___
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes . No X .
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, 123,108,737 shares outstanding at the close
of business on November 30, 2008.
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 2008
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - October 31, 2008,
January 31, 2008 and October 31, 2007 (Unaudited) 3
Condensed Consolidated Statements of Earnings - for the
three and nine months ended October 31, 2008 and 2007 (Unaudited) 4
Condensed Consolidated Statements of Stockholders' Equity -
for the nine months ended October 31, 2008 and
Comprehensive Earnings - for the three and nine months
ended October 31, 2008 and 2007 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows - for the
nine months ended October 31, 2008 and 2007 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 1A. Risk Factors 27-28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 6. Exhibits 30
(a) Exhibits
2
PART I. Financial Information
Item 1. Financial Statements
TIFFANY & CO. AND SUBSIDIARIES
------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited)
-----------
(in thousands, except per share amounts)
October 31, January 31, October 31,
2008 2008 2007
----------------- ----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 160,376 $ 246,654 $ 334,850
Short-term investments - - 56,270
Accounts receivable, less allowances
of $7,403, $9,712 and $7,480 164,269 193,974 168,678
Inventories, net 1,638,479 1,372,397 1,465,502
Deferred income taxes 33,069 20,218 15,216
Prepaid expenses and other current assets 70,375 89,072 91,682
----------------- ----------------- -----------------
Total current assets 2,066,568 1,922,315 2,132,198
Property, plant and equipment, net 738,287 748,210 757,542
Deferred income taxes 172,283 158,579 115,333
Other assets, net 162,437 171,800 197,636
----------------- ----------------- -----------------
$ 3,139,575 $ 3,000,904 $ 3,202,709
================= ================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 414,364 $ 44,032 $ 59,843
Current portion of long-term debt 100,682 65,640 5,552
Accounts payable and accrued liabilities 236,191 203,622 204,579
Income taxes payable 6,930 203,611 95,816
Merchandise and other customer credits 67,924 67,956 67,092
----------------- ----------------- -----------------
Total current liabilities 826,091 584,861 432,882
Long-term debt 306,226 343,465 397,795
Pension/postretirement benefit obligations 86,355 79,254 100,712
Deferred gains on sale-leasebacks 134,444 145,599 144,973
Other long-term liabilities 140,704 131,610 130,463
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value; authorized 2,000 shares, none
issued and outstanding - - -
Common Stock, $0.01 par value; authorized 240,000 shares,
issued and outstanding 123,095, 126,753 and 135,642 1,231 1,268 1,357
Additional paid-in capital 684,883 632,671 647,405
Retained earnings 962,300 1,037,663 1,322,136
Accumulated other comprehensive gain (loss), net of tax:
Foreign currency translation adjustments 9,314 42,117 40,245
Deferred hedging (loss) gain (7,986) 889 (580)
Unrealized (loss) gain on marketable securities (6,322) (621) 898
Net unrealized gain (loss) on benefit plans 2,335 2,128 (15,577)
----------------- ----------------- -----------------
Total stockholders' equity 1,645,755 1,716,115 1,995,884
----------------- ----------------- -----------------
$ 3,139,575 $ 3,000,904 $ 3,202,709
================= ================= =================
See notes to condensed consolidated financial statements.
3
TIFFANY & CO. AND SUBSIDIARIES
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(Unaudited)
-----------
(in thousands except per share amounts)
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------------- ------------------------------
2008 2007 2008 2007
--------------- -------------- -------------- --------------
Net sales $ 618,230 $ 627,323 $ 2,018,782 $ 1,885,614
Cost of sales 270,210 285,776 866,306 838,203
--------------- -------------- -------------- --------------
Gross profit 348,020 341,547 1,152,476 1,047,411
Other operating income - 105,051 - 105,051
Selling, general and administrative expenses 269,499 288,403 839,151 793,563
--------------- -------------- -------------- --------------
Earnings from continuing operations 78,521 158,195 313,325 358,899
Other expenses, net 14,453 2,306 19,305 8,139
--------------- -------------- -------------- --------------
Earnings from continuing operations before income
taxes 64,068 155,889 294,020 350,760
Provision for income taxes 20,291 52,787 105,083 127,122
--------------- -------------- -------------- --------------
Net earnings from continuing operations 43,777 103,102 188,937 223,638
Loss from discontinued operations, net of tax - (1,555) - (27,547)
--------------- -------------- -------------- --------------
Net earnings $ 43,777 $ 101,547 $ 188,937 $ 196,091
=============== ============== ============== ==============
Earnings per share:
Basic
Net earnings from continuing operations $ 0.35 $ 0.76 $ 1.51 $ 1.64
Net loss from discontinued operations - (0.01) - (0.20)
--------------- -------------- -------------- --------------
Net earnings $ 0.35 $ 0.75 $ 1.51 $ 1.44
=============== ============== ============== ==============
Diluted
Net earnings from continuing operations $ 0.35 $ 0.74 $ 1.49 $ 1.60
Net loss from discontinued operations - (0.01) - (0.20)
--------------- -------------- -------------- --------------
Net earnings $ 0.35 $ 0.73 $ 1.49 $ 1.40
=============== ============== ============== ==============
Weighted-average number of common shares:
Basic 123,399 136,124 125,190 136,452
Diluted 124,899 139,487 127,053 139,943
See notes to condensed consolidated financial statements.
4
TIFFANY & CO. AND SUBSIDIARIES
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------
AND COMPREHENSIVE EARNINGS
--------------------------
(Unaudited)
-----------
(in thousands)
Accumulated
Total Other Additional
Stockholders' Retained Comprehensive Common Stock Paid-In
Equity Earnings Gain (Loss) Shares Amount Capital
----------------------------------------------------------------------------------------------------------------------
Balances, January 31, 2008 $ 1,716,115 $ 1,037,663 $ 44,513 126,753 $ 1,268 $ 632,671
Exercise of stock options and vesting of
restricted stock units ("RSUs") 25,747 - - 1,593 16 25,731
Tax benefit from exercise of stock options
and vesting of RSUs 11,627 - - - - 11,627
Share-based compensation expense 25,416 - - - - 25,416
Issuance of Common Stock under
Employee Profit Sharing and Retirement
Savings Plan 4,750 - - 124 1 4,749
Purchase and retirement of Common Stock (218,379) (203,014) - (5,375) (54) (15,311)
Cash dividends on Common Stock (61,286) (61,286) - - - -
Deferred hedging loss, net of tax (8,875) - (8,875) - - -
Unrealized loss on marketable securities,
net of tax (5,701) - (5,701) - - -
Foreign currency translation adjustments,
net of tax (32,803) - (32,803) - - -
Net unrealized gain on benefit plans,
net of tax 207 - 207 - - -
Net earnings 188,937 188,937 - - - -
-------------------------------------------------------------------------
$ 1,645,755 $ 962,300 $ (2,659) 123,095 $ 1,231 $684,883
Balances, October 31, 2008 =========================================================================
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------------------- -----------------------------
2008 2007 2008 2007
-------------------------------- -----------------------------
Comprehensive earnings are as follows:
Net earnings $ 43,777 $101,547 $188,937 $196,091
Other comprehensive gain (loss), net of tax:
Deferred hedging loss (9,450) (672) (8,875) (2,626)
Foreign currency translation adjustments (39,469) 15,443 (32,803) 28,399
Unrealized (loss) gain on marketable securities (4,633) 743 (5,701) 720
Net unrealized gain on benefit plans 34 400 207 1,083
-------------------------------- -----------------------------
Comprehensive (loss) earnings $ (9,741) $117,461 $141,765 $223,667
================================ =============================
See notes to condensed consolidated financial statements.
5
TIFFANY & CO. AND SUBSIDIARIES
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
-----------
(in thousands)
Nine Months Ended,
October 31,
-------------------------------------------------
2008 2007
----------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 188,937 $ 196,091
Loss from discontinued operations, net of tax - 27,547
----------------------- ----------------------
Net earnings from continuing operations 188,937 223,638
Adjustments to reconcile net earnings from continuing operations to net
cash provided by (used in) operating activities:
Gain on sale-leaseback - (105,051)
Depreciation and amortization 99,671 94,241
Amortization of gain on sale-leaseback (7,376) (1,809)
Excess tax benefits from share-based payment arrangements (9,801) (17,971)
Provision for inventories 10,456 12,508
Deferred income taxes (10,849) (56,687)
Provision for pension/postretirement benefits 17,342 19,943
Share-based compensation expense 24,939 27,889
Derivative impairment charges 4,300 -
Changes in assets and liabilities:
Accounts receivable 32,822 9,469
Inventories (287,678) (197,280)
Prepaid expenses and other current assets 7,277 (31,724)
Accounts payable and accrued liabilities 38,679 12,790
Income taxes payable (183,551) 52,198
Merchandise and other customer credits 892 5,057
Other, net (2,703) (10,362)
----------------------- ----------------------
Net cash (used in) provided by operating activities (76,643) 36,849
----------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities and short-term investments (763) (564,899)
Proceeds from sales of marketable securities and short-term investments - 522,376
Proceeds from sale of assets, net - 509,035
Capital expenditures (108,515) (149,325)
Notes receivable funded (3,500) (7,172)
Other (839) 5,733
----------------------- ----------------------
Net cash (used in) provided by investing activities (113,617) 315,748
----------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) credit facility borrowings, net 305,972 (60,507)
Proceeds from other short-term borrowings 66,001 -
Repayment of long-term debt (11,131) (21,455)
Repurchase of Common Stock (218,379) (156,234)
Proceeds from exercise of stock options 25,747 68,176
Excess tax benefits from share-based payment arrangements 9,801 17,971
Cash dividends on Common Stock (61,286) (50,490)
----------------------- ----------------------
Net cash provided by (used in) financing activities 116,725 (202,539)
----------------------- ----------------------
Effect of exchange rate changes on cash and cash equivalents (12,743) 15,905
----------------------- ----------------------
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities - (6,596)
Investing activities - (1,020)
----------------------- ----------------------
Net cash used in discontinued operations - (7,616)
----------------------- ----------------------
Net (decrease) increase in cash and cash equivalents (86,278) 158,347
Cash and cash equivalents at beginning of year 246,654 175,008
Decrease in cash and cash equivalents of discontinued operations - 1,495
----------------------- ----------------------
Cash and cash equivalents at end of nine months $ 160,376 $ 334,850
======================= ======================
See notes to condensed consolidated financial statements.
6
TIFFANY & CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements include
the accounts of Tiffany & Co. and all majority-owned domestic and
foreign subsidiaries (the "Company"). Intercompany accounts,
transactions and profits have been eliminated in consolidation. The
interim statements are unaudited and, in the opinion of management,
include all adjustments (which include only normal recurring
adjustments) necessary to fairly state the Company's financial
position as of October 31, 2008 and 2007 and the results of its
operations and cash flows for the interim periods presented. The
condensed consolidated balance sheet data for January 31, 2008 is
derived from the audited financial statements (except as noted in Note
2), which are included in the Company's Report on Form 10-K and 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.
The Company's business is seasonal in nature, with the fourth quarter
typically representing at least one-third of annual net sales and
approximately one-half of annual net earnings. Therefore, the results
of its operations for the three and nine months ended October 31, 2008
and 2007 are not necessarily indicative of the results of the entire
fiscal year.
2. CHANGE IN ACCOUNTING FOR INVENTORIES
In March 2008, the Audit Committee of the Company's Board of Directors
approved a plan to change the Company's method of accounting for
inventories held by its U.S. subsidiaries and foreign branches from
the last-in, first-out ("LIFO") method to the average cost method. The
Company has traditionally used the average cost method to value
inventories held by its Japan subsidiary and its other foreign
subsidiaries. The Company believes that the average cost method is
preferable on the basis that it conforms to the manner in which the
Company operationally manages its inventories and evaluates retail
pricing and it makes the Company's inventory reporting consistent with
many peer retailers. This change was effective in the first fiscal
quarter of 2008 and prior periods have been revised. Accounts affected
by this change are: cost of sales; provision for income taxes;
inventories, net; deferred income taxes; and retained earnings.
Components of the Company's condensed consolidated statements of
earnings adjusted for the effect of changing from LIFO to average cost
are as follows:
Three Months Ended October 31, 2007
------------------------------------------------------------
(in thousands, except per share data) As Reported Adjustment As Adjusted
----------------------------------------------------------------------------------------------------------
Cost of sales $ 290,186 $ (4,410) $ 285,776
Provision for income taxes 51,034 1,753 52,787
Net earnings from continuing operations 100,445 2,657 103,102
Net earnings 98,890 2,657 101,547
Net earnings from continuing operations per share:
Basic $ 0.74 $ 0.02 $ 0.76
------------------------------------------------------------
Diluted $ 0.72 $ 0.02 $ 0.74
------------------------------------------------------------
Net earnings per share:
Basic $ 0.73 $ 0.02 $ 0.75
------------------------------------------------------------
Diluted $ 0.71 $ 0.02 $ 0.73
------------------------------------------------------------
7
Nine Months Ended October 31, 2007
-------------------------------------------------------------
(in thousands, except per share data) As Reported Adjustment As Adjusted
-----------------------------------------------------------------------------------------------------------
Cost of sales $ 855,036 $ (16,833) $ 838,203
Provision for income taxes 120,858 6,264 127,122
Net earnings from continuing operations 213,069 10,569 223,638
Net earnings 185,522 10,569 196,091
Net earnings from continuing operations per share:
Basic $ 1.56 $ 0.08 $ 1.64
-------------------------------------------------------------
Diluted $ 1.52 $ 0.08 $ 1.60
-------------------------------------------------------------
Net earnings per share:
Basic $ 1.36 $ 0.08 $ 1.44
-------------------- ----------------------------------------
Diluted $ 1.33 $ 0.08 $ 1.40
-------------------------------------------------------------
Components of the Company's condensed consolidated balance sheets
adjusted for the effect of changing from LIFO to average cost are as
follows:
January 31, 2008
-------------------------------------------------------------
(in thousands) As Reported Adjustment As Adjusted
-----------------------------------------------------------------------------------------------------------
Assets:
Inventories, net $ 1,242,465 $ 129,932 $ 1,372,397
Deferred income taxes - current 71,402 (51,184) 20,218
Total Assets 2,922,156 78,748 3,000,904
Liabilities and Stockholders' Equity
Retained Earnings 958,915 78,748 1,037,663
Total Liabilities and Stockholders' Equity 2,922,156 78,748 3,000,904
October 31, 2007
-------------------------------------------------------------
(in thousands) As Reported Adjustment As Adjusted
-----------------------------------------------------------------------------------------------------------
Assets:
Inventories, net $ 1,345,730 $ 119,772 $ 1,465,502
Deferred income taxes - current 65,377 (50,161) 15,216
Total Assets 3,133,098 69,611 3,202,709
Liabilities and Stockholders' Equity
Retained Earnings 1,252,525 69,611 1,322,136
Total Liabilities and Stockholders' Equity 3,133,098 69,611 3,202,709
Components of the Company's condensed consolidated statement of cash
flow adjusted for the effect of changing from LIFO to average cost are
as follows:
Nine Months Ended October 31, 2007
-------------------------------------------------------------
(in thousands) As Reported Adjustment As Adjusted
-----------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net earnings $ 185,522 $ 10,569 $ 196,091
Provision for inventories 10,639 1,869 12,508
Deferred income taxes (62,950) 6,263 (56,687)
Inventories (178,579) (18,701) (197,280)
Net cash provided by operating activities 36,849 - 36,849
The cumulative effect on retained earnings at January 31, 2007 is an
increase of $59,042,000.
8
3. NEW ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 157,
"Fair Value Measurements" which establishes a framework for measuring
fair value of assets and liabilities and expands disclosures about
fair value measurements. The changes to current practice resulting
from the application of SFAS No. 157 relate to the definition of fair
value, the methods used to measure fair value, and the expanded
disclosures about fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. In February 2008,
the FASB deferred the implementation of the provisions of SFAS No. 157
relating to nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually) to fiscal years beginning after
November 15, 2008. The adoption of SFAS No. 157 for financial assets
that are recognized at fair value on a recurring basis in the first
quarter of 2008 did not have a material impact on the Company's
financial position or earnings (see Note 9). Management anticipates
adopting the remaining provisions of SFAS No. 157 on February 1, 2009.
This adoption will impact the way in which the Company calculates fair
value for its annual impairment review of goodwill and when conditions
exist that require the Company to calculate the fair value of
long-lived assets; however, management expects that this will not have
a material effect on the Company's financial position or earnings.
Effective with the first quarter of 2008, the Company changed the
measurement date for its U.S. employee benefit plans from December 31
to January 31 in accordance with the measurement date provisions of
SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans - an amendment of FASB Statements No. 87,
88, 106 and 132(R)." The Company has elected to use a "13-month"
approach to proportionally allocate the transition adjustment required
under SFAS No. 158. The Company anticipates recording a charge of
approximately $2,000,000 to retained earnings in the fourth quarter of
fiscal year 2008.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements." SFAS No. 160 requires
a company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the company's equity. It also requires the amount of
consolidated net earnings attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of earnings; changes in ownership
interest to be accounted for similarly, as equity transactions; and,
when a subsidiary is deconsolidated, that any retained noncontrolling
equity investment in the former subsidiary and the gain or loss on the
deconsolidation of the subsidiary be measured at fair value. SFAS No.
160 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. Management has evaluated the
provisions of SFAS No. 160 and determined that its adoption will not
have a material effect on the Company's financial position or
earnings.
4. DISCONTINUED OPERATIONS
During the second quarter of 2007, the Company's Board of Directors
authorized the sale of Little Switzerland, Inc. ("Little
Switzerland"), based on management's conclusion that Little
Switzerland's operations did not demonstrate the potential to generate
a return on investment consistent with management's objectives. On
July 31, 2007, the Company entered into an agreement with NXP
Corporation ("NXP") by which NXP would purchase 100% of the stock of
Little Switzerland. The transaction closed on September 18, 2007 for
net proceeds of $32,870,000 which excludes payments for existing trade
payables owed to the Company by Little Switzerland. The purchase price
remains subject to customary post-closing adjustments. The Company has
agreed to continue to distribute TIFFANY & CO. merchandise through
TIFFANY & CO. boutiques maintained in certain LITTLE SWITZERLAND
stores. In addition, the Company has agreed to provide warehousing
services to Little Switzerland for a transition period. The Company
ceased providing these services in the third quarter of 2008.
The Company determined that the continuing cash flows from Little
Switzerland operations were not significant. Therefore, the results of
Little Switzerland are presented as a discontinued operation in the
condensed consolidated financial statements for all periods presented.
Prior to the reclassification, Little Switzerland's results had been
included within the non-reportable segment Other.
9
Little Switzerland's loss before income taxes in the nine months ended
October 31, 2007 includes a $54,260,000 pre-tax charge ($22,602,000
after-tax) due to the sale of Little Switzerland. The tax benefit
recorded in connection with the charge included the effect of basis
differences in the investment in Little Switzerland.
Summarized statement of earnings data for Little Switzerland is as
follows:
Three Months Ended Nine Months Ended
(in thousands) October 31, 2007 October 31, 2007
-----------------------------------------------------------------------------------------------------------
Net revenues $ 9,378 $ 52,817
=============================================
Gain (loss) on disposal 601 (54,260)
Loss from operations (1,893) (5,401)
Income tax expense (benefit) 263 (32,114)
---------------------------------------------
Loss from discontinued operations $ (1,555) $ (27,547)
=============================================
5. INVENTORIES
October 31, January 31, October 31,
(in thousands) 2008 2008 2007
-----------------------------------------------------------------------------------------------------------
Finished goods $ 1,142,827 $ 942,860 $ 1,048,052
Raw materials 402,824 352,211 336,182
Work-in-process 92,828 77,326 81,268
------------------------------------------------------------------
Inventories, net $ 1,638,479 $ 1,372,397 $ 1,465,502
==================================================================
6. INCOME TAXES
During the nine months ended October 31, 2008, the gross amount of
unrecognized tax benefits increased $9,626,000 to $43,327,000. As of
that date, the changes in the unrecognized tax benefits that if
recognized would affect the effective tax rate and accrued interest
and penalties was not material.
The Company files income tax returns in the U.S. federal jurisdiction
as well as various state and foreign locations. As a matter of course,
various taxing authorities regularly audit the Company. The Company's
tax filings are currently being examined by tax authorities in
jurisdictions where its subsidiaries have a material presence,
including U.S. Federal tax year 2006 and Japan (tax years 2003-2005,
2007). Tax years from 2003-present are open to examination in various
other state and foreign taxing jurisdictions. The Company believes
that its tax positions comply with applicable tax laws and that it has
adequately provided for these matters. However, the audits may result
in proposed assessments where the ultimate resolution may result in
the Company owing additional taxes. Ongoing audits are in various
stages of completion and while the Company does not anticipate any
material changes in unrecognized income tax benefits over the next 12
months, future developments in the audit process may result in a
change in management's assessment.
7. EARNINGS PER SHARE
Basic earnings per share is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share includes the dilutive effect of the assumed
exercise of stock options and vesting of restricted stock units.
10
The following table summarizes the reconciliation of the numerators and
denominators for the basic and diluted earnings per share ("EPS")
computations:
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------------------------------------------------------------
(in thousands) 2008 2007 2008 2007
-----------------------------------------------------------------------------------------------------------
Net earnings for basic and
diluted EPS $ 43,777 $ 101,547 $ 188,937 $ 196,091
==========================================================================
Weighted average shares for
basic EPS 123,399 136,124 125,190 136,452
Incremental shares based
upon the assumed
exercise of stock options
and restricted stock units 1,500 3,363 1,863 3,491
--------------------------------------------------------------------------
Weighted average shares for
diluted EPS 124,899 139,487 127,053 139,943
==========================================================================
For the three months ended October 31, 2008 and 2007, there were
3,665,000 and 342,000 stock options and restricted stock units
excluded from the computations of earnings per diluted share due to
their antidilutive effect. For the nine months ended October 31, 2008
and 2007, there were 3,108,000 and 392,000 stock options and
restricted stock units excluded from the computations of earnings per
diluted share due to their antidilutive effect.
8. DEBT
In October 2008, the Company entered into a short-term unsecured
facility agreement for yen 6,500,000,000 ($66,001,000 at October 31,
2008) due March 31, 2009. The entire commitment was drawn and
outstanding at October 31, 2008. The facility is available for working
capital and other corporate purposes and contains covenants that
require maintenance of certain ratios. The weighted-average interest
rate at October 31, 2008 was 1.90%.
In October 2008, the Company entered into a short-term uncommitted
open line of credit agreement for up to $25,000,000 maturing in
December 2008, none of which was outstanding at October 31, 2008. The
open line of credit is available for working capital and other
corporate purposes. Interest is payable at the end of each calendar
month either at a variable rate per annum equal to the greatest of (a)
the prime rate in effect on such day; (b) the Federal Funds rate plus
1/2 of 1% and (c) LIBOR adjusted for certain reserve requirements or a
fixed rate per annum equal to LIBOR adjusted for certain reserve
requirements plus 1%.
9. FAIR VALUE MEASUREMENTS
The Company adopted SFAS No. 157, "Fair Value Measurements," effective
February 1, 2008, with respect to fair value measurements of financial
assets and liabilities that are recognized or disclosed at fair value
in the Company's financial statements on a recurring basis (at least
annually).
SFAS No. 157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
measurement date. SFAS No. 157 also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure
fair value:
Level 1 - Quoted prices in active markets for identical assets or
liabilities.
Level 2 - Observable market-based inputs or unobservable inputs that
are corroborated by market data.
Level 3 - Unobservable inputs reflecting the reporting entity's own
assumptions.
11
The Company uses the market approach to measure fair value for its
mutual funds, yen put options and platinum and silver collars. The
following table provides information by level for assets that are
measured at fair value on a recurring basis:
Asset (Liability) Fair Value Measurements
Fair Value at Using Inputs Considered as
(in thousands) October 31, 2008 Level 1 Level 2 Level 3
-------------------------------------------------------------------------------------------------------------
Mutual funds $ 21,826 $ 21,826 $ - $ -
Yen put options 1,863 - 1,863 -
Platinum and silver collars (11,475) - (11,475) -
In Japan, the Company uses yen put options to minimize the potential
effect of a weakening yen on U.S. dollar-denominated transactions over
a maximum term of 12 months. The Company uses a combination of call
and put option contracts in a net-zero cost collar arrangement
("collars") as hedges of a portion of forecasted purchases of platinum
and silver for internal manufacturing.
During the third quarter of 2008, the Company determined that the
unrealized gains and interest receivable associated with the
interest-rate swaps used to manage its net exposure to interest rate
changes on certain debt arrangements were impaired as the recovery of
the amounts due from the counterparty, Lehman Brothers Special
Financing Inc., was no longer probable. As a result, the Company
recorded a pre-tax charge of $4,300,000 in other expenses, net, which
represents all amounts due from Lehman Brothers Special Financing Inc.
10. EMPLOYEE BENEFIT PLANS
The Company maintains several pension and retirement plans, as well as
provides certain health-care and life insurance benefits.
Net periodic pension and other postretirement benefit expense included
the following components:
Three Months Ended October 31,
-------------------------------------------------------------------
Other
Pension Benefits Postretirement Benefits
-------------------------------------------------------------------
(in thousands) 2008 2007 2008 2007
------------------------------------------------------------------------------------------------------------
Service cost $ 3,528 $ 4,213 $ 414 $ 318
Interest cost 4,339 4,003 403 470
Expected return on plan assets (3,915) (3,418) - -
Amortization of prior service cost 321 321 (198) (223)
Amortization of net loss 118 848 - 9
-------------------------------------------------------------------
Net expense $ 4,391 $ 5,967 $ 619 $ 574
===================================================================
Nine Months Ended October 31,
-------------------------------------------------------------------
Other
Pension Benefits Postretirement Benefits
-------------------------------------------------------------------
(in thousands) 2008 2007 2008 2007
------------------------------------------------------------------------------------------------------------
Service cost $ 12,491 $ 13,373 $ 1,247 $ 953
Interest cost 13,133 11,945 1,359 1,410
Expected return on plan assets (11,744) (10,276) - -
Amortization of prior service cost 962 962 (593) (670)
Amortization of net loss 487 2,217 - 29
-------------------------------------------------------------------
Net expense $ 15,329 $ 18,221 $ 2,013 $ 1,722
===================================================================
12
11. SEGMENT INFORMATION
Effective with the first quarter of 2008, management has changed
segment reporting to reflect operating results for the following
regions: the Americas, Asia-Pacific and Europe. Prior year results
have been revised to reflect this change. The Company has expanded its
global reach and management has determined it is more meaningful to
assess performance on a region-by-region basis, rather than on a
channel of distribution basis. The Company's reportable segments are
as follows:
o "Americas" includes sales in TIFFANY & CO. stores in the
U.S., Canada and Latin/South America, as well as sales in
those markets of TIFFANY & CO. products through
business-to-business, Internet, catalog and wholesale
operations.
o "Asia-Pacific" includes sales in TIFFANY & CO. stores in the
Asia-Pacific region (which includes sales in Japan, in
Asia-Pacific countries outside Japan, and in the Middle
East), as well as sales in those markets of TIFFANY & CO.
products through business-to-business, Internet and
wholesale operations.
o "Europe" includes sales in TIFFANY & CO. stores in Europe,
as well as sales in those markets of TIFFANY & CO. products
through business-to-business, Internet and wholesale
operations.
The "Other" channel of distribution includes all non-reportable
segments. Sales in the Other channel of distribution primarily consist
of wholesale sales of diamonds obtained through bulk purchases that
were subsequently deemed not suitable for the Company's needs. In
addition, Other includes worldwide sales made by businesses operated
under trademarks or tradenames other than TIFFANY & CO. and earnings
received from third party licensing agreements.
Certain information relating to the Company's segments is set forth
below:
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------------------------------------------------------
(in thousands) 2008 2007 2008 2007
---------------------------------------------------------------------- ------------------------------------
Net sales:
Americas $ 331,783 $ 355,346 $ 1,127,754 $ 1,117,635
Asia-Pacific 205,992 199,470 642,262 565,526
Europe 58,157 50,075 189,302 146,178
------------------------------------------------------------------------
Total reportable segments 595,932 604,891 1,959,318 1,829,339
Other 22,298 22,432 59,464 56,275
------------------------------------------------------------------------
$ 618,230 $ 627,323 $ 2,018,782 $ 1,885,614
========================================================================
Earnings (losses) from continuing operations*:
Americas $ 48,369 $ 48,749 $ 210,257 $ 198,433
Asia-Pacific 49,010 44,246 159,270 140,727
Europe 7,843 6,914 34,931 25,205
------------------------------------------------------------------------
Total reportable segments 105,222 99,909 404,458 364,365
Other (3,433) (6,964) (9,429) (16,256)
------------------------------------------------------------------------
$ 101,789 $ 92,945 $ 395,029 $ 348,109
========================================================================
*Represents earnings (losses) from continuing operations before
unallocated corporate expenses, other operating income and other
expenses, net.
13
The following table sets forth a reconciliation of the segments'
earnings from continuing operations to the Company's consolidated
earnings from continuing operations before income taxes:
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------------------------------------------------------------
(in thousands) 2008 2007 2008 2007
------------------------------------------------------------------------------------------------------------
Earnings from continuing
operations for segments $ 101,789 $ 92,945 $ 395,029 $ 348,109
Unallocated corporate
expenses (23,268) (39,801) (81,704) (94,261)
Other operating income - 105,051 - 105,051
Other expenses, net (14,453) (2,306) (19,305) (8,139)
-------------------------------------------------------------------------
Earnings from continuing
operations before income
taxes $ 64,068 $ 155,889 $ 294,020 $ 350,760
=========================================================================
Unallocated corporate expenses include certain costs related to
administrative support functions which the Company does not allocate
to its segments. Such unallocated costs include those for information
technology, finance, legal and human resources. Unallocated corporate
expenses in the third quarter and year-to-date 2007 include the
$10,000,000 contribution to The Tiffany & Co. Foundation, a private
charitable foundation established by the Company. Other operating
income includes the $105,051,000 gain from the sale-leaseback of the
land and building housing the TIFFANY & CO. Flagship store in Tokyo's
Ginza shopping district in 2007.
12. SUBSEQUENT EVENTS
On November 20, 2008, the Company's Board of Directors declared a
quarterly dividend of $0.17 per common share. This dividend will be
paid on January 12, 2009 to stockholders of record on December 22,
2008.
In November 2008, the Company entered into a short-term note agreement
for $50,000,000 due March 31, 2009, bearing interest at a rate of
4.50% payable upon maturity. These funds are available for working
capital and other corporate purposes.
In light of the recent economic downturn, management is now making
plans to adjust staffing levels. In connection with this planning
initiative, on November 25, 2008, the Company's New York subsidiary
offered a voluntary retirement incentive to approximately 800 U.S.
employees who meet certain age and service eligibility requirements.
This incentive includes increased age and service credit for pension
purposes, severance payments, enhanced retirement health care benefits
and accelerated vesting and extended exercise rights for equity grants
now outstanding. The election period for this incentive will end on
January 12, 2009. The executive officers of the Company are not
eligible to participate in this incentive. The Company expects to
record in the fourth-quarter of 2008 a non-recurring pre-tax charge in
the range of $50,000,000 to $65,000,000 in connection with the
incentive. The ultimate charge will depend upon the number of eligible
employees who accept the incentive. By the end of the fourth quarter
of fiscal 2008, management expects to have finalized plans to further
adjust staffing levels; such plans could result in additional charges
for fiscal 2008.
14
PART I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
--------
Tiffany & Co. (the "Company") is a holding company that operates through its
subsidiary companies. The Company's principal subsidiary, Tiffany and Company,
is a jeweler and specialty retailer whose principal merchandise offering is fine
jewelry. It also sells timepieces, sterling silverware, china, crystal,
stationery, fragrances and accessories. Through Tiffany and Company and other
subsidiaries, the Company is engaged in product design, manufacturing and
retailing activities.
Effective with the first quarter of 2008, management has changed segment
reporting to reflect operating results for the following regions: the Americas,
Asia-Pacific and Europe. Prior year results have been revised to reflect this
change. The Company has expanded its global reach and management has determined
it is more meaningful to assess performance on a region-by-region basis, rather
than on a channel of distribution basis. The Company's reportable segments are
as follows:
o "Americas" includes sales in TIFFANY & CO. stores in the U.S., Canada
and Latin/South America, as well as sales in those markets of TIFFANY
& CO. products through business-to-business, Internet, catalog and
wholesale operations.
o "Asia-Pacific" includes sales in TIFFANY & CO. stores in the
Asia-Pacific region (which includes sales in Japan, in Asia-Pacific
countries outside Japan, and in the Middle East), as well as sales in
those markets of TIFFANY & CO. products through business-to-business,
Internet and wholesale operations.
o "Europe" includes sales in TIFFANY & CO. stores in Europe, as well as
sales in those markets of TIFFANY & CO. products through
business-to-business, Internet and wholesale operations.
o The "Other" channel of distribution includes all non-reportable
segments. Sales in the Other channel of distribution primarily consist
of wholesale sales of diamonds obtained through bulk purchases that
were subsequently deemed not suitable for the Company's needs. In
addition, Other includes worldwide sales made by businesses operated
under trademarks or tradenames other than TIFFANY & CO. and earnings
received from third party licensing agreements.
All references to years relate to fiscal years ended or ending on January 31 of
the following calendar year.
Highlights
----------
o Worldwide net sales decreased 1% in the three months ("third quarter")
and increased 7% in the nine months ("year-to-date") ended October 31,
2008.
o Worldwide comparable store sales decreased 7% in the third quarter and
decreased 2% in the year-to-date on a constant-exchange-rate basis
(see Non-GAAP Measures).
o Net earnings from continuing operations decreased 58% to $43,777,000
in the third quarter and 16% to $188,937,000 in the year-to-date. Net
earnings from continuing operations per diluted share decreased 53% in
the third quarter and 7% in the year-to-date. Prior year third quarter
and year-to-date net earnings and earnings per diluted share included
the following:
o $105,051,000 pre-tax gain (recorded as other operating
income), or $0.48 per diluted share after tax, from the
sale-leaseback of the land and building housing the TIFFANY
& CO. Flagship store in Tokyo's Ginza shopping district.
o The Company contributed $10,000,000, or $0.04 per diluted
share after tax, recorded within selling, general and
administrative expenses, to The Tiffany & Co. Foundation,
funded with the proceeds from the immediately preceding
transaction.
15
o The Company repurchased and retired 2.3 million and 5.4 million shares
of its Common Stock during the third quarter and year-to-date of 2008.
NON-GAAP MEASURES
-----------------
The Company's reported sales reflect either a translation-related benefit from
strengthening foreign currencies or a detriment from a strengthening U.S.
dollar.
The Company reports information in accordance with U.S. Generally Accepted
Accounting Principles ("GAAP"). Internally, management monitors its
international sales performance on a non-GAAP basis that eliminates the positive
or negative effects that result from translating international sales into U.S.
dollars ("constant-exchange-rate basis"). Management believes this
constant-exchange-rate measure provides a more representative assessment of the
sales performance and provides better comparability between reporting periods.
The Company's management does not, nor does it suggest that investors should,
consider such non-GAAP financial measures in isolation from, or as a substitute
for, financial information prepared in accordance with GAAP. The Company
presents such non-GAAP financial measures in reporting its financial results to
provide investors with an additional tool to evaluate the Company's operating
results. The following table reconciles sales percentage increases (decreases)
from the GAAP to the non-GAAP basis versus the previous year:
Third Quarter 2008 vs. 2007 Year-to-Date 2008 vs. 2007
---------------------------------------- ----------------------------------------
Constant- Constant-
GAAP Translation Exchange- GAAP Translation Exchange-
Reported Effect Rate Basis Reported Effect Rate Basis
---------------------------------------- ----------------------------------------
Net Sales:
----------
Worldwide (1)% 1 % (2)% 7 % 3 % 4 %
Americas (7)% (1)% (6)% 1 % - 1 %
U.S. (9)% - (9)% (1)% - (1)%
Asia-Pacific 3 % 4 % (1)% 14 % 9 % 5 %
Japan 1 % 9 % (8)% 8 % 12 % (4)%
Other Asia-Pacific 9 % (3)% 12 % 23 % 3 % 20 %
Europe 16 % (8)% 24 % 30 % 2 % 28 %
Comparable Store Sales:
-----------------------
Worldwide (6)% 1 % (7)% 1 % 3 % (2)%
Americas (12)% - (12)% (4)% 1 % (5)%
U.S. (14)% - (14)% (6)% - (6)%
Asia-Pacific 2 % 5 % (3)% 9 % 8 % 1 %
Japan 2 % 9 % (7)% 5 % 12 % (7)%
Other Asia-Pacific 2 % (2)% 4 % 15 % 3 % 12 %
Europe 3 % (5)% 8 % 14 % 4 % 10 %
16
RESULTS OF OPERATIONS
---------------------
Certain operating data as a percentage of net sales were as follows:
Third Quarter Year-to-Date
----------------------- ------------------------
2008 2007 2008 2007
----------------------- ------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 43.7 45.6 42.9 44.5
----------------------- ------------------------
Gross profit 56.3 54.4 57.1 55.5
Other operating income - 16.8 - 5.6
Selling, general and administrative expenses 43.6 46.0 41.6 42.1
----------------------- ------------------------
Earnings from continuing operations 12.7 25.2 15.5 19.0
Other expenses, net 2.3 0.4 0.9 0.4
----------------------- ------------------------
Earnings from continuing operations before income taxes 10.4 24.8 14.6 18.6
Provision for income taxes 3.3 8.4 5.2 6.7
----------------------- ------------------------
Net earnings from continuing operations 7.1 16.4 9.4 11.9
Loss from discontinued operations, net of tax - (0.2) - (1.5)
----------------------- ------------------------
Net earnings 7.1% 16.2% 9.4% 10.4%
======================= ========================
Net Sales
---------
Net sales were as follows:
Third Quarter
-----------------------------------------------------------------------------------------
(in thousands) 2008 2007 Increase (Decrease)
----------------------------------------------------------------------------------------------------------------------
Americas $ 331,783 $ 355,346 $ (23,563) (7)%
Asia-Pacific 205,992 199,470 6,522 3%
Europe 58,157 50,075 8,082 16%
Other 22,298 22,432 (134) (1)%
-----------------------------------------------------------------------------------------
$ 618,230 $ 627,323 $ (9,093) (1)%
=========================================================================================
Year-to-Date
-----------------------------------------------------------------------------------------
(in thousands) 2008 2007 Increase
----------------------------------------------------------------------------------------------------------------------
Americas $ 1,127,754 $ 1,117,635 $ 10,119 1%
Asia-Pacific 642,262 565,526 76,736 14%
Europe 189,302 146,178 43,124 30%
Other 59,464 56,275 3,189 6%
-----------------------------------------------------------------------------------------
$ 2,018,782 $ 1,885,614 $ 133,168 7%
=========================================================================================
Comparable Store Sales. Reference will be made to "comparable store sales"
below. A store's sales are included in comparable store sales when the store has
been open for more than 12 months. In markets other than Japan, sales for
relocated stores are included in comparable store sales if the relocation occurs
within the same geographical market. In Japan (included in the Asia-Pacific
segment), sales for a new store or boutique are not included if the boutique was
relocated from one department store to another or from a department store to a
free-standing location. In all markets, the results of a store in which the
square footage has been expanded or reduced remain in the comparable store base.
Americas. Total sales in the Americas region decreased in the third quarter and
increased in the year-to-date. Non-comparable U.S. retail store sales grew
$11,962,000 in the third quarter and $47,329,000 in the year-to-date while
comparable U.S. retail store sales declined 14%, or $39,373,000, in the third
quarter and 6%, or $52,302,000 in the year-to-date. Comparable retail store
sales in Other America regions grew $2,025,000 in the third quarter and
$10,750,000 in the year-to-date. The U.S. comparable store sales decline in the
third quarter and year-to-date was due to a decline in transactions which more
than offset an increase in the average price per transaction. Management
17
attributes this decline to the challenging economic environment in the U.S. New
York Flagship store sales decreased 5% in the third quarter, and increased 5% in
the year-to-date, compared to a decline in comparable branch store sales of 16%
and 9% in those same periods. Transactions and sales decreased in the New York
Flagship store in the quarter and increased in the year-to-date. The New York
Flagship store benefited from higher levels of sales to foreign tourists in both
periods.
Asia-Pacific. Total sales in the Asia-Pacific region increased in the third
quarter and year-to-date primarily due to growth in comparable store sales (2%,
or $3,024,000, in the third quarter and 9%, or $46,076,000, in the year-to-date)
and non-comparable store sales ($4,265,000 in the third quarter and $24,558,000
in the year-to-date). In the third quarter, on a constant-exchange-rate basis,
Asia-Pacific region sales decreased 1% and comparable store sales decreased 3%
(consisting of a 7% decline in Japan comparable store sales which more than
offset a 4% increase in comparable store sales in countries other than Japan).
In the year-to-date, on a constant-exchange-rate basis, Asia-Pacific region
sales increased 5% and comparable store sales increased 1% (consisting of a 7%
decline in Japan comparable store sales and a 12% increase in comparable store
sales in countries other than Japan). The overall increase in Asia-Pacific
region sales resulted from an increase in the average price per unit sold in
both the third quarter and year-to-date. In both periods, Asia-Pacific region
unit growth was hampered by declines in unit volume in Japan.
Europe. Total sales in the Europe region increased in the third quarter and
year-to-date primarily due to growth in non-comparable store sales ($6,060,000
in the third quarter and $18,980,000 in the year-to-date) and comparable store
sales (3%, or $1,001,000, in the third quarter and 14%, or $16,231,000, in the
year-to-date). On a constant-exchange-rate basis, Europe region sales increased
24% in the third quarter and 28% in the year-to-date and comparable store sales
rose 8% and 10% in those periods, reflecting growth in London and in most
Continental European markets. The total increase in Europe region sales resulted
from an increase in the number of units sold in both the third quarter and
year-to-date.
Other. Other sales decreased slightly in the third quarter primarily due to
decreased sales at Iridesse. Other sales increased in the year-to-date primarily
due to increased wholesale sales of diamonds that were deemed not suitable for
the Company's needs, earnings from licensing agreements and sales growth in
IRIDESSE stores. Wholesale diamond sales increased 1% to $20,220,000 in the
third quarter and rose 3% to $50,766,000 in the year-to-date following
substantial increases in the prior-year periods.
Store Data. Management expects to open 22 (net) Company-operated TIFFANY & CO.
stores and boutiques in 2008, increasing the store-base by 12%. The Company has
decided to moderate the rate of new store openings in 2009 to approximately five
stores in the Americas and approximately eight locations across Asia-Pacific and
Europe. Openings of TIFFANY & CO. stores are:
Actual Openings Expected Openings
Location (Closings) 2008 2008
--------------------------------------------------------------------------------------------------------------------
Americas:
Los Angeles - Westfield Topanga Center, California First Quarter
West Hartford, Connecticut Second Quarter
Glendale, California Third Quarter
Pittsburgh, Pennsylvania Third Quarter
Uncasville - Mohegan Sun, Connecticut Third Quarter
Columbus, Ohio Fourth Quarter
Asia-Pacific:
Fukuoka, Japan First Quarter
Osaka, Japan First Quarter
Shizuoka, Japan First Quarter
Tokyo, Japan First Quarter
Chengdu, China First Quarter
Shenyang, China First Quarter
Shandong, China Second Quarter
Perth, Australia Second Quarter
Seoul - Hyundai Department Store, Korea (First Quarter)
Seoul - Shinsegae Gangnam, Korea Second Quarter
Seoul - Samsung Plaza, Korea Third Quarter
18
Actual Openings Expected Openings
Location 2008 2008
------------------------------------------------------------------------------------------------------------------
Europe:
London - Heathrow Airport, United Kingdom First Quarter
Brussels, Belgium Second Quarter
London - Westfield, United Kingdom Third Quarter
Madrid, Spain Third Quarter
Dusseldorf, Germany Third Quarter
Berlin, Germany Third Quarter
Dublin, Ireland Fourth Quarter
Gross Margin
------------
Gross margin (gross profit as a percentage of net sales) increased in the third
quarter by 1.9 percentage points and in the year-to-date by 1.6 percentage
points primarily due to favorable changes in product sales mix, the benefit from
the Company's precious metal hedging program and a reduction in anticipated
management incentive compensation. To a lesser extent, gross margin also
improved in the year-to-date due to changes in geographic mix. To address rising
product costs, the Company has, in certain instances, increased retail prices.
Selling, General and Administrative ("SG&A") Expenses
-----------------------------------------------------
SG&A expenses decreased $18,904,000, or 7%, in the third quarter. In the prior
year, the Company used proceeds from the sale-leaseback of the land and building
housing the TIFFANY & CO. Flagship store in Tokyo's Ginza shopping district to
contribute $10,000,000 to The Tiffany & Co. Foundation, a private charitable
foundation established by the Company. Excluding the contribution, SG&A expenses
decreased $8,904,000 or 3% primarily due to decreased labor and benefit costs of
$8,108,000 as a result of a reduction in anticipated management incentive
compensation which more than offset incremental costs related to new stores.
Changes in foreign currency exchange rates increased SG&A expenses in the third
quarter by approximately $2,000,000 compared to the prior year. In the
year-to-date, SG&A expenses increased $45,588,000, or 6%. Excluding the
previously-mentioned contribution, SG&A expenses in the year-to-date increased
$55,588,000, or 7%, primarily due to increased labor and benefit costs of
$13,163,000 and increased depreciation and store occupancy expenses of
$21,715,000, (both of which are largely due to new and existing stores), as well
as an increase of $8,678,000 in marketing expenses. Changes in foreign currency
exchange rates increased SG&A expenses by approximately $19,000,000 compared to
the prior year. SG&A expenses as a percentage of net sales decreased by 2.4
percentage points in the third quarter and 0.5 percentage point in the
year-to-date. Excluding the previously-mentioned contribution, SG&A expenses as
a percentage of net sales decreased by 0.8 percentage point in the third quarter
and in the year-to-date was equal to the prior year.
Earnings from Continuing Operations
-----------------------------------
Third Quarter % of Net Third Quarter % of Net
(in thousands) 2008 Sales* 2007 Sales*
--------------------------------------------------------------------------------------------------------------------
Earnings (losses) from continuing
operations:
Americas $ 48,369 14.6% $ 48,749 13.7%
Asia-Pacific 49,010 23.8% 44,246 22.2%
Europe 7,843 13.5% 6,914 13.8%
Other (3,433) (15.4%) (6,964) (31.0%)
----------------------------------------------------------------------------
101,789 92,945
Unallocated corporate expenses (23,268) 3.8% (39,801) 6.3%
Other operating income - 105,051
----------------------------------------------------------------------------
Earnings from continuing
operations $ 78,521 12.7% $ 158,195 25.2%
============================================================================
* Percentages represent earnings (losses) from continuing operations as a
percentage of each segment's net sales.
Earnings from continuing operations decreased 50% in the third quarter. Other
operating income for 2007 includes the $105,051,000 gain from the sale-leaseback
of the land and building housing the TIFFANY & CO. Flagship store
19
in Tokyo's Ginza shopping district. Excluding other operating income, earnings
from continuing operations would have increased 48%. On a segment basis, the
ratio of earnings (losses) from continuing operations (before the effect of
unallocated corporate expenses, other operating income and other expenses, net)
to each segment's net sales in the third quarter of 2008 and 2007 was as
follows:
o Americas - the ratio increased 0.9 percentage point primarily due to
an increase in gross margin (due to favorable changes in product sales
mix and the benefit from the Company's precious metal hedging program)
partly offset by an increase in the operating expense ratio as the
sales shortfall was greater than the reduction in operating expenses,
as noted in SG&A expenses above;
o Asia-Pacific - the ratio increased 1.6 percentage points primarily due
to reduced operating expenses as noted in SG&A expenses above;
o Europe - the ratio decreased 0.3 percentage point primarily due to
increased operating expenses (related to new stores) partly offset by
an increase in gross margin (due to changes in product sales mix); and
o Other - The operating loss in each year primarily reflects the
operating performance of the Company's Iridesse subsidiary.
Year-to-Date % of Net Year-to-Date % of Net
(in thousands) 2008 Sales* 2007 Sales*
--------------------------------------------------------------------------------------------------------------------
Earnings (losses) from continuing
operations:
Americas $ 210,257 18.6% $ 198,433 17.8%
Asia-Pacific 159,270 24.8% 140,727 24.9%
Europe 34,931 18.5% 25,205 17.2%
Other (9,429) (15.9%) (16,256) (28.9%)
----------------------------------------------------------------------------
395,029 348,109
Unallocated corporate expenses (81,704) 4.0% (94,261) 5.0%
Other operating income - 105,051
----------------------------------------------------------------------------
Earnings from continuing
operations $ 313,325 15.5% $ 358,899 19.0%
============================================================================
* Percentages represent earnings (losses) from continuing operations as a
percentage of each segment's net sales.
Earnings from continuing operations decreased 13% in the year-to-date. Excluding
other operating income, earnings from continuing operations would have increased
23%. On a segment basis, the ratio of earnings (losses) from continuing
operations (before the effect of unallocated corporate expenses, other operating
income and other expenses, net) to each segment's net sales in the year-to-date
of 2008 and 2007 was as follows:
o Americas - the ratio increased 0.8 percentage point primarily due to
an increase in gross margin (due to changes in product sales mix and
the benefit from the Company's precious metal hedging program) partly
offset by an increase in the operating expense ratio due to
insufficient sales growth;
o Asia-Pacific - the ratio decreased 0.1 percentage point due to
increased operating expenses in Japan (primarily due to foreign
currency translation), mostly offset by increased profitability in
most markets other than Japan;
o Europe - the ratio increased 1.3 percentage points primarily due to an
increase in gross margin (due to changes in product sales mix); and
o Other - The operating loss in each year primarily reflects the
operating performance of the Company's Iridesse subsidiary.
Unallocated corporate expenses include certain costs related to administrative
support functions which the Company does not allocate to its segments. Such
unallocated costs include those for information technology, finance, legal and
20
human resources. Unallocated corporate expenses in the third quarter and
year-to-date 2007 include the $10,000,000 contribution to The Tiffany & Co.
Foundation. Excluding the contribution, unallocated corporate expenses as a
percentage of net sales decreased 1.0 percentage point in the third quarter and
0.5 percentage point in the year-to-date due to a reduction in anticipated
management incentive compensation.
Other Expenses, net
-------------------
Other expenses, net increased $12,147,000 in the third quarter and $11,166,000
in the year-to-date primarily due to a $4,300,000 charge related to the
unrealized gains and interest receivable associated with interest-rate swaps
that the Company determined were impaired (see note 9 to condensed consolidated
financial statements) and increased foreign exchange transaction losses of
$4,973,000 in the third quarter and $5,126,000 in the year-to-date associated
with the settlement of foreign payables.
Provision for Income Taxes
--------------------------
The effective income tax rates for the third quarter and year-to-date of 2008
were 31.7% and 35.7% versus 33.9% and 36.2% in the prior year.
2008 Outlook
------------
Management's full-year 2008 expectations are currently as follows:
o Net sales in 2008 to range from a 2% decline to unchanged from 2007.
In the fourth quarter, worldwide net sales are expected to decline 13%
- 20%, which includes an expectation of a 25% - 35% decline in U.S.
comparable store sales.
o Operating margin in a range of 17% - 18%. The operating margin
objective includes an increase in gross margin and an increase in the
SG&A expense ratio.
o Other expenses, net of approximately $25 - 27 million.
o An effective tax rate of approximately 36%.
o Net earnings per diluted share of $2.30 - $2.50.
o In light of the recent economic downturn, management is now making
plans to adjust staffing levels. In connection with this planning
initiative, on November 25, 2008, the Company's New York subsidiary
offered a voluntary retirement incentive to approximately 800 U.S.
employees who meet certain age and service eligibility requirements.
This incentive includes increased age and service credit for pension
purposes, severance payments, enhanced retirement health care benefits
and accelerated vesting and extended exercise rights for equity grants
now outstanding. The election period for this incentive will end on
January 12, 2009. The executive officers of the Company are not
eligible to participate in this incentive. The Company expects to
record in the fourth-quarter of 2008 a non-recurring pre-tax charge in
the range of $50,000,000 to $65,000,000 in connection with the
incentive. The ultimate charge will depend upon the number of eligible
employees who accept the incentive. By the end of the fourth quarter
of fiscal 2008 management expects to have finalized plans to further
adjust staffing levels; such plans could result in additional charges
for fiscal 2008. Neither charge is included in the guidance above.
New Accounting Standards
------------------------
See note 3 to condensed consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal and expansion-related working capital requirements and
capital expenditures needs. The ratio of total debt (short-term borrowings,
current portion of long-term debt and long-term debt) to stockholders' equity
was 50% at October 31, 2008, 26% at January 31, 2008, and 23% at October 31,
2007. The increase in the ratio as of October 31, 2008 (which represents a
seasonal high point) largely reflects substantial share repurchase activity over
the past 12 months and increased short-term borrowings.
21
To address the Company's current and future liquidity requirements, the Company
will seek to obtain additional sources of funding of approximately $300,000,000
for general corporate purposes. Due to the current credit market conditions, the
Company has entered into various short-term financing arrangements which the
Company will, when appropriate, either refinance or replace with long-term debt.
In addition, under the $450,000,000 revolving credit multi-bank facility, as of
October 31, 2008 there was $339,300,000 outstanding and $110,700,000 available
to be borrowed. Based on the Company's financial position at October 31, 2008,
management anticipates that cash on hand, internally-generated cash flows, the
funds available under its revolving credit facility and the additional sources
of funding that the Company has already secured and is currently pursuing will
be sufficient to support the Company's planned worldwide business expansion,
working capital increases and debt repayments for the foreseeable future.
The following table summarizes cash flows from operating, investing and
financing activities:
Year-to-Date
---------------------------------------------------
(in thousands) 2008 2007
---------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by:
Operating activities $ (76,643) $ 36,849
Investing activities (113,617) 315,748
Financing activities 116,725 (202,539)
Effect of exchange rates on cash and cash equivalents (12,743) 15,905
Net cash used in discontinued operations - (7,616)
---------------------------------------------------
Net decrease in cash and cash equivalents $ (86,278) $ 158,347
===================================================
Operating Activities
--------------------
The Company's net cash outflow from operating activities of $76,643,000 in the
year-to-date of 2008 compared with an inflow of $36,849,000 in the year-to-date
of 2007. The cash outflow in the year-to-date of 2008 resulted primarily from
increased income tax payments largely associated with the sale-leasebacks of the
TIFFANY & CO. Flagship stores in Tokyo and London and increased inventory
purchases.
Working Capital. Working capital (current assets less current liabilities) and
the corresponding current ratio (current assets divided by current liabilities)
were $1,240,477,000 and 2.5 at October 31, 2008, compared with $1,337,454,000
and 3.3 at January 31, 2008 and $1,699,316,000 and 4.9 at October 31, 2007.
Accounts receivable, less allowances at October 31, 2008 were 15% lower than at
January 31, 2008 (which is typically a seasonal highpoint) and were 3% lower
than at October 31, 2007 primarily due to a decrease in sales. Changes in
foreign currency exchange rates had an insignificant effect on the change in
accounts receivable balances.
Inventories, net at October 31, 2008 were 19% above January 31, 2008 and 12%
above October 31, 2007. Combined raw material and work-in-process inventories
increased 15% over January 31, 2008 and 19% over October 31, 2007 due to
increased precious metal costs and diamond quantities needed to support internal
jewelry manufacturing. Finished goods inventories increased 21% over January 31,
2008, and 9% over October 31, 2007 due to new store openings, increased product
costs, broadened product assortments as well as weaker sales trends in the
latter part of third quarter due to softer consumer spending. Changes in foreign
currency exchange rates had an insignificant effect on the change in finished
goods inventories.
Management expects a low-double-digit percentage increase in inventories, net in
2008.
Investing Activities
--------------------
The Company's net cash outflow from investing activities of $113,617,000 in the
year-to-date of 2008 compared with an inflow of $315,748,000 in the year-to-date
of 2007. The prior-year inflow was primarily due to proceeds from the
sale-leaseback arrangements for the TIFFANY & CO. Flagship stores in Tokyo and
London and the sale of Little Switzerland.
22
Capital Expenditures. Capital expenditures were $108,515,000 in the year-to-date
of 2008 compared with $149,325,000 in the year-to-date of 2007. Management
estimates that capital expenditures will be approximately $150,000,000 in 2008
(compared with approximately $186,000,000 in the prior year).
Marketable Securities. The Company invests excess cash in short-term investments
and marketable securities. The Company had net purchases of investments in
marketable securities and short-term investments of $763,000 and $42,523,000 in
the year-to-date of 2008 and 2007.
Financing Activities
--------------------
The Company's net cash inflow from financing activities of $116,725,000 in the
year-to-date of 2008 compared with an outflow of $202,539,000 in the
year-to-date of 2007. The cash inflow was due to higher proceeds from short-term
borrowings, partly offset by increased share repurchases and reduced proceeds
from the exercise of employees' stock options.
Share Repurchases. The Company's stock repurchase activity was as follows:
Third Quarter
---------------------------------------------------
(in thousands, except per share amounts) 2008 2007
---------------------------------------------------------------------------------------------------------
Cost of repurchases $ 89,878 $ 97,037
Shares repurchased and retired 2,269 1,892
Average cost per share $ 39.61 $ 51.28
Year-to-Date
---------------------------------------------------
(in thousands, except per share amounts) 2008 2007
---------------------------------------------------------------------------------------------------------
Cost of repurchases $ 218,379 $ 156,234
Shares repurchased and retired 5,375 3,075
Average cost per share $ 40.63 $ 50.82
At October 31, 2008, there remained $402,427,000 of authorization for future
repurchases. The Company's stock repurchase program expires in January 2011. The
Company suspended share repurchases in the latter part of the third quarter of
2008 to conserve cash.
Recent Borrowings. In October 2008, the Company entered into a short-term
facility agreement for yen 6,500,000,000 ($66,001,000 at October 31, 2008) due
March 31, 2009. The entire commitment was drawn and outstanding at October 31,
2008. The facility is available for working capital and other corporate purposes
and contains covenants that require maintenance of certain ratios. The
weighted-average interest rate at October 31, 2008 was 1.90%.
In October 2008, the Company entered into a short-term uncommitted open line of
credit agreement for up to $25,000,000 maturing in December 2008, none of which
was outstanding at October 31, 2008. The open line of credit is available for
working capital and other corporate purposes. Interest is payable at the end of
each calendar month either at a variable rate per annum equal to the greatest of
(a) the prime rate in effect on such day; (b) the Federal Funds rate plus 1/2 of
1% and (c) LIBOR adjusted for certain reserve requirements or a fixed rate per
annum equal to LIBOR adjusted for certain reserve requirements plus 1%.
At October 31, 2008, the Company was in compliance with all loan covenants.
Contractual Obligations
-----------------------
The Company's contractual cash obligations and commercial commitments at October
31, 2008 and the effects such obligations and commitments are expected to have
on the Company's liquidity and cash flows in future periods have not
significantly changed since January 31, 2008. Also see Recent Borrowings above.
23
Seasonality
-----------
As a jeweler and specialty retailer, the Company's business is seasonal in
nature, with the fourth quarter typically representing at least one-third of
annual net sales and approximately one-half of annual net earnings. Management
expects such seasonality to continue.
Forward-Looking Statements
--------------------------
This document contains certain "forward-looking statements" concerning the
Company's objectives and expectations with respect to store openings, sales,
retail prices, gross margin, expenses, earnings per share, inventory
performance, capital expenditures and cash flow. In addition, management makes
other forward-looking statements from time to time concerning objectives and
expectations. Statements beginning with such words as "believes", "intends",
"plans", and "expects" include forward-looking statements that are based on
management's expectations given facts as currently known by management on the
date this quarterly report was filed with the Securities and Exchange
Commission. All forward-looking statements involve risks, uncertainties and
assumptions that, if they never materialize or prove incorrect, could cause
actual results to differ materially from those expressed or implied by such
forward-looking statements.
The statements in this quarterly report are made as of the date this report was
filed with the Securities and Exchange Commission and the Company undertakes no
obligation to update any of the forward-looking information included in this
document, whether as a result of new information, future events, changes in
expectations or otherwise.
24
PART I. Financial Information
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from fluctuations in foreign currency
exchange rates, interest rates and precious metal prices, which could affect its
consolidated financial position, earnings 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.
In Japan, the Company uses yen put options to minimize the potential effect of a
weakening yen on U.S. dollar-denominated transactions over a maximum term of 12
months. The Company also uses foreign-exchange forward contracts to protect
against changes in local currencies. Gains or losses on these instruments
substantially offset losses or gains on the assets, liabilities and transactions
being hedged. The fair value of the outstanding yen put options has not changed
significantly since January 31, 2008.
The Company uses interest-rate swap contracts related to certain debt
arrangements to manage its net exposure to interest rate changes. The
interest-rate swap contracts effectively convert fixed-rate obligations to
floating-rate instruments. Additionally, since the fair value of the Company's
fixed-rate long-term debt is sensitive to interest rate changes, the
interest-rate swap contracts serve as a hedge to changes in the fair value of
these debt instruments. During the third quarter of 2008, the Company determined
that the unrealized gains and interest receivable associated with the
interest-rate swaps used to manage its net exposure to interest rate changes on
certain debt arrangements were impaired as the recovery of the amounts due from
the counterparty, Lehman Brothers Special Financing Inc., was no longer
probable. As a result, the Company recorded a pre-tax charge of $4,300,000 in
other expenses, net, which represents all amounts due from Lehman Brothers
Special Financing Inc.
The Company uses a combination of call and put option contracts in a net-zero
cost collar arrangement ("collars"), as hedges of a portion of forecasted
purchases of platinum and silver for internal manufacturing. If the price of the
precious metal at the time of the expiration of the collar is within the call
and put price, the collar would expire at no cost to the Company. The maximum
term over which the Company is hedging its exposure to the variability of future
cash flows for all forecasted transactions is 12 months. The fair value of the
outstanding collars declined from an unrealized gain of $6,435,000 at January
31, 2008 to an unrealized loss of $11,475,000 at October 31, 2008 due to
declines in commodity prices.
25
PART I. Financial Information
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934), Registrant's chief executive officer and chief financial officer
concluded that, as of the end of the period covered by this report, Registrant's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by Registrant in the reports that it files or submits
under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms and
(ii) accumulated and communicated to our management, including our chief
executive officer and chief financial officer, to allow timely decisions
regarding required disclosure.
In the ordinary course of business, Registrant reviews its system of
internal control over financial reporting and makes changes to its systems and
processes to improve controls and increase efficiency, while ensuring that
Registrant maintains an effective internal control environment. Changes may
include such activities as implementing new, more efficient systems and
automating manual processes.
Registrant's chief executive officer and chief financial officer have
determined that there have been no changes in Registrant's internal control over
financial reporting during the period covered by this report identified in
connection with the evaluation described above that have materially affected, or
are reasonably likely to materially affect, Registrant's internal control over
financial reporting.
Registrant's management, including its chief executive officer and chief
financial officer, necessarily applied their judgment in assessing the costs and
benefits of such controls and procedures. By their nature, such controls and
procedures cannot provide absolute certainty, but can provide reasonable
assurance regarding management's control objectives. Our chief executive officer
and our chief financial officer have concluded that Registrant's disclosure
controls and procedures are (i) designed to provide such reasonable assurance
and (ii) are effective at that reasonable assurance level.
26
PART II. Other Information
Item 1A. Risk Factors
As is the case for any retailer, Registrant's success in achieving its
objectives and expectations is dependent upon general economic conditions,
competitive conditions and consumer attitudes. However, certain factors are
specific to the Registrant and/or the markets in which it operates.
The following "risk factors" are specific to Registrant; these risk factors
affect the likelihood that Registrant will achieve the financial objectives and
expectations communicated by management:
(i) Risk: that low levels of consumer confidence continue or worsen over a
prolonged period of time and adversely affect Registrant's sales.
As a retailer of goods which are discretionary purchases, Registrant's
sales results are particularly sensitive to changes in consumer confidence.
Consumer confidence is affected by general business conditions; changes in the
market value of securities and real estate; inflation; interest rates and the
availability of consumer credit; tax rates; and expectations of future economic
conditions and employment prospects.
Consumer spending for discretionary goods generally declines during times
of falling consumer confidence, which negatively affects Registrant's earnings
because of its cost base and inventory investment.
Registrant's competitors may react to falling consumer confidence by
reducing their retail prices; such reductions and/or inventory liquidations can
have a short-term adverse effect on Registrant's sales.
(ii) Risk: that sales will decline or remain flat in Registrant's fourth fiscal
quarter, which includes the holiday selling season.
Registrant's business is seasonal in nature, with the fourth quarter
typically representing at least one-third of annual net sales and approximately
one-half of annual net earnings. Poor sales results during Registrant's fourth
quarter will have a material adverse effect on Registrant's sales and profits.
(iii) Risk: that regional instability and conflict will disrupt tourist travel.
Unsettled regional and global conflicts or crises which result in military,
terrorist or other conditions creating disruptions or disincentives to, or
changes in the pattern, practice or frequency of tourist travel to the various
regions where the Registrant operates retail stores could adversely affect the
Registrant's sales and profits.
(iv) Risk: that the Japanese yen will weaken against the U.S. dollar and require
Registrant to raise prices or shrink profit margins in Japan.
Registrant's sales in Japan represented approximately 17% of Registrant's
net sales in Fiscal 2007. A substantial weakening of the Japanese yen against
the U.S. dollar would require Registrant to raise its retail prices in Japan or
reduce its profit margins. Japanese consumers may not accept significant price
increases on Registrant's goods; thus there is a risk that a substantial
weakening of the yen will result in reduced sales or profit margins.
(v) Risk: that Registrant will be unable to continue to offer merchandise
designed by Elsa Peretti or Paloma Picasso.
Registrant's long-standing right to sell the jewelry designs of Elsa
Peretti and Paloma Picasso and use their trademarks is responsible for a
substantial portion of Registrant's revenues. Merchandise designed by Elsa
Peretti and by Paloma Picasso accounted for 11% and 3% of Fiscal 2007 net sales,
respectively. Tiffany has exclusive license arrangements with Elsa Peretti and
Paloma Picasso; these arrangements are subject to royalty payments as well as
other requirements. Each license may be terminated by Tiffany or the designer on
six-months notice, even in the case where no default has occurred. Also, no
agreements have been made for the continued sale of the designs or use of the
trademarks ELSA PERETTI or PALOMA PICASSO following the death of either
designer. Loss of either license would materially adversely affect Registrant's
business through lost sales and profits.
27
(vi) Risk: that changes in commodity prices or reduced supply availability might
adversely affect Registrant's ability to produce and sell products at historic
profit margins.
Most of Registrant's jewelry and non-jewelry offerings are made with
diamonds, gemstones and/or precious metals. A significant change in the prices
of these commodities could adversely affect Registrant's business, which is
vulnerable to the risks inherent in the trade for such commodities. A
substantial decrease in the supply or an increase in the price of raw materials
and/or high-quality rough and polished diamonds within the quality grades,
colors and sizes that customers demand could lead to decreased customer demand
and lost sales and/or reduced gross profit margins. Conversely, a decrease in
the prices of raw materials could have a disruptive effect, negatively or
positively, on sales demand and short-term margins.
(vii) Risk: that the value of the TIFFANY & CO. trademark will decline due to
the sale by infringers of counterfeit merchandise.
The TIFFANY & CO. trademark is an asset which is essential to the
competitiveness and success of Registrant's business and Registrant takes
appropriate action to protect it. However, Registrant's enforcement actions have
not stopped the imitation and counterfeit of Registrant's merchandise or the
infringement of the trademark. The continued sale of counterfeit merchandise
could have an adverse effect on the TIFFANY & CO. brand by undermining Tiffany's
reputation for quality goods and making such goods appear less desirable to
consumers of luxury goods. Damage to the brand would result in lost sales and
profits.
(viii) Risk: that Registrant will be unable to lease sufficient space for its
retail stores in prime locations.
Registrant, positioned as a luxury goods retailer, has established its
retail presence in choice store locations. If Registrant cannot secure and
retain locations on suitable terms in prime and desired luxury shopping
locations, its expansion plans, sales and profits will be jeopardized.
(ix) Risk: that Registrant's business is dependent upon the distinctive appeal
of the TIFFANY & CO. brand.
The TIFFANY & CO. brand's association with quality, luxury and exclusivity
is integral to the success of Registrant's business. Registrant's expansion
plans for retail and direct selling operations and merchandise development,
production and management support the brand's appeal. Consequently, poor
maintenance, promotion and positioning of the TIFFANY & CO. brand through market
over-saturation may adversely affect the business by diminishing the distinctive
appeal of the TIFFANY & CO. brand and tarnishing its image. This will result in
lower sales and profits.
(x) Risk: that recent turmoil in the financial markets could affect credit
availability and increase the cost of borrowing.
U.S. and global credit and equity markets have recently undergone
significant disruption, making it difficult for many businesses to obtain
financing on acceptable terms. If these conditions continue or worsen,
Registrant's cost of borrowing may increase and it may be more difficult to
obtain financing for Registrant's operations or investments.
28
PART II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
This table provides information with respect to the Company's purchases of
shares of its Common Stock during the third fiscal quarter of 2008:
--------------------------------------------------------------------------------------------------------------
(c)Total Number
of Shares (d)Approximate
(a)Total Purchased Under Dollar Value of
Number of (b)Average all Publicly Shares that May Yet
Shares Price Paid Per Announced be Purchased Under
Period Purchased Share Programs* the Programs*
--------------------------------------------------------------------------------------------------------------
August 1, 2008 through 1,694,085 $38.89 1,694,085 $426,418,000
August 31, 2008
--------------------------------------------------------------------------------------------------------------
September 1, 2008 through 575,140 $41.71 575,140 $402,427,000
September 30, 2008
--------------------------------------------------------------------------------------------------------------
October 1, 2008 through - - - $402,427,000
October 31, 2008
--------------------------------------------------------------------------------------------------------------
Total 2,269,225 $39.61 2,269,225 $402,427,000
--------------------------------------------------------------------------------------------------------------
* In January 2008, the Company's Board of Directors extended the expiration date
of the program to January 2011 and increased by $500,000,000 the amount
authorized for repurchase of its Common Stock.
29
ITEM 6 Exhibits
(a) Exhibits:
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
30
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIFFANY & CO.
(Registrant)
Date: December 2, 2008 By: /s/ James N. Fernandez
----------------------------
James N. Fernandez
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Exhibit Index
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.