UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
| | For the fiscal year ended January 31, 20162019 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
(Exact name of registrant as specified in its charter)
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| Delaware | | 13-3228013 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 727 Fifth Avenue, New York, NY | | 10022 |
| (Address of principal executive offices) | | (Zip Code) |
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| Registrant's telephone number, including area code: (212) 755-8000 |
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | | Name of each exchange on which registered |
Common Stock, $.01 par value per share
| | New York Stock Exchange
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| Securities registered pursuant to Section 12(g) of the Act: None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-KForm 10-K or any amendment to this Form10-K.Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "largelarge accelerated filer," "accelerated filer" accelerated filer, smaller reporting company, and "smaller reporting company"emerging growth company in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | x | | Accelerated filer | | ¨ |
| Non-accelerated filer | | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of July 31, 2015,2018, the aggregate market value of the registrant's voting and non-voting stock held by non-affiliates of the registrant was approximately $12,261,388,517$16,707,436,188 using the closing sales price on this dayJuly 31, 2018 of $95.70. See Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.$137.56.
As of March 23, 2016,18, 2019, the registrant had outstanding 126,039,812121,454,192 shares of its common stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE.
The following documents are incorporated by reference into this Annual Report on Form 10-K: Registrant's Proxy Statement Dated April 8, 201617, 2019 (Part III).
Tiffany & Co.
Table of Contents
Form 10-K for the fiscal year ended January 31, 20162019
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| Item 9A. | | |
| Item 9B. | | |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statementshistorical trends and results reported in this Annual Reportannual report on Form 10-K should not be considered an indication of future performance. Further, statements contained in this annual report on Form 10-K that are not statements of historical fact, including documents incorporated herein by reference,those that refer to plans, assumptions and expectations for future periods, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, the statements under "2019 Outlook" as well as statements that involve a numbercan be identified by the use of risks and uncertainties. Wordswords such as 'expects,' 'intends,'projects,' 'anticipates,' 'assumes,' 'forecasts,' 'plans,' 'believes,' 'intends,' 'estimates,' 'pursues,' 'scheduled,' 'continues,' 'outlook,' 'may,' 'will,' 'can,' 'should' and variations of such words and similar expressions are intended to identify such forward-looking statements.expressions. Examples of forward-looking statements include, but are not limited to, statements we make regarding the Company's objectives,plans, assumptions, expectations, beliefs and beliefsobjectives with respect to store openings and closings,closings; store productivity; the renovation of the Company's New York Flagship store, including the timing and cost thereof, and the temporary expansion of its retail operations to 6 East 57th Street; product introductions,introductions; sales; sales growth; sales growth,trends; store traffic; the Company's strategy and initiatives and the pace of execution thereon; the amount and timing of investment spending; the Company's objectives to compete in the global luxury market and to improve financial performance; retail prices,prices; gross margin, expenses,margin; operating margin,margin; expenses; interest expense and financing costs,costs; effective income tax rate,rate; the nature, amount or scope of charges resulting from recent revisions to the U.S. tax code; net earnings and net earnings per share; share inventories,count; inventories; capital expenditures,expenditures; cash flow, liquidity,flow; liquidity; currency translationtranslation; macroeconomic and geopolitical conditions; growth opportunities. opportunities; litigation outcomes and recovery related thereto; amounts recovered under Company insurance policies; contributions to Company pension plans; and certain ongoing or planned real estate, product, marketing, retail, customer experience, manufacturing, supply chain, information systems development, upgrades and replacement, and other operational initiatives and strategic priorities.
These forward-looking statements are based upon the current views and plans of management, speak only as of the date on which they are made and are subject to a number of risks and uncertainties, many of which are beyondoutside of our control. Actual results could therefore differ materially from the planned, assumed or expected results expressed in, or implied by, these forward-looking statements. While we cannot predict all of the factors that could form the basis of such differences, key factors include, but are not limited to: global macroeconomic and geopolitical developments; changes in interest and foreign currency rates; changes in taxation policies and regulations (including changes effected by the recent revisions to the U.S. tax code) or changes in the guidance related to, or interpretation of, such policies and regulations; shifting tourism trends; regional instability; violence (including terrorist activities); political activities or events (including the potential for rapid and unexpected changes in government, economic and political policies, the imposition of additional duties, tariffs, taxes and other charges or other barriers to trade, including as a result of changes in diplomatic and trade relations or agreements with other countries); weather conditions that may affect local and tourist consumer spending; changes in consumer confidence, preferences and shopping patterns, as well as our ability to accurately predict and timely respond to such changes; shifts in the Company's control, which could causeproduct and geographic sales mix; variations in the cost and availability of diamonds, gemstones and precious metals; adverse publicity regarding the Company and its products, the Company's third-party vendors or the diamond or jewelry industry more generally; any non-compliance by third-party vendors and suppliers with the Company's sourcing and quality standards, codes of conduct, or contractual requirements as well as applicable laws and regulations; changes in our competitive landscape; disruptions impacting the Company's business and operations; failure to successfully implement or make changes to the Company's information systems; gains or losses in the trading value of the Company's stock, which may impact the amount of stock repurchased through open market transactions, including through Rule 10b5-1 plans and accelerated share repurchase or other structured repurchase transactions, and/or privately negotiated transactions; the Company's receipt of any required approvals to the aforementioned renovation of its New York Flagship store and expansion of its retail operations to 6 East 57th Street, as well as the timing of such approvals; changes in the cost and timing estimates associated with the aforementioned renovation and expansion; delays caused by third parties involved in the aforementioned renovation and expansion; any casualty, damage or destruction to the Company's New York Flagship store or 6 East 57th Street; and the Company's ability to successfully control costs and execute on, and achieve the expected benefits from, the operational initiatives and strategic priorities referenced above. Developments relating to these and other factors may also warrant changes to the Company's operating and strategic plans, including with respect to store openings, closings and renovations, capital expenditures, information systems development, inventory management, and continuing execution on, or timing of, the aforementioned initiatives and priorities. Such changes could also cause actual results to differ materially from those indicatedthe expected results expressed in, theseor implied by, the forward-looking statements. Such factors include, but are not limited to,
Additional information about potential risks from global economic conditions, decreases in consumer confidence,and uncertainties that could affect the Company's significant operations outsidebusiness and financial results is included under "Risk Factors" and "Management's Discussion and Analysis of the United States, regional instabilityFinancial Condition and conflict that could disrupt tourist travel and local consumer spending, weakening foreign currencies, changes in the Company's product or geographic sales mix and changes in costs or reduced supply availabilityResults of diamonds and precious metals. Please also see the Company's risk factors, as they may be amended from time to time, set forth in the Company's filings with the Securities and Exchange Commission, includingOperations" in this Annual Report particularly under "Item 1A. Risk Factors"on Form 10-K for a discussionthe fiscal year ended January 31, 2019. Readers of thesethis Annual Report on Form 10-K should consider the risks, uncertainties and other factors that could cause actual resultsoutlined above and in this Form 10-K in evaluating, and are cautioned not to differ materially.place undue reliance on, the forward-looking statements contained herein. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by applicable law or regulation.
PART I
Item 1. Business.
GENERAL HISTORY AND NARRATIVE DESCRIPTION OF BUSINESS
Tiffany & Co. (the "Registrant") is a holding company that operates through itsTiffany and Company ("Tiffany") and the Registrant's other subsidiary companies (collectively, the "Company"). The Registrant's principal subsidiary is Tiffany and Company ("Tiffany"). Charles Lewis Tiffany founded Tiffany's business in 1837. He incorporated Tiffany in New York in 1868. The Registrant acquired Tiffany in 1984 and completed the initial public offering of the Registrant's Common Stock in 1987. The Registrant, through its subsidiaries, sells jewelry and other items that it manufactures or has made by others to its specifications.
FINANCIAL INFORMATION ABOUT REPORTABLE SEGMENTS
The Company's segment information for the fiscal years ended January 31, 2016, 2015 and 2014 is reported in "Item 8. Financial Statements and Supplementary Data - Note P - Segment Information."
NARRATIVE DESCRIPTION OF BUSINESS
All references to years relate to fiscal years that end on January 31 of the following calendar year.
MAINTENANCE OF THE TIFFANY & CO. BRAND
The TIFFANY & CO. brand (the "Brand") is the single most important asset of Tiffany and, indirectly, of the Company. The strength of the Brand goes beyond trademark rights (see "TRADEMARKS" below) and is derived from consumer perceptions of the Brand. Management monitors the strength of the Brand through focus groups and survey research.
Management believes that consumers associate the Brand with high-quality gemstone jewelry, particularly diamond jewelry; sophisticated style and romance; excellent customer service; an elegant store and online environment; upscale store locations; "classic" product positioning; and distinctive and high-quality packaging materials (most significantly, the TIFFANY & CO. blue box). Tiffany's business plan includes expenses to maintain the strength of the Brand, such as the following:
Maintaining its position within the high-end of the jewelry market requires Tiffany to invest significantly in diamond and gemstone inventory, and to accept reducedwhich carries a lower overall gross margins;margin; it also causes some consumers to view Tiffany as beyond their price range;
To provide excellent service, stores must be well staffed with knowledgeable professionals;
Elegant stores in the best "high street" and luxury mall locations are more expensive and difficult to secure and maintain, but reinforce the Brand's luxury connotations through association with other luxury brands;
In-store display practices enable Tiffany to showcase fine jewelry in a manner consistent withWhile the Brand's positioning but require sufficient space;
The classic"classic" positioning of much of Tiffany's product line supports the Brand but limits theand requires sufficient display space that can be allocated toin its stores, management's strategic priorities also include the accelerated introduction of new design collections primarily in jewelry, but also in non-jewelry products, which could result in a necessary reallocation of product introductions;display space;
Tiffany's packaging supports consumer expectations with respect to the Brand but is expensive; and
A significant amount of advertising ismarketing across print, digital and social media, as well as public relations events are required to both reinforce the Brand's association with luxury, sophistication, style and romance, as well as to market specific products.
All of the foregoing require that management make tradeoffs between business initiatives that might generate incremental sales and earnings and Brand maintenance objectives. This is a dynamic process. To the extent that management deems that product, marketing or distribution initiatives will unduly and negatively affect the strength of the Brand, such initiatives have been and will be curtailed or modified appropriately. At the same time, Brand maintenance suppositions are regularly questioned by management to determine if any tradeoff between sales and earnings is truly worth the positive effect on the Brand. At times, management has determined, and may in the future determine, that the strength of the Brand warranted, or that it will permit, more aggressive and profitable product, marketing or distribution initiatives.
REPORTABLE SEGMENTS
The Company has four reportable segments: (i) Americas, (ii) Asia-Pacific, (iii) Japan and (iv) Europe. All non-reportable segments are included within Other. The Company transacts business within certain of its segments through the following channels: (i) retail, (ii) Internet, (iii) catalog, (iv) business-to-business (products drawn from
the retail product line and items specially developed for the business market) and (v) wholesale distribution (merchandise sold to independent distributors for resale). The Company's segment information for the fiscal years ended January 31, 2019, 2018 and 2017 is reported in "Item 8. Financial Statements and Supplementary Data - Note O. Segment Information."
Americas
Sales in the Americas were 47%represented 44% of worldwide net sales in 2015,2018, while sales in the United States ("U.S.") represented 88%more than 90% of net sales in the Americas. Sales are transacted through the following channels: retail (in the U.S., Canada and Latin America), Internet and catalog (in the U.S. and Canada), business-to-business (in the U.S.) and wholesale distribution (in Latin America and the Caribbean).
Retail Sales. Retail sales in the Americas are transacted in 124 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 20162019 included in parentheses): the U.S. (95)(93), Canada (12)(13), Mexico (11), Brazil (5)(6) and Chile (1). Included within these totals are 12 Company-operated stores located within various department stores in Canada and Mexico.
Internet and Catalog Sales. The Company distributes a selection of its products Included in the U.S. and Canada throughretail stores is the websites at www.tiffany.com and www.tiffany.ca. To a lesser extent, sales are also generated through catalogs that the Company distributes to its proprietary list of customers in the U.S. and Canada.
Business-to-Business Sales. Sales executives call on business clients, primarily in the U.S., selling products drawn from the retail product line and items specially developed for the business market, including trophies and items designed for the particular customer. Such sales represent approximately 1%New York Flagship store, which represented less than 10% of worldwide net sales.
Wholesale Distribution. Selected TIFFANY & CO. merchandise is sold to independent distributors for resalesales in markets in the Central/South American and Caribbean regions. Such sales represent less than 1% of worldwide net sales.2018.
Asia-Pacific
Sales in Asia-Pacific represented 24%28% of worldwide net sales in 2015,2018, while sales in Greater China represented more than halfapproximately 60% of Asia-Pacific's net sales.sales in Asia-Pacific. Sales are transacted through the following channels: retail, Internet (in Australia) and wholesale distribution.
Retail Sales. Retail sales in Asia-Pacific are transacted in 8190 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 20162019 included in parentheses): China (30)(33), Korea (14)(15), Australia (11), Hong Kong (9)(10), Taiwan (8), Australia (7), Singapore (6)(5), Macau (4), Malaysia (2), New Zealand (1) and Thailand (1)(2). Included within these totals are 2935 Company-operated stores located within various department stores.
Internet Sales. The Company offers a selection of TIFFANY & CO. merchandise for purchase in Australia through its website at www.tiffany.com.au.
Wholesale Distribution. Selected TIFFANY & CO. merchandise is sold to independent distributors for resale in certain markets. Such sales represent approximately 2% of worldwide net sales.
Japan
Sales in Japan represented 13%15% of worldwide net sales in 2015.2018. Sales are transacted through the following channels: retail, Internet, business-to-business and wholesale distribution.
Retail Sales. Retail sales in Japan are transacted in 5655 Company-operated TIFFANY & CO. stores. Included within this total are 5152 stores located within department stores, generating approximately 70%75% of Japan's net sales.sales in Japan. There are four large department store groups in Japan. The Company operates TIFFANY & CO. stores in locations controlled by these groups as follows (number of locations at January 31, 20162019 included in parentheses): Isetan Mitsukoshi Ltd. (13)(16), J. Front Retailing Co., Ltd. (Daimaru and Matsuzakaya department stores) (9)(8), Takashimaya Co., Ltd. (9)(8) and Seven & i Holding Co., Ltd. (Sogo and Seibu department stores) (5). The Company also operates 15 stores in other department stores.
Internet Sales. The Company offers a selection of TIFFANY & CO. merchandise for purchase in Japan through its website at www.tiffany.co.jp.
Business-to-Business Sales. Products drawn from the retail product line and items specially developed are sold to business customers. Such sales represent less than 1% of worldwide net sales.
Wholesale Distribution. Selected TIFFANY & CO. merchandise is sold to independent distributors for resale in Japan. Such sales represent less than 1% of worldwide net sales.
Europe
Sales in Europe represented 12%11% of worldwide net sales in 2015,2018, while sales in the United Kingdom ("U.K.") represented approximately 40% of European net sales.sales in Europe. Sales are transacted through the following channels: retail, Internet and wholesale distribution.
Retail Sales. Retail sales in Europe are transacted in 4147 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 20162019 included in parentheses): the U.K. (10)(11), Italy (9), Germany (7), Italy (7), France (5), Spain (3), Switzerland (3), the Netherlands (2), Russia (2), Austria (1), Belgium (1), the Czech Republic (1), Ireland (1), the NetherlandsDenmark (1) and RussiaIreland (1). Included within these totals are seven11 Company-operated stores located within various department stores.
Internet Sales. The Company offers a selection of TIFFANY & CO. merchandise for purchase incurrently operates e-commerce enabled websites within the following countries: U.K., Austria, Belgium, France, Germany, Ireland, Italy, the Netherlands and Spain through its websites, which are accessible through www.tiffany.com.Spain.
Other
Other consists of all non-reportable segments, including: (i) retail sales and wholesale distribution in the Emerging Markets region (which represented approximately 75% of Other net sales in 2015); (ii) wholesale sales of diamonds; and (iii) licensing agreements.
Emerging Markets region. Retail sales are transacted in five Company-operated TIFFANY & CO. stores in the United Arab Emirates ("U.A.E."). Additionally, selected TIFFANY & CO. merchandise is sold to independent distributors for resale in certain emerging markets (primarily and wholesale distribution in the Middle East). SuchEmerging Markets region; (ii) wholesale sales represent less than 1% of worldwide net sales.diamonds (see "PRODUCT SUPPLY CHAIN – Supply of Diamonds" below); and (iii) licensing agreements.
Wholesale Sales of Diamonds. The Company regularly purchases parcels of rough diamonds for polishing and further processing. Some rough diamonds so purchased, and a small percentage of diamonds so polished, are found not to be suitable for the Company's needs; those diamonds are sold to third parties. Management's objective from such sales is to recoup its original costs, thereby earning minimal, if any, gross margin on those transactions.
Licensing Agreement.Agreements. The Company receives earnings from a licensing agreement with Luxottica Group S.p.A., for the development, production and distribution of TIFFANY & CO. brand eyewear.eyewear, and from a licensing agreement with Coty Inc., for the development, production and distribution of TIFFANY & CO. brand fragrance products. The earnings received from thisthese licensing agreementagreements represented less than 1% of worldwide net sales in 2018.2015.
In 2015, the Company entered into a licensing agreement with Coty Inc. regarding the development, production and distribution of a new line of TIFFANY & CO. brand fragrances. The Company did not receive any earnings from this agreement in 2015, and does not expect to receive any such earnings in 2016.
Retail Distribution Base
Management regularly evaluates opportunities to optimize its retail store base. This includes evaluating potential markets for new TIFFANY & CO. stores, as well as the renovation, relocation, or in certain instances, closure of existing stores. Considerations include the characteristics of the markets to be served, consumer demand and the proximity of other luxury brands and existing TIFFANY & CO. locations. Management recognizes that over-saturation of any market could diminish the distinctive appeal of the Brand, but believes that there are a number of opportunities remaining in new and existing markets that will meet the requirements for a TIFFANY & CO. location in the future.
The following chart details the number of TIFFANY & CO. retail locations operated by the Company
since 2005:2014:
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| | | | | | | | | | | | | | |
| | Americas | | | | | |
| Year: | U.S. |
| Canada & Latin America |
| Asia-Pacific |
| Japan |
| Europe |
| Emerging Markets |
| Total |
|
| 2005 | 59 |
| 7 |
| 25 |
| 50 |
| 13 |
| — |
| 154 |
|
| 2006 | 64 |
| 9 |
| 28 |
| 52 |
| 14 |
| — |
| 167 |
|
| 2007 | 70 |
| 10 |
| 34 |
| 53 |
| 17 |
| — |
| 184 |
|
| 2008 | 76 |
| 10 |
| 39 |
| 57 |
| 24 |
| — |
| 206 |
|
| 2009 | 79 |
| 12 |
| 45 |
| 57 |
| 27 |
| — |
| 220 |
|
| 2010 | 84 |
| 12 |
| 52 |
| 56 |
| 29 |
| — |
| 233 |
|
| 2011 | 87 |
| 15 |
| 58 |
| 55 |
| 32 |
| — |
| 247 |
|
| 2012 | 91 |
| 24 |
| 66 |
| 55 |
| 34 |
| 5 |
| 275 |
|
| 2013 | 94 |
| 27 |
| 72 |
| 54 |
| 37 |
| 5 |
| 289 |
|
| 2014 | 95 |
| 27 |
| 73 |
| 56 |
| 39 |
| 5 |
| 295 |
|
| 2015 | 95 |
| 29 |
| 81 |
| 56 |
| 41 |
| 5 |
| 307 |
|
|
| | | | | | | | | | | | | | |
| | Americas | | | | | |
| Year: | U.S. |
| Canada & Latin America |
| Asia-Pacific |
| Japan |
| Europe |
| Emerging Markets |
| Total |
|
| 2014 | 95 |
| 27 |
| 73 |
| 56 |
| 39 |
| 5 |
| 295 |
|
| 2015 | 95 |
| 29 |
| 81 |
| 56 |
| 41 |
| 5 |
| 307 |
|
| 2016 | 95 |
| 30 |
| 85 |
| 55 |
| 43 |
| 5 |
| 313 |
|
| 2017 | 94 |
| 30 |
| 87 |
| 54 |
| 46 |
| 4 |
| 315 |
|
| 2018 | 93 |
| 31 |
| 90 |
| 55 |
| 47 |
| 5 |
| 321 |
|
As part of the Company's real estate strategy,long-term objectives, management plans to increase gross retail square footage by approximately 2%,a low-single-digit percentage, net through the addition of new stores, relocations, renovations and closings in 2016. For a summary of the Company's existing retail square footage, see "Item 2. Properties".closings.
As noted above, theE-Commerce, Catalog and Phone Orders
The Company currently operates e-commerce enabled websites in 13 countries, as well as informational websites in several additional countries. To a lesser extent, sales are also generated through catalogs that the Company distributes in certain countries as well as orders placed via telephone in certain markets. Sales transacted on those websites, through catalogs or via telephone accounted for 6%7% of worldwide net sales in 2015, 20142018, 2017 and 2013.2016. The Company invests in ongoing website enhancements and is evaluating opportunities to expand its e-commerce sites to additional countriescountries. For example, the Company expects to launch an e-commerce enabled website in the future. In addition, managementChina in 2019. Management believes that theseits websites serve aan important marketing role as marketing tools to attractin building brand awareness and attracting customers to the Company's stores. In addition, the Company offers a select assortment of its products through third party websites.
Products
The Company's principal product category is jewelry, which represented 93%92%, 92%,91% and 92% of worldwide net sales in 2015, 20142018, 2017 and 2013.2016. The Company offers an extensive selection of TIFFANY &
CO. brand jewelry at a wide range of prices. Designs are developed by employees, suppliers, independent designers and independent "named" designers (see "MATERIAL DESIGNER LICENSE" below).
The Company also sells timepieces, leather goods, sterling silver goods (other than jewelry), china, crystal, stationery, fragranceswatches, home and accessories products and fragrances, which represented, in total, 7% of worldwide net sales in 2015, 20142018, 2017 and 2013.2016. The remaining approximately 1%remainder of worldwide net sales werewas attributable to wholesale sales of diamonds and earnings received from a third-party licensing agreement.agreements.
Sales by Reportable Segment of TIFFANY & CO. Jewelry by Category
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| 2015 | % of total Americas Sales |
| % of total Asia-Pacific Sales |
| % of total Japan Sales |
| % of total Europe Sales |
| % of total Reportable Segment Sales |
|
Statement, fine & solitaire jewelry a | 23 | % | 25 | % | 19 | % | 17 | % | 22 | % |
Engagement jewelry & wedding bands b | 23 | % | 35 | % | 43 | % | 25 | % | 29 | % |
Fashion jewelry c | 43 | % | 38 | % | 31 | % | 54 | % | 42 | % |
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| | | | | | | | | | |
| 2018 | % of total Americas Sales |
| % of total Asia-Pacific Sales |
| % of total Japan Sales |
| % of total Europe Sales |
| % of total Reportable Segment Sales |
|
Jewelry collections a | 53 | % | 61 | % | 37 | % | 60 | % | 54 | % |
Engagement jewelry b | 21 | % | 31 | % | 37 | % | 23 | % | 26 | % |
Designer jewelry c | 14 | % | 7 | % | 18 | % | 12 | % | 12 | % |
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| | | | | | | | | | |
| 2014 | | | | | |
Statement, fine & solitaire jewelry a | 23 | % | 24 | % | 20 | % | 17 | % | 22 | % |
Engagement jewelry & wedding bands b | 23 | % | 38 | % | 46 | % | 24 | % | 30 | % |
Fashion jewelry c | 44 | % | 37 | % | 27 | % | 56 | % | 41 | % |
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| | | | | | | | | | |
| 2017 | | | | | |
Jewelry collections a | 53 | % | 59 | % | 30 | % | 60 | % | 52 | % |
Engagement jewelry b | 22 | % | 31 | % | 39 | % | 25 | % | 27 | % |
Designer jewelry c | 14 | % | 8 | % | 22 | % | 12 | % | 13 | % |
|
| | | | | | | | | | |
| 2013 | | | | | |
Statement, fine & solitaire jewelry a | 23 | % | 27 | % | 20 | % | 19 | % | 23 | % |
Engagement jewelry & wedding bands b | 23 | % | 36 | % | 47 | % | 25 | % | 30 | % |
Fashion jewelry c | 44 | % | 36 | % | 26 | % | 53 | % | 40 | % |
|
| | | | | | | | | | |
| 2016 | | | | | |
Jewelry collections a | 52 | % | 54 | % | 30 | % | 59 | % | 50 | % |
Engagement jewelry b | 24 | % | 37 | % | 40 | % | 26 | % | 30 | % |
Designer jewelry c | 14 | % | 7 | % | 23 | % | 11 | % | 13 | % |
a) This category includes statement, finejewelry in a wide range of prices within the Company's high jewelry and solitairenamed jewelry (other than engagement jewelry). Most sales in this category are of items containing diamonds, other gemstones or both. Most jewelrycollections such as Tiffany Paper Flowers®, Tiffany Victoria®, Tiffany Soleste®, Tiffany Keys, Tiffany T, Tiffany HardWear and Return to Tiffany®, among others. Jewelry in this category is constructed of platinum, althoughprimarily crafted using precious metals (platinum, gold was used as the primary metal in approximately 15% of sales in 2015. The average price of merchandise sold in 2015, 2014or sterling silver) and 2013 in this category was approximately $5,700, $5,400 and $5,300 for total reportable segments.may contain diamonds and/or other gemstones.
b) This category includes engagement rings (approximately 60% of the category) and wedding bands. Most sales in this category are of items containing diamonds. Most jewelry in this category contains diamonds and is constructed of platinum although gold was used as the primary metal in approximately 9% of sales in 2015. The average price of merchandise sold in 2015, 2014 and 2013 in this category was approximately $3,300, $3,600 and $3,600 for total reportable segments.and/or gold.
c) This category generally consists of non-gemstone jewelry, divided approximately equally between sterling silver and gold jewelry, although small gemstones are used as accents in some pieces. The average price of merchandise sold in 2015, 2014 and 2013 in this category was approximately $355, $335 and $300 for total reportable segments.
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| c) | This category includes only jewelry that is attributed to one of the Company's "named" designers: Elsa Peretti (see "MATERIAL DESIGNER LICENSE" below), Paloma Picasso and Jean Schlumberger. Jewelry in this category is primarily crafted using precious metals (platinum, gold or sterling silver) and may contain diamonds and/or other gemstones. |
ADVERTISING, MARKETING, PUBLIC AND MEDIA RELATIONS
The Company's strategy is to invest in marketing and public relations programs designed to build awareness of the Brand, its heritage and its products, as well as to enhance the Brand’s relevance and association among consumers with quality and luxury. The Company regularly advertises in newspapers and magazines, andas well as through digital and social media. Public and media relations activities are also significant to the Company's business. The Company engages in a program of media activities and marketing events to maintain consumer awareness of the Brand and TIFFANY & CO. products. It also publishes its well-known Blue Book to showcase its high-end jewelry. In 2015, 20142018, 2017 and 2013,2016, the Company spent $302.0$394.1 million, $284.0$314.9 million and $253.2$299.0 million, representing 7.4%8.9%, 6.7%7.6% and 6.3%7.5% of worldwide net sales in those respective years, on advertising, marketing and public and media relations, which include costs for media, production, catalogs, Internet, visual merchandising (in-store and window displays), marketing events and other related items.
In addition, management believes that the Brand is enhanced by a program of charitable sponsorships, grants and merchandise donations. The Company also periodically makes donations to The Tiffany & Co. Foundation, a private foundation organized to support 501(c)(3) charitable organizations. The efforts of this Foundation are primarily focused on environmental conservation and urban parks.conservation.
TRADEMARKS
The designations TIFFANY ® and TIFFANY & CO.® are the principal trademarks of Tiffany, and also serve as tradenames. Tiffany has obtained and is the proprietor of trademark registrations for TIFFANY and TIFFANY & CO., as well as the TIFFANY BLUE BOX ®, the TIFFANY BLUE BOX design, TIFFANY BLUE® and the color Tiffany Blue for a variety of product categories and services in the U.S. and in other countries.
Tiffany maintains a program to protect its trademarks and institutes legal action where necessary to prevent others either from registering or using marks which are considered to create a likelihood of confusion with the Company or its products.
Tiffany has been generally successful in such actions and management considers that the Company's worldwide rights in its principal trademarks, TIFFANY and TIFFANY & CO., are strong. However, use of the designation TIFFANY by third parties on related or unrelated goods or services, frequently transient in nature, may not come to the attention of Tiffany or may not rise to a level of concern warranting legal action.
Tiffany actively pursues those who produce or sell counterfeit TIFFANY & CO. goods through civil action and cooperation with criminal law enforcement agencies. However, counterfeit TIFFANY & CO. goods remain available in many markets because it is not possible or cost-effective to eradicate the problem. The cost of enforcement is expected to continue to rise. In recent years, there has been an increase in the availability of counterfeit goods, predominantly silver jewelry, on the Internet and in various markets by street vendors and small retailers. Tiffany pursues infringers through leads generated internally and through a network of investigators, legal counsel, law enforcement and customs authorities worldwide. The Company responds to such infringing activity by taking various actions, including sending cease and desist letters, cooperating with law enforcement in criminal prosecutions, initiating civil proceedings and participating in joint actions and anti-counterfeiting programs with other like-minded third party rights holders.
Despite the general fame of the TIFFANY and TIFFANY & CO. name and mark for the Company's products and services, Tiffany is not the sole person entitled to use the name TIFFANY in every category of use in every country of the world; for example, in some countries, third parties have registered the name TIFFANY in connection with certain product categories (including, in the U.S., the category of bedding and, in certain foreign countries, the categories of food, cosmetics, clothing, paper goods and tobacco products) under circumstances where Tiffany's rights were not sufficiently clear under local law, and/or
where management concluded that Tiffany's foreseeable business interests did not warrant the expense of legal action.
MATERIAL DESIGNER LICENSE
Since 1974, Tiffany has been the sole licensee for the intellectual property rights necessary to make and sell jewelry and other products designed by Elsa Peretti and bearing her trademarks. The designs of Ms. Peretti accounted for 8%, 8%9% and 9% of the Company's worldwide net sales in 2015, 20142018, 2017 and 2013.2016.
Tiffany is party to an Amended and Restated Agreement (the "Peretti Agreement") with Ms. Peretti, which largely reflects the long-standing rights and marketing and royalty obligations of the parties. Pursuant to the Peretti Agreement, Ms. Peretti grants Tiffany an exclusive license, in all of the countries in which Peretti-designed jewelry and products are currently sold, to make, have made, advertise and sell these items. Ms. Peretti continues to retain ownership of the copyrights for her designs and her trademarks and remains entitled to exercise approval and consultation rights with respect to important aspects of the promotion, display, manufacture and merchandising of the products made in accordance with her designs. Under and in accordance with the terms set forth in the Peretti Agreement, Tiffany is required to display the licensed products in stores, to devote a portion of its advertising budget to the promotion of the licensed products, to pay royalties to Ms. Peretti for the licensed products sold, to maintain total on-hand and on-order inventory of non-jewelry licensed products (such as tabletop products) at approximately $8.0 million and to take certain actions to protect Ms. Peretti's intellectual property, including to maintain trademark registrations reasonably necessary to sell the licensed products in the markets in which the licensed products are sold by Tiffany.
The Peretti Agreement has a term that expires in 2032 and is binding upon Ms. Peretti, her heirs, estate, trustees and permitted assignees. During the term of the Peretti Agreement, Ms. Peretti may not sell, lease or otherwise dispose of her copyrights and trademarks unless the acquiring party expressly agrees with Tiffany to be bound by the
provisions of the Peretti Agreement. The Peretti Agreement is terminable by Ms. Peretti only in the event of a material breach by Tiffany (subject to a cure period) or upon a change of control of Tiffany or the Company. It is terminable by Tiffany only in the event of a material breach by Ms. Peretti or following an attempt by Ms. Peretti to revoke the exclusive license (subject, in each case, to a cure period).
PRODUCT SUPPLY CHAIN
The Company's strategic priorities include maintaining substantial control over its product supply chain through internal jewelry manufacturing and direct diamond sourcing. The Company manufactures jewelry in New York, Rhode Island and Kentucky, polishes and Thailand, polishesperforms certain assembly work on jewelry in the Dominican Republic and crafts silver hollowware in Rhode Island. The Company processes, cuts and polishes diamonds at other facilities outside the U.S. In total, these internal manufacturing facilities produce approximately 60% of the merchandisejewelry sold by the Company. The balance, includingand almost all non-jewelry items, is purchased from third-parties.third parties. The Company may increase the percentage of internally-manufactured jewelry in the future, but management does not expect that the Company will ever manufacture all of its needs. Factors considered by management in its decision to use third-party manufacturers include product quality, product cost, access to or mastery of various jewelry-makingproduct-making skills and technology, support for alternative capacity, product cost and the cost of capital investments. To supply its internal manufacturing facilities, the Company processes, cuts and polishes rough diamonds at its facilities outside the U.S. and sources precious metals, rough diamonds, (which it processes in its own facilities), polished diamonds and other gemstones.gemstones, as well as certain fabricated components, from third parties.
Supply of Diamonds. The Company regularly purchases parcels of rough diamonds for polishing and further processing. The vast majority of diamonds acquired by the Company originate from Botswana, Canada, Namibia, Russia Sierra Leone and South Africa. The Company regularly purchases parcels of rough diamonds for polishing and further processing. The Company has diamond processing operations in Belgium, Botswana, Cambodia, Mauritius and Vietnam that prepare and/or cut and/orand polish rough diamonds for its use. The Company's operationCompany conducts operations in Botswana allows itthrough a subsidiary in which local third parties own minority, non-controlling interests, allowing the Company to access rough diamond allocations reserved for
local manufacturers. The Company conducts that operation through a subsidiary in which local third-parties own minority, non-controlling interests. The Company maintains a relationship and has an arrangement with these local third-parties;third parties; however, if circumstances warrant, the Company could seek to replace its existing local partners or operate without local partners.
The Company from time to time, secures supplies of rough diamonds by agreeingprimarily through arrangements with diamond producers and, to a lesser extent, on the secondary market. Most of this supply comes from arrangements in which the Company accesses rough diamonds that are offered for sale (including as a sightholder), although with no contractual purchase obligation for such rough diamonds. A smaller portion of rough diamond purchases is made through agreements in which the Company is required to purchase a defined portionminimum volume of a mine's outputrough diamonds (anticipated to be approximately $60.0 million in 2019). All such supply arrangements are generally at the market price prevailing at the time of production. Under such agreements, management anticipates that it will purchase approximately $100.0 millionpurchase.
As a result of the manner in which rough diamonds in 2016. However, the Company will also purchase rough diamonds from other suppliers, althoughare typically assorted for sale, it has no contractual obligations to do so. In certain instances, the Company has provided loans to, or made equity investments in, mining projects in order to secure diamond supplies.
It is occasionally necessary for the Company to knowingly purchase, mixed assortmentsas part of a larger assortment, rough diamonds that contain a limited quantity of rough diamonds that cannot be cut and polished todo not meet the Company's quality standards or assortment needs. RoughThe Company seeks to recover its costs related to these diamonds so purchased, as well as a small percentage ofby selling such diamonds that have been polished, are sold to third parties when they are found not to be suitable for the Company's needs. Management's objective from such sales, included in the Other non-reportable segment, is to recoup its original costs, thereby earning minimal, if any, gross margin on those transactions. As a result, these sales have had, and are expected to continue to have,(generally other diamond polishers), which has the effect of modestly reducing the Company's overall gross margins. Any such sales are included in the Other non-reportable segment.
In recent years, an average of approximately 70% - 80% (by dollar value)volume) of the polished diamonds used in the Company's jewelry havethat are 0.18 carats and larger and individually registered ("individually registered diamonds") has been produced from rough diamonds that the Company has purchased. The balance of the Company's needs for polishedindividually registered diamonds is purchased from polishers or polished-diamond dealers generally through purchase orders for fixed quantities. TheseThe Company's relationships with polishers and polished-diamond dealers may be terminated at any time by either party, but such a termination would not discharge either party's obligations under unfulfilled purchase orders accepted prior to the termination. It is the Company's intention to continue to supply the substantial majority of its needs for individually registered diamonds, as well as a majority of its needs for melee diamonds of less than 0.18 carats used in the Company's jewelry, by purchasing and polishing rough diamonds.
Products containing one or more diamonds of varying sizes, including diamonds used as accents, side-stones and center-stones, accounted for 59%, 58% and 58% of worldwide net sales in 2015, 2014 and 2013. Products containing one or more diamonds of one carat or larger accounted for 14%, 14% and 15% of worldwide net sales in each of those years.
Conflict Diamonds. Media attention has been drawn to the issue of "conflict" or "blood" diamonds. These terms areThis term is used to refer to diamonds extracted from war-torn geographic regions and sold by rebel forces to fund insurrection. Allegations have also been made that trading in such diamonds supports terrorist activities. Management believes that it is not possible in most purchasing scenarios to distinguish diamonds produced in conflict regions from diamonds produced in other regions once they have been polished. Therefore, concerned participants in the diamond trade, including the
Company and nongovernment organizations, seek to exclude "conflict" or "blood" diamonds, which represent a small fraction of the world's supply, from legitimate trade through an international system of certification and legislation known as the Kimberley Process Certification Scheme. All rough diamonds the Company buys, crossing an international border, must be accompanied by a Kimberley Process certificate and all trades of rough and polished diamonds must conform to a system of warranties that references the aforesaid scheme. It is not expected that such efforts will substantially affect the supply of diamonds. In addition, concerns over human rights abuses in Zimbabwe, Angola and Angolathe Democratic Republic of the Congo underscore that the aforementioned system doeshas not controldeterred the production of diamonds produced in state-sanctioned mines under poor working conditions. The Company has informed its vendors that it does not intend to purchase Zimbabwean, Angolan or Angolan-producedCongolese-produced diamonds. Accordingly, the Company has implemented the Diamond Source Warranty Protocol, which requires vendors to provide a warranty, and a qualified independent audit certificate, that loose polished diamonds were not obtained from Zimbabwean, Angolan or AngolanCongolese mines.
TIFFANY & CO.Beginning in 2019, as part of its diamond source initiative, the Company will also require its vendors to affirmatively state the region or country of origin of any polished diamonds sold to the Company that are 0.18 carats and larger and individually registered.
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Worldwide Availability and Price of Diamonds. The availability and price of diamonds are dependent on a number of factors, including global consumer demand, the political situation in diamond-producing countries, the opening of new mines, the continuance of the prevailing supply and marketing arrangements for rough diamonds and levels of industry liquidity. In recent years, there has been substantial volatility in the prices of both rough and polished diamonds. Prices for rough diamonds do not necessarily reflect current demand for polished diamonds.
In addition, the supply and prices of rough and polished diamonds in the principal world markets have been and continue to be influenced by the Diamond Trading Company ("DTC"), an affiliate of the De Beers Group. Although the DTC's historical ability to control worldwide production has diminished due to its lower share of worldwide production and changing policies in diamond-producing countries, the DTC continues to supply a meaningful portion of the world market for rough, gem-quality diamonds and continues to impact diamond supply through its marketing and advertising initiatives. A significant portion of the diamonds that the Company purchased in 20152018 had their source with the DTC.
Sustained interruption in the supply of diamonds, an overabundance of supply or a substantial change in the marketing arrangements described above could adversely affect the Company and the retail jewelry industry as a whole. Changes in the marketing and advertising spending of the DTC and its direct purchasers could affect consumer demand for diamonds.
The Company purchases conflict-free rough and polished colorless diamonds, in highhighly graded color and clarity ranges. Management does not foresee a shortage of diamonds in these quality ranges in the short term but believes that, unless new mines are developed, rising demand will eventually create such a shortage and lead to higher prices.
Synthetic and Treated Diamonds. Synthetic diamonds (diamonds manufactured but not naturally occurring) and treated diamonds (naturally occurring diamonds subject to treatment processes, such as irradiation) are produced in growing quantities. Although significant questions remain as to the ability of producers to producegenerate synthetic and/or treated diamonds economically within a full range of sizes and natural diamond colors, and as to consumer acceptance of these diamonds, such diamonds are becoming a larger factor in the market. Should synthetic and/or treated diamonds be offered in significant quantities, the supply of and prices for natural diamonds may be affected. The Company does not produce and does not intend to purchase or sell such diamonds.
Purchases of Precious Metals and Other Polished Gemstones and Precious Metals. OtherPrecious metals and other polished gemstones and precious metals used in making jewelry are purchased from a variety of sources. Most purchases are from suppliers with which Tiffany has maintained long-standing relationships.
The Company generally enters into purchase orders for fixed quantities with other polished gemstone and precious metals vendors. These relationships may be terminated at any time by either party; such termination would not discharge either party's obligations under unfulfilled purchase orders accepted prior to the termination.
The Company purchases precious metals from several supplierssources for use in itsthe Company's internal manufacturing operations andand/or for use by third-party manufacturers contracted to supply Tiffany merchandise. The silver, gold and platinum sourced directly by the Company principally comescome from two sources: (i) in-ground, large-scale deposits of metals, primarily in the U.S., that meet the Company's standards for responsible mining and (ii) metals from recycled sources. While the Company may supply precious metals to a manufacturer, it cannot determine, in all circumstances, whether the finished goods provided by such manufacturer were actually produced with Tiffany-suppliedCompany-supplied precious metals.
In recent years, there has been
The Company generally enters into purchase orders for fixed quantities with precious metals and other polished gemstone vendors. Purchases are generally made at prevailing market prices, which have, with respect to precious metals, experienced substantial volatility in recent years. These relationships may be terminated at any time by either party; such termination would not discharge either party's obligations under unfulfilled purchase orders accepted prior to the prices of precious metals.
termination. The Company believes that there are numerous alternative sources for other polished gemstones and precious metals and that the loss of any single supplier would not have a material adverse effect on its operations.
Finished Jewelry. Finished jewelry is purchased from approximately 55 manufacturers, most of which have long-standing relationships with the Company.40 manufacturers. However, the Company does not enter into long-term supply arrangements with its finished goods vendors. The Company does enter into merchandise vendor agreements with nearly all of its finished goods vendors. The merchandise vendor agreements establish non-price terms by which the Company may purchase and by which vendors may sell finished goods to the Company. These terms include payment terms, shipping procedures, product quality requirements, merchandise specifications and vendor social responsibility requirements. The Company generally enters into purchase orders for fixed quantities of merchandise with its vendors. These relationships may be terminated at any time by either party; such termination would not discharge either party's obligations under unfulfilled purchase orders accepted prior to termination. The Company actively seeks alternative sources for its best-selling jewelry items to mitigate any potential disruptions in supply. However, due to the craftsmanship involved in a small number of designs, the Company may have difficulty finding readily available alternative suppliers for those jewelry designs in the short term.
Watches. For many years prior to 2007, theThe Company had arranged for the production of TIFFANY & CO. brand watches with various third-party Swiss component manufacturers and assemblers. In 2007, the Company entered into a 20-year license and distribution agreement (the "Agreement") with the Swatch Group for the manufacture and distribution of TIFFANY & CO. brand watches. In December 2013, an arbitral panel deemed the Agreement terminated at the request of the parties. The arbitration award stated that the effective date of termination was March 1, 2013. See "Item 3. Legal Proceedings" for additional information regarding the arbitration proceeding and the subsequent annulment action. Royalties payable to the Company under the Agreement were not significant in any year, and watches manufactured under the Agreement and sold in TIFFANY & CO. stores constituted 1% of worldwide net sales in 2013.
In April 2015, management introduced newsells TIFFANY & CO. brand watches, which have beenare designed, produced, marketed and distributed through certain of the Company's Swiss subsidiaries. In support of this introduction, theThe Company has relationships with approximately 30 component and subassembly vendors to manufacture watches. The terms of the Company's contractual relationships with these vendors are substantially similar to those described under "Finished Jewelry" above. Sales of these new TIFFANY & CO. brand watches represented approximately 1% of worldwide net sales in 2015. While management anticipates an increase in these sales in 2016, it does not expect this new watch business to increase the Company's profitability in 2016, as the Company expects to continue to invest significant resources in marketing to continue to build customer awareness2018, 2017 and further establish product differentiation.2016.
The effective development and growth of this watch business involves risks and uncertainties. Under the Agreement, the Swatch Group retained the right to sell watches marked with the TIFFANY & CO. trademark for a period of time subsequent to the termination of the Agreement and had no obligation to reacquire any inventory sold to retailers during this period. As such, the continued presence in the retail market of those TIFFANY & CO. brand watches produced under the Agreement may negatively impact the Company’s sales and marketing efforts for its new collection of watches.
COMPETITION
The global jewelry industry is competitively fragmented. The Company encounters significant competition in all product categories. Some competitors specialize in just one area in which the Company is active. Many competitors have established worldwide, national or local reputations for style, quality, expertise and customer service similar to the Company and compete on the basis of that reputation. Certain other
jewelers and retailers compete primarily through advertised price promotion. The Company competes on the basis of the Brand's reputation for high-quality products, customer service and distinctive merchandise and does not engage in price promotional advertising.
Competition for engagement jewelry sales is particularly and increasingly intense. The Company's retail priceprices for diamond jewelry reflectsreflect the rarity of the stones it offers and the rigid parameters it exercises with respect to the cut, clarity and other diamond quality factors which increase the beauty of the diamonds, but which also increase the Company's cost. The Company competes in this market by emphasizing quality.
SEASONALITY
As a jeweler and specialty retailer, the Company's business is seasonal in nature, with the fourth quarter typically representing approximately one-third of annual net sales and a higher percentage of annual net earnings. Management expects such seasonality to continue.
EMPLOYEES
As of January 31, 2016,2019, the Company employed an aggregate of approximately 12,20014,200 full-time and part-time persons. Of those employees, approximately 5,4005,900 are employed in the United States.
AVAILABLE INFORMATION
The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy these materials at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding Tiffany & Co. and other companies that electronically file materials with the SEC. Copies of the Company'sthese reports on Form 10-K, Forms 10-Q and Forms 8-Kstatements may be obtained, free of charge, on the Company's website at http:https://investor.tiffany.com/financials.cfm.financial-information.
Item 1A. Risk Factors.
As is the case for any retailer, the Company'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 Company and/or the markets in which it operates. The following "risk factors" are specific to the Company; these risk factors affect the likelihood that the Company will achieve the objectives and expectations communicated by management:
(i) Challenging global economic conditions and related low levels of consumer confidence over a prolonged period of time could adversely affect the Company's sales and earnings.
As a retailer of goods which are discretionary purchases, the Company's sales results are particularly sensitive to changes in economic conditions and consumer confidence. Consumer confidence is affected by general business conditions; domestic and international political uncertainties and/or developments; changes in the market value of equity 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 the Company's sales and earnings because of its cost base and inventory investment.earnings.
Certain competitors may react to such conditions by reducing retail prices and promoting such reductions; such reductions and/or inventory liquidations can have a short-term adverse effect on the Company's sales, especially given the Company's policy of not engaging in price promotional activity.
The Company has invested in and operates a significant number of stores in Greater China and anticipates continuing to do so. Any slowdown in the Chinese economy could have a negative impact on the sales and profitability of stores in Greater China as well as stores in other markets that serve Chinese tourists.
Uncertainty surrounding the current global economic environment makes it more difficult for the Company to forecast operating results. The Company's forecasts employ the use of estimates and assumptions. Actual results could differ from forecasts, and those differences could be material.
(ii) Sales may decline or remain flat in the Company's fourth fiscal quarter, which includes the Holiday selling season.
The Company's business is seasonal in nature, with the fourth quarter typically representing approximately one-third of annual net sales and a higher percentage of annual net earnings. Poor sales results during the fourth quarter would have an adverse effect on annual earnings and would result in higher inventories in the short-term.short term.
(iii) The Company conducts significant operations outside the United States, andglobally, the risks of doing business internationallywhich could increase its costs, reduce its profits or disrupt its business.
The Company operates globally and generates a majority of its worldwide net sales outside the United States. It also has both U.S. and foreign manufacturing operations, and relies on certain U.S. and foreign third-party vendors and suppliers. In addition, the Company maintains investments in, and has provided loans to, certain foreign suppliers. As a result, the Company is subject to the risks of doing business outside the United States,globally, including:
the laws, regulations and policies of foreign governments relating to investments, loans and operations, the costs or desirability of complying with local practices and customs and the impact of various anti-corruption and other laws affecting the activities of U.S. companies abroad;
potential negative consequencesuncertainties from changes in U.S. or foreign taxation policies, including, for example, as a result of recent revisions to the U.S. tax code;
compliance by third party vendors and suppliers with the Company's sourcing and quality standards, codes of conduct, or currency restructurings;contractual requirements as well as applicable laws and regulations;
import and export licensing requirements and regulations, as well as unforeseen changes in regulatory requirements;
political or economic instability in foreign countries;
challenges inherent in oversight of foreign operations, systems and controls; for example, in the fourth quarter of 2015, management identified inaccuracies in our Japan segment relating to the timing of recognizing sales and related costs, as well as inventory, at period-ends. Management determined these inaccuracies did not materially affect our annual or quarterly financial statements,countries, including the reported financial information for our Japan segment. Management is continuing to review the processes and personnel involved and related remediation;
uncertainties as to enforcement of certain contract and other rights;
the potential for rapid and unexpected changes in government, economic and political policies, such as the United Kingdom's ("U.K.") referendum vote to exit the European Union ("E.U."), as discussed below;
political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation;legislation as a result of, for example, changes in government policies of foreign countries in response to actions taken by the U.S. government;
the imposition of additional duties, tariffs, taxes and
TIFFANY & CO. other charges or other barriers to trade, including as a result of changes in diplomatic and trade relations or agreements with other countries;
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potential negative consequences from foreign governments' currency management practices;
uncertainties as to enforcement of certain contract and other rights; and
inventory risk exposures.
Changes in these regulatory, political, economic, or monetary policies and other factors could require the Company to significantly modify its current business practices and may adversely affect its future financial results. For example, the Company could be adversely impacted by U.S. trade policies, legislation, treaties and tariffs, including trade policies and tariffs affecting China, the E.U., Canada and Mexico, as well as retaliatory tariffs by such countries. Such tariffs and, if enacted, any further legislation or actions taken by the U.S. government that restrict trade, such as additional tariffs or trade barriers, and other protectionist or retaliatory measures taken by governments in Europe, Asia and elsewhere, could have a negative effect on the Company's ability to sell products in those markets.
Additionally, in June 2016, voters in the U.K. approved an advisory referendum to withdraw from the E.U., commonly referred to as "Brexit." In March 2017, the U.K. government initiated the exit process under Article 50 of the Treaty of the European Union, commencing a two year period for the U.K. and the other E.U. member states to negotiate the terms of the U.K.'s withdrawal, with such period scheduled to expire on March 29, 2019, unless extended. In November 2018, the U.K. and E.U. agreed upon a draft Withdrawal Agreement that sets out the terms of the U.K.'s withdrawal which, among other terms, includes a transition period from March 29, 2019 through December 31, 2020 to allow time for a future trade deal to be agreed upon. On January 15, 2019, the draft Withdrawal Agreement was rejected by the U.K. Parliament, creating significant uncertainty about the terms (and timing) under which the U.K. will exit the E.U. If the U.K. leaves the E.U. with no agreement, it will likely have an adverse impact on labor and trade, in addition to creating further short-term uncertainty and currency volatility. Brexit could also lead to legal uncertainty and potentially divergent national laws and regulations in the U.K. and E.U. The Company may incur additional costs and expenses as it adapts to these potentially divergent regulatory frameworks, and may face additional complexity with regard to immigration and travel rights for its employees located in the U.K. and the E.U. There may also be similar referendums or votes in other European countries in which the Company does business. The uncertainty surrounding the terms of the U.K.'s withdrawal and its consequences, as well as the impact of any similar circumstances that may arise elsewhere in Europe, could increase the Company's costs and adversely impact consumer and investor confidence.
While these factors, and the effect of these factorsthereof, are difficult to predict, any one or more of them could lower the Company's revenues, increase its costs, reduce its earnings or disrupt its business.
(iv) WeakeningRecent revisions to the U.S. tax code, including changes in the guidance related to, or interpretation and application of, such revisions could materially affect the Company's tax obligations, provision for income taxes and effective tax rate.
On December 22, 2017, the U.S. enacted comprehensive tax legislation, commonly referred to as the 2017 U.S. Tax Cuts and Jobs Act (the "2017 Tax Act"), which significantly affected U.S. tax law by changing how the U.S. imposes income tax on U.S. taxpayers. In particular, these changes impact the U.S. taxation of earnings in the jurisdictions in which the Company operates, the measurement of its deferred tax assets and liabilities and the tax impact in the event the Company were to repatriate the earnings of its non-U.S. subsidiaries to the U.S. The provisions of the 2017 Tax Act may be subject to further interpretation by the Internal Revenue Service, which has broad authority to issue regulations and interpretative guidance that may significantly impact how the Company will apply such provisions.
Changes in tax law are accounted for in the period of enactment. As a result, the Company's 2017 consolidated financial statements reflected provisional estimates of the immediate tax effect of the 2017 Tax Act. During 2018, as permitted by the Securities and Exchange Commission's Staff Accounting Bulletin No. 118 ("SAB 118"), the Company (i) recorded tax benefits totaling $12.6 million to adjust the provisional estimate recorded in 2017 to remeasure the Company’s deferred tax assets and liabilities; (ii) recorded tax benefits totaling $3.3 million to adjust the provisional estimate recorded in 2017 for the Transition Tax; and (iii) determined to maintain its assertion to indefinitely reinvest undistributed foreign earnings and profits. Further regulatory or accounting guidance regarding the 2017 Tax Act could materially affect the Company's future financial results.
(v) A strengthening of the U.S. dollar against foreign currencies would negatively affect the Company's sales and profitability.
The Company operates retail stores in more than 20 countries outside of the U.S. and, as a result, is exposed to market risk from fluctuations in foreign currency exchange rates, including, among others, the Japanese Yen, Euro, British Pound and British Pound.Chinese Yuan. In 2015,2018, sales in countries outside of the U.S. in aggregate represented more than halfa substantial portion of the Company's net sales and earnings from operations. A continued weakeningstrengthening of foreign currencies against the U.S. dollar against foreign currencies would require the Company to raise its retail prices in various locations outside of the U.S. in order to maintain its worldwide relative pricing structure, or reduce its profit margins in various locations outside of the U.S.margins. Consumers in those markets may not accept significant price increases on the Company's goods; thus, there is a risk that a continued weakeningstrengthening of foreign currenciesthe U.S. dollar would result in reduced sales and profitability. In addition, a continued weakening inof any foreign currency exchange ratesrelative to other currencies may negatively affect spending by foreign tourists in the various regions where the Company operates retail stores which would adversely affect its net sales and profitability.
The reported results of operations of the Company's international subsidiaries are exposed to foreign exchange rate fluctuations as the financial results of the applicable subsidiaries are translated from the local currency into U.S. dollars during the process of financial statement consolidation. If the U.S. dollar continues to strengthenstrengthens against foreign currencies, the translation of these foreign currency-denominated transactions would decrease consolidated net sales and profitability. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."Operations" for a discussion of such impacts.
(v) Regional(vi) Political activities, regional instability andand/or conflict or similar events could disrupt tourist travel and local consumer spending.
Unsettled regionalRegional and global conflicts or crises, such as military actions, terrorist activities and natural disasters, government regulationsgeopolitical or regulatory developments (and any related protests) and other conditions may negatively affect spending by foreign touristssimilar events and local consumersconditions in the various regions and cities where the Company operates retail stores may negatively affect spending by both foreign tourists and local consumers. The Company's retail stores, many of which wouldare located in major metropolitan areas globally, may in fact have close proximity to the locations of such events – for example, the Company's New York Flagship store is located adjacent to a private residence of the U.S. President which has, at times, impacted consumer access as a result of security measures. The occurrence of the types of events or conditions described above, or the related effect of security measures implemented to address the possibility of such occurrences, could affect consumer traffic and/or spending in one or more of the Company's locations, which could adversely affect itsthe Company's sales and earnings. For example, management believes that a significant reduction in tourist travel and spending in France and other markets within EuropeWhile sales in the fourth quarterCompany's largest store (the New York Flagship) represent less than 10% of 2015 were a resultworldwide net sales, the impact of the tragic terrorist attacks that occurredsignificant sales declines in Paris, France during that quarter.any one store could still be meaningful to consolidated results.
(vi)(vii) Changes in the Company's product or geographic sales mix could affect the Company's profitability.
The Company sells an extensive selection of jewelry and other merchandise at a wide range of retail price points that yield different gross profit margins. Additionally, the Company's geographic regions achieve different operating profit margins due to a variety of factors including product mix, store size and occupancy costs, labor costs, retail pricing and fixed versus variable expenses. The increasing availability of, and ease of access to, retail price information across markets, primarily through the Internet, may affect consumers' decisions regarding in which geographies to shop. If the Company's sales mix were to shift toward products or geographic regions that are significantly different than the Company's plans, it could have an effect, either positively or negatively, on its expected profitability.
(vii)
(viii) Increases in costs of diamonds, other gemstones and precious metals or reduced supply availability may adversely affect the Company's ability to produce and sell products at desired profit margins.
Most of the Company's jewelry and non-jewelry offerings are made with diamonds, other gemstones and/or precious metals. A significant increase in the costs or change in the supply of these commodities could adversely affect the Company's business, which is vulnerable to the risks inherent in the trade for such commodities. A substantial increase or decrease in the cost or supply of precious metals, and/or high-quality rough and polished diamonds within(within the quality grades, colors and sizes that customers demand
demand) and/or other gemstones could affect, negatively or positively, customer demand, sales and gross profit margins. Additionally, should synthetic diamonds (diamonds manufactured but not naturally occurring) and/or treated diamonds (naturally occurring diamonds subject to treatment processes, such as irradiation) be offered in significant quantities and gain consumer acceptance, the supply of, demand for and prices for natural diamonds may be affected.
(viii) Volatile global economic conditions may have a material adverse effect on the Company's liquidity and capital resources.
The global economy and the credit and equity markets have undergone significant disruption in recent years. Any prolonged economic weakness could have an adverse effect on the Company's cost of borrowing, could diminish its ability to service or maintain existing financing and could make it more difficult for the Company to obtain additional financing or to refinance existing long-term obligations. In addition, any significant deterioration in the equity markets could negatively affect the valuation of pension plan assets and result in increased minimum funding requirements.
(ix) The Company may be unable to leasesecure and retain sufficient space for its retail stores in prime locations.locations, and maintaining the Company's brand image and desirability to consumers requires significant investment in store construction, maintenance and periodic renovation.
The Company, positioned as a luxury goods retailer, has established its retail presence in choice store locations. Management regularly evaluates opportunities to optimize its retail store base, including potential markets for new TIFFANY & CO. stores, as well as the renovation and relocation of its existing stores. Maintaining the Company's brand image and desirability to consumers requires that stores be constructed and maintained in a manner consistent with that brand image. This requires significant capital investment, including for periodic renovations of existing stores. Renovations of existing stores may also result in temporary disruptions to an individual store's business. If the Company cannot secure and retain store locations on suitable terms in prime and desired luxury shopping locations, or if its expansion plans,investments to construct and/or renovate existing stores do not generate sufficient incremental sales andand/or profitability or significantly disrupt sales and/or profitability during renovations, the Company's sales and/or earnings performance could be jeopardized.
In Japan, manyFor example, in 2018 the Company announced its plans to undertake a complete renovation of its New York Flagship store, beginning in the TIFFANY & CO. storesspring of 2019 and with an anticipated completion date in the fourth quarter of 2021. This renovation project will require significant capital investment, and while the Company has secured an adjacent temporary retail location, it may result in business and/or consumer traffic disruptions to that location. Significant delays or cost overruns are located in department stores generating approximately 70%also possible during the three year construction period, which could significantly increase the cost of this renovation project and adversely impact the net sales in Japan,Company's future financial results. There can be no assurance that the results of this renovation project will appeal to the Company's customers or 9% of worldwide net sales, in 2015. The Company also has TIFFANY & CO. stores located in department stores in other markets. Should one or more department store operators elect or be required to close one or more stores now housing a TIFFANY & CO. store,will increase the Company's sales and earnings would be reduced while alternative premises were being obtained. The Company's commercial relationships with department stores, and their respective abilities to continue as leading department store operators, have been and will continue to affect the Company's business in Japan and the other markets.or profitability.
(x) The value of the TIFFANY & CO. and TIFFANY trademarks could decline due to third-party use and infringement.
The TIFFANY & CO. and TIFFANY trademarks are assets that are essential to the competitiveness and success of the Company's business, and the Company takes appropriate action to protect them. The Company actively pursues those who produce or sell counterfeit TIFFANY & CO. goods through civil action and cooperation with criminal law enforcement agencies. However, use of the designation TIFFANY by third parties on related goods or services and the Company's failure or inability to protect against such use could adversely affect and dilute the value of the
TIFFANY & CO. brand.
Notwithstanding the general success of the Company's enforcement actions, such actions have not stopped the imitation and counterfeiting of the Company's merchandise or the infringement of the trademark, and counterfeit TIFFANY & CO. goods remain available in most markets. In recent years, there has been an increase in the availability of counterfeit goods, predominantly silver jewelry, on the Internet and in various markets by street vendors and small retailers. The continued sale of counterfeit merchandise or merchandise that infringes the Company's trademarks could have an adverse effect on the TIFFANY & CO. brand by undermining the Company's reputation for quality goods and making such goods appear less desirable to consumers of luxury goods. Damage to the TIFFANY & CO. brand could result in lost sales and earnings.
(xi) The Company's business is dependent upon the distinctive appeal of the TIFFANY & CO. brand.
The TIFFANY & CO. brand's association with quality and luxury is integral to the success of the Company's business. The Company's expansion plans for retail, e-commerce and other direct selling operations and merchandise
development, production and management support the appeal of the TIFFANY & CO. brand. Consequently, poor maintenance, promotion and positioning of the TIFFANY & CO. brand, as well as market over-saturation, may adversely affect the business by diminishing the distinctive appeal of the TIFFANY & CO. brand and tarnishing its image. This could result in lower sales and earnings.
In addition, adverse publicity regarding TIFFANY & CO. and its products, oras well as adverse publicity in respect of, or resulting from, the Company's third-party vendors or the diamond or jewelry industry,industries more generally, could adversely affect the Company's business. For example, the Company sources from third-party vendors certain products that, from time to time, may not, or may contain raw materials that do not, meet the Company's sourcing and any media coverage resulting therefrom,quality standards as well as applicable requirements and regulations. In such instances, although the Company may have recourse against such third-party vendors, the Company may self-report to the relevant regulatory agencies, recall affected products and/or pay potential fines.
Any of the above could harm the TIFFANY & CO. brand and reputation, cause a loss of consumer confidence in the TIFFANY & CO. brand, its products and the industry, andand/or negatively affect the Company's results of operations.
The considerable expansion in the use of social media overin recent years has compounded the potential scope of theany negative publicity that could be generated by such incidents.publicity.
(xii) A significant data security or privacy breach of the Company's information systems could affect
its business.
The protection of customer, employee and Company data is important to the Company, and the Company's customers and employees expect that their personal information will be adequately protected. In addition, the regulatory environment surrounding information security and privacy is becoming increasingly demanding, with evolving requirements in the various jurisdictions in which the Company does business. Although the Company has developed and implemented systems and processes that are designed to protect personal and Company information and prevent data loss and other security breaches, such measures cannot provide absolute security. Additionally, the Company’s increased use and reliance on web-based hosted (i.e., cloud computing) applications and systems for the storage, processing and transmission of information, including customer and employee information, could expose the Company, its employees and its customers to a risk of loss or misuse of such information. The Company’s efforts to protect personal and Company information may also be adversely impacted by data security or privacy breaches that occur at its third-party vendors. The Company cannot control these vendors and therefore cannot guarantee that a data security or privacy breach of their systems will not occur in the future. A significant breach of customer, employee or Company data could damage the Company's reputation, its relationship with customers and the TIFFANY & CO. brand and could result in lost sales, sizable fines, significant breach-notification costs and lawsuits as well as adversely affect results of operations. The Company may also incur additional costs in the future related to the implementation of additional security measures to protect against new or enhanced data security and privacy threats, to comply with state, federal and international laws that may be enacted to address those threats or to investigate or address potential or actual data security or privacy breaches.
(xiii) Any material disruption of, or a failure to successfully implement or make changes to, information systems could negatively impact the Company's business.
The Company is increasingly dependent on its information systems to operate its business, including in designing, manufacturing, marketing and distributing its products, as well as processing transactions, managing inventory and accounting for and reporting its results. Given the complexity of the Company’sCompany's global business, it is critical that the Company maintain the uninterrupted operation of its information systems. Despite the Company’sCompany's preventative efforts, its information systems may be vulnerable to damage, disruption or shutdown due to power outages, computer and telecommunications failures, computer viruses, systems failures, security breaches or natural disasters. Damage, disruption or shutdown of the Company’sCompany's information systems may require a significant investment to fixrepair or replace them, and the Company could suffer interruptions in its operations in the interim.
In addition, in the ordinary course of business, the Company regularly evaluates and makes changes and upgrades to its information systems. The Company has commenced ais in the process of executing its multi-year effort to evaluate and, where appropriate, to upgrade and/or replace certain of its information systems, including systems for global customer relationship management, order management and inventory management. These system
changes and upgrades can require significant capital investments and dedication of resources. While the Company follows a disciplined methodology when evaluating and making such changes, there can be no assurances that the Company will successfully implement such changes, that such changes will be implemented without delays, that such changes will occur without disruptions to its operations or that the new or upgraded systems will achieve the desired business objectives.
Any damage, disruption or shutdown of the Company's information systems, or the failure to successfully implement new or upgraded systems, such as those referenced above, could have a direct material adverse effect on the Company's results of operations, could undermine the Company's ability to execute on its strategic and operational initiatives, and could also affect the Company's reputation, its ability to compete effectively, its relationship with customers and the TIFFANY & CO. brand, which could result in reduced sales and profitability.
(xiii) New and existing data privacy laws and/or a significant data security breach of the Company's information systems could increase the Company's operational costs, subject the Company to claims and otherwise adversely affect its business.
The protection of customer, employee and Company information is important to the Company, and its customers and employees expect that their personal data will be adequately protected. In addition, the regulatory environment surrounding information security and data privacy is becoming increasingly demanding, with evolving requirements
in respect of personal data use and processing, including significant penalties for non-compliance, in the various jurisdictions in which the Company does business. For example, the General Data Protection Regulation that came into force in the E.U. in May 2018 has caused, and will continue to cause, the Company to incur additional compliance costs related thereto. Although the Company has developed and implemented systems, policies, procedures and internal controls that are designed to protect personal data and Company information, prevent data loss and other security breaches, and otherwise identify, assess and analyze cybersecurity risks, such measures cannot provide absolute security. For example, the Company faces a complex and evolving threat landscape in which cybercriminals, nation-states and "hacktivists" employ a complex array of techniques designed to access personal data and other information, including the use of stolen access credentials, malware, ransomware, phishing, structured query language ("SQL") injection attacks and distributed denial-of-service attacks, which may penetrate the Company's systems despite its extensive and evolving protective information security measures. Further, the Company relies on its software and hardware providers to issue timely patches for known vulnerabilities; however, the failure of software and hardware companies to release or to timely release effective patching and the Company's reliance on patches or inability to patch software and hardware vulnerabilities, could expose it to increased risk of attack, data loss and data breach. The Company has experienced, and expects to continue to experience, attempts from cybercriminals and other third parties to gain unauthorized access to its information technology and other information systems. Although these attempts have not had a material impact on the Company to date, in the future the Company could experience attacks that could have a material adverse effect on its business, financial condition or results of operations.
Additionally, the Company's implementation of new information technology or information systems and/or increased use and reliance on web-based hosted (i.e., cloud computing) applications and systems for the storage, processing and transmission of information, including customer and employee personal data, could expose the Company, its employees and its customers to a risk of loss or misuse of such information. The Company's efforts to protect personal data and Company information may also be adversely impacted by data security or privacy breaches that occur at its third-party vendors. While the Company's contractual arrangements with such third-party vendors provide for the protection of personal data and Company information, the Company cannot control these vendors or their systems and cannot guarantee that a data security or privacy breach of their systems will not occur in the future.
A significant violation of applicable privacy laws or the occurrence of a cybersecurity incident resulting in breach of personal data or Company information could result in the temporary suspension of some or all of the Company's operating and/or information systems, damage the Company's reputation, its relationships with customers, vendors and service providers and the TIFFANY & CO. brand and could result in lost data, lost sales, sizable fines, increased insurance premiums, substantial breach-notification and other remediation costs and lawsuits as well as adversely affect results of operations. The Company may also incur additional costs in the future related to the implementation of additional security measures to protect against new or enhanced data security and privacy threats, to comply with state, federal and international laws that may be enacted to address personal data processing risks and data security threats or to investigate or address potential or actual data security or privacy breaches.
(xiv) The loss or a prolonged disruption in the operation of the Company's centralized distribution centers could adversely affect its business and operations.
The Company maintains two separate distribution centers in close proximity to one another in New Jersey. Both are dedicated to warehousing merchandise; one handles worldwide store replenishment and the other processes direct-to-customer orders. Although the Company believes that it has appropriate contingency plans, unforeseen disruptions impacting one or both locations for a prolonged period of time may result in delays in the delivery of merchandise to stores or in fulfilling customer orders.
(xv) The loss or a prolonged disruption in the operation of the Company's internal manufacturing facilities could adversely affect its business and operations.
The Company's internal manufacturing facilities produce approximately 60% of the merchandisejewelry sold by the Company. Any prolonged disruption to their operations would require the Company to seek alternate sources of production and could have a negative effect on inventory availability and sales until such sources are established.
(xvi) There is no assurance that the Company will be able to effectively and successfully developgrow its new watch business.
In April 2015, management introduced newThe Company sells TIFFANY & CO. brand watches, which have beenare designed, produced, marketed and distributed through certain of the Company's Swiss subsidiaries. Sales of these TIFFANY & CO. brand watches represented approximately 1% of worldwide net sales in 2018, 2017 and 2016. The effective development and growth of athis watch business has required and will continue to require additional resources and involves risks and uncertainties, including: (i) significant ongoing expenditures; (ii) the need to employ highly specialized and experienced personnel; (iii) new regulatory requirements; (iv) dependence on relatively small supply partners; (v)and (iv) production and distribution inefficiencies; and (vi) the need to efficiently integrate operations with the Company’s existing business models. Sales of these new TIFFANY & CO. brand watches represented approximately 1% of worldwide net sales in 2015. While management anticipates an increase in these sales in 2016, it does not expect this new watch business to increase the Company's profitability in 2016. As with any new business,inefficiencies. In addition, the Company is competing with businesses with stronger market positions and has invested and will continue to invest significant resources in marketing to build customer awareness and to establish product differentiation. Despite the Company's efforts, thereThere is, however, no assurance that the Company will be able to effectively grow its new watch business or that such business will be successful in growing the Company's revenues or enhancing its profitability.
(xvii) If diamond mining and exploration companies to which the Company or its subsidiaries have provided financing were to experience financial difficulties, those funds might not be recovered, which would reduce the Company's earnings and could result in losing access to the mine's output.
The Company and its subsidiaries may, from time to time, provide financing to diamond mining and exploration companies in order to obtain rights to purchase mining output. Mining operations are inherently risky, and often occur in regions subject to additional political, social and environmental risks, such as the resurgence of the Ebola virus in 2014 in certain regions of Africa. Given these risks, there is no assurance that the diamond mining and exploration companies subject to these arrangements will be able to meet their obligations to the Company under their financing agreements or related diamond supply agreements. If a diamond mining or exploration company defaults under its financing agreement, the Company would be required to evaluate whether it should take a period charge in respect of all or a portion of the financing, which would affect the Company's earnings. Additionally, the circumstances leading to a default under a diamond financing agreement could also result in the Company losing access to the mine's output under the related supply agreements.
In 2015, the Company recorded $37.9 million of impairment charges, and related valuation allowances, associated with a $43.8 million financing arrangement with Koidu Limited (previously Koidu Holdings S.A.). Management will continue to evaluate the collectability of the financing arrangement, and it is possible that such ongoing evaluation may result in additional changes to management's assessment of collectability. While such changes in management's assessment would not have a material adverse effect on the Company's financial position or cash flows, it is possible that such a change in assessment could affect the Company's earnings in the period in which such a change were to occur.
(xviii) The price of the Company’s common stock may periodically rise or fall based on the Company's achievement of earnings forecasts and investors' expectations.
The Company's strategic planning process is designed to maximize its long-term strength, growth, and profitability, and not to achieve an earnings target in any particular fiscal period. Management believes that this longer-term focus is in the best interests of the Company and its stockholders. At the same time, however, the Company recognizes that, from time to time, it may be helpful to provide investors with guidance as to management's annual earnings forecast. If, or when, the Company announces actual results that differ from those that have been forecast by management or others, the market price of the Company's common stock could be adversely affected.
The Company periodically returns value to its stockholders through common stock share repurchases and payment of quarterly cash dividends. The market price of the Company's common stock could be adversely affected if the Company’s share repurchase activity and/or cash dividend rate differs from investors' expectations.
(xix)(xvii) If the Company is unable to effectively anticipate and respond to changes in consumer preferences and shopping patterns, or introduce new products or programs that appeal to new or existing customers, the Company's sales and profitability could be adversely affected.
The Company's continued success depends on its ability to anticipate and respond in a timely and cost-effective manner to changes in consumer preferences for jewelry and other luxury goods, attitudes towards the global jewelry industry as a whole, as well as the manner and locations in which consumers purchase such goods. The Company recognizes that consumer tastes cannot be predicted with certainty and are subject to change, which is compounded by the expanding use of digital and social media by consumers and the speed by which information and opinions are shared. The Company's product development strategy is to introduce new design collections, primarily jewelry, and/or expand certain existing collections annually. If the Company is unable to anticipate and respond in a timely and cost-effective manner to changes in consumer preferences and shopping patterns, including the development of an engaging omnichannel experience for its customers, the Company's sales and profitability could be adversely affected.
In addition, beginning in the second quarter of 2018 management increased its spending in a number of areas, including technology, marketing communications, visual merchandising, digital, and store presentations, which it believes are necessary to achieve its longer term sales, margin and earnings growth objectives. Such investment is also intended to build awareness of the Brand, its heritage and its products, as well as to enhance the Brand's association among consumers with quality and luxury. Management intends to maintain comparable levels of spending in these areas in 2019. However, there can be no assurance these strategies will appeal to new or existing customers or that these expenditures will result in increased sales or profitability.
Lastly, approximately 75% of the Company's stores are located within luxury department stores and shopping malls and benefit from the ability of those locations to generate consumer traffic. A substantial decline in department store and/or mall traffic may negatively impact the Company's ability to maintain or increase its sales in existing stores, as well as its ability to open new stores.
(xviii) The price of the Company's common stock may periodically rise or fall based on the Company's achievement of earnings forecasts and investors' expectations.
The Company's strategic planning process is designed to maximize its long-term strength, growth, and profitability. Management believes that this longer-term focus is in the best interests of the Company and its stockholders. At the same time, however, the Company recognizes that, from time to time, it may be helpful to provide investors with guidance as to management's annual earnings forecast. If, or when, the Company announces actual results that differ from those that have been forecast by management or others, the market price of the Company's common stock could be adversely affected.
The Company returns value to its stockholders through common stock share repurchases and payment of quarterly cash dividends. The market price of the Company's common stock could be adversely affected if the Company's share repurchase activity and/or cash dividend rate differs from investors' expectations.
(xix) Environmental and climate changes could affect the Company's business.
The Company operates retail stores in more than 20 countries and has both domestic and foreign manufacturing operations that are susceptible to the risks associated with climate change. Such risks include those related to the physical impacts of climate change, such as more frequent and severe weather events and/or long term shifts in climate patterns, and risks related to the transition to a lower-carbon economy, such as reputational, market and/or regulatory risks. Climate change and climate events could result in social, cultural and economic disruptions in these areas, including supply chain disruptions, the disruption of local infrastructure and transportation systems that could limit the ability of the Company's employees and/or its customers to access the Company's stores or manufacturing locations, damage to such stores or locations or reductions in material availability and quality. These events could also compound adverse economic conditions and impact consumer confidence and discretionary spending. Despite the fact that the Company is unablepursuing numerous initiatives to anticipatereduce its environmental footprint, including efforts related to energy efficiency, renewable energy use and respond in a
timelysevere weather events and cost-effective manner to changes in consumer preferencesother risks associated with climate change, these events could nonetheless negatively affect the Company's business and shopping patterns, the Company’s sales and profitability could be adversely impacted.operations.
Item 1B. Unresolved Staff Comments.
NONENone
Item 2. Properties.
The Company leases its various store premises (other than the New York Flagship store, which is owned by the Company) under arrangements that generally range from 3 to 10 years. The following table provides information on the number of locations and square footage of Company-operated TIFFANY & CO. stores as of January 31, 2016:2019:
| | | | Total Stores |
| Total Gross Retail Square Footage |
| Gross Retail Square Footage Range |
| Average Gross Retail Square Footage |
| Total Stores |
| Total Gross Retail Square Footage |
| Gross Retail Square Footage Range |
| Average Gross Retail Square Footage |
|
| Americas: | | |
| New York Flagship | 1 |
| 45,500 |
| 45,500 |
| 45,500 |
| 1 |
| 45,500 |
| 45,500 |
| 45,500 |
|
| Other stores | 123 |
| 674,100 |
| 1,000 - 17,600 |
| 5,500 |
| 123 |
| 681,200 |
| 1,000 - 17,600 |
| 5,500 |
|
| Asia-Pacific | 81 |
| 215,600 |
| 400 - 12,800 |
| 2,700 |
| 90 |
| 257,400 |
| 400 - 12,800 |
| 2,900 |
|
| Japan: | | |
| Tokyo Ginza | 1 |
| 12,000 |
| 12,000 |
| 12,000 |
| 1 |
| 13,300 |
| 13,300 |
| 13,300 |
|
| Other stores | 55 |
| 142,400 |
| 1,500 - 7,500 |
| 2,600 |
| 54 |
| 144,000 |
| 1,500 - 7,500 |
| 2,700 |
|
| Europe: | | |
| London Old Bond Street | 1 |
| 22,400 |
| 22,400 |
| 22,400 |
| 1 |
| 22,400 |
| 22,400 |
| 22,400 |
|
| Other stores | 40 |
| 129,400 |
| 600 - 9,600 |
| 3,200 |
| 46 |
| 163,200 |
| 400 - 18,200 |
| 3,500 |
|
| Emerging Markets | 5 |
| 7,900 |
| 400 - 3,600 |
| 1,600 |
| 5 |
| 9,200 |
| 400 - 3,600 |
| 1,800 |
|
| Total | 307 |
| 1,249,300 |
| 400 - 45,500 |
| 4,100 |
| 321 |
| 1,336,200 |
| 400 - 45,500 |
| 4,200 |
|
Excluded from the store count and square footage amounts above are pop-up stores (stores with lease terms of 24 months or less).
NEW YORK FLAGSHIP STORE
The Company owns the building, but not the air rights above the building, housing its New York Flagship store at 727 Fifth Avenue, which was designed to be a retail store for Tiffany and is well located for this function. Approximately 45,500 gross square feet of this 124,000 square foot building are devoted to retail sales with theand The Blue Box Cafe, which opened in 2017. The balance is devoted to administrative offices, certain product services, jewelry manufacturing and storage. The New York Flagship store is also the focal point for marketing and public relations efforts. Sales in this store represent less than 10% of worldwide net sales.
In 2018, the Company announced its plans to undertake a complete renovation of the New York Flagship store, beginning in the spring of 2019 and with an anticipated completion date in the fourth quarter of 2021. In order to minimize any disruptions during this renovation, the Company has secured an adjacent temporary retail location.
RETAIL SERVICE CENTER
The Company's Retail Service Center ("RSC"), located in Parsippany, New Jersey, comprises approximately 370,000 square feet. Approximately half of the building is devoted to office and information technology operations and half to warehousing, shipping, receiving, merchandise processing and other distribution functions. The RSC receives merchandise and replenishes retail stores. The Company has a 20-year lease for this facility, which expires in 2025, and has two 10-year renewal options.
CUSTOMER FULFILLMENT CENTER
The Company owns the Customer Fulfillment Center ("CFC") in Whippany, New Jersey and leases the land on which the facility resides. The CFC is approximately 266,000 square feet and is primarily used for warehousing merchandise and processing direct-to-customer orders. The land lease expires in 2032 and the Company has the right to renew the lease for an additional 20-year term.
MANUFACTURING AND DESIGN FACILITIES
The Company owns and operates jewelry manufacturing facilities in Cumberland, Rhode Island and Lexington, Kentucky, and leases a jewelry manufacturing facilitiesfacility in Pelham, New York, and Bangkok, Thailand as well asleases a jewelry polishing facility in the Dominican Republic.Republic which performs certain functions such as jewelry polishing and assembly and leases a facility containing its Jewelry Design and Innovation Workshop in New York, New York. Lease expiration dates range from 20172019 to 2023.2029. The owned and leased facilities total approximately 230,000244,000 square feet.
The Company leases a facility in Belgium and owns facilities in Botswana, Cambodia, Mauritius and Vietnam (although the land in Botswana, Cambodia and Vietnam is leased) that prepare, cut and/or polish rough diamonds for use by Tiffany. These facilities total approximately 280,000 square feet and the lease expiration dates range from 20212019 to 2062.
Item 3. Legal Proceedings.
Arbitration Award. On December 21, 2013, an award was issued (the "Arbitration Award") in favor of The Swatch Group Ltd. ("Swatch") and its wholly-owned subsidiary Tiffany Watch Co. ("Watch Company"; Swatch and Watch Company, together,As the "Swatch Parties") in an arbitration proceeding (the "Arbitration") betweenRegistrant has previously disclosed, the Registrant and its wholly-ownedwholly owned subsidiaries, Tiffany and Company and Tiffany (NJ) Inc. (the Registrant and such subsidiaries, together, the "Tiffany Parties") andtook action in the Swatch Parties.
The Arbitration was initiated in June 2011 by the Swatch Parties, who sought damages for alleged breach of agreements entered into by and among the Swatch Parties and the Tiffany Parties in December 2007 (the "Agreements"). The Agreements pertained to the development and commercialization of a watch business and, among other things, contained various licensing and governance provisions and approval requirements relating to business, marketing and branding plans and provisions allocating profits relating to salescourts of the watch business betweenNetherlands to annul the Swatch Parties and the Tiffany Parties.
In general terms, the Swatch Parties alleged that the Tiffany Parties breached the Agreements by obstructing and delaying development of Watch Company’s business and otherwise failing to proceedarbitration award issued on December 21, 2013 (the “Arbitration Award”) in good faith. The Swatch Parties sought damages based on alternate theories ranging from CHF 73.0 million (or approximately $72.0 million at January 31, 2016) (based on its alleged wasted investment) to CHF 3.8 billion (or approximately $3.7 billion at January 31, 2016) (calculated based on alleged future lost profitsfavor of the Swatch PartiesGroup Ltd. (“Swatch”) and their affiliates overits wholly owned subsidiary Tiffany Watch Co. (together with Swatch, the entire term of the Agreements)“Swatch Parties”).
The Registrant believes that the claims of the Swatch Parties are without merit. In the Arbitration, the Tiffany Parties defended against the Swatch Parties’ claims vigorously, disputing both the merits of the claims and the calculation of the alleged damages. The Tiffany Parties also asserted counterclaims for damages attributable to breach by the Swatch Parties, stemming from the Swatch Parties’ September 12, 2011 public issuance of a Notice of Termination purporting to terminate the Agreements due to alleged material breach by the Tiffany Parties, and for termination due to such breach. In general terms, the Tiffany Parties alleged that the Swatch Parties did not have grounds for termination, failed to meet the high standard for proving material breach set forth in the Agreements and failed to provide appropriate management, distribution, marketing and other resources for TIFFANY & CO. brand watches and to honor their contractual obligations to the Tiffany Parties regarding brand management. The Tiffany Parties’ counterclaims sought damages based on alternate theories ranging from CHF 120.0 million (or approximately $118.0 million at January 31, 2016) (based on its wasted investment) to approximately
CHF 540.0 million (or approximately $533.0 million at January 31, 2016) (calculated based on alleged future lost profits of the Tiffany Parties).
The Arbitration hearingAward was held in October 2012 beforeissued by a three-member arbitral panel convened in the Netherlands pursuant to the Arbitration Rules of the Netherlands Arbitration Institute, (the "Rules"), and reflected the Arbitration record was completed in February 2013.
Under the terms of the Arbitration Award,panel’s ruling with respect to certain claims and at the request ofcounterclaims among the Swatch Parties and the Tiffany Parties under the Agreements were deemed terminated. The Arbitration Award stated thatagreements entered into by and among the effective date of termination was March 1, 2013.Swatch Parties and the Tiffany Parties in December 2007 (the “Agreements”). Pursuant to the Arbitration Award, the Tiffany Parties were ordered to paypaid the Swatch Parties damages of CHF 402.7 million (the "Arbitration Damages"), as well as interest from June 30, 2012 to the date of payment, two-thirds of the cost of the Arbitration and two-thirds of the Swatch Parties' legal fees, expenses and costs. These amounts were paid in full in January 2014.
Prior to the ruling of the arbitral panel, no accrual was established in the Company's consolidated financial statements because management did not believe the likelihood of an award of damages to the Swatch Parties was probable. As a result of the ruling,2014, and, in the fourth quarter of 2013, the Company recorded a charge of $480.2 million, which included the damages, interest, and other costs associated with the ruling and which was classified as Arbitration award expense in the consolidated statement of earnings.
On March 31, 2014, the Tiffany Parties took action in4, 2015, the District Court of Amsterdam issued a decision in respect of the Tiffany Parties’ petition to annul the Arbitration Award. Generally, arbitration awards are final; however, Dutch law does provide for limited grounds onUnder the District Court’s decision, which arbitral awards may be set aside. The Tiffany Parties petitioned to annul the Arbitration Award on these statutory grounds. These grounds include, for example, that the arbitral tribunal violated its mandate by changing the express terms of the Agreements.
A three-judge panel presided over the annulment hearing on January 19, 2015, and, on March 4, 2015, issued a decisionwas in favor of the Tiffany Parties. Under this decision,Parties, the Arbitration Award iswas set aside. However, the Swatch Parties have takentook action in the Dutch courts to appeal the District Court's decision, and the Arbitration Award may ultimately be upheld by the courtsa three-judge panel of the Netherlands. Registrant’s management expects that the annulment action will not be ultimately resolved until, at the earliest, Registrant's fiscal year ending January 31, 2017.
If the Arbitration Award is finally annulled, management anticipates that the claims and counterclaims that formed the basisAppellate Court of the Arbitration, and potentially additional claims and counterclaims, will be litigatedAmsterdam issued its decision on April 25, 2017, finding in court proceedings between and amongfavor of the Swatch Parties and the Tiffany Parties. The identity and location of the courts that would hear such actions have not been determined at this time. Management also anticipates thatordering the Tiffany Parties would seekto reimburse the Swatch Parties a de-minimis amount for their legal costs. The Tiffany Parties subsequently took action to appeal the decision of the Appellate Court to the Supreme Court of the Netherlands, and the Supreme Court issued its decision on November 23, 2018, dismissing the appeal and ordering the Tiffany Parties to reimburse the Swatch Parties a de-minimis amount for their legal costs. As the Supreme Court is the highest court of appeal in the Netherlands, the Tiffany Parties have exhausted all rights of appeal with respect to the Appellate Court's decision and, as a consequence, the Tiffany Parties' annulment action, and their related claim for the return of the amounts paid by them underArbitration Damages and related costs, have been ultimately resolved and the Arbitration Award in court proceedings.has been rendered final.
In any litigation regarding the claims and counterclaims that formed the basis of the arbitration, issues of liability and damages will be pled and determined without regard to the findings of the arbitral panel. As such, it is possible that the court could find that the Swatch Parties were in material breach of their obligations under the Agreements, that the Tiffany Parties were in material breach of their obligations under the Agreements or that neither the Swatch Parties nor the Tiffany Parties were in material breach. If the Swatch Parties’ claims of liability were accepted by the court, the damages award cannot be reasonably estimated at this time, but could exceed the Arbitration Damages and could have a material adverse effect on the Registrant’s consolidated financial statements or liquidity.
Although the District Court has issued a decision in favor of the Tiffany Parties, an amount will only be recorded for any return of amounts paid under the Arbitration Award when the District’s Court decision is final (i.e., after all rights of appeal have been exhausted) and return of these amounts is deemed probable
and collection is reasonably assured. As such, the Company has not recorded any amounts in its consolidated financial statements related to the District Court’s decision.
Additionally, management hasManagement had not established any accrual in the Company's consolidated financial statements for the year ended January 31, 2016 related to the annulment process or any potential subsequent litigation because it doesdid not believe that the final annulment of the Arbitration Award and a subsequent award of damages exceeding the Arbitration Damages iswas probable.
Royalties payable Therefore, the Supreme Court's decision has no impact on the Company's financial position, results of operations, or cash flows, other than with respect to the Tiffany Parties by Watch Company under the Agreements were not significant in any year and watches manufactured by Watch Company and sold in TIFFANY & CO. stores constituted 1% of worldwide net sales in 2013.
In April 2015, management introduced new TIFFANY & CO. brand watches, which have been designed, produced, marketed and distributed through certain of the Company's Swiss subsidiaries. The effective development and growth of this watch business has required and will continue to require additional resources and involves risks and uncertainties.de-minimis reimbursement noted above.
Other Litigation Matters. The Company is from time to time involved in routine litigation incidental to the conduct of its business, including proceedings to protect its trademark rights, litigation with parties claiming infringement of patents and other intellectual property rights by the Company, litigation instituted by persons alleged to have been injured upon premises under the Company's control and litigation with present and former employees and customers. Although litigation with present and former employees is routine and incidental to the conduct of the Company's business, as well as for any business employing significant numbers of employees, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages for actions such as those claiming discrimination on the basis of age, gender, race, religion, disability or other legally-protected characteristic or for termination of employment that is wrongful or in violation of implied contracts. However, the Company believes that all such litigation currently pending to which it is a party or to which its properties are subject will be resolved without any material adverse effect on the Company's financial position, earnings or cash flows.
Gain Contingency. On February 14, 2013, Tiffany and Company and Tiffany (NJ) LLC (collectively, the "Tiffany plaintiffs") initiated a lawsuit against Costco Wholesale Corp. ("Costco") for trademark infringement, false designation of origin and unfair competition, trademark dilution and trademark counterfeiting (the "Costco Litigation"). The Tiffany plaintiffs sought injunctive relief, monetary recovery and statutory damages on account of Costco's use of "Tiffany" on signs in the jewelry cases at Costco stores used to describe certain diamond engagement rings that were not manufactured by Tiffany. Costco filed a counterclaim arguing that the TIFFANY trademark was a generic term for multi-pronged ring settings and seeking to have the trademark invalidated, modified or partially canceled in that respect. On September 8, 2015, the U.S. District Court for the Southern District of New York (the "Court") granted the Tiffany plaintiffs' motion for summary judgment of liability in its entirety, dismissing Costco's genericism counterclaim and finding that Costco was liable for trademark infringement, trademark counterfeiting and unfair competition under New York law in its use of "Tiffany" on the above-referenced signs. On September 29, 2016, a civil jury rendered its verdict, finding that Costco's profits on the sale of the infringing rings should be awarded at $5.5 million, and further finding that an award of punitive damages was warranted. On October 5, 2016, the jury awarded $8.25 million in punitive damages. The aggregate award of $13.75 million was not final, as it was subject to post-verdict motion practice and ultimately to adjustment by the Court. On August 14, 2017, the Court issued its ruling, finding that the Tiffany plaintiffs are entitled to recover (i) $11.1 million in respect of Costco's profits on the sale of the infringing rings (which amount is three times the amount of such profits, as determined by the Court), (ii) prejudgment interest on such amount (calculated at the applicable statutory rate) from February 15, 2013 through August 14, 2017, (iii) an additional $8.25 million in punitive damages, and (iv) Tiffany's reasonable attorneys' fees, and, on August 24, 2017, the Court entered judgment in the amount of $21.0 million in favor of the Tiffany plaintiffs (reflecting items (i) through (iii) above). On February 7, 2019, the Court awarded the Tiffany plaintiffs $5.9 million in respect of the aforementioned attorneys' fees and costs, bringing the total judgment to $26.9 million. The Court has denied a motion made by Costco for a new trial; however, Costco has also filed an appeal from the judgment, which is pending before the Second Circuit Court of Appeals. As the Tiffany plaintiffs may not enforce the Court's judgment during the appeals process, the Company has not recorded any amount in its consolidated financial
statements related to this gain contingency as of January 31, 2019. The Company expects that this matter will not ultimately be resolved until, at the earliest, a future date during the Company's fiscal year ending January 31, 2020.
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
In calculating the aggregate market value of the voting stock held by non-affiliates of the Company shown on the cover page of this Annual Report on Form 10-K, 823,651955,407 shares of Common Stock beneficially owned by the executive officers and directors of the Company (exclusive of shares which may be acquired on exercise of employee stock options) were excluded, on the assumption that certain of those persons could be considered "affiliates" under the provisions of Rule 405 promulgated under the Securities Act of 1933.1933, as amended.
Performance of Company Stock
The Registrant'sCompany's Common Stock is traded on the New York Stock Exchange. In consolidated trading,Exchange under the high and low selling prices per share for shares of such Common Stock for 2015 were:
|
| | | | |
| | High |
| Low |
|
| First Quarter | $ 90.83 |
| $ 82.64 |
|
| Second Quarter | $ 96.33 |
| $ 84.83 |
|
| Third Quarter | $ 96.43 |
| $ 74.28 |
|
| Fourth Quarter | $ 84.19 |
| $ 59.73 |
|
symbol "TIF". On March 23, 2016,18, 2019, the high and low selling prices quoted on such exchange were $72.62$97.46 and $71.80.$96.30. On March 23, 2016,18, 2019, there were 14,64013,442 holders of record of the Registrant'sCompany's Common Stock.
In consolidated trading, the high and low selling prices per share for shares of such Common Stock for 2014 were:
|
| | | | |
| | High |
| Low |
|
| First Quarter | $ 94.88 |
| $ 80.38 |
|
| Second Quarter | $ 103.38 |
| $ 85.75 |
|
| Third Quarter | $ 105.66 |
| $ 85.69 |
|
| Fourth Quarter | $ 110.60 |
| $ 85.15 |
|
The following graph compares changes in the cumulative total shareholder return on the Company’s stockCompany's Common Stock for the previous five fiscal years to returns for the same five-year period on (i) the Standard & Poor’sPoor's 500 Stock Index and (ii) the Standard & Poor’sPoor's 500 Consumer Discretionary Index. Cumulative shareholder return is defined as changes in the closing price of the stock on the New York Stock Exchange,and such indices, plus the reinvestment of any dividends paid on the stock.paid. The graph assumes an investment of $100 on January 31, 20112014 in the Company's common stockCommon Stock and in each of the two indices, as well as the reinvestment of any subsequent dividends.
Total returns are based on market capitalization; indices are weighted at the beginning of each period for which a return is indicated. The stock performance shown in the graph is not intended to forecast or to be indicative of future performance.
| | | | 1/31/11 |
| 1/31/12 |
| 1/31/13 |
| 1/31/14 |
| 1/31/15 |
| 1/31/16 |
| 1/31/14 |
| 1/31/15 |
| 1/31/16 |
| 1/31/17 |
| 1/31/18 |
| 1/31/19 |
|
| Tiffany & Co. | $ 100.00 |
| $ 111.62 |
| $ 117.47 |
| $ 151.22 |
| $ 159.91 |
| $ 120.09 |
| $ 100.00 |
| $ 105.72 |
| $ 79.39 |
| $ 100.36 |
| $ 138.86 |
| $ 117.92 |
|
| S&P 500 Stock Index | 100.00 |
| 104.22 |
| 121.71 |
| 147.89 |
| 168.93 |
| 167.81 |
| 100.00 |
| 114.22 |
| 113.46 |
| 136.20 |
| 172.17 |
| 168.19 |
|
| S&P 500 Consumer Discretionary Index | 100.00 |
| 113.15 |
| 139.92 |
| 178.22 |
| 201.41 |
| 217.06 |
| 100.00 |
| 113.01 |
| 121.80 |
| 141.86 |
| 183.00 |
| 186.14 |
|
Dividends
It is the Company's policy to pay a quarterly dividend on its Common Stock, subject to declaration by its Board of Directors. In 2014,2017, a dividend of $0.34$0.45 per share of Common Stock was paid on April 10, 2014.2017. On May 22, 2014,25, 2017, the Company announced a 12%an 11% increase in its regular quarterly dividend rate to a new rate of $0.38$0.50 per share of Common Stock, which was paid on July 10, 2014,2017, October 10, 20142017 and January 12, 2015.10, 2018.
In 2015, aA dividend of $0.38$0.50 per share of Common Stock was paid on April 10, 2015.2018. On May 28, 2015,24, 2018, the Company announced a 5%10% increase in its regular quarterly dividend rate to a new rate of $0.40$0.55 per share of Common Stock, which was paid on July 10, 2015,2018, October 13, 201510, 2018 and January 11, 2016.10, 2019.
Issuer Purchases of Equity Securities
In March 2014,May 2018, the Company's Board of Directors approved a share repurchase program ("2014 Program") which authorized the Company to repurchase up to $300.0 million of its Common Stock through open market transactions. The program had an expiration date of March 31, 2017, but was terminated in January 2016 in connection with the authorization of a new program with increased repurchase capacity (as described in more detail below). Approximately $58.6 million remained available for repurchase under the 2014 Program at the time of its termination.
In January 2016, the Company'sRegistrant's Board of Directors approved a new share repurchase program ("2016(the "2018 Program"). The 2018 Program, which became effective June 1, 2018 and expires on January 31, 2022, authorizes the Company to repurchase up to $500.0 million$1.0 billion of its Common Stock through open market transactions, block trades including through Rule 10b5-1 plans and one or more accelerated share repurchase ("ASR") or other structured repurchase transactions, and/or privately negotiated transactions and terminated the 2014 Program.transactions. Purchases under the 2014 Program were,this program are discretionary and purchases under the 2016 Program have been, executed under a written plan for trading securities as specified under Rule 10b5-1 promulgated under the Securities and Exchange Act of 1934, as amended, the terms of which are within the Company's discretion, subjectwill be made from time to applicable securities laws, and aretime based on market conditions and the Company's liquidity needs. The Company may fund repurchases under the 2018 Program from existing cash at such time or from proceeds of any existing borrowing facilities at such time and/or the issuance of new debt. The 2018 Program replaced the Company's previous share repurchase program approved in January 2016 Program will expire on January 31, 2019. Approximately $494.0(the "2016 Program"), under which the Company was authorized to repurchase up to $500.0 million of its Common Stock. At the time of termination, $154.9 million remained available for repurchase under the 2016 Program at January 31, 2016.Program.
The following table contains the Company's purchases of equity securities in the fourth quarter of 2015:2018:
|
| | | | | | | | |
| Period | (a) Total Number of Shares (or Units) Purchased |
| (b) Average Price Paid per Share (or Unit) |
| (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
| (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (in millions) |
|
| November 1, 2015 to November 30, 2015 | 362,224 |
| $ 77.72 |
| 362,224 |
| $ 128.6 |
|
| December 1, 2015 to December 31, 2015 | 459,573 |
| $ 76.17 |
| 459,573 |
| $ 93.6 |
|
January 1, 2016 to January 31, 2016 a | 605,919 |
| $ 67.68 |
| 605,919 |
| $ 494.0 |
|
| TOTAL | 1,427,716 |
| $ 72.96 |
| 1,427,716 |
| $ 494.0 |
|
|
| | | | | | | | |
| Period | (a) Total Number of Shares (or Units) Purchased |
| (b) Average Price Paid per Share (or Unit) |
| (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
| (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (in millions) |
|
| November 1, 2018 to November 30, 2018 | 262,014 |
| $ 110.96 |
| 262,014 |
| $ 650.0 |
|
| December 1, 2018 to December 31, 2018 | — |
| $ — |
| — |
| $ 650.0 |
|
| January 1, 2019 to January 31, 2019 | 169,239 |
| $ 88.63 |
| 169,239 |
| $ 635.0 |
|
| TOTAL | 431,253 |
| $ 102.20 |
| 431,253 |
| $ 635.0 |
|
| |
a | Shares were repurchased under the 2014 Program through January 21, 2016. Beginning on January 22, 2016, shares were repurchased under the 2016 Program. |
Item 6. Selected Financial Data.
The following table sets forth selected financial data, certain of which have been derived from the Company's consolidated financial statements for fiscal years 2011-2015,2014-2018, which ended on January 31 of the following calendar year:
| | | (in millions, except per share amounts, percentages, ratios, stores and employees) | 2015 a |
| 2014 b |
| 2013 c |
| 2012 |
| 2011 d |
| 2018 b |
| 2017 c |
| 2016 d |
| 2015 e |
| 2014 f |
|
| EARNINGS DATA | | | | |
| Net sales | $ | 4,104.9 |
| $ | 4,249.9 |
| $ | 4,031.1 |
| $ | 3,794.2 |
| $ | 3,642.9 |
| $ | 4,442.1 |
| $ | 4,169.8 |
| $ | 4,001.8 |
| $ | 4,104.9 |
| $ | 4,249.9 |
|
| Gross profit | 2,491.3 |
| 2,537.2 |
| 2,340.4 |
| 2,163.3 |
| 2,151.2 |
| |
| Selling, general & administrative expenses | 1,731.2 |
| 1,645.8 |
| 1,555.9 |
| 1,466.1 |
| 1,442.7 |
| |
Gross profit a | | 2,811.0 |
| 2,610.7 |
| 2,499.0 |
| 2,505.2 |
| 2,544.3 |
|
Selling, general & administrative expenses a | | 2,020.7 |
| 1,801.3 |
| 1,752.6 |
| 1,706.1 |
| 1,632.8 |
|
Earnings from operations a | | 790.3 |
| 809.4 |
| 746.4 |
| 799.1 |
| 911.5 |
|
| Net earnings | 463.9 |
| 484.2 |
| 181.4 |
| 416.2 |
| 439.2 |
| 586.4 |
| 370.1 |
| 446.1 |
| 463.9 |
| 484.2 |
|
| Net earnings per diluted share | 3.59 |
| 3.73 |
| 1.41 |
| 3.25 |
| 3.40 |
| 4.75 |
| 2.96 |
| 3.55 |
| 3.59 |
| 3.73 |
|
| Weighted-average number of diluted common shares | 129.1 |
| 129.9 |
| 128.9 |
| 127.9 |
| 129.1 |
| 123.5 |
| 125.1 |
| 125.5 |
| 129.1 |
| 129.9 |
|
| BALANCE SHEET AND CASH FLOW DATA | | | | |
| Total assets | $ | 5,129.7 |
| $ | 5,180.6 |
| $ | 4,752.4 |
| $ | 4,630.9 |
| $ | 4,159.0 |
| $ | 5,333.0 |
| $ | 5,468.1 |
| $ | 5,097.6 |
| $ | 5,121.6 |
| $ | 5,171.8 |
|
| Cash and cash equivalents | 843.6 |
| 730.0 |
| 345.8 |
| 504.8 |
| 434.0 |
| 792.6 |
| 970.7 |
| 928.0 |
| 843.6 |
| 730.0 |
|
| Inventories, net | 2,225.0 |
| 2,362.1 |
| 2,326.6 |
| 2,234.3 |
| 2,073.2 |
| 2,428.0 |
| 2,253.5 |
| 2,157.6 |
| 2,225.0 |
| 2,362.1 |
|
| Short-term borrowings and long-term debt (including current portion) | 1,103.9 |
| 1,116.5 |
| 1,003.5 |
| 959.3 |
| 712.1 |
| 996.8 |
| 1,003.5 |
| 1,107.1 |
| 1,095.8 |
| 1,107.8 |
|
| Stockholders' equity | 2,929.5 |
| 2,850.7 |
| 2,734.0 |
| 2,611.3 |
| 2,348.9 |
| 3,130.9 |
| 3,248.2 |
| 3,028.4 |
| 2,929.5 |
| 2,850.7 |
|
| Working capital * | 2,778.6 |
| 2,850.8 |
| 2,431.1 |
| 2,485.5 |
| 2,180.0 |
| |
| Working capital | | 3,041.4 |
| 3,258.5 |
| 2,940.8 |
| 2,778.5 |
| 2,850.8 |
|
| Cash flows from operating activities | 813.6 |
| 615.1 |
| 154.7 |
| 328.3 |
| 210.6 |
| 531.8 |
| 932.2 |
| 705.7 |
| 817.4 |
| 633.5 |
|
| Capital expenditures | 252.7 |
| 247.4 |
| 221.4 |
| 219.5 |
| 239.4 |
| 282.1 |
| 239.3 |
| 222.8 |
| 252.7 |
| 247.4 |
|
| Stockholders' equity per share | 23.10 |
| 22.04 |
| 21.31 |
| 20.57 |
| 18.54 |
| 25.77 |
| 26.10 |
| 24.33 |
| 23.10 |
| 22.04 |
|
| Cash dividends paid per share | 1.58 |
| 1.48 |
| 1.34 |
| 1.25 |
| 1.12 |
| 2.15 |
| 1.95 |
| 1.75 |
| 1.58 |
| 1.48 |
|
| RATIO ANALYSIS AND OTHER DATA | | | | |
| As a percentage of net sales: | | | | |
| Gross profit | 60.7 | % | 59.7 | % | 58.1 | % | 57.0 | % | 59.0 | % | 63.3 | % | 62.6 | % | 62.4 | % | 61.0 | % | 59.9 | % |
| Selling, general & administrative expenses | 42.2 | % | 38.7 | % | 38.6 | % | 38.6 | % | 39.6 | % | 45.5 | % | 43.2 | % | 43.8 | % | 41.6 | % | 38.4 | % |
| Earnings from operations | 18.5 | % | 21.0 | % | 7.5 | % | 18.4 | % | 19.4 | % | 17.8 | % | 19.4 | % | 18.7 | % | 19.5 | % | 21.4 | % |
| Net earnings | 11.3 | % | 11.4 | % | 4.5 | % | 11.0 | % | 12.1 | % | 13.2 | % | 8.9 | % | 11.1 | % | 11.3 | % | 11.4 | % |
| Capital expenditures | 6.2 | % | 5.8 | % | 5.5 | % | 5.8 | % | 6.6 | % | 6.4 | % | 5.7 | % | 5.6 | % | 6.2 | % | 5.8 | % |
| Return on average assets | 9.0 | % | 9.7 | % | 3.9 | % | 9.5 | % | 11.1 | % | 10.9 | % | 7.0 | % | 8.7 | % | 9.0 | % | 9.8 | % |
| Return on average stockholders' equity | 16.1 | % | 17.3 | % | 6.8 | % | 16.8 | % | 19.4 | % | 18.4 | % | 11.8 | % | 15.0 | % | 16.1 | % | 17.3 | % |
| Total debt-to-equity ratio | 37.7 | % | 39.2 | % | 36.7 | % | 36.7 | % | 30.3 | % | 31.8 | % | 30.9 | % | 36.6 | % | 37.4 | % | 38.9 | % |
| Dividends as a percentage of net earnings | 43.8 | % | 39.5 | % | 93.9 | % | 38.1 | % | 32.5 | % | 45.0 | % | 65.5 | % | 49.0 | % | 43.8 | % | 39.5 | % |
| Company-operated TIFFANY & CO. stores | 307 |
| 295 |
| 289 |
| 275 |
| 247 |
| 321 |
| 315 |
| 313 |
| 307 |
| 295 |
|
| Number of employees | 12,200 |
| 12,000 |
| 10,600 |
| 9,900 |
| 9,800 |
| 14,200 |
| 13,100 |
| 11,900 |
| 12,200 |
| 12,000 |
|
* The Company adopted ASU No. 2015-17 – Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes retrospectively as of January 31, 2016. Accordingly, current deferred taxes were reclassified to noncurrent in each of the years presented. See "Item 8. Financial Statements and Supplementary Data - Note B - Summary of Significant Accounting Policies" for additional information.
NOTES TO SELECTED FINANCIAL DATA
| |
| a. | In connection with the implementation of ASU 2017-07 - Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, effective February 1, 2018 (see "Item 8. Financial Statements and Supplementary Data - Note B. Summary of Significant Accounting Policies"), the non-service cost components of net periodic benefit cost have been reclassified on the consolidated statements of earnings from Cost of sales and from Selling, general and administrative expenses to Other expense, net for fiscal years 2014 through 2017. Those reclassifications had no impact on Net earnings, but increased Earnings from operations by: (i) $14.9 million (with $6.0 million reclassified from Cost of sales and $8.9 million reclassified from SG&A expenses) for 2017; (ii) $25.2 million (with $8.7 million reclassified from Cost of sales and $16.5 million reclassified from SG&A expenses) for 2016; (iii) $39.0 million (with $13.9 million reclassified from Cost of sales and $25.1 million reclassified from SG&A expenses) for 2015; and (iv) $20.1 million (with $7.1 million reclassified from Cost of sales and $13.0 million reclassified from SG&A expenses) for 2014. |
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| b. | Financial information and ratios for 2018 reflect a lower effective income tax rate, primarily resulting from the 2017 U.S. Tax Cuts and Jobs Act. See "Item 8. Financial Statements and Supplementary Data - Note N. Income Taxes" for additional information. |
| |
| c. | Financial information and ratios for 2017 include $146.2 million, or $1.17 per diluted share, of net tax expense related to the enactment of the 2017 U.S. Tax Cuts and Jobs Act. See "Item 8. Financial Statements and Supplementary Data - Note N. Income Taxes" for additional information. |
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| d. | Financial information and ratios for 2016 include the following amounts, totaling $38.0 million of pre-tax expense ($24.0 million after tax expense, or $0.19 per diluted share): |
$25.4 million of pre-tax expense ($16.0 million after tax expense, or $0.13 per diluted share) associated with an asset impairment charge related to software costs capitalized in connection with the development of a finished goods inventory management and merchandising information system. See "Item 8. Financial Statements and Supplementary Data - Note B. Summary of Significant Accounting Policies" and "Note E. Property, Plant and Equipment" for additional information; and
$12.6 million of pre-tax expense ($8.0 million after tax expense, or $0.06 per diluted share) associated with impairment charges related to financing arrangements with diamond mining and exploration companies. See "Item 8. Financial Statements and Supplementary Data - Note B. Summary of Significant Accounting Policies" for additional information.
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| e. | Financial information and ratios for 2015 include the following amounts, totaling $46.7 million of net pre-tax expense ($29.9 million net after tax expense, or $0.24 per diluted share): |
$37.9 million of net pre-tax expense ($24.3 million net after tax expense, or $0.19 per diluted share) associated with impairment charges related to a financing arrangement with Koidu Limited. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" for additional information;Limited; and
$8.8 million of net pre-tax expense ($5.6 million net after tax expense, or $0.05$0.05 per diluted share) associated with severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations willwould be recovered.
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b.f. | Financial information and ratios for 2014 include $93.8 million of net pre-tax expense ($60.9 million net after tax expense, or $0.47 per diluted share) associated with the redemption of $400.0 million in aggregate principal amount of certain senior notes prior to their scheduled maturities. See "Item 8. Financial Statements and Supplementary Data - Note G - Debt" for additional information. |
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c. | Financial information and ratios for 2013 include the following amounts, totaling $482.1 million of net pre-tax expense ($299.2 million net after-tax expense, or $2.32 per diluted share): |
$480.2 million pre-tax expense associated with the Swatch arbitration award and $7.5 million pre-tax income associated with a foreign currency transaction gain on this expense. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" for additional information regarding the arbitration proceeding; and
$9.4 million pre-tax expense associated with severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations will be recovered.
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d. | Financial information and ratios for 2011 include $42.7 million of net pre-tax expense ($26.0 million net after-tax expense, or $0.20 per diluted share) associated with the relocation of Tiffany's New York headquarters staff to a single location. This expense is primarily related to the fair value of the remaining non-cancelable lease obligations reduced by the estimated sublease rental income as well as the acceleration of the useful lives of certain property and equipment, incremental rent during the transition period and lease termination payments. |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes. All references to years relate to fiscal years which ended on January 31 of the following calendar year.
KEY STRATEGIESSTRATEGIC PRIORITIES
The Company's key strategies are:strategic priorities are to:
To enhance customer awareness of the TIFFANY & CO. trademark (the “Brand”), its heritage, its products and its association with quality and luxury.Amplify an evolved brand message.
The Brand is the single most important asset of Tiffany and, indirectly, of the Company. Management intends to continue toincreasingly invest in and evolve marketing and public relations programs through a variety of media designed to build awareness of the Brand, its heritage and its products, as well as to enhance the Brand’sBrand's association among consumers with quality and luxury. Management monitors these efforts and the strength of the Brand through market research.luxury by consumers.
To maintain an activeRenew the Company's product development program.offerings and enhance in-store presentations.
The Company's product development strategy is to introduceaccelerate the introduction of new design collections, periodically andprimarily in jewelry, but also in non-jewelry products, and/or expand certain existing collections annually, bothall of which are intended to appeal to the Company’s existing customer base as well as toand new customers. The Company is also investing in the watch category, which it deems appropriate for the Brand and which presents an incremental long-term growth opportunity.
To enhance the customer experience through engaging service and store environments.
To ensure a superior shopping experience, the Company employs highly-qualified sales and customer service professionals, focuses on enhancing sales and product training programs, and is investing in enhancing its information systems for customer relationship management. The Company also focusesfocused on enhancing the design of its stores, as well as the creative visual presentation of its merchandise, to provide an engaging luxury experience in both its new and existing stores.
To expand and optimize its global distribution base.Deliver an exciting omnichannel customer experience.
Management intends to continue to expand and optimize its global store base by evaluating potential markets for new TIFFANY & CO. stores, as well as through the renovation, relocation, or in certain cases, the closureclosing of existing stores. Management will also continue to evaluatepursue opportunities forto grow sales through its e-commerce websites and utilize the growthwebsites to drive store traffic. In addition, the Company employs highly qualified sales and customer service professionals and is focused on developing effective omnichannel relationships with its customers.
Strengthen the Company's competitive position and lead in key markets.
The global jewelry industry is competitively fragmented. While the Company enjoys a strong reputation and large customer base, it encounters significant competition in all product categories and geographies. By focusing on enhanced marketing communications, product development and optimization of its e-commerce websites. Management recognizes that over-saturation of any market could diminishstore base and digital capabilities, the distinctive appeal of the Brand, but believes that there are a number of potential worldwide locations remaining that meet financial and Brand requirements.Company's objective is to be an industry leader in key markets.
To maintain substantial control over product supply through direct diamond sourcing and internal jewelry manufacturing.Cultivate a more efficient operating model.
The Company is focused on improving its business operations through new systems, more effective processes and cost restraint, to drive margin growth. This includes realizing greater efficiencies in its product supply chain and other operations, and enhancing its global procurement capabilities. The Company has developed a substantial product supply infrastructure related tofor the procurement and processing of diamonds and to the manufacturing of jewelry. This infrastructure is intended to ensure adequate product supply and favorable product costs while maintainingadhering to the Company's
quality and ethical standards. The Company will continue to supplement its internal capabilities through its network of external suppliers.
ThroughInspire an aligned and agile organization to win.
The Company's success depends upon its people and their effective execution of the efforts above,Company's strategic priorities. The Company's management strives to motivate and develop employees with the core competencies and adaptability needed to achieve its objectives.
By pursuing these key strategic priorities, management is committed to the following long-term financial objectives:
To achieve sustainable sales growth.
Management's objective is to generate mid-single-digit percentage worldwide sales increases, primarily through comparable sales growth, as well as through modest store square footage growth.
To increase retail productivity and profitability.
Management is focused on increasing the frequency of store and website visits and the percentage of store and website visitors who make a purchase, as well as optimal utilization of store square footage, to grow sales and sales per square foot.
To achieve improved operating margins.margins, through both improved gross margins and efficient expense management.
Management's long-term objective is to improve operating margingross margins, including through gross margin improvement, which includes controlling product input costs, realizing greater efficiencies in its product supply chain and adjusting retail prices when appropriate. Additionally, management is focused on enhancing profitability by controllingefficient selling, general and administrative expenses, including by enhancing its global procurement capabilities,expense management, thereby generating sales leverage on fixed costs. These efforts are collectively intended to generate a higher rate of operating earnings growth relative to sales growth.
To increase store productivity.
Management is committed to growing salesgrowth, and management targets an improvement in operating margin of 50 basis points per square foot by increasing consumer traffic and by enhancingyear over the store environment and customer experience, increasing the percentage of store visitors who make a purchase.long term.
To improve inventory and other asset productivity and cash flow.
Management's long-term objective is to maintain inventory growth at a rate less than sales growth, with greater focus on efficiencies in product sourcing and manufacturing as well as optimizing store inventory levels, all of which is intended to contribute to improvements in cash flow and return on assets.
To maintain a capital structure that provides financial strength and flexibilitythe ability to pursueinvest in strategic initiatives, and allowswhile also allowing for the return of excess capital to shareholders.shareholders through dividends and share repurchases.
20152018 SUMMARY
Worldwide net sales increased 7% to $4.4 billion, reflecting sales growth in all reportable segments. Comparable sales increased 4% from the prior year. On a constant-exchange-rate basis (see "Non-GAAP Measures" below), worldwide net sales increased 2% due to growth in Europe, Japan6% and Asia-Pacific, whilecomparable sales in the Americas decreased modestly from the prior year; comparable store sales were approximately equal to the prior year. The increase in sales was attributed to price increases and a shift in sales mix toward higher-priced products while there were unit declines across most categories and regions.
As reported, worldwide net sales decreased 3% to $4.1 billion due to lower sales in all regions and product categories, which management attributed in part to the negative effect of currency translation and, in the Americas, to lower foreign tourist spending.increased 4%.
The Company added a net of 12six TIFFANY & CO. stores (opening 11four in Asia-Pacific, threetwo in the Americas and two in Europe, one in Japan and one in the Emerging Markets, while closing threetwo in the Americas, one in Asia-Pacific and one in Europe) which resulted in a 1% net increase in gross retail square footage. In addition, the Americas).Company relocated 10 existing stores.
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| • | The Company introduced its Tiffany Paper Flowers® jewelry collection and Tiffany True engagement rings and expanded its offerings within several existing jewelry collections and introduced its new TIFFANY & CO. brand watch collections. |
Excluding certain expensesEarnings from operations decreased $19.1 million, or 2% in 2015 and 2014 (see "Non-GAAP Measures" below), earnings2018 compared to the prior year. Earnings from operations as a percentage of net sales ("operating margin") decreased 1.3 percentage160 basis points, due to higher SG&A expenses and the resulting sales deleveraging of SG&A expenses,an increase in gross margin which was only
partlymore than offset by a higher gross margin. As reported, operating marginSelling, general, and administrative expense ratio, which included increased marketing and other strategic investment spending which management believes are necessary to support long-term sales growth.
The Company's effective income tax rate decreased 2.5 percentage points.to 21.1% in 2018 from 51.3%, or 32.1% on an adjusted basis in 2017 (see "Non-GAAP Measures").
Net earnings decreased 9% in 2015 excluding certain expenses recorded in 2015 and 2014 (see "Non-GAAP Measures" below). As reported, net earnings ofincreased to $463.9586.4 million, or $3.594.75 per diluted share, in 2018 from $370.1 million, or $2.96 per diluted share, in 2017. Net earnings in 2017 included a net charge of $146.2 million, or $1.17
per diluted share, related to the enactment of the 2017 U.S. Tax Cuts and Jobs Act (the "2017 Tax Act"). Excluding that net charge, net earnings were 4% below the prior year.
$516.3 million, or $4.13 per diluted share, in 2017 (see "Non-GAAP Measures").
Inventories, net decreasedincreased 6%8% as reported, or 4% when excluding the translation effect of the strengthening U.S. dollar.to $2.4 billion.
Cash flow from operating activities was $531.8 million in 2018, compared with $932.2 million in 2017. Free cash flow (see "Non-GAAP Measures" below)) was an inflow of $560.9249.7 million in 20152018, compared with $367.7692.9 million in 20142017.
The Company returned cashcapital to shareholders by continuing to paypaying regular quarterly dividends (which were increased 5% during the year10% effective July 2018 to $0.40$0.55 per quarter,share, or an annualized rate of $1.60$2.20 per share) and spending $220.4by repurchasing 3.5 million to repurchase 2.8 million shares of its Common Stock.Stock for $421.4 million.
RESULTS OF OPERATIONS
Non-GAAP Measures
The Company reports information in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). Internally, management also monitors and measures its performance using certain sales and earnings measures that include or exclude amounts, or are subject to adjustments that have the effect of including or excluding amounts, from the most directly comparable GAAP measure ("non-GAAP financial measures"). The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with useful supplemental information that will allow them to evaluate the Company's operating results using the same measures that management uses to monitor and measure its performance. The Company's management does not, nor does it suggest that investors should, consider 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. These non-GAAP financial measures presented here may not be comparable to similarly-titled measures used by other companies.
Net Sales. The Company's reported net sales reflect either a translation-related benefit from strengthening foreign currencies or a detriment from a strengthening U.S. dollar. Internally, management monitors and measures its sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating sales made outside the U.S. into U.S. dollars ("constant-exchange-rate basis"). Sales on a constant-exchange-rate basis are calculated by taking the current year's sales in local currencies and translating them into U.S. dollars using the prior year's foreign currency exchange rates. Management believes this constant-exchange-rate basis provides a more representativeuseful supplemental basis for the assessment of sales performance and provides betterof comparability between reporting periods. The following table reconciles the sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year:year.
| | | | 2015 | | 2014 | 2018 | | 2017 |
| | GAAP Reported |
| | Translation Effect |
| | Constant- Exchange- Rate Basis |
| | GAAP Reported |
| | Translation Effect |
| | Constant- Exchange- Rate Basis |
| GAAP Reported |
| | Translation Effect |
| | Constant- Exchange- Rate Basis |
| | GAAP Reported |
| | Translation Effect |
| | Constant- Exchange- Rate Basis |
|
| Net Sales: | | | | | | | | | | | | | | | | | | | | | | |
| Worldwide | (3 | )% | | (5 | )% | | 2 | % | | 5 | % | | (2 | )% | | 7 | % | 7 | % | | 1 | % | | 6 | % | | 4 | % | | — | % | | 4 | % |
| Americas | (4 | ) | | (2 | ) | | (2 | ) | | 6 |
| | — |
| | 6 |
| 5 |
| | — |
| | 5 |
| | 2 |
| | 1 |
| | 1 |
|
| Asia-Pacific | (2 | ) | | (5 | ) | | 3 |
| | 9 |
| | (1 | ) | | 10 |
| 13 |
| | — |
| | 13 |
| | 10 |
| | 2 |
| | 8 |
|
| Japan | (2 | ) | | (12 | ) | | 10 |
| | (4 | ) | | (8 | ) | | 4 |
| 8 |
| | 2 |
| | 6 |
| | (1 | ) | | (2 | ) | | 1 |
|
| Europe | (1 | ) | | (13 | ) | | 12 |
| | 8 |
| | — |
| | 8 |
| 3 |
| | 1 |
| | 2 |
| | 6 |
| | 3 |
| | 3 |
|
| Other | (13 | ) | | — |
| | (13 | ) | | 18 |
| | — |
| | 18 |
| (20 | ) | | — |
| | (20 | ) | | 26 |
| | — |
| | 26 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Comparable Store Sales: | | | | | | | | | | | | |
| Comparable Sales: | | | | | | | | | | | | |
| Worldwide | (6 | )% | | (6 | )% | | — | % | | 2 | % | | (2 | )% | | 4 | % | 4 | % | | — | % | | 4 | % | | — | % | | — | % | | — | % |
| Americas | (6 | ) | | (2 | ) | | (4 | ) | | 5 |
| | (1 | ) | | 6 |
| 5 |
| | — |
| | 5 |
| | 1 |
| | — |
| | 1 |
|
| Asia-Pacific | (5 | ) | | (5 | ) | | — |
| | 3 |
| | (1 | ) | | 4 |
| 5 |
| | — |
| | 5 |
| | (1 | ) | | 1 |
| | (2 | ) |
| Japan | (7 | ) | | (12 | ) | | 5 |
| | (7 | ) | | (8 | ) | | 1 |
| 7 |
| | 2 |
| | 5 |
| | (1 | ) | | (3 | ) | | 2 |
|
| Europe | (5 | ) | | (14 | ) | | 9 |
| | (1 | ) | | — |
| | (1 | ) | (2 | ) | | 1 |
| | (3 | ) | | — |
| | 2 |
| | (2 | ) |
| Other | (15 | ) | | — |
| | (15 | ) | | 8 |
| | — |
| | 8 |
| (15 | ) | | — |
| | (15 | ) | | 2 |
| | — |
| | 2 |
|
Comparable Store Sales. Comparable store
Beginning in the first quarter of 2018, the Company revised its definition of comparable sales (see "Comparable Sales" below) to include onlye-commerce and catalog sales, in addition to sales transacted in Company-operated stores open for more than 12 months. Sales for relocated stores are included in comparable store sales ifFor reference purposes, the relocation occurs within the same geographical market. Sales for a new store are not included in comparable store sales if that store resulted from a relocation 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 infollowing table reconciles the comparable store base.sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year for 2017:
|
| | | | | | | | |
| | 2017 As Previously Reported |
| | GAAP
Reported | | Translation
Effect | | Constant-
Exchange-
Rate Basis |
| Comparable Sales: | | | | | |
| Worldwide | — | % | | — | % | | — | % |
| Americas | 1 |
| | 1 |
| | — |
|
| Asia-Pacific | (1 | ) | | 1 |
| | (2 | ) |
| Japan | (1 | ) | | (3 | ) | | 2 |
|
| Europe | (2 | ) | | 2 |
| | (4 | ) |
| Other | 2 |
| | — |
| | 2 |
|
Statements of Earnings. Internally, management monitors and measures its earnings performance excluding certain items listed below. Management believes excluding such items presentsprovides a useful supplemental basis for the assessment of the Company's results on a more comparable basisrelative to the corresponding period in the prior year, thereby providing investors with an additional perspective to analyze the results of operations of the Company.year. The following tables reconcile certain GAAP amounts to non-GAAP amounts:
|
| | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | GAAP | | Impairment charges a | | Specific cost-reduction initiatives b | | Non-GAAP |
| Year Ended January 31, 2016 | | | | | | | |
| Selling, general and administrative expenses | $ | 1,731.2 |
| | $ | (37.9 | ) | | $ | (8.8 | ) | | $ | 1,684.5 |
|
| As a % of sales | 42.2 | % | | | | | | 41.0 | % |
| Earnings from operations | 760.1 |
| | 37.9 |
| | 8.8 |
| | 806.8 |
|
| As a % of sales | 18.5 | % | | | | | | 19.7 | % |
| Net earnings | 463.9 |
| | 24.3 |
| | 5.6 |
| | 493.8 |
|
| Diluted earnings per share | 3.59 |
| | 0.19 |
| | 0.05 |
| | 3.83 |
|
|
| | | | | | | | | | | |
| (in millions, except per share amounts) | GAAP | | Charges related to the 2017 Tax Act a | | Non-GAAP |
| Year Ended January 31, 2018 | | | | | |
| Provision for income taxes | $ | 390.4 |
| | $ | (146.2 | ) | | $ | 244.2 |
|
| Effective income tax rate | 51.3 | % | | (19.2 | )% | | 32.1 | % |
| Net earnings | 370.1 |
| | 146.2 |
| | 516.3 |
|
| Diluted earnings per share* | 2.96 |
| | 1.17 |
| | 4.13 |
|
| |
a | Expenses associated with impairment chargesNet expense recognized in 2017 related to a financing arrangement with Koidu Limited (see "Financing Arrangements with Diamond Miningthe estimated impact of the 2017 Tax Act. See "Provision for Income Taxes" and Exploration Companies")."Item 8. Financial Statements and Supplementary Data - Note N. Income Taxes" for additional information. |
|
| | | | | | | | | | | |
| (in millions, except per share amounts) | GAAP | | Impairment charges b | | Non-GAAP |
| Year Ended January 31, 2017 | | | | | |
| SG&A expenses | $ | 1,752.6 |
| | $ | (38.0 | ) | | $ | 1,714.6 |
|
| As a % of sales | 43.8 | % | | | | 42.8 | % |
| Earnings from operations | 746.4 |
| | 38.0 |
| | 784.4 |
|
| As a % of sales | 18.7 | % | | | | 19.6 | % |
Provision for income taxes c | 230.5 |
| | 14.0 |
| | 244.5 |
|
| Net earnings | 446.1 |
| | 24.0 |
| | 470.1 |
|
| Diluted earnings per share* | 3.55 |
| | 0.19 |
| | 3.75 |
|
| |
b | Expenses associated with specific cost-reduction initiatives which included severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations will be recovered.following: |
$25.4 million of pre-tax expense ($16.0 million after-tax expense, or $0.13 per diluted share) associated with an asset impairment charge related to software costs capitalized in connection with the development of |
| | | | | | | | | | | |
| (in millions, except per share amounts) | GAAP | | Debt extinguishment c | | Non-GAAP |
| Year Ended January 31, 2015 | | | | | |
| Loss on extinguishment of debt | $ | 93.8 |
| | $ | (93.8 | ) | | $ | — |
|
| Provision for income taxes | 253.4 |
| | 32.8 |
| | 286.2 |
|
| Net earnings | 484.2 |
| | 60.9 |
| | 545.1 |
|
| Diluted earnings per share | 3.73 |
| | 0.47 |
| | 4.20 |
|
a finished goods inventory management and merchandising information system (see "Information Systems Assessment"); and
$12.6 million of pre-tax expense ($8.0 million after-tax expense, or $0.06 per diluted share) associated with impairment charges related to financing arrangements with diamond mining and exploration companies (see "Financing Arrangements with Diamond Mining and Exploration Companies").
| |
c | Expenses associated withThe income tax effect resulting from the redemption of $400.0 millionadjustments has been calculated as both current and deferred tax benefit (expense), based upon the tax laws and statutory income tax rates applicable in aggregate principal amount of certain senior notes prior to their scheduled maturities (see "Loss on Extinguishment of Debt"). |
|
| | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | GAAP | | Arbitration award d | | Specific cost-reduction initiatives e | | Non-GAAP |
| Year Ended January 31, 2014 | | | | | | | |
| Selling, general and administrative expenses | $ | 1,555.9 |
| | $ | — |
| | $ | (9.4 | ) | | $ | 1,546.5 |
|
| Earnings from operations | 304.3 |
| | 480.2 |
| | 9.4 |
| | 793.9 |
|
| As a % of sales | 7.5 | % | | | | | | 19.7 | % |
| Other expense (income), net | (13.2 | ) | | 7.5 |
| | — |
| | (5.7 | ) |
| Provision for income taxes | 73.5 |
| | 179.3 |
| | 3.6 |
| | 256.4 |
|
| Effective tax rate | 28.8 | % | | | | | | 34.8 | % |
| Net earnings | 181.4 |
| | 293.4 |
| | 5.8 |
| | 480.6 |
|
| As a % of sales | 4.5 | % | | | | | | 11.9 | % |
| Diluted earnings per share | 1.41 |
| | 2.28 |
| | 0.04 |
| | 3.73 |
|
| |
d
| Amounts associated with the award issued in arbitration between the Swatch Group Ltd. and the Company. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" for further information. |
| |
e
| Expenses associated with specific cost-reduction initiatives which included severance related to staffing reductions and subleasing of certain office space for which only a portiontax jurisdiction(s) of the Company's future rent obligations will be recovered.underlying adjustment. |
*Amounts may not add due to rounding.
Free Cash Flow. Internally, management monitors its cash flow on a non-GAAP basis. Free cash flow is calculated by deducting capital expenditures from net cash provided by operating activities. The ability to generate free cash flow demonstrates how much cash the Company has available for discretionary and non-discretionary purposes after deduction of capital expenditures. The Company's operations require regular capital expenditures for the opening, renovation and expansion of stores and distribution and manufacturing facilities as well as ongoing investments in information technology. Management believes this provides a more representative assessment ofuseful supplemental basis for assessing the Company's operating cash flows. The following table reconciles GAAP net cash provided by operating activities to non-GAAP free cash flow:
|
| | | | | | |
| | Years Ended January 31, | |
(in millions) | 2016 |
| 2015 |
|
| Net cash provided by operating activities | $ | 813.6 |
| $ | 615.1 |
|
| Less: Capital expenditures | (252.7 | ) | (247.4 | ) |
| Free cash inflow | $ | 560.9 |
| $ | 367.7 |
|
|
| | | | | | | | | |
(in millions) | 2018 |
| 2017 |
| 2016 |
|
Net cash provided by operating activities a | $ | 531.8 |
| $ | 932.2 |
| $ | 705.7 |
|
Less: Capital expenditures a | (282.1 | ) | (239.3 | ) | (222.8 | ) |
| Free cash flow | $ | 249.7 |
| $ | 692.9 |
| $ | 482.9 |
|
| |
a | See "Liquidity and Capital Resources" below for further information on the Company's cash flows. |
Comparable Sales
Comparable sales include sales transacted in Company-operated stores open for more than 12 months. Sales from e-commerce sites are included in comparable sales for those sites that have been operating for more than 12 months. Sales for relocated stores are included in comparable sales if the relocation occurs within the same geographical market. In all markets, the results of a store in which the square footage has been expanded or reduced remain in the comparable sales base.
Net Sales
The Company generates sales through its retail, Internet, wholesale, business-to-business and catalog channels (see "Item 1. Business - Reportable Segments").
Net sales by segment were as follows:
| | | (in millions) | 2015 |
| | 2014 |
| | 2013 |
| | 2015 vs 2014 % Change |
| | 2014 vs 2013 % Change |
| | 2018 |
| % of Total Net Sales |
| | 2017 |
| % of Total Net Sales |
| | 2016 |
| % of Total Net Sales |
| | 2018 vs 2017 % Change in Net Sales |
| | 2017 vs 2016 % Change in Net Sales |
|
| Americas | $ | 1,947.0 |
| | $ | 2,033.5 |
| | $ | 1,926.9 |
| | (4 | )% | | 6 | % | | $ | 1,960.3 |
| 44 | % | | $ | 1,870.9 |
| 45 | % | | $ | 1,841.9 |
| 46 | % | | 5 | % | | 2 | % |
| Asia-Pacific | 1,003.1 |
| | 1,025.2 |
| | 944.7 |
| | (2 | ) | | 9 |
| | 1,239.0 |
| 28 |
| | 1,095.0 |
| 26 |
| | 999.1 |
| 25 |
| | 13 |
| | 10 |
|
| Japan | 541.3 |
| | 554.3 |
| | 578.6 |
| | (2 | ) | | (4 | ) | | 643.0 |
| 15 |
| | 596.3 |
| 14 |
| | 604.4 |
| 15 |
| | 8 |
| | (1 | ) |
| Europe | 505.7 |
| | 513.3 |
| | 476.2 |
| | (1 | ) | | 8 |
| | 504.4 |
| 11 |
| | 489.0 |
| 12 |
| | 462.5 |
| 12 |
| | 3 |
| | 6 |
|
| Other | 107.8 |
| | 123.6 |
| | 104.7 |
| | (13 | ) | | 18 |
| | 95.4 |
| 2 |
| | 118.6 |
| 3 |
| | 93.9 |
| 2 |
| | (20 | ) | | 26 |
|
| | $ | 4,104.9 |
| | $ | 4,249.9 |
| | $ | 4,031.1 |
| | (3 | )% | | 5 | % | | $ | 4,442.1 |
| | | $ | 4,169.8 |
| | | $ | 4,001.8 |
| | | 7 | % | | 4 | % |
Americas includes sales in 124 Company-operated TIFFANY & CO. stores in the United States, Canada and Latin America, as well as sales of TIFFANY & CO. products in certain of those markets through business-to-business, Internet, catalog and wholesale operations. Americas represented 47% of worldwide net sales in 2015 and 48% in both 2014 and 2013, while sales in the U.S. represented 88% of net sales in the Americas in 2015, 2014 and 2013.
Asia-Pacific includes sales in 81 Company-operated TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products in certain markets through Internet and wholesale operations. Asia-Pacific represented 24%, 24% and 23% of worldwide net sales in 2015, 2014 and 2013. Sales in Greater China represented more than half of Asia-Pacific's net sales in those same periods.
Japan includes sales in 56 Company-operated TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products through business-to-business, Internet and wholesale operations. Japan represented 13%, 13% and 14% of worldwide net sales in 2015, 2014 and 2013.
Europe includes sales in 41 Company-operated TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products in certain markets through the Internet. Europe represented 12% of worldwide net sales in 2015, 2014 and 2013. Sales in the United Kingdom ("U.K.") represent approximately 40% of European net sales.
Other consists of all non-reportable segments, including the Emerging Markets region, which consists of retail sales in five TIFFANY & CO. stores in the U.A.E. and wholesale sales of TIFFANY & CO. merchandise to independent distributors for resale in certain emerging markets (primarily in the Middle East). In addition, Other includes wholesale sales of diamonds obtained through bulk purchases that were subsequently deemed not suitable for the Company's needs as well as earnings received from a third-party licensing agreement.
Net Sales — 20152018 compared with 20142017. In 2015,2018, worldwide net sales decreased $145.0increased $272.3 million, or 3%7%, due to lowerreflecting an increase in net sales in all regions. The strengthening of the U.S. dollar versus other currencies had the translation effect of reducing worldwide net sales growth by 5%, with net sales on a constant-exchange-rate basis increasing 2% (due to growth in Europe, Japan and Asia-Pacific, while sales in the Americas decreased modestly from the prior year).reportable segments.
In 2015,2018, jewelry sales represented 92% of worldwide net sales. Jewelry sales by product category were as reportedfollows:
|
| | | | | | | | | | | | | | |
(in millions)
| 2018 | | 2017 | | $ Change | | % Change |
| Jewelry collections | $ | 2,374.1 |
| | $ | 2,146.6 |
| | $ | 227.5 |
| | 11 | % |
| Engagement jewelry | 1,157.4 |
| | 1,111.9 |
| | 45.5 |
| | 4 |
|
| Designer jewelry | 544.5 |
| | 551.2 |
| | (6.7 | ) | | (1 | ) |
The increase in U.S. dollars onnet sales of the Jewelry collections category was driven primarily by the Tiffany T collection, and to a GAAP basis,lesser extent other collections, while the engagementEngagement jewelry & wedding bands category decreased $74.9 million, or 6% (reflecting decreasesreflected increases in both solitaire diamondband rings and wedding bands); the fashion jewelry category decreased $39.1 million, or 2% (reflecting a decline in sales of entry-level price point jewelry, largely in silver, partly offset by growth in gold jewelry
sales); and the statement, fine & solitaire jewelry category decreased $19.4 million, or 2% (reflecting lower sales of fine jewelry partly offset by higher statement jewelry sales).diamond rings.
Changes in net sales by reportable segment were as follows:
| | | (in millions) | Comparable Store Sales |
| | Non-comparable Store Sales |
| | Wholesale/Other |
| | Total |
| Comparable Sales |
| | Non-comparable Sales |
| | Wholesale/ Other |
| | Total |
|
| Americas | $ | (103.5 | ) | | $ | 12.9 |
| | $ | 4.1 |
| | $ | (86.5 | ) | $ | 87.7 |
| | $ | 3.0 |
| | $ | (1.3 | ) | | $ | 89.4 |
|
| Asia-Pacific | (46.0 | ) | | 32.7 |
| | (8.8 | ) | | (22.1 | ) | 48.2 |
| | 62.2 |
| | 33.6 |
| | 144.0 |
|
| Japan | (36.4 | ) | | 9.6 |
| | 13.8 |
| | (13.0 | ) | 37.6 |
| | 1.5 |
| | 7.6 |
| | 46.7 |
|
| Europe | (24.0 | ) | | 11.7 |
| | 4.7 |
| | (7.6 | ) | (10.1 | ) | | 24.7 |
| | 0.8 |
| | 15.4 |
|
Americas. In 2015,2018, jewelry sales represented 88%, 98%, 92% and 96% of total net sales decreased $86.5 million, or 4%, while on a constant-exchange-rate basis, total sales decreased 2% and comparable store sales decreased 4%. Management attributed the decrease in total sales and comparable store sales on a constant-exchange-rate basis to lower foreign tourist spending in the U.S. (which management believes was the result of a strong U.S. dollar) as well as to lower sales to U.S. customers. There was strong sales growth in CanadaAmericas, Asia-Pacific, Japan and Latin America.
Europe, respectively. Changes in jewelry sales (which represent 89% of America's total sales) relative to the prior year were as follows:
|
| | | | | | | | | | | |
| | Average Price per Unit Sold, as reported |
| | Currency Translation |
| | Average Price per Unit Sold, constant-exchange-rate basis |
| | Number of
Units Sold |
|
| Change in Jewelry Sales | 6 | % | | (2 | )% | | 8 | % | | (11 | )% |
|
| | | | | | | | |
| | Average Price per Unit Sold | | |
| | As Reported |
| | Impact of Currency Translation |
| | Number of
Units Sold |
|
| Change in Jewelry Sales | | | | | |
| Americas | (2 | )% | | — | % | | 6 | % |
| Asia-Pacific | 12 |
| | — |
| | — |
|
| Japan | 1 |
| | 1 |
| | 8 |
|
| Europe | (1 | ) | | 1 |
| | 3 |
|
Americas. In 2018, total net sales increased $89.4 million, or 5%, which included comparable sales increasing $87.7 million, or 5%. Sales increased across most of the region, which management attributed to higher spending by local customers. On a constant-exchange-rate basis, total net sales and comparable sales increased 5%.
The decreaseincrease in the number of jewelry units sold reflected decreasesincreases across all categories, especiallyproduct categories. Management attributed the decrease in entry-levelthe average price point silver jewelry.per jewelry unit sold to a shift in sales mix.
Asia-Pacific. In 2018, total net sales increased $144.0 million, or 13%, which included comparable sales increasing $48.2 million, or 5%. Total sales growth reflected increased retail sales in Greater China and most of the other countries in the region and an increase in wholesale travel retail sales in Korea. Management attributed the growth in the region to increased spending by local customers and foreign tourists. On a constant-exchange-rate basis, managementtotal net sales increased 13% and comparable sales increased 5%.
Management attributed the increase in the average price per jewelry unit sold to price increasesgreater growth in retail sales compared to wholesale sales in 2018 and to a shift in sales mix, toward higher-priced products withinwhich had an unfavorable effect on the fashion jewelry category and toward statement jewelry.number of units sold.
Asia-Pacific.Japan. In 2015,2018, total net sales decreased $22.1increased $46.7 million, or 2%8%, while onwhich included comparable sales increasing $37.6 million, or 7%. Management attributed the sales increase in the region to higher spending by local customers and foreign tourists. On a constant-exchange-rate basis, total net sales increased 3%6% and comparable sales increased 5%.
The increase in the number of jewelry units sold primarily reflected increases in the Jewelry collections and the Engagement jewelry categories, partly offset by a decrease in the Designer jewelry category.
Europe. In 2018, total net sales increased $15.4 million, or 3%, which included comparable sales decreasing $10.1 million, or 2%. Sales results were varied by country, with higher spending attributed to local customers more than offsetting lower spending attributed to foreign tourists. Total net sales growth reflected the effect of new stores, while comparable sales reflected the negative effects from new stores on existing store sales. On a constant-exchange-rate basis, wastotal net sales increased 2% and comparable sales decreased 3%.
The increase in the number of jewelry units sold reflected increases in the Jewelry collections and the Designer jewelry categories, partially offset by a decrease in the Engagement jewelry category.
Other. In 2018, total net sales decreased $23.2 million, or 20%, primarily due to a decrease in wholesale sales growthof diamonds and lower comparable sales.
Net Sales — 2017 compared with 2016. In 2017, worldwide net sales increased $168.0 million, or 4%, reflecting an increase in Chinanet sales in most reportable segments.
In 2017, jewelry sales represented 91% of worldwide net sales. Jewelry sales by product category were as follows:
|
| | | | | | | | | | | | | | |
(in millions)
| 2017 | | 2016 | | $ Change | | % Change |
| Jewelry collections | $ | 2,146.6 |
| | $ | 1,991.0 |
| | $ | 155.6 |
| | 8 | % |
| Engagement jewelry | 1,111.9 |
| | 1,174.9 |
| | (63.0 | ) | | (5 | ) |
| Designer jewelry | 551.2 |
| | 529.1 |
| | 22.1 |
| | 4 |
|
The increase in net sales of Jewelry collections was driven primarily by the Tiffany HardWear and Australia partly offset by declines in Hong Kong; comparable store sales were unchanged.Tiffany T collections, while the Engagement jewelry category reflected decreases across the category. The Designer jewelry category reflected increases across the category.
Changes in net sales by reportable segment were as follows:
|
| | | | | | | | | | | | | | | |
| (in millions) | Comparable Sales |
| | Non-comparable Sales |
| | Wholesale/ Other |
| | Total |
|
| Americas | $ | 19.9 |
| | $ | (0.8 | ) | | $ | 9.9 |
| | $ | 29.0 |
|
| Asia-Pacific | (6.2 | ) | | 38.8 |
| | 63.3 |
| | 95.9 |
|
| Japan | (3.6 | ) | | (2.5 | ) | | (2.0 | ) | | (8.1 | ) |
| Europe | (1.4 | ) | | 22.1 |
| | 5.8 |
| | 26.5 |
|
In 2017, jewelry sales (which represent 98%represented 89%, 99%, 91% and 97% of Asia-Pacific's total sales)net sales in the Americas, Asia-Pacific, Japan and Europe, respectively. Changes in jewelry sales relative to the prior year were as follows:
|
| | | | | | | | | | | |
| | Average Price per Unit Sold, as reported |
| | Currency Translation |
| | Average Price per Unit Sold, constant-exchange-rate basis |
| | Number of
Units Sold |
|
| Change in Jewelry Sales | 4 | % | | (5 | )% | | 9 | % | | (6 | )% |
|
| | | | | | | | |
| | Average Price per Unit Sold | | |
| | As Reported |
| | Impact of Currency Translation |
| | Number of
Units Sold |
|
| Change in Jewelry Sales | | | | | |
| Americas | (4 | )% | | — | % | | 5 | % |
| Asia-Pacific | (11 | ) | | 1 |
| | 21 |
|
| Japan | — |
| | (3 | ) | | (3 | ) |
| Europe | 2 |
| | 2 |
| | 4 |
|
Americas. In 2017, total net sales increased $29.0 million, or 2%, which included comparable sales increasing $19.9 million, or 1%. Management attributed performance in this region to an increase in spending by local customers. On a constant-exchange-rate basis, total net sales increased 1% and comparable sales increased 1%.
The increase in the number of jewelry units sold reflected increases in the Jewelry collections and Designer jewelry categories. The decrease in average price per jewelry unit sold reflected decreases across all categories.
Asia-Pacific. In 2017, total net sales increased $95.9 million, or 10%, which included comparable sales decreasing $6.2 million, or 1%. Total net sales growth was due to increased wholesale sales, primarily in Korea, and the effect of new stores, while comparable store sales reflected growth in mainland China offset by declines in most other countries. Management attributed the declines in other Asia-Pacific countries partly to lower spending by Chinese tourists. On a constant-exchange-rate basis, total net sales increased 8% and comparable sales decreased 2%.
The increase in the number of jewelry units sold reflected increases in Jewelry collections and the Designer jewelry categories. Management attributed the decrease in the average price per jewelry unit sold to a shift in sales mix to the Jewelry collections and Designer jewelry categories that partly resulted from the increase in wholesale sales noted above.
Japan. In 2017, total net sales decreased $8.1 million, or 1%, which included comparable sales decreasing $3.6 million, or 1%. The sales declines reflected the negative effect of currency translation. On a constant-exchange-rate basis, total net sales increased 1% and comparable sales increased 2%.
The decrease in the number of jewelry units sold occurred in entry-level price point silver jewelry and fine jewelry. On a constant-exchange-rate basis, management attributed the increaseprimarily reflected decreases in the average price perJewelry collections and the Designer jewelry unit sold to pricecategories, partly offset by increases and a shift in sales mix toward higher-priced products within the fashion jewelry category and toward statement jewelry.
Japan. In 2015, total sales decreased $13.0 million, or 2%, while on a constant-exchange-rate basis, total sales increased 10% and comparable store sales increased 5%. Management attributed the increase in total sales and comparable store sales on a constant-exchange-rate basis primarily to higher spending by foreign tourists.
Changes in jewelry sales (which represent 93% of Japan's total sales) relative to the prior year were as follows:
|
| | | | | | | | | | | |
| | Average Price per Unit Sold, as reported |
| | Currency Translation |
| | Average Price per Unit Sold, constant-exchange-rate basis |
| | Number of
Units Sold |
|
| Change in Jewelry Sales | (2 | )% | | (12 | )% | | 10 | % | | — | % |
On a constant-exchange-rate basis, management attributed the increase in the average price perEngagement jewelry unit sold to price increases and a shift in sales mix toward higher-priced products.category.
Europe. In 2015,2017, total net sales decreased $7.6increased $26.5 million, or 1%6%, while onwhich included comparable sales decreasing $1.4 million, each benefiting from the positive effect of currency translation. Total net sales growth also reflected the effect of new stores and e-commerce sales growth. Management attributed retail sales growth to higher spending by local customers. On a constant-exchange-rate basis, total net sales increased 12% and3% while comparable store sales increased 9%. The increase in total sales and comparable store sales on a constant-exchange-rate basis wasdecreased 2%, due to growth across the region, which management attributed to higher spending by foreign tourists and, to a lesser extent, higher sales to local customers.similar trends noted above.
Changes in jewelry sales (which represent 96% of Europe's total sales) relative to the prior year were as follows:
|
| | | | | | | | | | | |
| | Average Price per Unit Sold, as reported |
| | Currency Translation |
| | Average Price per Unit Sold, constant-exchange-rate basis |
| | Number of
Units Sold |
|
| Change in Jewelry Sales | — | % | | (14 | )% | | 14 | % | | (2 | )% |
The decrease in the number of jewelry units sold was attributed to soft demand for silver jewelry. On a constant-exchange-rate basis, management attributed the increase in average price per jewelry unit sold to price increases and a shift in sales mix toward higher-priced products.
Other. In 2015, total sales decreased $15.8 million, or 13%, partly due to a $9.2 million, or 11%, sales decline in the Emerging Markets region that largely reflected lower comparable store sales. The remainder of the decrease was related to lower wholesale sales of diamonds.
Net Sales — 2014 compared with 2013. In 2014, worldwide net sales increased $218.8 million, or 5%, due to growth in most regions. The strengthening of the U.S. dollar versus other currencies had the translation effect of reducing worldwide net sales growth by 2%, with net sales on a constant-exchange-rate basis increasing 7% (due to growth in all regions).
In 2014, by product category, as reported in U.S. dollars on a GAAP basis, the fashion jewelry category increased $137.0 million, or 8% (reflecting growth in gold jewelry); the engagement jewelry & wedding bands category increased $62.9 million, or 5% (reflecting growth in solitaire diamond rings and wedding bands); and the statement, fine & solitaire jewelry category increased $13.4 million, or 1%.
Americas. In 2014, total sales increased $106.6 million, or 6%, due to an 11% increase in the average price per jewelry unit sold, which management attributed to price increases and a shift in sales mix
toward higher-priced products. A 5% decline in the number of jewelry units sold was entirely due to soft demand for entry-level price point silver jewelry. Included in the $106.6 million increase is an $80.9 million, or 5%, increase in comparable store sales due to geographically broad-based growth across most of the region and a $27.8 million increase in non-comparable store sales. On a constant-exchange-rate basis, both total sales and comparable store sales increased 6%.
Asia-Pacific. In 2014, total sales increased $80.5 million, or 9%, due to a 5% increase in the average price per jewelry unit sold as well as a 4% increase in the number of jewelry units sold. Management attributed the increase in the average price to price increases and a shift in sales mix toward higher-priced products. The increase in the number of jewelry units sold reflected growth in all product categories. The $80.5 million increase reflected a $39.7 million increase in non-comparable store sales, a $24.0 million, or 3%, increase in comparable store sales and a $17.4 million increase in wholesale sales of TIFFANY & CO. merchandise to independent distributors. On a constant-exchange-rate basis, total sales increased 10% and comparable store sales increased 4% due to growth in most markets.
Japan. In 2014, total sales decreased $24.3 million, or 4%, and comparable store sales decreased $35.2 million, or 7%, due to the negative effects of currency translation. On a constant-exchange-rate basis, total sales increased 4% due to a 9% increase in the average price per jewelry unit sold partly offset by a 5% decrease in the number of jewelry units soldincreases across all categories. Management attributed the increase in average price to price increases and a shift in sales mix toward higher-priced products within the fashion jewelry category. Comparable store sales on a constant-exchange-rate basis increased 1%. The overall sales performance reflected significant sales growth in the first quarter prior to an increase in the consumption tax in April 2014, offset by softness in sales in the remaining quarters.
Europe. In 2014, total sales increased $37.1 million, or 8%, due to a 4% increase in both the number of jewelry units sold and in the average price per jewelry unit sold. Management attributed the increase in the number of jewelry units sold to fashion jewelry, and the increase in average price to price increases and a shift in sales mix toward higher-priced products within the fashion jewelry category. The $37.1 million increase was driven by a $43.0 million increase in non-comparable store sales. On a constant-exchange-rate basis, total sales increased 8% due to strength in continental Europe and comparable store sales decreased 1%.positive effect of currency translation.
Other. In 2014,2017, total net sales increased $18.9$24.7 million, or 18%26%, primarily due to a $10.9 million, or 14%, salesan increase in the Emerging Markets region that partly reflected comparable store sales growth. The remainder of the increase was primarily related to higher wholesale sales of diamonds.
Store Data. In 2015,2018, the Company increased gross retail square footage by 1%, net, through store openings, closings and relocations. The Company opened 1610 stores and closed four: opening threefour in Asia-Pacific (three in China and one in Thailand), two in the Americas (in the U.S., Canada and Chile), 11 in Asia-Pacific (five in China, two in Macau and one(one each in Korea, Singapore, Taiwan and Thailand) and two in Europe (in Spain and Switzerland) while closing one store in the Americas and three stores in Asia-Pacific. In addition, the Company relocated nine existing stores.
In 2014, the Company added a net of 6 stores: three in the Americas (two in the U.S. and one in Mexico)Latin America), two in Japan,Europe (one each in Germany and Denmark), one in Asia-Pacific (in Australia)Japan and twoone in Europe (in France and Russia)the Emerging Markets, while closing two stores in the Americas.Americas (in the U.S.), one store in Asia-Pacific (in China) and one store in Europe (in Italy). In addition, the Company relocated 10 existing stores.
In 2017, the Company increased gross retail square footage by 3%, net, through store openings, closings and relocations. The Company opened nine stores and closed seven: opening five in Asia-Pacific (two in China, two in
Australia and one in Korea), three in Europe (one each in Italy, Russia and the U.K.) and one in the Americas (in the U.S.) while closing three stores in Asia-Pacific (one each in China, Korea and Taiwan), two stores in the Americas (in the U.S.) and one each in Japan and the Emerging Markets. In addition, the Company relocated seven existing stores.
Sales per gross square foot generated by all company-operated stores were approximately $2,900$2,800 in 2015, $3,1002018, $2,700 in 20142017 and $3,100$2,700 in 2013. The decline in 2015 reflected growth in retail square footage exceeding sales growth (which was negatively affected by currency translation).2016.
TIFFANY & CO.Excluded from the store counts and sales per gross square foot amounts above are pop-up stores (stores with lease terms of 24 months or less).
K-38
Gross Margin
| | | (dollars in millions) | 2015 |
| | 2014 |
| | 2013 |
| |
| (in millions) | | 2018 |
| | 2017 |
| | 2016 |
|
| Gross profit | $ | 2,491.3 |
| | $ | 2,537.2 |
| | $ | 2,340.4 |
| $ | 2,811.0 |
| | $ | 2,610.7 |
| | $ | 2,499.0 |
|
| Gross profit as a percentage of net sales | 60.7 | % | | 59.7 | % | | 58.1 | % | 63.3 | % | | 62.6 | % | | 62.4 | % |
Gross margin (gross profit as a percentage of net sales) increased 1.0 percentage point70 basis points in 20152018, largely reflecting favorable product input costs, that were partly offset by a shiftdecrease in wholesale sales mix to higher-priced, lower-margin products. In addition, the benefit from retail price increases was partlyof diamonds and sales leverage on fixed costs, partially offset by the negative effect fromimpact of an $8.5 million charge recorded in the strong U.S. dollar.third quarter of 2018 related to the bankruptcy filing of a metal refiner to which the Company entrusted precious scrap metal.
Gross margin increased 1.6 percentage20 basis points in 2014 largely benefiting from2017 due to favorable product input costs, partly offset by the dilutive effects from increases in wholesale sales and pricein wholesale sales of diamonds, as well as increases in certain product-related costs, including inventory reserves and to some extent, a shift in sales mix to higher-margin products, especially in the fashion jewelry category.distribution and logistics.
Management periodically reviews and adjusts its retail prices when appropriate to address product input cost increases, specific market conditions and changes in foreign currencies/U.S. dollar relationships. Its long-term strategy is to continue that approach, although significant increases in product input costs or weakening foreign currencies can affect gross margin negatively over the short-term until management makes necessary price adjustments. Among the market conditions that management considers are consumer demand for the product category involved, which may be influenced by consumer confidence and competitive pricing conditions. Management uses derivative instruments to mitigate certain foreign exchange and precious metal price exposures (see "Item 8. Financial Statements and Supplementary Data – Note H -H. Hedging Instruments"). Management increased retail prices in both 20152018 and 20142017 across allmost geographic regions and product categories.categories, some of which were intended to mitigate the impact of foreign currency fluctuations.
Selling, General and Administrative Expenses
|
| | | | | | | | | | | |
| (dollars in millions) | 2015 |
| | 2014 |
| | 2013 |
|
| As reported: | | | | | |
| SG&A expenses | $ | 1,731.2 |
| | $ | 1,645.8 |
| | $ | 1,555.9 |
|
| SG&A expenses as a percentage of net sales | 42.2 | % | | 38.7 | % | | 38.6 | % |
| Excluding items in "Non-GAAP Measures": | | | | | |
| SG&A expenses | $ | 1,684.5 |
| | $ | 1,645.8 |
| | $ | 1,546.5 |
|
| SG&A expenses as a percentage of net sales | 41.0 | % | | 38.7 | % | | 38.4 | % |
|
| | | | | | | | | | | |
| (in millions) | 2018 |
| | 2017 |
| | 2016 |
|
| As reported: | | | | | |
| SG&A expenses | $ | 2,020.7 |
| | $ | 1,801.3 |
| | $ | 1,752.6 |
|
| SG&A expenses as a percentage of net sales ("SG&A expense ratio") | 45.5 | % | | 43.2 | % | | 43.8 | % |
| Excluding other operating expenses*: | | | | | |
| SG&A expenses | | | | | $ | 1,714.6 |
|
| SG&A expense ratio | | | | | 42.8 | % |
*See "Non-GAAP Measures" above for a description of such excluded operating expenses.
SG&A expenses increased $85.4$219.4 million,, or 5%12%, in 20152018, largely reflecting marketing and $89.8 million, or 6%other strategic investment spending (that began in the second quarter of 2018), in 2014.increased labor and incentive compensation costs and store occupancy and depreciation expenses. There was no significant effect on SG&A expense changes from foreign currency translation. SG&A expenses in those yearsas a percentage of net sales increased 230 basis points compared to 2017, which included the impact of increased marketing and other strategic investment spending, which
management believes are not comparable duenecessary to support long-term sales growth. Management intends to maintain such spending at these higher levels for the inclusion of loan impairment charges in 2015 and the inclusion of certain expenses associated with specific cost-reduction initiatives in 2015 and 2013. See "Non-GAAP Measures" for further details.foreseeable future.
SG&A expenses increased $48.7 million, or 3%, in 2015 (excluding2017. Excluding the 20152016 items noted in "Non-GAAP Measures")Measures," SG&A expenses in 2017 increased $38.7$86.7 million, or 2%,5% compared to 2016, largely reflecting (i) increased marketing expenses of $18.0 million, (ii) increased store occupancy and depreciation expenses of $16.5 million (related to new and existing stores)labor and (iii) decreased labor costs of $7.1 million (primarily lower variable labor costs for incentive compensation and sales commissions partly offset by increased costs for U.S. pension and postretirement benefit plans). The strengthening of the U.S. dollar had the effect of decreasing SG&A expense growth by 4%, and therefore, excluding this effect, SG&A expenses would have increased 6%.
SG&A expenses in 2014 (excluding the 2013 items noted in "Non-GAAP Measures") increased $99.2 million, or 6%, largely reflecting (i) increased marketing expenses of $30.5 million, (ii) increased fixed
labor costs of $26.0 million (primarily increased store-related labor costs) and (iii) increased store occupancy and depreciation expenses of $22.6 million (related to new and existing stores).costs. There was no significant translation effect on SG&A expense growthchanges from changes in foreign currencies.currency translation.
The Company's SG&A expenses are largely fixed or controllable in nature. Variablenature (including, but not limited to, marketing costs, (which includeemployees' salaries and benefits, fixed store rent and depreciation expenses), with the total of such costs representing approximately 80 - 85% of total SG&A expenses, and the remainder comprised of variable items such as(including, but not limited to, variable store rent, sales commissions and fees paid to credit card companies) typically represent approximately 15 - 20% of total SG&A expenses.
Arbitration Award Expense.
In the fourth quarter of 2013, the Company recorded a charge of $480.2 million, related to the adverse arbitration ruling between The Swatch Group Ltd. and the Company, which includes the damages, interest and other costs associated with the ruling. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" for additional information.
Earnings from Operations
| | | (dollars in millions) | 2015 |
| | 2014 |
| | 2013 |
| |
| (in millions) | | 2018 |
| | 2017 |
| | 2016 |
|
| As reported: | | | | | | | | | | |
| Earnings from operations | $ | 760.1 |
| | $ | 891.4 |
| | $ | 304.3 |
| $ | 790.3 |
| | $ | 809.4 |
| | $ | 746.4 |
|
| Operating margin | 18.5 | % | | 21.0 | % | | 7.5 | % | 17.8 | % | | 19.4 | % | | 18.7 | % |
| Percentage point change from prior year | (2.5 | ) | | 13.5 |
| | (10.9 | ) | |
| Excluding other operating expenses: | | | | | | |
| Excluding other operating expenses*: | | | | | | |
| Earnings from operations | $ | 806.8 |
| | $ | 891.4 |
| | $ | 793.9 |
| | | | | $ | 784.4 |
|
| Operating margin | 19.7 | % | | 21.0 | % | | 19.7 | % | | | | | 19.6 | % |
| Percentage point change from prior year | (1.3 | ) | | 1.3 |
| | 1.3 |
| |
*See "Non-GAAP Measures" above for a description of such excluded operating expenses.
The changeEarnings from operations decreased $19.1 million, or 2% in 2015, excluding other2018 and operating expenses in 2015, reflected higher SG&A expenses and the resulting sales deleveraging of SG&A expenses, which was only partly offset by higher gross margin. The change in 2014, excluding other operating expenses in 2013, was due tomargin decreased 160 basis points, reflecting an increase in gross margin, which was more than offset by a higher SG&A expense ratio.
Earnings from operations increased $63.0 million, or 8% in 2017 and operating margin increased 70 basis points, which reflected impairment charges recorded in 2016 (see "Non-GAAP Measures"). When excluding such charges, the decrease in operating margin in 2017 resulted from a higher SG&A expense ratio, partly offset by a higher gross margin.
Results by segment arewere as follows:
| | | (in millions) | 2015 |
| | % of Net Sales |
| | 2014 |
| | % of Net Sales |
| | 2013 |
| | % of Net Sales |
| 2018 |
| | % of Net Sales |
| | 2017 |
| | % of Net Sales |
| | 2016 |
| | % of Net Sales |
|
| Earnings (losses) from operations*: | | | | | | | | | | | |
| Earnings from operations*: | | Earnings from operations*: | | | | | | | | | | |
| Americas | $ | 390.8 |
| | 20.1 | % | | $ | 435.5 |
| | 21.4 | % | | $ | 374.3 |
| | 19.4 | % | $ | 386.7 |
| | 19.7 | % | | $ | 399.0 |
| | 21.3 | % | | $ | 387.9 |
| | 21.1 | % |
| Asia-Pacific | 264.4 |
| | 26.4 |
| | 281.6 |
| | 27.5 |
| | 244.1 |
| | 25.8 |
| 311.5 |
| | 25.1 |
| | 287.7 |
| | 26.3 |
| | 258.4 |
| | 25.9 |
|
| Japan | 199.9 |
| | 36.9 |
| | 196.0 |
| | 35.4 |
| | 215.6 |
| | 37.3 |
| 237.2 |
| | 36.9 |
| | 209.3 |
| | 35.1 |
| | 208.1 |
| | 34.4 |
|
| Europe | 97.4 |
| | 19.3 |
| | 110.5 |
| | 21.5 |
| | 102.4 |
| | 21.5 |
| 86.2 |
| | 17.1 |
| | 90.4 |
| | 18.5 |
| | 85.9 |
| | 18.6 |
|
| Other | 6.4 |
| | 6.0 |
| | 4.9 |
| | 4.0 |
| | (1.8 | ) | | (1.8 | ) | (6.4 | ) | | (6.7 | ) | | 3.6 |
| | 3.0 |
| | 4.0 |
| | 4.3 |
|
| | 958.9 |
| | | | 1,028.5 |
| | | | 934.6 |
| | | 1,015.2 |
| | | | 990.0 |
| | | | 944.3 |
| | |
Unallocated corporate expenses | (152.1 | ) | | (3.7 | )% | | (137.1 | ) | | (3.2 | )% | | (140.7 | ) | | (3.5 | )% | (224.9 | ) | | (5.1 | )% | | (180.6 | ) | | (4.3 | )% | | (159.9 | ) | | (4.0 | )% |
| Earnings from operations before other operating expenses | 806.8 |
| | 19.7 | % | | 891.4 |
| | 21.0 | % | | 793.9 |
| | 19.7 | % | 790.3 |
| | 17.8 | % | | 809.4 |
| | 19.4 | % | | 784.4 |
| | 19.6 | % |
| Other operating expenses | (46.7 | ) | | | | — |
| | | | (489.6 | ) | | | — |
| | | | — |
| | | | (38.0 | ) | | |
| Earnings from operations | $ | 760.1 |
| | 18.5 | % | | $ | 891.4 |
| | 21.0 | % | | $ | 304.3 |
| | 7.5 | % | $ | 790.3 |
| | 17.8 | % | | $ | 809.4 |
| | 19.4 | % | | $ | 746.4 |
| | 18.7 | % |
| |
| * | Percentages represent earnings (losses) from operations as a percentage of each segment's net sales. |
On a segment basis, the ratio of earnings (losses) from operations to each segment's net sales in 20152018 compared with 20142017 was as follows:
Americas – the ratio decreased 1.3 percentage160 basis points due to a decreasean increase in netSelling, general and administrative expenses, including increased marketing and other strategic investment spending and sales resulting in sales deleveraging ofdeleverage on operating expenses partly offset by an improvement in gross margin;expenses;
Asia-Pacific – the ratio decreased 1.1 percentage120 basis points due to an increase in Selling, general and administrative expenses, including increased store-related operating expensesmarketing and marketingother strategic investment spending, partly offset by an improvementincrease in gross margin;
Japan – the ratio increased 1.5 percentage180 basis points due to leveraging of operating expenses (as operating expenses decreased at a higher rate than sales) partly offset by a decreasean increase in gross margin attributable to(which included the effect of changes in foreign currency translation;exchange rates on inventory purchases), as well as the impact of sales leverage on operating expenses; and
Europe – the ratio decreased 2.2 percentage140 basis points resulting fromdue to an increase in Selling, general and administrative expenses, including increased store-related operating expensesmarketing and marketingother strategic investment spending, partly offset by an improvementincrease in gross margin; and
Other – the ratio increased 2.0 percentage points primarily due to an improvement in gross margin offset by the deleveraging of operating expenses both of which were affected by the decrease in wholesale sales of diamonds. To a lesser extent, contributing to the increase is the improvement in the performance of retail operations in the Emerging Markets region.margin.
On a segment basis, the ratio of earnings (losses) from operations to each segment's net sales in 20142017 compared with 20132016 was as follows:
Americas – the ratio increased 2.0 percentage20 basis points resulting from an improvement in gross margin;
Asia-Pacific – the ratio increased 1.7 percentage points primarily due to an improvement in gross margin, partly offset by increased spending for new and existing stores;
TIFFANY & CO.sales deleverage on operating expenses;
K-41
JapanAsia-Pacific – the ratio decreased 1.9 percentageincreased 40 basis points due to sales leverage on operating expenses, partly offset by a decrease in gross margin, (primarily resulting from a reduced benefit fromboth attributable to increased wholesale sales in the Company's ongoing programregion;
Japan – the ratio increased 70 basis points due to utilize Yen forward contracts for a portionan increase in gross margin (which included the effect of forecasted merchandisechanges in foreign currency exchange rates on inventory purchases);, partly offset by sales deleverage on operating expenses; and
Europe – the ratio was unchanged due to an improvement in gross margin offset by increased spending for new and existing stores; and
Other – the ratio increased 5.8 percentagedecreased 10 basis points due to sales deleverage on operating expenses, partly offset by an improvementincrease in the performance of retail operations in the Emerging Markets region and lower charges associated with the write-down of wholesale diamond inventory deemed not suitable for the Company's needs.gross margin.
Unallocated corporate expenses include costs related to administrative support functions which the Company does not allocate to its segments. Such unallocated costs include those for centralized information technology, finance, legal and human resources departments. Unallocated corporate expenses increased by $15.0$44.3 million in 2015, primarily2018 due to (i) increased costs associated with upgrades to the Company's information technology systems. Unallocatedsystems, (ii) an $8.5 million charge recorded in the third quarter of 2018 related to the bankruptcy filing of a metals refiner to which the Company entrusted precious scrap metal, and (iii) increased incentive compensation expense. Such expenses increased $20.7 million in 2017, primarily due to an increase in charitable donations to the Tiffany & Co. Foundation, a private foundation organized to support 501(c)(3) charitable organizations, increased costs associated with upgrades to the Company's information technology systems and higher severance costs associated with changes in corporate expensesmanagement.
Interest Expense and Financing Costs
Interest expense and financing costs decreased $2.3 million, or 5%, in 2018 and $4.0 million, or 9%, in 2017.
Other Expense, Net
Other expense, net includes the non-service cost components of net periodic benefit cost, interest income and gains/losses on investment activities and foreign currency transactions. Other expense, net was $7.1 million in 2018, $6.9 million in 2017 and $23.8 million in 2016. The $16.9 million decrease in Other expense, net in 2017 compared to 2016 was primarily due to a decrease in the non-service cost components of net periodic benefit cost and due to increases in gains on sales of marketable securities and interest income.
Provision for Income Taxes
The effective income tax rate was 21.1% in 2018, compared with 51.3% in 2017 and 34.1% in 2016. The effective income tax rate in 2017 reflected the impact of a $146.2 million net charge, or $1.17 per diluted share, related to the enactment of the 2017 Tax Act in December 2017. Excluding this net charge, the effective income tax rate was 32.1% in 2017 (see "Non-GAAP Measures").
The effective income tax rate in 2018 of 21.1% benefited from the favorable impact of the 2017 Tax Act, including the reduction of the U.S. statutory income tax rate to 21% and the introduction of the Foreign Derived Intangible Income deduction. In addition, the effective income tax rate in 2018 was decreased by $3.6210 basis points due to benefits of $15.9 million, or $0.13 per diluted share, recorded in 2014.
Included in other operating expenses in the table above, the 2015 amount represented $37.9 million associated with impairment2018 to adjust charges related to the 2017 Tax Act that were recorded in 2017 and are described below.
The effective income tax rate in 2017 of 51.3% differed from the effective income tax rate in 2016 of 34.1% primarily due to the $146.2 million net charge referenced above. The effective income tax rate in 2017 also differed from 2016 as a financing arrangement with Koiduresult of an increase in the domestic manufacturing deduction, the implementation of ASU 2016-09, which requires excess tax benefits and/or shortfalls related to exercises and $8.8 millionvesting of expenses associated with specific cost-reduction initiatives.share-based compensation to be recorded in the provision for income taxes rather than in additional paid in capital and lower state taxes, partially offset by the impact of a change in uncertain tax positions primarily attributable to the conclusion of a tax examination during the first quarter of 2016.
On December 22, 2017, the 2017 Tax Act was enacted in the U.S. This enactment resulted in a number of significant changes to U.S. federal income tax law for U.S. taxpayers. On the same date, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which addressed the application of U.S. GAAP in situations in which a registrant did not have necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. Changes in tax law are accounted for in the period of enactment. As such, the Company's 2017 consolidated financial statements reflected the estimated immediate tax effect of the 2017 Tax Act. See "Item 8. Financial Statements and Supplementary Data - Note J - CommitmentsN. Income Taxes" for additional information on the provisions and Contingencies."impacts of the 2017 Tax Act and SAB 118.
IncludedThe net charge of $146.2 million recognized in other operating expenses in the table above, the 2013 amount represented $480.2 million of expenses associated with the adverse arbitration ruling between the Swatch Group Ltd. and the Company and $9.4 million of expenses associated with specific cost-reduction initiatives. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies."
Interest Expense and Financing Costs
Interest expense and financing costs decreased $13.9 million, or 22%, in 2015 as a result of lower interest expense on long-term debt (reflecting the October 2014 redemption of long-term debt using proceeds from the issuance of lower-rate long-term debt in September 2014) as well as lower average credit facility borrowings. Interest expense and financing costs in 2014 were approximately equal to 2013.
Other Expense (Income), Net
Other expense (income), net includes interest income as well as gains/losses on investment activities and foreign currency transactions. Net expense of $1.2 million in 2015 compared with net income of $2.8 million in 2014. The $4.0 million change was primarily due to foreign currency transaction losses. Other expense (income), net in 2014 decreased $10.4 million, or 79%, reflecting $7.5 million of foreign currency transaction gains2017 related to the Arbitration Award expense that had been recorded in 2013, with the remaining $2.9 million primarily due to other foreign currency transaction losses. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" and "Non-GAAP Measures" for further information.
Loss on Extinguishment of Debt
In 2014, the Company recorded a loss on extinguishment of debt of $93.8 million associated with the redemption of allenactment of the aggregate principal amount outstanding2017 Tax Act consisted of:
Estimated tax expense of $94.8 million, or $0.76 per diluted share, for the impact of the Company's (i) $100.0 million principal amount of 9.05% Series A Senior Notes due December 23, 2015; (ii) $125.0 million principal amount of 10.0% Series A-2009 Senior Notes due February 13, 2017; (iii) $50.0 million principal amount of 10.0% Series A Senior Notes due April 9, 2018; and (iv) $125.0 million principal amount of
10.0% Series B-2009 Senior Notes due February 13, 2019 (collectively, the "Private Placement Notes") prior to maturity in accordance with the respective note purchase agreements governing each series of Private Placement Notes, which included provisions for make-whole paymentsreduction in the event of early repayment.
Provision for Income Taxes
The effectiveU.S. statutory income tax rate was 34.7% in 2015 compared with 34.4% in 2014on the Company’s deferred tax assets and 28.8% in 2013. In 2013,liabilities,
Estimated tax expense of $56.0 million, or $0.45 per diluted share, for the effectiveone-time transition tax effected via a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits ("Transition Tax"), and
A tax benefit of $4.6 million, or $0.04 per diluted share, resulting from the effect of the 21% statutory income tax rate would have been 34.8% when excludingfor the effectsmonth of certain expenses noted in "Non-GAAP Measures"January 2018 on the Company’s annual statutory income tax rate for the year ended January 31, 2018. Because the Company’s fiscal year ended on January 31, 2018, the Company’s statutory income tax rate for fiscal 2017 was 33.8%, rather than 35.0%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a function of its ongoing, seasonal and expansion-related working capital requirements and capital expenditure needs. Over the long term, the Company manages its cash and capital structure to maintain a strong financial position that provides flexibility to pursue strategic initiatives.priorities. Management regularly assesses its working capital needs, capital expenditure requirements, debt service, dividend payouts, share repurchases and future investments. Management believes that cash on hand, internally-generatedinternally generated cash flows, the funds available under its revolving credit facilities and the ability to access the debt and capital markets are sufficient to support the Company's liquidity and capital requirements for the foreseeable future.
As ofAt January 31, 2016,2019, the Company’sCompany's cash and cash equivalents totaled $843.6$792.6 million,, of which approximately one-third25% was held in locations outside the U.S. where the Company has the intentiondetermined to maintain its assertion to indefinitely reinvest any undistributed earnings to support its continued expansion and investments outside ofin such foreign locations. To the U.S. Such cash balances are not available to fund U.S. cash requirements unlessextent the Company were to decide to repatriate such funds, it may incur withholding taxes, state income taxes and incur applicable incomethe tax charges.expense or benefit associated with foreign currency gains or losses. The Company believes it has sufficient sources of cash in the U.S. to fund its U.S. operations without the need to repatriate any of those funds held outside the U.S. See "Item 8. Financial Statements and Supplementary Data - Note N. Income Taxes" for additional information. In addition, the Company had Short-term investments of $62.7 million at January 31, 2019.
The following table summarizes cash flows from operating, investing and financing activities:
| | | (in millions) | 2015 |
| | 2014 |
| | 2013 |
| 2018 |
| | 2017 |
| | 2016 |
|
| Net cash provided by (used in): | | | | | | | | | | |
| Operating activities | $ | 813.6 |
| | $ | 615.1 |
| | $ | 154.7 |
| $ | 531.8 |
| | $ | 932.2 |
| | $ | 705.7 |
|
| Investing activities | (278.2 | ) | | (217.0 | ) | | (246.8 | ) | (29.9 | ) | | (481.1 | ) | | (236.8 | ) |
| Financing activities | (422.3 | ) | | (23.4 | ) | | (65.4 | ) | (674.3 | ) | | (421.1 | ) | | (386.4 | ) |
| Effect of exchange rates on cash and cash equivalents | 0.5 |
| | 9.5 |
| | (1.5 | ) | |
| Net increase (decrease) in cash and cash equivalents | $ | 113.6 |
| | $ | 384.2 |
| | $ | (159.0 | ) | |
| Effect of exchange rate changes on cash and cash equivalents | | (5.7 | ) | | 12.7 |
| | 1.9 |
|
| Net increase in cash and cash equivalents | | $ | (178.1 | ) | | $ | 42.7 |
| | $ | 84.4 |
|
Operating Activities
The Company had a net cash inflowinflows from operating activities of $813.6$531.8 million in 2015, $615.12018, $932.2 million in 20142017 and $154.7$705.7 million in 2013.2016. The year-over-year improvement from 2014decrease in 2018 compared to 2015 was2017 primarily duereflected increases in inventory purchases and cash payments for income taxes. The increase in 2017 compared to 2016 reflected more effective management and timing of payables and reduced payments for income taxes, partly offset by increased inventory purchases. The change from 2013Additionally, the Company made a $120.0 million voluntary contribution to 2014 was primarily due to the improvementits U.S. pension plan in operating performance and the timing of income tax payments and other payables.2016.
Working Capital. Working capital (current assets less current liabilities) and the corresponding current ratio (current assets divided by current liabilities) were $2.8decreased to $3.0 billion and 4.8 at January 31, 2016 compared with $2.92019 from $3.3 billion and 5.3 at January 31, 2015.2018.
Accounts receivable, less allowancesnet at January 31, 20162019 were 6% higher than at January 31, 2015. The strengthening of the U.S. dollar2018.
Inventories, net at January 31, 2019 were 8% higher than at January 31, 2018, which primarily reflected an increase in finished goods inventories. Currency translation had the effect of decreasing accounts receivable, less allowancesInventories, net by 2%. Therefore, excluding that effect, accounts receivable, less allowances would have increased 8%3% from January 31, 2015 largely2018.
Accounts payable and accrued liabilities at January 31, 2019 were 17% higher than at January 31, 2018, partly reflecting in-house credit tiedthe receipt of an advance payment of $31.1 million during 2018 related to strong salesthe previous acquisition of statement jewelrythe premises containing one of the Company's leased retail stores and an administrative office under compulsory acquisition laws in Australia (see "Item 8. Financial Statements and Supplementary Data -– Note B - Summary of Significant Accounting Policies"). On a 12-month rolling basis, accounts receivable turnover was 21 times in 2015J. Commitments and 2014.Contingencies" for additional information).
Inventories, net at January 31, 2016 were 6% lower than at January 31, 2015. Finished goods inventories decreased 7%, while combined raw material and work-in-process inventories decreased 4%. The strengthening of the U.S. dollar had the effect of decreasing inventories by 2%. Therefore, excluding that effect, inventories would have declined 4% from January 31, 2015 due to improved inventory management and reduced inventory purchases.
Investing Activities
The Company had a net cash outflowoutflows from investing activities of $278.2$29.9 million in 2015, $217.02018, $481.1 million in 20142017 and $246.8$236.8 million in 2013.2016. The decrease in net cash outflows in 2018 compared to 2017 was driven by net cash flows resulting from purchases and sales of marketable securities and short-term investments. The increase in net cash outflows in 2017 compared to 2016 was driven by increased outflow in 2015 was primarily due to increasednet purchases of marketable securities and short-term investments. The decreased outflow in 2014 was due to net proceeds received from the sale of marketable securities and short-term investments partly offset by increased capital expenditures.
Marketable Securities and Short-Term Investments. The Company invests a portion of its cash in marketable securities and short-term investments. The Company had $240.0 million of net sales of marketable securities and short-term investments during 2018, compared with net purchases of marketable securities and short-term investments of $26.4$246.6 million during 2015, net proceeds received from the sale of marketable securities in 2017 and short-term investments of $15.2$15.7 million during 2014 and purchases of marketable securities and short-term investments of $23.5 million during 2013.in 2016.
Capital Expenditures. Capital expenditures are typically related to the opening, renovation and/or relocation of stores (which represented approximately half60% of capital expenditures in 20152018, 2017 and 2016), 2014 and 2013),as well as distribution and manufacturing facilities and ongoing investments in information technology. Capital expenditures were $252.7 million in 2015, $247.4$282.1 million in 2014 and $221.42018, $239.3 million in 2013,2017 and $222.8 million in 2016, representing 6%, 6% and 5% of worldwide net sales in those respective years. The increase in 2014 reflected incremental spending for information technology systems and internal manufacturing capacity.each year.
Notes Receivable Funded.The Company has extended loanscurrently anticipates capital expenditures to diamond miningbe 7 - 9% of worldwide net sales during the fiscal years 2019 through 2021, which includes the expected expenditures for the renovation of its New York Flagship store. Additionally, the renovation of the New York Flagship store is expected to lower diluted earnings per share by approximately $0.10 - $0.15 in fiscal years 2019 through 2021 due to accelerated depreciation charges related to the existing store, preliminary development costs and exploration companies in orderthe incremental costs associated with renting and fitting out the adjacent space that will be utilized to obtain rightsminimize disruptions during the renovation period. Following the completion of this renovation project, the Company currently anticipates capital expenditures returning to purchase the mine's output. The Company loaned $3.1 million in 2013.historical levels as a percentage of worldwide net sales.
Proceeds from Notes Receivable Funded. In 2014 and 2013, the Company received $15.2 million and $1.2 million of repayments associated with loans extended to diamond mining and exploration companies discussed in Notes Receivable Funded above. No such proceeds were received in 2015.
Financing Activities
The Company had net cash outflows from financing activities of $422.3$674.3 million in 2015, $23.42018, $421.1 million in 20142017 and $65.4$386.4 million in 2013. Year-over-year changes in cash flows from financing activities are largely driven by borrowings. Additionally, the Company resumed repurchasing its Common Stock in 2014 under a new share repurchase program after it did not repurchase any of its Common Stock in 2013.2016.
Recent Borrowings. The Company had net (repayments of) proceeds from short-term and long-term borrowings as follows: | | | (in millions) | 2015 |
| | 2014 |
| | 2013 |
| 2018 |
| | 2017 |
| | 2016 |
|
| Short-term borrowings: | | | | | | | | | | |
| (Repayments of) proceeds from credit facility borrowings, net | $ | (11.3 | ) | | $ | (12.5 | ) | | $ | 49.9 |
| $ | (18.4 | ) | | $ | (67.8 | ) | | $ | 14.2 |
|
| Proceeds from other credit facility borrowings | 24.8 |
| | 19.8 |
| | 89.8 |
| 49.3 |
| | 39.2 |
| | 76.8 |
|
| Repayments of other credit facility borrowings | (16.0 | ) | | (3.4 | ) | | (69.7 | ) | (32.0 | ) | | (96.1 | ) | | (83.1 | ) |
| Net (repayments of) proceeds from short-term borrowings | (2.5 | ) | | 3.9 |
| | 70.0 |
| (1.1 | ) | | (124.7 | ) | | 7.9 |
|
| Long-term borrowings: | | | | | | | | | | |
| Proceeds from issuances | — |
| | 548.0 |
| | — |
| |
| Repayments | — |
| | (400.0 | ) | | — |
| |
| Proceeds from the issuance of long-term debt | | — |
| | — |
| | 98.1 |
|
| Repayment of long-term debt | | — |
| | — |
| | (97.1 | ) |
| Net proceeds from long-term borrowings | — |
| | 148.0 |
| | — |
| — |
| | — |
| | 1.0 |
|
| Net (repayments of) proceeds from total borrowings | (2.5 | ) | | 151.9 |
| | 70.0 |
| $ | (1.1 | ) | | $ | (124.7 | ) | | $ | 8.9 |
|
| Payments of debt extinguishment costs (included in operating activities) | — |
| | (93.4 | ) | | — |
| |
| Net (repayments) proceeds | $ | (2.5 | ) | | $ | 58.5 |
| | $ | 70.0 |
| |
Credit Facilities. In 2014, Tiffany & Co.On October 25, 2018, the Registrant, along with certain of its subsidiaries designated as borrowers thereunder, entered into a four-year $375.0 million and a five-year $375.0 million multi-bank, multi-currency committed unsecured revolving credit facility, including a letter of credit subfacilities (collectively,subfacility, consisting of basic commitments in an amount up to $750.0 million (which commitments may be increased, subject to certain conditions and limitations, at the "Newrequest of the Registrant) (the “Credit Facility”). The Credit Facilities"), resulting in a total borrowing capacity of $750.0 million. The New Credit FacilitiesFacility replaced the Registrant’s previously existing $275.0$375.0 million three-yearfour-year unsecured revolving credit facility and $275.0$375.0 million five-year unsecured revolving credit facility, which were each terminated and repaid concurrentlyin connection with Tiffany & Co.'sthe Registrant’s entry into the New Credit Facilities. See "Item 8. Financial StatementsFacility.
The Credit Facility matures in 2023, provided that such maturity may be extended for one or two additional one-year periods at any time with the consent of the applicable lenders, as further described in the agreement governing such facility.
Commercial Paper. In August 2017, the Registrant and Supplementary Data - Note G - Debt"one of its wholly owned subsidiaries established a commercial paper program (the "Commercial Paper Program") for additional information.the issuance of commercial paper in the form of short-term promissory notes in an aggregate principal amount not to exceed $750.0 million. Borrowings under the Commercial Paper Program may be used for general corporate purposes. The aggregate amount of borrowings that the Company is currently authorized to have outstanding under the Commercial Paper Program and the Registrant's Credit Facility is $750.0 million. The Registrant guarantees the obligations of its wholly owned subsidiary under the Commercial Paper Program. Maturities of commercial paper notes may vary, but cannot exceed 397 days from the date of issuance. Notes issued under the Commercial Paper Program rank equally with the Registrant's present and future unsecured and unsubordinated indebtedness.
Other Credit Facilities. In 2013, Tiffany & Co.'s wholly-owned2016, the Registrant's wholly owned subsidiary, Tiffany & Co. (Shanghai) Commercial Company Limited, ("Tiffany-Shanghai"), entered into a three-year multi-bank revolving credit agreement (the "Tiffany-Shanghai Credit Agreement"). The Tiffany-Shanghai Credit Agreement has an aggregate borrowing limit of RMB 930.0990.0 million ($141.4($147.4 million at January 31, 2016). The Tiffany-Shanghai Credit Agreement is available for Tiffany-Shanghai's general working capital requirements, which included repayment of a portion of the indebtedness under Tiffany-Shanghai's existing bank loan facilities. The six lenders that are party to the Tiffany-Shanghai Credit Agreement will make loans, upon Tiffany-Shanghai's request, for periods of up to 12 months at the applicable interest rates as announced by the People's Bank of China. The Tiffany-Shanghai Credit Agreement2019) and matures in July 2016. See2019.
The weighted-average interest rate for borrowings outstanding under all the Company's credit facilities was 3.69% at January 31, 2019 and 4.35% at January 31, 2018.
Senior Notes. In August 2016, the Registrant issued ¥10.0 billion ($91.8 million at January 31, 2019) of 0.78% Senior Notes due August 2026 (the "Yen Notes") in a private transaction. The Yen Notes bear interest at a rate of 0.78% per annum, payable semi-annually on February 26 and August 26 of each year, commencing February 26, 2017. The proceeds from the issuance of the Yen Notes were used to repay the Registrant's ¥10.0 billion 1.72% Senior Notes due September 2016 upon the maturity thereof.
The ratio of total debt (short-term borrowings and long-term debt) to stockholders' equity was 32% at January 31, 2019 and 31% at January 31, 2018.
At January 31, 2019, the Company was in compliance with all debt covenants.
For additional information regarding all of the Company's credit facilities, senior note issuances and other outstanding indebtedness, see "Item 8. Financial Statements and Supplementary Data - Note G - Debt" for additional information.
Under all of the Company's credit facilities, at January 31, 2016, there were $221.6 million of borrowings, $5.6 million of letters of credit issued but not outstanding and $790.8 million available for borrowing. At January 31, 2015, there were $234.0 million of borrowings, $5.7 million of letters of credit issued but not outstanding and $772.2 million available for borrowing. The weighted-average interest rate for borrowings outstanding was 2.90% at January 31, 2016 and 3.28% at January 31, 2015.
Senior Notes. In 2014, Tiffany & Co. issued $250.0 million aggregate principal amount of 3.80% Senior Notes due 2024 (the "2024 Notes") and $300.0 million aggregate principal amount of 4.90% Senior Notes due 2044 (the "2044 Notes" and, together with the 2024 Notes, the "Senior Notes"). The Senior Notes were issued at a discount with aggregate net proceeds of $548.0 million (with an effective yield of 3.836% for the 2024 Notes and an effective yield of 4.926% for the 2044 Notes). Tiffany & Co. used the
net proceeds from the issuance of the Senior Notes to redeem $400.0 million in aggregate principal amount of long-term debt prior to their scheduled maturities which ranged from 2015 to 2019 and paid $93.4 million of debt extinguishment costs associated with the redemption. The Company used the remaining net proceeds from the sale of the Senior Notes for general corporate purposes. See "Item 8. Financial Statements and Supplementary Data - Note G - Debt" for additional information.
The ratio of total debt (short-term borrowings, current portion of long-term debt and long-term debt) to stockholders' equity was 38% at January 31, 2016 and 39% at January 31, 2015.
At January 31, 2016, the Company was in compliance with all debt covenants.
Share Repurchases. In January 2011, the Company's Board of Directors approved a stock repurchase program ("2011 Program") and terminated a previously-existing program. The 2011 Program authorized the Company to repurchase up to $400.0 million of its Common Stock through open market or private transactions. The timing of repurchases and the actual number of shares to be repurchased depended on a variety of discretionary factors such as stock price, cash-flow forecasts and other market conditions. The Company suspended share repurchases during the second quarter of 2012 in order to allow for a more effective allocation of resources consistent with the Company's growth strategies. In January 2013, the Board of Directors extended the expiration date of the 2011 Program to January 31, 2014. The 2011 Program expired on January 31, 2014 with $163.8 million of unused capacity.G. Debt."
In March 2014,May 2018, the Company's Board of Directors approved a share repurchase program ("2014 Program") which authorized the Company to repurchase up to $300.0 million of its Common Stock through open market transactions. The program had an expiration date of March 31, 2017, but was terminated in January 2016 in connection with the authorization of a new program with increased repurchase capacity (as described in more detail below). Approximately $58.6 million remained available for repurchase under the 2014 Program at the time of its termination.
In January 2016, the Company'sRegistrant's Board of Directors approved a new share repurchase program ("2016(the "2018 Program"). The 2018 Program, which became effective June 1, 2018 and expires on January 31, 2022, authorizes the Company to repurchase up to $500.0 million$1.0 billion of its Common Stock through open market transactions, block trades including through Rule 10b5-1 plans and one or more accelerated share repurchase ("ASR") or other structured repurchase transactions, and/or privately negotiated transactions and terminated the 2014 Program.transactions. Purchases under the 2014 Program were,this program are discretionary and purchases under the 2016 Program have been, executed under a written plan for trading securities as specified under Rule 10b5-1 promulgated under the Securities and Exchange Act of 1934, as amended, the terms of which are within the Company's discretion, subjectwill be made from time to applicable securities laws, and aretime based on market conditions and the Company's liquidity needs. The Company may fund repurchases under the 2018 Program from existing cash at such time or from proceeds of any existing borrowing facilities at such time and/or the issuance of new debt. The 2018 Program replaced the Company's previous share repurchase program approved in January 2016 Program will expire on January 31, 2019. Approximately $494.0(the "2016 Program"), under which the Company was authorized to repurchase up to $500.0 million of its Common Stock. At the time of termination, $154.9 million remained available for repurchase under the 2016 Program atProgram. As of January 31, 2016.2019, $635.0 million remained available under the 2018 Program.
During the second quarter of 2018, the Company entered into ASR agreements with two third-party financial institutions to repurchase an aggregate of $250.0 million of its Common Stock. The ASR agreements were entered into under the 2018 Program. Pursuant to the ASR agreements, the Company made an aggregate payment of $250.0 million from available cash on hand in exchange for an initial delivery of 1,529,286 shares of its Common Stock. Final settlement of the ASR agreements was completed in July 2018, pursuant to which the Company received an additional 353,112 shares of its Common Stock. In total, 1,882,398 shares of the Company's Common Stock were repurchased under these ASR agreements at an average cost per share of $132.81 over the term of the agreements.
The Company's share repurchase activity was as follows:
| | | (in millions, except per share amounts) | 2015 |
| | 2014 |
| | 2013 |
| 2018 |
| | 2017 |
| | 2016 |
|
| Cost of repurchases | $ | 220.4 |
| | $ | 27.0 |
| | $ | — |
| $ | 421.4 |
| | $ | 99.2 |
| | $ | 183.6 |
|
| Shares repurchased and retired | 2.8 |
| | 0.3 |
| | — |
| 3.5 |
| | 1.0 |
| | 2.8 |
|
| Average cost per share | $ | 78.40 |
| | $ | 89.91 |
| | $ | — |
| $ | 121.28 |
| | $ | 94.86 |
| | $ | 65.24 |
|
Proceeds from exercised stock options. The Company's proceeds from exercised stock options were $23.1 million, $54.6 million and $15.3 million in 2018, 2017 and 2016, respectively.
Dividends. The cash dividend on the Company's Common Stock was increased once in each of 2015, 20142018, 2017 and 2013.2016. The Company's Board of Directors declared quarterly dividends which totaled $1.58, $1.48$2.15, $1.95 and $1.34$1.75 per common share in 2015, 20142018, 2017 and 20132016, respectively, with cash dividends paid of $203.4$263.8 million,, $191.2 $242.6 million and $170.2$218.8 million in those respective years. The dividend payout ratio (dividends as a percentage of net earnings) was 44%45%, 39%66% and 94%49% in 2015, 20142018, 2017 and 2013.2016, respectively. Dividends as a percentage of adjusted net earnings (see "Non-GAAP Measures") were 41%47% in 20152017 and 35% in both 2014 and 2013.2016.
At least annually, the Company's Board of Directors reviews its policies with respect to dividends and share repurchases with a view to actual and projected earnings, cash flows and capital requirements.
Financing Arrangements with Diamond Mining and Exploration Companies
The Company haspreviously provided financing to diamond mining and exploration companies in order to obtain rights to purchase the output from mines owned by these companies. At January 31, 2016, there was $43.8 million of principal outstanding under a financing arrangement (the "Loan") with Koidu Limited (previously Koidu Holdings S.A.) ("Koidu"). The Loan, which was entered into between Koidu and Laurelton Diamonds, Inc., a wholly owned subsidiary of the Company, in March 2011, originally provided that repayments of principal would begin in March 2013. However, in March 2013, the Company agreed to Koidu's request to defer the principal and interest payments due in 2013 to subsequent years and, in March 2014, the Company agreed to Koidu's request to provide for monthly rather than semi-annual payments of the principal payments due in 2014. The Company receivedrecorded impairment charges totaling $12.6 million during 2016 related to such scheduled monthly payments from Koidu in 2014. On April 30, 2015, the Company also agreed to defer Koidu's principal payment due on March 30, 2015 ("2015 Amendment"), subject to certain conditions set forth in the 2015 Amendment, which were met in June 2015.
In August 2015, Koidu requested that its interest payment due in July 2015 be deferred until a future date to be determined, and it advised the Company that it was likely to request a deferral of interest payments due in August and September of 2015. Based on these requests and other discussions with Koidu, in which Koidu had informed the Company that it was seeking additional sources of capital to fund ongoing operations of the mine, and with consideration given to the fact that Koidu did not respond to the Company's request for a proposed revised payment schedule for its obligations under the Loan, management believed that it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the Loan, and recorded an impairment charge, and related valuation allowance, of $9.6 million in the second quarter of 2015. Additionally, the Company ceased accruing interest income on the outstanding Loan balance as of July 31, 2015.
As of January 31, 2016, Koidu has not made any of its interest payments due in July 2015 and thereafter, nor its principal payment due in September 2015. The missed payments constitute events of default under the Loan. Koidu has yet to provide a proposed revised payment schedule for its obligations under the Loan. In February 2016, the Company received the resultsloans receivable from two separatediamond mining and independent reviews of Koidu's operational plans, forecasts, and cash flow projections for the mine, which were commissioned by the Company and by Koidu's largest creditor, respectively. Based on these factors, ongoing discussions with Koidu, and consideration of the possible actions that all parties, including the Government of Sierra Leone and Koidu's largest creditor, may take under the circumstances, management believes that it is probable that the portion of the amounts due under the contractual terms of the Loan that the Company will be unable to collect will be greater than originally estimated, and recorded an additional impairment charge, and related valuation allowance, of $28.3 million in the fourth quarter of 2015. The carrying amount of the Company’s loan receivable from Koidu, net of the valuation allowance, is $5.9 million at January 31, 2016.
The Company intends to continue to participate in discussions with Koidu regarding operational plans, forecasts and cash flow projections for the mine, as well as revisions to the payment schedule for the Loan. The Company also intends to continue to participate in discussions with certain of Koidu's stakeholders, including its largest creditor and the Government of Sierra Leone. The outcome of these discussions, as well as any other developments, will inform management's ongoing evaluation of the collectability of the Loan and the accrual of interest income. It is possible that such ongoing evaluation may result in additional changes to management's assessment of collectability. While such changes in management's assessment would not have a material adverse effect on the Company's financial position or cash flows, it is possible that such a change in assessment could affect the Company's earnings in the period in which such a change were to occur. Additionally, future developments may result in Koidu
defaulting under its diamond supply agreement with the Company, in which case the Company would lose access to the mine's output, although management believes this would not have a material impact on the Company's operations. Seeexploration companies (see "Item 8. Financial Statements and Supplementary Data - Note B -B. Summary of Significant Accounting Policies and Note J - Commitments and Contingencies" for additional information on this financing arrangement.Policies”).
Information Systems Assessment
The Company is engaged in a multi-year program to upgrade and/or replace certain of its information systems. As part of this program, the Company concluded that the development of a previous system originally intended to deliver enhanced finished goods inventory management and merchandising capabilities would instead be delivered through further development of the Company’s Enterprise Resource Planning system and the continued implementation of a new order management system. Accordingly, the Company evaluated the costs capitalized in connection with the development of the previous system for impairment in accordance with its policy on the review of long-lived assets (see "Item 8. Financial Statements and Supplementary Data - Note B. Summary of Significant Accounting Policies” and “Note E. Property, Plant and Equipment") and recorded a related pre-tax impairment charge of $25.4 million within SG&A during 2016. The multi-year program is ongoing and, as previously disclosed, may require significant capital expenditures and dedication of resources in both current and future periods.
Contractual Cash Obligations and Commercial Commitments
The following is a summary of the Company's contractual cash obligations at January 31, 2016:2019:
| | | (in millions) | Total |
| 2016 |
| 2017-2018 |
| 2019-2020 |
| Thereafter |
| Total |
| 2019 |
| 2020-2021 |
| 2022-2023 |
| Thereafter |
|
| Unrecorded contractual obligations: | Unrecorded contractual obligations: | | Unrecorded contractual obligations: | | |
Operating leases a | $ | 1,585.8 |
| $ | 273.6 |
| $ | 416.8 |
| $ | 297.7 |
| $ | 597.7 |
| $ | 1,507.0 |
| $ | 292.8 |
| $ | 452.0 |
| $ | 324.2 |
| $ | 438.0 |
|
Inventory purchase obligations b | 319.1 |
| 319.1 |
| | 283.9 |
| 283.9 |
| — |
| — |
| — |
|
Interest on debt c | 729.3 |
| 36.0 |
| 70.4 |
| 70.4 |
| 552.5 |
| 592.8 |
| 35.9 |
| 71.8 |
| 68.6 |
| 416.5 |
|
Other contractual obligations d | 91.7 |
| 68.9 |
| 14.2 |
| 2.0 |
| 6.6 |
| 113.8 |
| 72.1 |
| 21.7 |
| 2.7 |
| 17.3 |
|
| Recorded contractual obligations: | | |
| Short-term borrowings | 221.6 |
| 221.6 |
| — |
| — |
| — |
| 113.4 |
| 113.4 |
| — |
| — |
| — |
|
| Current portion of long-term debt | 84.2 |
| 84.2 |
| — |
| — |
| — |
| |
Long-term debt e | 800.0 |
| — |
| — |
| — |
| 800.0 |
| 891.8 |
| — |
| — |
| 50.0 |
| 841.8 |
|
| | $ | 3,831.7 |
| $ | 1,003.4 |
| $ | 501.4 |
| $ | 370.1 |
| $ | 1,956.8 |
| $ | 3,502.7 |
| $ | 798.1 |
| $ | 545.5 |
| $ | 445.5 |
| $ | 1,713.6 |
|
| |
| a) | Operating lease obligations do not include obligations for contingent rent, property taxes, insurance and maintenance that are required by most lease agreements. Contingent rent for the year ended January 31, 2016 totaled $34.9 million. See "Item 8. Financial Statements and Supplementary Data - Note J - CommitmentJ. Commitments and Contingencies" for a discussion of the Company’sCompany's operating leases. |
| |
| b) | The Company will, from time to time, secure supplies ofenter into arrangements to purchase rough diamonds by agreeing tothat contain minimum purchase a defined portion of a mine's output.obligations. Inventory purchase obligations associated with these agreements have been estimated at approximately $100.060.0 million for 20162019 and are included in this table. Purchases beyond 20162019 that are contingent upon mine production have been excluded as they cannot be reasonably estimated. |
| |
| c) | Excludes interest payments on amounts outstanding under available lines of credit, as the outstanding amounts fluctuate based on the Company's working capital needs. |
| |
| d) | Consists primarily of technology licensing and service contracts, fixed royalty commitments, construction-in-progress and packaging supplies.supplies; also includes the remaining Transition Tax liability. See "Item 8. Financial Statements and Supplementary Data - Note N. Income Taxes" for additional information. |
| |
| e) | Amounts exclude any unamortized discount or premium. |
The summary above does not include the following items:
Cash contributions to the Company's pension plan and cash payments for other postretirement obligations. The Company funds the Qualified Plan'sits U.S. pension plan's trust in accordance with regulatory limits to provide for current service and for the unfunded benefit obligation over a reasonable period and for current service benefit accruals. To the extent that these requirements are fully covered by assets in the Qualified Plan, the Company may elect not to make any contribution in a particular year. No cash contribution was required in 2015,2018 and none is required in 2016,2019 to meet the minimum funding requirements of the Employee Retirement Income Security Act ("ERISA"). TheAct. However, the Company
periodically evaluates whether to make discretionary cash contributions to the Qualified Plan and currentlymade voluntary cash contributions of $11.8 million in 2018, $15.0 million in 2017 and $120.0 million in 2016. The Company also made such a contribution of $30.0 million
in March 2019. The Company does not anticipate making suchcurrently expect to make any additional contributions in 2016.2019. This expectation is subject to change based on management's assessment of a variety of factors, including, but not limited to, asset performance, interest rates and changes in actuarial assumptions. The Company estimates cash payments for postretirement health-care and life insurance benefit obligations to be $1.7 million in 2016.
Unrecognized tax benefits at January 31, 2016of $10.2$17.3 million and accrued interest and penalties of $4.2 million at $7.8January 31, 2019 million.. The final outcome of tax uncertainties is dependent upon various matters including tax examinations, interpretation of the applicable tax laws or expiration of statutes of limitations. The Company believes that its tax positions comply with applicable tax law and that it has adequately provided for these matters. However, the examinations may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. At January 31, 2016, approximately $9.1 million of total unrecognized tax benefits, if recognized, would affect the effective income tax rate. Management believes it is reasonably possible that a majority of the total gross amount provided for unrecognized tax benefits will decrease in the next 12 months. Future developments may result in a change in this assessment.
The following is a summary of the Company's outstanding borrowings and available capacity under its credit facilities at January 31, 2016:2019:
| | | (in millions) | Total Capacity |
| Borrowings Outstanding |
| Letters of Credit Issued |
| Available Capacity |
| Total Capacity |
| Borrowings Outstanding |
| Letters of Credit Issued |
| Available Capacity |
|
Four-year revolving credit facility a | $ | 375.0 |
| $ | 22.1 |
| $ | — |
| $ | 352.9 |
| |
Five-year revolving credit facility b | 375.0 |
| 54.5 |
| 5.6 |
| 314.9 |
| |
Five-year revolving credit facility a, b | | $ | 750.0 |
| $ | 13.5 |
| $ | 6.1 |
| $ | 730.4 |
|
Other credit facilities c | 268.0 |
| 145.0 |
| — |
| 123.0 |
| 283.0 |
| 99.9 |
| — |
| 183.1 |
|
| | $ | 1,018.0 |
| $ | 221.6 |
| $ | 5.6 |
| $ | 790.8 |
| $ | 1,033.0 |
| $ | 113.4 |
| $ | 6.1 |
| $ | 913.5 |
|
a Matures in October 2018.
b Matures in October 2019.
c Maturities throughout 2016. | |
| b) | The aggregate amount of borrowings that the Company is currently authorized to have outstanding under the Commercial Paper Program and the Credit Facility is $750.0 million. As of January 31, 2019, there were no borrowings outstanding under the Commercial Paper Program. |
| |
| c) | Maturities through 2019. |
In addition, the Company has other available letters of credit and financial guarantees of $75.0$77.7 million, of which $26.6$28.3 million was outstanding at January 31, 2016.2019. Of those available letters of credit and financial guarantees, $60.2$64.1 million expires within one year.
Seasonality
As a jeweler and specialty retailer, the Company's business is seasonal in nature, with the fourth quarter typically representing approximately one-third of annual net sales and a higher percentage of annual net earnings. Management expects such seasonality to continue.
Critical Accounting Estimates
The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from those estimates and the differences could be material. Periodically, the Company reviews all significant estimates and assumptions affecting the financial statements and records any necessary adjustments.
The development and selection of critical accounting estimates and the related disclosures below have been reviewed with the Audit Committee of the Company's Board of Directors. The following critical
accounting policies that rely on assumptions and estimates were used in the preparation of the Company's consolidated financial statements:statements.
Inventory. The Company writes down its inventory for discontinued and slow-moving products. This write-down is equal to the difference between the cost of inventory and its estimated marketnet realizable value, and is based on assumptions about future demand and market conditions. If actual market conditions areNet realizable value is the estimated selling prices in the ordinary course of business, less favorable than those projected by management, additional inventory write-downs might be required.reasonably predictable costs of completion, disposal and transportation. The Company has not made any material changes in the accounting methodology used to establish its reserve for discontinued and slow-moving products during the past three years. At January 31, 2016,2019, a 10% change in the reserve for discontinued and slow-moving products would have resulted in a change of $5.9$8.1 million in inventory and cost of sales.
Property, plant and equipment and intangiblesintangible assets and key money. The Company reviews its property, plant and equipment and intangiblesintangible assets and key money for impairment when management determines that the carrying value of such assets may not be recoverable due to events or changes in circumstances. Recoverability of these assets is evaluated by comparing the carrying value of the asset with estimated future undiscounted cash flows. If the comparisons indicate that the value of the asset is not recoverable, an impairment loss is calculated as the difference between the carrying value and the fair value of the asset and the loss is recognized during that period. The Company did not record any materialsignificant impairment charges in 2015, 2014 or 20132018. In 2017, the Company recorded aggregate impairment charges of $10.0 million related to property, plant and equipment. In 2016, the Company recorded an impairment charge of $25.4 million associated with software costs capitalized in connection with the development of a finished goods inventory management and merchandising information system (see "Item 8. Financial Statements and Supplementary Data - Note B. Summary of Significant Accounting Policies" and "Note E. Property, Plant and Equipment" for additional information).
Goodwill. The Company performs its annual impairment evaluation of goodwill during the fourth quarter of its fiscal year, or when circumstances otherwise indicate an evaluation should be performed. A qualitative assessment is first performed for each reporting unit to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying value. If it is concluded that this is the case, an evaluation, based upon discounted cash flows, is performed and requires management to estimate future cash flows, growth rates and economic and market conditions. The 2015, 20142018, 2017 and 20132016 evaluations resulted in no impairment charges.
Notes receivable and other financing arrangements. The Company has provided financing to diamond mining and exploration companies in order to obtain rights to purchase the mine's output. Management evaluates these financing arrangements for potential impairment by reviewing the parties' financial statements and projections along with business, operational and other economic factors on a periodic basis. If the analyses indicate that the financing receivable is not recoverable, an impairment loss is recognized, in respect to all or a portion of the financing, during that period. In 2015, the Company recorded impairment charges totaling $37.9 million (see "Item 8. Financial Statements and Supplementary Data - Note B - Summary of Significant Accounting Policies and Note J - Commitments and Contingencies" for additional information). The Company did not record any material impairment charges in 2014 or 2013.
Income taxes. The Company is subject to income taxes in U.S. federal and state, as well as foreign, jurisdictions. The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across the Company's global operations. Significant judgments, interpretations and estimates are required in determining consolidated income tax expense. The Company's income tax expense, deferred tax assets and liabilities and reserves for uncertain tax positions reflect management's best assessment of estimated current and future taxes to be paid.
Foreign and domestic tax authorities periodically audit the Company's income tax returns. These audits often examine and test the factual and legal basis for positions the Company has taken in its tax filings with respect to its tax liabilities, including the timing and amount of income and deductions and the allocation of income among various tax jurisdictions ("tax filing positions"). Management believes that its tax filing positions are reasonable and legally supportable. However, in specific cases, various tax authorities may take a contrary position. In evaluating the exposures associated with the Company's various tax filing
positions, management records reserves using a more-likely-than-notmore likely-than-not recognition threshold for tax benefits related to the income tax positions taken or expected to be taken. Earnings could be affected to the extent the Company prevails in matters for which reserves have been established or is required to pay amounts in excess of established reserves. At January 31, 2016,2019, total unrecognized tax benefits were $10.2 million of which approximately $9.1 million, if recognized, would affect the effective income tax rate.$17.3 million. Management believesanticipates that it is reasonably possible that a majority of the total gross amount provided forof unrecognized tax benefits will decrease by approximately $6.0 million in the next 12 months.months; however management does not currently anticipate a corresponding impact on net earnings. Future developments may result in a change in this assessment.
In evaluating the Company's abilitylikelihood to recover its deferred tax assets within the jurisdiction from which they arise, management considers all available evidence. The Company records valuation allowances when management determines it is more likely than not that deferred tax assets will not be realized in the future.
Following the enactment of the 2017 Tax Act on December 22, 2017, the SEC issued SAB 118 to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. Specifically, SAB 118 provided a measurement period for companies to evaluate the impacts of the 2017 Tax Act on their financial statements. This measurement period began in the reporting period that included the enactment date and ended when an entity obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements, but could not exceed one year. The Company adopted the provisions of SAB 118 with respect to the impact of the 2017 Tax Act on its 2017 consolidated financial statements.
Consistent with SAB 118, the Company calculated and recorded reasonable estimates in its 2017 consolidated financial statements for the impact of the Transition Tax and the remeasurement of its deferred tax assets and deferred tax liabilities. The Company also adopted the provisions of SAB 118 as it related to the assertion of the indefinite reinvestment of foreign earnings and profits. The charges recorded during the fourth quarter of 2017 associated with the Transition Tax and the remeasurement of the Company's deferred tax assets and deferred tax
liabilities, as a result of applying the 2017 Tax Act, represented provisional amounts for which the Company's analysis was incomplete but reasonable estimates could be determined. Further, the impact of the 2017 Tax Act on the Company's assertion to indefinitely reinvest foreign earnings and profits was incomplete, as the Company continued to analyze the relevant provisions of the 2017 Tax Act and related accounting guidance.
During 2018, as permitted by SAB 118, the Company completed its analyses under the 2017 Tax Act, including those related to: (i) the provisional estimate recorded during 2017 for the Transition Tax; (ii) the provisional estimate recorded during 2017 to remeasure the Company's deferred tax assets and liabilities; and (iii) the Company's assertion to indefinitely reinvest undistributed foreign earnings and profits.
As a result of completing these analyses, during 2018, the Company: (i) recorded tax benefits totaling $12.6 million to adjust the provisional estimate recorded in 2017 to remeasure the Company's deferred tax assets and liabilities; (ii) recorded tax benefits totaling $3.3 million to adjust the provisional estimate recorded in 2017 for the Transition Tax; and (iii) determined to maintain its assertion to indefinitely reinvest undistributed foreign earnings and profits.
For additional information, see "Item 8. Financial Statements and Supplementary Data - Note N. Income Taxes."
Employee benefit plans. The Company maintains several pension and retirement plans as well asand provides certain postretirement health-carehealthcare and life insurance benefits for retired employees. The Company makes certain assumptions that affect the underlying estimates related to pension and other postretirement costs. Significant changes in interest rates, the market value of securities and projected health-carehealthcare costs would require the Company to revise key assumptions and could result in a higher or lower charge to earnings.
The Company used a discount ratesrate of 3.75%4.0% to determine 20152018 expense for its U.S. Qualified Plan as well asand its postretirement plans and 3.75% for its Excess Plan/SRIP and 3.50% for its postretirement plans.SRIP. Holding all other assumptions constant, a 0.5% increase in the discount rates would have decreased 20152018 pension and postretirement expenses by $7.9$6.1 million and $1.2 million.$0.6 million, respectively. A decrease of 0.5% in the discount rates would have increased the 20152018 pension and postretirement expenses by $8.9$6.8 million and $1.4 million.$0.7 million, respectively. The discount rate is subject to change each year, consistent with changes in the yield on applicable high-quality, long-term corporate bonds. Management selects a discount rate at which pension and postretirement benefits could be effectively settled based on (i) an analysis of expected benefit payments attributable to current employment service and (ii) appropriate yields related to such cash flows.
The Company used an expected long-term rate of return on pension plan assets of 7.50%7.00% to determine its 20152018 pension expense. Holding all other assumptions constant, a 0.5% change in the long-term rate of return would have changed the 20152018 pension expense by approximately $1.6$2.4 million. The expected long-term rate of return on pension plan assets is selected by taking into account the average rate of return expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. More specifically, consideration is given to the expected rates of return (including reinvestment asset return rates) based upon the plan's current asset mix, investment strategy and the historical performance of plan assets.
For postretirement benefit measurement purposes, 7.25%a 6.75% annual rate of increase in the per capita cost of covered health care was assumed for 2016.2018. The rate was assumed to decrease gradually to 4.75% by 2023 and remain at that level thereafter. A one-percentage-point increase in the assumed health-care cost trend rate would increase the Company's accumulated postretirement benefit obligation by approximately $3.9 million for the year ended January 31, 2016. Decreasing the assumed health-care cost trend rate by one-percentage point would decrease the Company's accumulated postretirement benefit obligation by approximately $2.8 million for the year ended January 31, 2016. A one-percentage-point change in the assumed health-care cost trend rate would not have a significant effect on the Company's accumulated postretirement benefit obligation for the year ended January 31, 2019 or aggregate service and interest cost components of the 20152018 postretirement expense.
20162019 Outlook
ForManagement's guidance for fiscal 2019 includes: (i) worldwide net sales increasing by a low-single-digit percentage over the fiscalprior year ending January 31, 2017, management is forecasting full yearas reported (and slightly higher on a constant-exchange-rate basis); (ii) net earnings per diluted share will range from unchanged toincreasing by a mid-single-digit percentage; and (iii) an expected decline compared with 2015's $3.83 per diluted share (excluding the loan impairment and staffing and occupancy charges noted in "Non-GAAP Measures"). Based on sales trends in the current quarter-to-date and an assumption of gradual improvement over the course of the year, management expects thatnet earnings per diluted share in the first quarter may decline by 15-20%, followed byhalf of the year, reflecting sales pressures (from the effect of a 5-10% declinestronger U.S. dollar, lower foreign tourist spending and comparisons to strong growth in last year's first half) as well as expenses related to higher strategic investment spending that began in the second quarter of 2018, among other factors. These expectations are approximations and a resumption of growth in the second half. This forecast isare based on the followingCompany's plans and assumptions which are approximate and may or may not prove valid, and which should be read in conjunction with "Item 1A. Risk Factors" on page K-13:
Worldwide net sales on a constant-exchange-rate basis increasing byfor the full year, including: (i) a low-single-digit percentage, but approximately equal toincrease in comparable sales, with varying results across the prior year when translated into U.S. dollars.
Increasingregions; (ii) worldwide gross retail square footage by 2%increasing 3%, net through 11eight store openings, 6 relocationssix closings and 9 closings.
Operating15 relocations; (iii) operating margin belowslightly above the prior year’s 19.7% (excluding the prior year’s charges) due to an expected increase in gross margin but with SG&A expense growth (despite some benefit from lower pension costs) exceeding sales growth.
Interestyear; (iv) interest and other expenses, net unchanged from 2015.
An effective income tax rate slightly lower than the prior year.year; (v) an effective income tax rate
Net inventories unchanged
of approximately 23%; (vi) a stronger U.S. dollar on a year-over-year basis; and (vii) a modest effect on EPS from the prior year.share repurchases.
Capital expenditures of $260.0 million.
FreeManagement also expects: (i) net cash flowprovided by operating activities of at least $400.0$750 million and (ii) free cash flow (see "Non-GAAP Measures") of at least $400 million. These expectations are approximations and are based on the Company's plans and assumptions for the full year, including: (i) minimal growth in net inventories for the full year, (ii) capital expenditures of $350 million and (iii) net earnings in line with management's expectations, as described above.
NEW ACCOUNTING STANDARDS
See "Item 8. Financial Statements and Supplementary Data - Note B -B. Summary of Significant Accounting Policies."
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from fluctuations in foreign currency exchange rates, precious metal prices and interest rates, 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.
Foreign Currency Risk
The Company uses foreign exchange forward contracts or put option contracts to offset a portion of the foreign currency exchange risks associated with foreign currency-denominated liabilities, intercompany transactions and forecasted purchases of merchandise between entities with differing functional currencies. The maximum term of the Company's outstanding foreign exchange forward contracts as of January 31, 20162019 is 12 months. At January 31, 20162019 and 2015,2018, the aggregate fair value of the Company's outstanding foreign exchange forwards werewas a net liabilitiesliability of $0.9$2.1 million and a net assetsliability of $20.1$5.1 million, respectively. At
The Company entered into cross-currency swaps to hedge the foreign currency exchange risk associated with Japanese yen-denominated intercompany loans. These cross-currency swaps are designated and accounted for as cash flow hedges. As of January 31, 2016,2019, the notional amounts of cross-currency swaps accounted for as cash flow hedges and the respective maturity dates were as follows:
|
| | | | | | | |
| Cross-Currency Swap | | Notional Amount |
| Effective Date | Maturity Date | (in billions) | (in millions) |
| July 2016 | October 1, 2024 | ¥ | 10.6 |
| $ | 100.0 |
|
| March 2017 | April 1, 2027 | 11.0 |
| 96.1 |
|
| May 2017 | April 1, 2027 | 5.6 |
| 50.0 |
|
At January 31, 2019, the aggregate fair value of the Company's outstanding cross-currency swaps was a net liability of $19.9 million.
At January 31, 2019, for all of the contracts and swaps noted above, a 10% depreciationdecrease in the hedged foreign currency exchange rates from the prevailing market rates would have resulted in a liability with a fair value of approximately $40.0$101.0 million.
Precious Metal Price Risk
The Company periodically hedges a portion of its forecasted purchases of precious metals for use in its internal manufacturing operations through the use of forward contracts in order to manage the effect of volatility in precious metal prices. The Company may use a combination of call and put option contracts in net-zero-cost collar arrangements ("precious metal collars") or forward contracts. For precious metal collars, ifIf the price of the precious metal at the time of the expiration of the precious metal collar is within the call and put price, the precious metal collar would expire at no cost to the Company. In 2015, the Company increased the term over which it is hedging its exposure to volatility in precious metal prices, as well as the portion of expected future metals purchases hedged, which has increased the number of precious metal derivative instruments outstanding at the end of the period. The maximum term of the Company's outstanding precious metal forward contracts and collars as of January 31, 20162019 is 2417 months. At January 31, 20162019 and 2015,2018, the aggregate fair value of the Company's outstanding precious metal derivative instruments werewas a net liabilitiesasset of $12.6$2.5 million and $2.9a net asset of $1.7 million, respectively. At January 31, 2016,2019, a 10% depreciationdecrease in precious metal prices from the prevailing market rates would have resulted in a liability with a fair value of approximately $26.0$12.0 million.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To theShareholders and Board of Directors of Tiffany & Co.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
In our opinion,We have audited the accompanying consolidated balance sheets of Tiffany & Co. (the "Company") and its subsidiaries as of January 31, 2019 and 2018, and the related consolidated statements of earnings, of comprehensive earnings, of stockholders' equity, and of cash flows for each of the three years in the period ended January 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of January 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tiffany & Co. and its subsidiaries (the "Company")atthe Company as of January 31, 20162019 and January 31, 2015,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period ended January 31, 20162019 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2016,2019, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting,of Management appearing under Item 9A. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note B to the consolidated financial statements, in 2015, the Company changed the manner in which it classifies deferred taxes on the consolidated balance sheets.Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 28, 201622, 2019
TIFFANY & CO.We have served as the Company's auditor since 1984.
K-54
CONSOLIDATED BALANCE SHEETS
|
| | | | | | | |
| | January 31, | |
| (in millions, except per share amounts) | 2016 |
| | 2015 |
|
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 843.6 |
| | $ | 730.0 |
|
| Short-term investments | 43.0 |
| | 1.5 |
|
| Accounts receivable, less allowances of $11.5 and $10.6 | 206.4 |
| | 195.2 |
|
| Inventories, net | 2,225.0 |
| | 2,362.1 |
|
| Prepaid expenses and other current assets | 190.4 |
| | 220.0 |
|
| Total current assets | 3,508.4 |
| | 3,508.8 |
|
| | | | |
| Property, plant and equipment, net | 935.8 |
| | 899.5 |
|
| Deferred income taxes | 382.8 |
| | 426.1 |
|
| Other assets, net | 302.7 |
| | 346.2 |
|
| | $ | 5,129.7 |
| | $ | 5,180.6 |
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| Current liabilities: | | | |
| Short-term borrowings | $ | 221.6 |
| | $ | 234.0 |
|
| Current portion of long-term debt | 84.2 |
| | — |
|
| Accounts payable and accrued liabilities | 329.1 |
| | 318.0 |
|
| Income taxes payable | 27.1 |
| | 39.9 |
|
| Merchandise credits and deferred revenue | 67.9 |
| | 66.1 |
|
| Total current liabilities | 729.9 |
| | 658.0 |
|
| | | | |
| Long-term debt | 798.1 |
| | 882.5 |
|
| Pension/postretirement benefit obligations | 428.1 |
| | 524.2 |
|
| Deferred gains on sale-leasebacks | 55.1 |
| | 64.5 |
|
| Other long-term liabilities | 189.0 |
| | 200.7 |
|
| | | | |
| Commitments and contingencies |
|
| |
|
|
| | | | |
| Stockholders' equity: | | | |
| Preferred Stock, $0.01 par value; authorized 2.0 shares, none issued and outstanding | — |
| | — |
|
| Common Stock, $0.01 par value; authorized 240.0 shares, issued and outstanding 126.8 and 129.3 | 1.3 |
| | 1.3 |
|
| Additional paid-in capital | 1,175.7 |
| | 1,173.6 |
|
| Retained earnings | 2,012.5 |
| | 1,950.7 |
|
| Accumulated other comprehensive loss, net of tax | (278.1 | ) | | (290.5 | ) |
| Total Tiffany & Co. stockholders' equity | 2,911.4 |
| | 2,835.1 |
|
| Non-controlling interests | 18.1 |
| | 15.6 |
|
| Total stockholders' equity | 2,929.5 |
| | 2,850.7 |
|
| | $ | 5,129.7 |
| | $ | 5,180.6 |
|
| | | | |
| See notes to consolidated financial statements. | | | |
TIFFANY & CO. |
| | | | | | | |
| | January 31, | |
| (in millions, except per share amounts) | 2019 |
| | 2018 |
|
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 792.6 |
| | $ | 970.7 |
|
| Short-term investments | 62.7 |
| | 320.5 |
|
| Accounts receivable, net | 245.4 |
| | 231.2 |
|
| Inventories, net | 2,428.0 |
| | 2,253.5 |
|
| Prepaid expenses and other current assets | 230.8 |
| | 207.4 |
|
| Total current assets | 3,759.5 |
| | 3,983.3 |
|
| | | | |
| Property, plant and equipment, net | 1,026.7 |
| | 990.5 |
|
| Deferred income taxes | 215.8 |
| | 188.2 |
|
| Other assets, net | 331.0 |
| | 306.1 |
|
| | $ | 5,333.0 |
| | $ | 5,468.1 |
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| Current liabilities: | | | |
| Short-term borrowings | $ | 113.4 |
| | $ | 120.6 |
|
| Accounts payable and accrued liabilities | 513.4 |
| | 437.4 |
|
| Income taxes payable | 21.4 |
| | 89.4 |
|
| Merchandise credits and deferred revenue | 69.9 |
| | 77.4 |
|
| Total current liabilities | 718.1 |
| | 724.8 |
|
| | | | |
| Long-term debt | 883.4 |
| | 882.9 |
|
| Pension/postretirement benefit obligations | 312.4 |
| | 287.4 |
|
| Deferred gains on sale-leasebacks | 31.1 |
| | 40.5 |
|
| Other long-term liabilities | 257.1 |
| | 284.3 |
|
| | | | |
| Commitments and contingencies |
|
| |
|
|
| | | | |
| Stockholders' equity: | | | |
| Preferred Stock, $0.01 par value; authorized 2.0 shares, none issued and outstanding | — |
| | — |
|
| Common Stock, $0.01 par value; authorized 240.0 shares, issued and outstanding 121.5 and 124.5 | 1.2 |
| | 1.2 |
|
| Additional paid-in capital | 1,275.4 |
| | 1,256.0 |
|
| Retained earnings | 2,045.6 |
| | 2,114.2 |
|
| Accumulated other comprehensive loss, net of tax | (204.8 | ) | | (138.0 | ) |
| Total Tiffany & Co. stockholders' equity | 3,117.4 |
| | 3,233.4 |
|
| Non-controlling interests | 13.5 |
| | 14.8 |
|
| Total stockholders' equity | 3,130.9 |
| | 3,248.2 |
|
| | $ | 5,333.0 |
| | $ | 5,468.1 |
|
| | | | |
| See notes to consolidated financial statements. | | | |
K-55
CONSOLIDATED STATEMENTS OF EARNINGS
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions, except per share amounts) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Net sales | $ | 4,104.9 |
| $ | 4,249.9 |
| $ | 4,031.1 |
| $ | 4,442.1 |
| $ | 4,169.8 |
| $ | 4,001.8 |
|
| Cost of sales | 1,613.6 |
| 1,712.7 |
| 1,690.7 |
| 1,631.1 |
| 1,559.1 |
| 1,502.8 |
|
| Gross profit | 2,491.3 |
| 2,537.2 |
| 2,340.4 |
| 2,811.0 |
| 2,610.7 |
| 2,499.0 |
|
| Selling, general and administrative expenses | 1,731.2 |
| 1,645.8 |
| 1,555.9 |
| 2,020.7 |
| 1,801.3 |
| 1,752.6 |
|
| Arbitration award expense | — |
| — |
| 480.2 |
| |
| Earnings from operations | 760.1 |
| 891.4 |
| 304.3 |
| 790.3 |
| 809.4 |
| 746.4 |
|
| Interest expense and financing costs | 49.0 |
| 62.9 |
| 62.6 |
| 39.7 |
| 42.0 |
| 46.0 |
|
| Other expense (income), net | 1.2 |
| (2.8 | ) | (13.2 | ) | |
| Loss on extinguishment of debt | — |
| 93.8 |
| — |
| |
| Other expense, net | | 7.1 |
| 6.9 |
| 23.8 |
|
| Earnings from operations before income taxes | 709.9 |
| 737.5 |
| 254.9 |
| 743.5 |
| 760.5 |
| 676.6 |
|
| Provision for income taxes | 246.0 |
| 253.3 |
| 73.5 |
| 157.1 |
| 390.4 |
| 230.5 |
|
| Net earnings | $ | 463.9 |
| $ | 484.2 |
| $ | 181.4 |
| $ | 586.4 |
| $ | 370.1 |
| $ | 446.1 |
|
| Net earnings per share: | | | | |
| Basic | $ | 3.61 |
| $ | 3.75 |
| $ | 1.42 |
| $ | 4.77 |
| $ | 2.97 |
| $ | 3.57 |
|
| Diluted | $ | 3.59 |
| $ | 3.73 |
| $ | 1.41 |
| $ | 4.75 |
| $ | 2.96 |
| $ | 3.55 |
|
| Weighted-average number of common shares: | | | | |
| Basic | 128.6 |
| 129.2 |
| 127.8 |
| 122.9 |
| 124.5 |
| 125.1 |
|
| Diluted | 129.1 |
| 129.9 |
| 128.9 |
| 123.5 |
| 125.1 |
| 125.5 |
|
| | | | | |
| See notes to consolidated financial statements. | See notes to consolidated financial statements. | | | See notes to consolidated financial statements. | | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Net earnings | $ | 463.9 |
| $ | 484.2 |
| $ | 181.4 |
| $ | 586.4 |
| $ | 370.1 |
| $ | 446.1 |
|
| Other comprehensive earnings (loss), net of tax | | | |
| Other comprehensive (loss) earnings, net of tax | | | |
| Foreign currency translation adjustments | (59.0 | ) | (93.1 | ) | (27.2 | ) | (60.2 | ) | 95.7 |
| (8.4 | ) |
| Unrealized (loss) gain on marketable securities | (2.9 | ) | (0.8 | ) | 0.8 |
| — |
| (2.6 | ) | 1.8 |
|
| Unrealized (loss) gain on hedging instruments | (21.4 | ) | 1.2 |
| (3.4 | ) | (1.6 | ) | (6.8 | ) | 10.7 |
|
| Net unrealized gain (loss) on benefit plans | 95.7 |
| (139.2 | ) | 65.1 |
| |
| Total other comprehensive earnings (loss), net of tax | 12.4 |
| (231.9 | ) | 35.3 |
| |
| Unrealized (loss) gain on benefit plans | | (6.8 | ) | 31.9 |
| 17.8 |
|
| Total other comprehensive (loss) earnings, net of tax | | (68.6 | ) | 118.2 |
| 21.9 |
|
| Comprehensive earnings | $ | 476.3 |
| $ | 252.3 |
| $ | 216.7 |
| $ | 517.8 |
| $ | 488.3 |
| $ | 468.0 |
|
| | | | | |
| See notes to consolidated financial statements. | | | | |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total
Stockholders'
Equity | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Common Stock | | Additional Paid-In Capital | | Non- Controlling Interests |
| (in millions) | Shares | | Amount |
| Balance at January 31, 2013 | $ | 2,611.3 |
| | $ | 1,671.3 |
| | $ | (93.9 | ) | | 126.9 |
| | $ | 1.3 |
| | $ | 1,020.0 |
| | $ | 12.6 |
|
| Exercise of stock options and vesting of restricted stock units ("RSUs") | 27.9 |
| | — |
| | — |
| | 1.4 |
| | — |
| | 27.9 |
| | — |
|
| Tax effect of exercise of stock options and vesting of RSUs | 14.9 |
| | — |
| | — |
| | — |
| | — |
| | 14.9 |
| | — |
|
| Share-based compensation expense | 32.5 |
| | — |
| | — |
| | — |
| | — |
| | 32.5 |
| | — |
|
| Cash dividends on Common Stock | (170.2 | ) | | (170.2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Other comprehensive earnings, net of tax | 35.3 |
| | — |
| | 35.3 |
| | — |
| | — |
| | — |
| | — |
|
| Net earnings | 181.4 |
| | 181.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Non-controlling interests | 0.9 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 0.9 |
|
| Balance at January 31, 2014 | 2,734.0 |
| | 1,682.5 |
| | (58.6 | ) | | 128.3 |
| | 1.3 |
| | 1,095.3 |
| | 13.5 |
|
| Exercise of stock options and vesting of RSUs | 36.9 |
| | — |
| | — |
| | 1.3 |
| | — |
| | 36.9 |
| | — |
|
| Tax effect of exercise of stock options and vesting of RSUs | 14.1 |
| | — |
| | — |
| | — |
| | — |
| | 14.1 |
| | — |
|
| Share-based compensation expense | 26.7 |
| | — |
| | — |
| | — |
| | — |
| | 26.7 |
| | — |
|
| Issuance of Common Stock under Employee Profit Sharing and Retirement Savings Plan | 3.9 |
| | — |
| | — |
| | — |
| | — |
| | 3.9 |
| | — |
|
| Purchase and retirement of Common Stock | (27.0 | ) | | (24.8 | ) | | — |
| | (0.3 | ) | | — |
| | (2.2 | ) | | — |
|
| Cash dividends on Common Stock | (191.2 | ) | | (191.2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Other comprehensive loss, net of tax | (231.9 | ) | | — |
| | (231.9 | ) | | — |
| | — |
| | — |
| | — |
|
| Net earnings | 484.2 |
| | 484.2 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Redemption of non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (1.1 | ) | | 1.1 |
|
| Non-controlling interests | 1.0 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1.0 |
|
| Balance at January 31, 2015 | 2,850.7 |
| | 1,950.7 |
| | (290.5 | ) | | 129.3 |
| | 1.3 |
| | 1,173.6 |
| | 15.6 |
|
| Exercise of stock options and vesting of RSUs | 0.3 |
| | — |
| | — |
| | 0.3 |
| | — |
| | 0.3 |
| | — |
|
| Tax effect of exercise of stock options and vesting of RSUs | 2.1 |
| | — |
| | — |
| | — |
| | — |
| | 2.1 |
| | — |
|
| Share-based compensation expense | 24.8 |
| | — |
| | — |
| | — |
| | — |
| | 24.8 |
| | — |
|
| Purchase and retirement of Common Stock | (220.4 | ) | | (198.7 | ) | | — |
| | (2.8 | ) | | — |
| | (21.7 | ) | | — |
|
| Cash dividends on Common Stock | (203.4 | ) | | (203.4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Other comprehensive earnings, net of tax | 12.4 |
| | — |
| | 12.4 |
| | — |
| | — |
| | — |
| | — |
|
| Net earnings | 463.9 |
| | 463.9 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Redemption of non-controlling interest | (2.2 | ) | | — |
| | — |
| | — |
| | — |
| | (3.4 | ) | | 1.2 |
|
| Non-controlling interests | 1.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1.3 |
|
| Balance at January 31, 2016 | $ | 2,929.5 |
| | $ | 2,012.5 |
| | $ | (278.1 | ) | | 126.8 |
| | $ | 1.3 |
| | $ | 1,175.7 |
| | $ | 18.1 |
|
| | | | | | | | | | | | | | |
| See notes to consolidated financial statements. | | | | | | | | | | |
TIFFANY & CO. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total
Stockholders'
Equity | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Common Stock | | Additional Paid-In Capital | | Non- Controlling Interests |
| (in millions) | Shares | | Amount |
| Balance at January 31, 2016 | $ | 2,929.5 |
| | $ | 2,012.5 |
| | $ | (278.1 | ) | | 126.8 |
| | $ | 1.3 |
| | $ | 1,175.7 |
| | $ | 18.1 |
|
| Exercise of stock options and vesting of restricted stock units ("RSUs") | 12.5 |
| | — |
| | — |
| | 0.5 |
| | — |
| | 12.5 |
| | — |
|
| Tax effect of exercise of stock options and vesting of RSUs | (0.5 | ) | | — |
| | — |
| | — |
| | — |
| | (0.5 | ) | | — |
|
| Share-based compensation expense | 24.5 |
| | — |
| | — |
| | — |
| | — |
| | 24.5 |
| | — |
|
| Purchase and retirement of Common Stock | (183.6 | ) | | (161.5 | ) | | — |
| | (2.8 | ) | | (0.1 | ) | | (22.0 | ) | | — |
|
| Cash dividends on Common Stock | (218.8 | ) | | (218.8 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Other comprehensive earnings, net of tax | 21.9 |
| | — |
| | 21.9 |
| | — |
| | — |
| | — |
| | — |
|
| Net earnings | 446.1 |
| | 446.1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Non-controlling interests | (3.2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (3.2 | ) |
| Balance at January 31, 2017 | 3,028.4 |
| | 2,078.3 |
| | (256.2 | ) | | 124.5 |
| | 1.2 |
| | 1,190.2 |
| | 14.9 |
|
| Exercise of stock options and vesting of RSUs | 54.6 |
| | — |
| | — |
| | 1.1 |
| | — |
| | 54.6 |
| | — |
|
| Shares withheld related to net share settlement of share-based compensation | (8.6 | ) | | — |
| | — |
| | (0.1 | ) | | — |
| | (8.6 | ) | | — |
|
| Share-based compensation expense | 28.2 |
| | — |
| | — |
| | — |
| | — |
| | 28.2 |
| | — |
|
| Purchase and retirement of Common Stock | (99.2 | ) | | (90.8 | ) | | — |
| | (1.0 | ) | | — |
| | (8.4 | ) | | — |
|
| Cash dividends on Common Stock | (242.6 | ) | | (242.6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Accrued dividends on share-based awards | (0.8 | ) | | (0.8 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Other comprehensive earnings, net of tax | 118.2 |
| | — |
| | 118.2 |
| | — |
| | — |
| | — |
| | — |
|
| Net earnings | 370.1 |
| | 370.1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Non-controlling interests | (0.1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (0.1 | ) |
| Balance at January 31, 2018 | 3,248.2 |
| | 2,114.2 |
| | (138.0 | ) | | 124.5 |
| | 1.2 |
| | 1,256.0 |
| | 14.8 |
|
| Exercise of stock options and vesting of RSUs | 23.1 |
| | — |
| | — |
| | 0.6 |
| | — |
| | 23.1 |
| | — |
|
Shares withheld related to net share settlement of share-based compensation
| (8.6 | ) | | — |
| | — |
| | (0.1 | ) | | — |
| | (8.6 | ) | | — |
|
| Share-based compensation expense | 34.1 |
| | — |
| | — |
| | — |
| | — |
| | 34.1 |
| | — |
|
| Purchase and retirement of Common Stock | (421.4 | ) | | (392.1 | ) | | — |
| | (3.5 | ) | | — |
| | (29.3 | ) | | — |
|
| Cash dividends on Common Stock | (263.8 | ) | | (263.8 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Accrued dividends on share-based awards
| (1.1 | ) | | (1.2 | ) | | — |
| | — |
| | — |
| | 0.1 |
| | — |
|
Cumulative effect adjustment from adoption of new accounting standards
| 3.9 |
| | 2.1 |
| | 1.8 |
| | — |
| | — |
| | — |
| | — |
|
| Other comprehensive earnings, net of tax | (68.6 | ) | | — |
| | (68.6 | ) | | — |
| | — |
| | — |
| | — |
|
| Net earnings | 586.4 |
| | 586.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Non-controlling interests | (1.3 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1.3 | ) |
| Balance at January 31, 2019 | $ | 3,130.9 |
| | $ | 2,045.6 |
| | $ | (204.8 | ) | | 121.5 |
| | $ | 1.2 |
| | $ | 1,275.4 |
| | $ | 13.5 |
|
| | | | | | | | | | | | | | |
| See notes to consolidated financial statements. | | | | | | | | | | |
K-58
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | |
| | Years Ended January 31, | |
| (in millions) | 2016 |
| | 2015 |
| | 2014 |
|
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net earnings | $ | 463.9 |
| | $ | 484.2 |
| | $ | 181.4 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
| Depreciation and amortization | 202.5 |
| | 194.2 |
| | 180.6 |
|
| Amortization of gain on sale-leasebacks | (8.3 | ) | | (9.2 | ) | | (9.5 | ) |
| Excess tax benefits from share-based payment arrangements | (2.2 | ) | | (14.1 | ) | | (14.9 | ) |
| Provision for inventories | 25.4 |
| | 33.6 |
| | 31.7 |
|
| Deferred income taxes | (1.9 | ) | | 37.7 |
| | (27.9 | ) |
| Provision for pension/postretirement benefits | 65.8 |
| | 39.2 |
| | 49.0 |
|
| Share-based compensation expense | 24.5 |
| | 26.5 |
| | 32.2 |
|
| Loan impairment charges | 37.9 |
| | — |
| | — |
|
| Changes in assets and liabilities: | | | | | |
| Accounts receivable | (16.7 | ) | | (17.6 | ) | | (23.2 | ) |
| Inventories | 63.7 |
| | (167.6 | ) | | (168.3 | ) |
| Prepaid expenses and other current assets | 1.1 |
| | (20.9 | ) | | (14.7 | ) |
| Other assets, net | (17.5 | ) | | (20.2 | ) | | (21.3 | ) |
| Accounts payable and accrued liabilities | (15.3 | ) | | (5.9 | ) | | 45.4 |
|
| Income taxes payable | 3.1 |
| | 81.9 |
| | (70.1 | ) |
| Merchandise credits and deferred revenue | 3.0 |
| | (2.7 | ) | | 4.7 |
|
| Other long-term liabilities | (15.4 | ) | | (24.0 | ) | | (20.4 | ) |
| Net cash provided by operating activities | 813.6 |
| | 615.1 |
| | 154.7 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Purchases of marketable securities and short-term investments | (100.0 | ) | | (40.1 | ) | | (23.5 | ) |
| Proceeds from sales of marketable securities and short-term investments | 73.6 |
| | 55.3 |
| | — |
|
| Capital expenditures | (252.7 | ) | | (247.4 | ) | | (221.4 | ) |
| Proceeds from sale of assets, net | 0.9 |
| | — |
| | — |
|
| Notes receivable funded | — |
| | — |
| | (3.1 | ) |
| Proceeds from notes receivable | — |
| | 15.2 |
| | 1.2 |
|
| Net cash used in investing activities | (278.2 | ) | | (217.0 | ) | | (246.8 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| (Repayment of) proceeds from credit facility borrowings, net | (11.3 | ) | | (12.5 | ) | | 49.9 |
|
| Proceeds from other credit facility borrowings | 24.8 |
| | 19.8 |
| | 89.8 |
|
| Repayment of other credit facility borrowings | (16.0 | ) | | (3.4 | ) | | (69.7 | ) |
| Proceeds from the issuance of long-term debt | — |
| | 548.0 |
| | — |
|
| Repayment of long-term debt | — |
| | (400.0 | ) | | — |
|
| Payment for settlement of interest rate swaps | — |
| | (4.2 | ) | | — |
|
| Repurchase of Common Stock | (220.4 | ) | | (27.0 | ) | | — |
|
| Proceeds from exercised stock options | 2.0 |
| | 42.9 |
| | 27.9 |
|
| Excess tax benefits from share-based payment arrangements | 2.2 |
| | 14.1 |
| | 14.9 |
|
| Cash dividends on Common Stock | (203.4 | ) | | (191.2 | ) | | (170.2 | ) |
| Distribution to non-controlling interest | — |
| | (1.9 | ) | | (0.7 | ) |
| Financing fees | (0.2 | ) | | (8.0 | ) | | (7.3 | ) |
| Net cash used in financing activities | (422.3 | ) | | (23.4 | ) | | (65.4 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 0.5 |
| | 9.5 |
| | (1.5 | ) |
| Net increase/(decrease) in cash and cash equivalents | 113.6 |
| | 384.2 |
| | (159.0 | ) |
| Cash and cash equivalents at beginning of year | 730.0 |
| | 345.8 |
| | 504.8 |
|
| Cash and cash equivalents at end of year | $ | 843.6 |
| | $ | 730.0 |
| | $ | 345.8 |
|
| See notes to consolidated financial statements. | | | | | |
TIFFANY & CO. |
| | | | | | | | | | | |
| | Years Ended January 31, | |
| (in millions) | 2019 |
| | 2018 |
| | 2017 |
|
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net earnings | $ | 586.4 |
| | $ | 370.1 |
| | $ | 446.1 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
| Depreciation and amortization | 229.0 |
| | 206.9 |
| | 208.5 |
|
| Amortization of gain on sale-leasebacks | (8.4 | ) | | (8.2 | ) | | (8.5 | ) |
| Provision for inventories | 54.4 |
| | 28.9 |
| | 19.2 |
|
| Deferred income taxes | (21.3 | ) | | 96.8 |
| | 46.1 |
|
| Provision for pension/postretirement benefits | 35.7 |
| | 35.0 |
| | 45.4 |
|
| Share-based compensation expense | 34.1 |
| | 28.0 |
| | 24.3 |
|
| Loan impairment charges | — |
| | 3.0 |
| | 12.6 |
|
| Asset impairment charges | — |
| | 10.0 |
| | 25.4 |
|
| Gains on sales of marketable securities | 2.3 |
| | (3.5 | ) | | — |
|
| Changes in assets and liabilities: | | | | | |
| Accounts receivable | (30.8 | ) | | 7.0 |
| | (19.2 | ) |
| Inventories | (270.5 | ) | | (52.9 | ) | | 54.8 |
|
| Prepaid expenses and other current assets | (11.3 | ) | | (28.8 | ) | | 33.6 |
|
| Other assets, net | (22.2 | ) | | (3.7 | ) | | 0.8 |
|
| Accounts payable and accrued liabilities | 53.7 |
| | 98.8 |
| | (21.7 | ) |
| Income taxes payable | (104.6 | ) | | 149.7 |
| | (39.3 | ) |
| Merchandise credits and deferred revenue | (1.0 | ) | | 6.2 |
| | 1.5 |
|
| Other long-term liabilities | 6.3 |
| | (11.1 | ) | | (123.9 | ) |
| Net cash provided by operating activities | 531.8 |
| | 932.2 |
| | 705.7 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Purchases of marketable securities and short-term investments | (154.1 | ) | | (598.0 | ) | | (125.5 | ) |
| Proceeds from sales of marketable securities and short-term investments | 394.1 |
| | 351.4 |
| | 109.8 |
|
| Capital expenditures | (282.1 | ) | | (239.3 | ) | | (222.8 | ) |
| Other, net | 12.2 |
| | 4.8 |
| | 1.7 |
|
| Net cash used in investing activities | (29.9 | ) | | (481.1 | ) | | (236.8 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| (Repayment of) proceeds from credit facility borrowings, net | (18.4 | ) | | (67.8 | ) | | 14.2 |
|
| Proceeds from other credit facility borrowings | 49.3 |
| | 39.2 |
| | 76.8 |
|
| Repayment of other credit facility borrowings | (32.0 | ) | | (96.1 | ) | | (83.1 | ) |
| Proceeds from the issuance of long-term debt | — |
| | — |
| | 98.1 |
|
| Repayment of long-term debt | — |
| | — |
| | (97.1 | ) |
| Repurchase of Common Stock | (421.4 | ) | | (99.2 | ) | | (183.6 | ) |
| Proceeds from exercised stock options | 23.1 |
| | 54.6 |
| | 15.3 |
|
| Payments related to tax withholding for share-based payment arrangements | (8.6 | ) | | (8.7 | ) | | (2.9 | ) |
| Cash dividends on Common Stock | (263.8 | ) | | (242.6 | ) | | (218.8 | ) |
| Distribution to non-controlling interest | (0.3 | ) | | (0.5 | ) | | (3.8 | ) |
| Financing fees | (2.2 | ) | | — |
| | (1.5 | ) |
| Net cash used in financing activities | (674.3 | ) | | (421.1 | ) | | (386.4 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (5.7 | ) | | 12.7 |
| | 1.9 |
|
| Net (decrease) increase in cash and cash equivalents | (178.1 | ) | | 42.7 |
| | 84.4 |
|
| Cash and cash equivalents at beginning of year | 970.7 |
| | 928.0 |
| | 843.6 |
|
| Cash and cash equivalents at end of year | $ | 792.6 |
| | $ | 970.7 |
| | $ | 928.0 |
|
| See notes to consolidated financial statements. | | | | | |
K-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tiffany & Co. (the "Registrant") is a holding company that operates through itsTiffany and Company ("Tiffany") and the Registrant's other subsidiary companies (collectively, the "Company"). Its principal subsidiary, Tiffany and Company ("Tiffany"), is a jeweler and specialty retailer. ThroughThe Registrant, through its subsidiaries, the Company designs and manufactures products and operates TIFFANY & CO. retail stores worldwide, and also sells its products through Internet, catalog, business-to-business and wholesale operations.distribution. The Company's principal merchandise offering is jewelry (representing 93%92% of worldwide net sales in 2015)2018); it also sells timepieces, leather goods, sterling silverware, china, crystal, stationery, fragranceswatches, home and accessories.accessories products and fragrances.
The Company's reportable segments are as follows:
Americas includes sales in Company-operated TIFFANY & CO. stores in the United States, Canada and Latin America, as well as sales of TIFFANY & CO. products in certain markets through Internet, catalog, business-to-business and wholesale operations;
Asia-Pacific includes sales in Company-operated TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products in certain markets through Internet and wholesale operations;
Japan includes sales in Company-operated TIFFANY & CO. stores, as well as sales of
TIFFANY & CO. products through Internet, business-to-business and wholesale operations;
Europe includes sales in Company-operated TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products in certain markets through the Internet;Internet and wholesale operations; and
Other consists of all non-reportable segments. Other includes the Emerging Markets region, which consists of retailincludes sales in Company-operated TIFFANY & CO. stores in the United Arab Emirates ("U.A.E.") and wholesale sales of TIFFANY & CO. merchandise to independent distributors for resale in certain emerging markets (primarilyoperations in the Middle East).East. In addition, Other includes wholesale sales of diamonds obtained through bulk purchases that were subsequently deemed not suitable for the Company's needs as well as earnings received from third-party licensing agreements.
| |
| B. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Fiscal Year
The Company's fiscal year ends on January 31 of the following calendar year. All references to years relate to fiscal years rather than calendar years.
Basis of Reporting
The accompanying consolidated financial statements include the accounts of Tiffany & Co. and its subsidiaries in which a controlling interest is maintained. Controlling interest is determined by majority ownership interest and the absence of substantive third-party participating rights or, in the case of variable interest entities (VIEs), if the Company has the power to significantly direct the activities of a VIE, as well as the obligation to absorb significant losses of or the right to receive significant benefits from the VIE. Intercompany accounts, transactions and profits have been eliminated in consolidation. The equity method of accounting is used for investments in which the Company has significant influence, but not a controlling interest.
TIFFANY & CO.Certain prior year amounts have been reclassified to conform with the current year presentation. In connection with the adoption of ASU 2017-07 - Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, certain items have been reclassified on the consolidated statements of earnings for the years ended January 31, 2018 and 2017. See "Recently Adopted Accounting Standards" below for additional information.
K-60
Use of Estimates
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America;America ("U.S. GAAP"); these principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and related notes to the consolidated financial statements. Actual results could differ from these estimates and the differences could be material. Periodically, the Company reviews all significant estimates and assumptions affecting the consolidated financial statements relative to current conditions and records the effect of any necessary adjustments.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents include highly liquid investments with an original maturity of three months or less and consist of time deposits and/or money market fund investments with a number of U.S. and non-U.S. financial institutions with high credit ratings. The Company's policy restricts the amount invested with any one financial institution.
Short-Term Investments
Short-termThe Company's short-term investments are classified as available-for-saleconsist of time deposits and are carried at fair value. At January 31, 2016 and 2015, the Company's short-term available-for-sale investments consisted entirely of time deposits. At the time of purchase, management determines the appropriate classification of these investments and reevaluates such designation as of each balance sheet date.
Receivables and Financing Arrangements
Receivables. The Company's accountsAccounts receivable, net primarily consists of amounts due from Credit Receivables (defined below), department store operators that host TIFFANY & CO. boutiques in their stores, third-party credit card issuers and wholesale customers. The Company maintains an allowance for doubtful accounts for estimated losses associated with theoutstanding accounts receivable recorded on the balance sheet.receivable. The allowance is determined based on a combination of factors including, but not limited to, the length of time that the receivables are past due, management's knowledge of the customer, economic and market conditions and historical write-off experiences.
For the receivables associated with Tiffany & Co. credit cards ("Credit Card Receivables"), management uses various indicators to determine whether to extend credit to customers and the amount of credit. Such indicators include reviewing prior experience with the customer, including sales and collection history, and using applicants' credit reports and scores provided by credit rating agencies. Certain customers may be granted payment terms which permit purchases above a minimum amount to be paid for in equal monthly installments over a period not to exceed 12 months (together with Credit Card Receivables, "Credit Receivables"). Credit Receivables require minimum balance payments. An account is classified as overdue if a minimum balance payment has not been received within the allotted timeframe (generally 30 days), after which internal collection efforts commence. In order for the account to return to current status, full payment on all past due amounts must be received by the Company. For all Credit Receivables, recorded on the balance sheet, once all internal collection efforts have been exhausted and management has reviewed the account, the account balance is written off and may be sent for external collection or legal action. At January 31, 2016 and 2015,2019, the carrying amount of the Credit Receivables (recorded in accountsAccounts receivable, net) was $75.2 million and $63.9$87.0 million, of which 97% and 98% were was considered current, respectively. The allowance for doubtful accounts for estimated losses associated with the Credit Receivables (approximately $1.0 million at January 31, 2016 and 2015) was determined based on the factors discussed above.current. Finance charges earned on Credit CardReceivables accounts arewere not significant.
Financing Arrangements. The Company haspreviously provided financing to diamond mining and exploration companies in order to obtain rights to purchase the mine's output (see "Note J - Commitments and
Contingencies"). Management evaluates these financing arrangements for potential impairment by reviewing the parties' financial statements along with projections and business, operational and other economic factors on a periodic basis. At January 31, 2016 and 2015, the current portion of the carrying amount of financing arrangements including accrued interest was $2.1 million and $18.6 million and was recorded in prepaid expenses and other current assets. At January 31, 2016 and 2015, the non-current portion of the carrying amount of financing arrangements including accrued interest was $18.9 million and $40.7 million and was included in other assets, net.
output. As of January 31, 2016,2017, the Company had a $43.8 million financing arrangement (the "Loan") with Koidu Limited (previously Koidu Holdings S.A.) ("Koidu"). On April 30, 2015,However, the Company agreedpreviously recorded impairment charges totaling $42.1 million related to defer Koidu's principal payment due on March 30, 2015 ("2015 Amendment")the Loan (including $4.2 million in 2016), subject to certain conditions set forthresulting in a net carrying amount of $1.7 million as of January 31, 2017. In 2017, the Company sold its interest in the 2015 Amendment, which were met in June 2015.Loan to Koidu's largest creditor for $1.7 million. Additionally, the Company and Koidu entered into an agreement to terminate the supply agreement between the parties.
In August 2015, Koidu requested that its interest payment due in July 2015 be deferred until a future date to be determined, and it advised theThe Company that it was likely to request a deferral of interest payments due in August and September of 2015. Based on these requests and other discussions with Koidu, in which Koidu had informed the Company that it was seeking additional sources of capital to fund ongoing operations of the mine, and with consideration given to the fact that Koidu did not respond to the Company's request for a proposed revised payment schedule for its obligations under the Loan, management believed that it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the Loan, andalso recorded an impairment charge of $8.4 million during the fiscal year ended January 31, 2017 related to a separate financing arrangement with another diamond mining and related valuation allowance, of $9.6 million in the second quarter of 2015. Additionally, the Company ceased accruing interest income on the outstanding Loan balance as of July 31, 2015.exploration company.
As ofAt January 31, 2016, Koidu has not made any of its interest payments due in July 2015 and thereafter, nor its principal payment due in September 2015. The missed payments constitute events of default under the Loan. Koidu has yet2019, accounts receivable allowances totaled $31.5 million compared to provide a proposed revised payment schedule for its obligations under the Loan. In February 2016, the Company received the results from two separate and independent reviews of Koidu's operational plans, forecasts, and cash flow projections for the mine, which were commissioned by the Company and by Koidu's largest creditor, respectively. Based on these factors, ongoing discussions with Koidu, and consideration of the possible actions that all parties, including the Government of Sierra Leone and Koidu's largest creditor, may take under the circumstances, management believes that it is probable that the portion of the amounts due under the contractual terms of the Loan that the Company will be unable to collect will be greater than originally estimated, and recorded an impairment charge, and related valuation allowance, of $28.3 million in the fourth quarter of 2015. The carrying amount of the Company’s loan receivable from Koidu, net of the valuation allowance, is $5.9$17.2 million at January 31, 2016. See "Note J. - Commitments and Contingencies" for additional information on this financing arrangement.2018, with $12.2 million of the increase at January 31, 2019 due to the adoption of ASU 2014-09, which
The Companyrequires sales returns reserves to be presented on a gross basis on the consolidated balance sheet, with the asset related to merchandise expected to be returned recorded no material impairment charges on such loans asoutside of January 31, 2015.Accounts receivable, net.
Inventories
Inventories are valued at the lower of cost or marketnet realizable value using the average cost method, except for certain diamond and gemstone jewelry, which uses the specific identification method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated useful lives:
|
| |
| Buildings | 39 years |
| Machinery and equipment | 5-15 years |
| Office equipment | 3-8 years |
| Software | 5-10 years |
| Furniture and fixtures | 2-103-10 years |
Leasehold improvements and building improvements are amortized over the shorter of their estimated useful lives (ranging(primarily ranging from 8-10 years) or the related lease terms or building life, respectively. Maintenance and repair costs are charged to earnings while expenditures for major renewals and improvements are capitalized. Upon the disposition of property, plant and equipment, the accumulated depreciation is deducted from the original cost and any gain or loss is reflected in current earnings.
The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. The Company's capitalized interest costs were not significant in 2015, 20142018, 2017 or 2013.2016.
Information Systems Development Costs
Eligible costs incurred during the development stage of information systems projects are capitalized and amortized over the estimated useful life of the related project. Eligible costs include those related to the purchase, development, and installation of the related software. Costs incurred prior to the development stage, as well as costs for maintenance, data conversion, training, and other general and administrative costs, are expensed as incurred. Costs that are capitalized are included in Property, plant and equipment, net in Construction-in-progress while in the development stage and in Software once placed into service.
Capitalized software costs are subject to the Company's accounting policy related to the review of long-lived assets for impairment. See "Impairment of Long-Lived Assets"below for further details.
Intangible Assets and Key Money
Intangible assets, consisting of product rights and trademarks, are recorded at cost and are amortized on a straight-line basis over their estimated useful lives, which range from 15 to 20 years. Intangible assets are reviewed for impairment in accordance with the Company's policy for impairment of long-lived assets (see "Impairment of Long-Lived Assets" below).
Key money is the amount of funds paid to a landlord or tenant to acquire the rights of tenancy under a commercial property lease for a certain property. Key money represents the "right to lease" with an automatic right of renewal. This right can be subsequently sold by the Company or can be recovered should the landlord refuse to allow the automatic right of renewal to be exercised. Key money is amortized over the estimated useful life, 39 years.
The following table summarizes intangible assets and key money, included in otherOther assets, net, as follows:
| | | | January 31, 2016 | January 31, 2015 | January 31, 2019 | January 31, 2018 |
| (in millions) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization |
| Product rights | $ | 49.6 |
| $ | (9.2 | ) | $ | 59.4 |
| $ | (16.2 | ) | $ | 48.9 |
| $ | (16.0 | ) | $ | 48.9 |
| $ | (13.5 | ) |
| Key money deposits | 32.7 |
| (3.3 | ) | 33.7 |
| (2.4 | ) | |
| Key money | | 34.1 |
| (6.0 | ) | 36.8 |
| (5.5 | ) |
| Trademarks | 2.5 |
| (2.5 | ) | 2.5 |
| (2.5 | ) | 2.5 |
| (2.5 | ) | 2.5 |
| (2.5 | ) |
| | $ | 84.8 |
| $ | (15.0 | ) | $ | 95.6 |
| $ | (21.1 | ) | $ | 85.5 |
| $ | (24.5 | ) | $ | 88.2 |
| $ | (21.5 | ) |
Amortization of intangible assets and key money was $3.4 million for the years ended January 31, 2016, 20152019, 2018 and 2014 was $3.7 million, $7.8 million and $4.2 million.2017. Amortization expense is estimated to be approximately $3.5$3.5 million in each of the next five years.
Goodwill
Goodwill represents the excess of cost over fair value of net assets acquired in a business combination. Goodwill is evaluated for impairment annually in the fourth quarter, or when events or changes in circumstances indicate that the value of goodwill may be impaired. A qualitative assessment is first
performed for each reporting unit to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, a quantitative evaluation, based on discounted cash flows, is performed and requires management to estimate future cash flows, growth rates and economic and market conditions. If the quantitative evaluation indicates that goodwill is not recoverable, an impairment loss is calculated and recognized during that period. At January 31, 20162019 and 2015,2018, goodwill, included in otherOther assets, net, consisted of the following by reportable segment:
| | | (in millions) | Americas | Asia-Pacific | Japan | Europe | Other | Total | Americas | Asia-Pacific | Japan | Europe | Other | Total |
| January 31, 2014 | $ | 12.4 |
| $ | 0.3 |
| $ | 1.1 |
| $ | 1.1 |
| $ | 24.8 |
| $ | 39.7 |
| |
| January 31, 2017 | | $ | 12.1 |
| $ | 0.3 |
| $ | 1.0 |
| $ | 1.1 |
| $ | 23.9 |
| $ | 38.4 |
|
| Translation | (0.1 | ) | — |
| — |
| — |
| (0.8 | ) | (0.9 | ) | 0.1 |
| — |
| — |
| — |
| 0.6 |
| 0.7 |
|
| January 31, 2015 | 12.3 |
| 0.3 |
| 1.1 |
| 1.1 |
| 24.0 |
| 38.8 |
| |
| January 31, 2018 | | 12.2 |
| 0.3 |
| 1.0 |
| 1.1 |
| 24.5 |
| 39.1 |
|
| Translation | (0.1 | ) | — |
| — |
| (0.1 | ) | (0.1 | ) | (0.3 | ) | (0.1 | ) | — |
| — |
| — |
| (0.3 | ) | (0.4 | ) |
| January 31, 2016 | $ | 12.2 |
| $ | 0.3 |
| $ | 1.1 |
| $ | 1.0 |
| $ | 23.9 |
| $ | 38.5 |
| |
| January 31, 2019 | | $ | 12.1 |
| $ | 0.3 |
| $ | 1.0 |
| $ | 1.1 |
| $ | 24.2 |
| $ | 38.7 |
|
The Company recorded no impairment charges related to goodwill in 2015, 20142018, 2017 or 2013.2016.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets (such as property, plant and equipment) other than goodwill for impairment when management determines that the carrying value of such assets may not be recoverable due to events or changes in circumstances. Recoverability of long-lived assets is evaluated by comparing the carrying value of the asset with theits estimated future undiscounted cash flows. If the comparisons indicate that the value of the asset is not recoverable, an impairment loss is calculated as the difference between the carrying value and the fair value of the asset and the loss is recognized during that period. TheThere were no significant impairment charges related to long-lived assets during 2018. In 2017, the Company recorded no materialaggregate impairment charges of $10.0 million related to property, plant and equipment. In 2016, the Company recorded an impairment charge of $25.4 million associated with the software costs capitalized in 2015, 2014 or 2013connection with the development of a finished goods inventory management and merchandising information system (see "Note E. Property, Plant and Equipment" for additional information).
Hedging Instruments
The Company uses derivative financial instruments to mitigate a portion of its foreign currency, precious metal price and interest rate exposures. Derivative instruments are recorded on the consolidated balance sheet at their fair values, as either assets or liabilities, with an offset to current or other comprehensive earnings, depending on
whether a derivative is designated as part of an effective hedge transaction and, if it is, the type of hedge transaction.
Marketable Securities
The Company's marketable securities recorded within other assets, net, are classified as available-for-saleprimarily consist of investments in mutual funds and are recorded within Other assets, net, at fair value with realized and unrealized gains and losses reported as a separate component of stockholders' equity. Realized gains and losses are recorded in other expense (income), net. The marketableearnings. Marketable securities are held for an indefinite period of time, but may be sold in the future as changes in market conditions or economic factors occur. The fair value of the marketable securities is determined based on prevailing market prices. The Company recorded $0.9 million and $5.1 million of gross unrealized gains and $1.8 million and $1.9 million of gross unrealized losses within accumulated other comprehensive loss as of January 31, 2016 and 2015.
Realized gains or losses reclassified from other comprehensive earnings are determined on the basis of specific identification.
The Company's marketable securities primarily consist of investments in mutual funds. When evaluating the marketable securities for other-than-temporary impairment, the Company reviews factors such as the length of time and the extent to which fair value has been below cost basis, the financial condition of the
issuer, and the Company's ability and intent to hold the investments for a period of time which may be sufficient for anticipated recovery in market value. Based on the Company's evaluations, it determined that any unrealized losses on its outstanding mutual funds were temporary in nature and, therefore, did not record any impairment charges as of January 31, 2016, 2015 or 2014.
Merchandise Credits and Deferred Revenue
Merchandise credits and deferred revenue primarily represent outstanding gift cards sold to customers and outstanding credits issued to customers for returned merchandise. All such outstanding items may be tendered for future merchandise purchases. A gift card liability is established when the gift card is sold. A merchandise credit liability is established when a merchandise credit is issued to a customer for a returned item and the original sale is reversed. TheThese liabilities are relieved andwhen revenue is recognized when merchandise is purchased and delivered to the customer and thefor transactions in which a merchandise credit or gift card is used as a form of payment.
If merchandise credits or gift cards are not redeemed over an extended period of time (for example, approximately three to five years in the U.S.), the value ofassociated with the merchandise credits or gift cards is generally remittedmay be subject to remittance to the applicable jurisdiction in accordance with unclaimed property laws. The Company determines the amount of breakage income to be recognized on gift cards and merchandise credits using historical experience to estimate amounts that will ultimately not be redeemed. The Company recognizes such breakage income in proportion to redemption rates of the overall population of gift cards and merchandise credits.
In 2018, the Company recognized net sales of approximately $34.0 million related to the Merchandise credits and deferred revenue balance that existed at January 31, 2018.
Revenue Recognition
The following table disaggregates the Company's net sales by major source:
|
| | | | | | | | | | | |
| | Years Ended January 31, | |
| (in millions) | 2019 | | 2018 | | 2017 |
| Net sales*: | | | | | |
| Jewelry collections | $ | 2,374.1 |
| | $ | 2,146.6 |
| | $ | 1,991.0 |
|
| Engagement jewelry | 1,157.4 |
| | 1,111.9 |
| | 1,174.9 |
|
| Designer jewelry | 544.5 |
| | 551.2 |
| | 529.1 |
|
| All other | 366.1 |
| | 360.1 |
| | 306.8 |
|
| | $ | 4,442.1 |
| | $ | 4,169.8 |
| | $ | 4,001.8 |
|
*Certain reclassifications within the jewelry categories have been made to the prior year amounts to conform to the current year category presentation.
The Company's performance obligations consist primarily of transferring control of merchandise to customers. Sales are recognized at the "pointupon transfer of sale,"control, which occurs when merchandise is taken in an "over-the-counter" transaction or upon receipt by a customer in a shipped transaction, such as through the Internet and catalog channels. Revenue associated with gift cards and merchandise credits is recognized upon redemption. Sales are reported net of returns, sales tax and other similar taxes. The Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority and collected by the entity from a customer.
Shipping and handling fees billed to customers are recognized in net sales when control of the underlying merchandise is transferred to the customer. The related shipping and handling charges incurred by the Company represent fulfillment activities and are included in netCost of sales.
The Company maintains a reserve for potential product returns and it records as(as a reduction to sales and cost of sales,sales) its provision for estimated product returns, which is determined based on historical experience.
As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component when management expects, at contract inception, that the period between the transfer of a product to a customer and when the customer pays for that product is one year or less.
Additionally, outside of the U.S., the Company operates certain TIFFANY & CO. stores within various department stores. Sales transacted at these store locations are recognized at the "pointupon transfer of sale."control, which occurs when merchandise is taken in an "over-the-counter" transaction. The Company and these department store operators have distinct responsibilities and risks in the operation of such TIFFANY & CO. stores. The Company (i) owns and manages the merchandise; (ii) establishes retail prices; (iii) has merchandising, marketing and display responsibilities; and (iv) in almost all locations provides retail staff and bears the risk of inventory loss. The department store operators (i) provide and maintain store facilities; (ii) in almost all locations assume retail credit and certain other risks; and (iii) act for the Company in the sale of merchandise. In return for their services and use of their facilities, the department store operators retain a portion of net retail sales made in TIFFANY & CO. stores which is recorded as commission expense within selling,Selling, general and administrative expenses.
Cost of Sales
Cost of sales includes costs to internally manufacture merchandise (primarily metal,metals, gemstones, labor and overhead), costs related to the purchase of merchandise from third-parties, inbound freight, purchasing and receiving, inspection, warehousing, internal transfers and other costs associated with distribution and merchandising. Cost of sales also includes royalty fees paid to outside designers and customer shipping and handling charges.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses include costs associated with the selling and marketing of products as well as administrative expenses. The types of expenses associated with these functions are store operating expenses (such as labor, rent and utilities), advertising and other corporate level administrative expenses.
Advertising, Marketing, Public and Media Relations Costs
Advertising, marketing, public and media relations costs include media, production, catalogs, Internet, marketing events, visual merchandising costs (in-store and window displays) and other related costs. In 2015, 20142018, 2017 and 2013,2016, these costs totaled $302.0$394.1 million, $284.0$314.9 million and $253.2$299.0 million, respectively, representing 7.4%8.9%, 6.7%7.6% and 6.3%7.5% of worldwide net sales, in each of those periods.respectively. Media and production costs for print and digital advertising are expensed as incurred, while catalog costs are expensed upon first distribution.
Pre-openingPre-Opening Costs
Costs associated with the opening of new retail stores are expensed in the period incurred.
Stock-Based Compensation
New, modified and unvested share-based payment transactions with employees, such as stock options and restricted stock units, are measured at fair value and recognized as compensation expense over the requisite service period. Compensation expense recognized reflects an estimate of the number of awards expected to vest and incorporates an estimate of award forfeitures based on actual experience. Compensation expense is recognized on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting.
Merchandise Design Activities
Merchandise design activities consist of conceptual formulation and design of possible products and creation of pre-production prototypes and molds. Costs associated with these activities are expensed as incurred.
Foreign Currency
The functional currency of most of the Company's foreign subsidiaries and branches is the applicable local currency. Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are recorded as a component of Accumulated other comprehensive earningsloss, net of tax within stockholders' equity. The Company also recognizes gains and losses associated with transactions that are denominated in foreign currencies. Within other expense (income), net, theThe Company recorded net losses resulting from foreign currency transactions of $9.8$5.3 million, $5.3 million and $3.7$4.8 million within Other expense, net in 20152018, 2017 and 2014 and a net gain of $4.7 million in 2013. Included within the amount for 2013 was a $7.5 million transaction gain related to amounts associated with the award issued in the arbitration between the Swatch Group Ltd. and the Company. See "Note J - Commitments and Contingencies."2016, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent management believes these assets will more likely than not be realized. In making such determination, the Company considers all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.results. In the event management were to determine that the Company would be able to realize its deferred income tax assets in the future in excess of their net
recorded amount,amounts, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
In evaluating the exposures associated with the Company's various tax filing positions, management records reserves using a more-likely-than-not recognition threshold for income tax positions taken or expected to be taken.
The Company,Registrant, its U.S. subsidiaries and the foreign branches of its U.S. subsidiaries file a consolidated Federal income tax return.
The Company accounts for the impact of changes in tax legislation in the period in which the legislation is enacted. The 2017 U.S. Tax Cuts and Jobs Act (the "2017 Tax Act") was enacted on December 22, 2017 in the U.S. On that date, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 118 ("SAB 118"), which addressed the application of U.S. GAAP in situations in which a registrant did not have necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company accounted for the 2017 Tax Act in accordance with the provisions of SAB 118. See "Note N. Income Taxes" for additional information on the provisions and impacts of the 2017 Tax Act and the completion of the related analyses during 2018, as permitted by SAB 118.
Earnings Per Share ("EPS")
Basic EPS is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the dilutive effect of the assumed exercise of stock options and unvested restricted stock units.
The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted EPS computations:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Net earnings for basic and diluted EPS | $ | 463.9 |
| $ | 484.2 |
| $ | 181.4 |
| $ | 586.4 |
| $ | 370.1 |
| $ | 446.1 |
|
| Weighted-average shares for basic EPS | 128.6 |
| 129.2 |
| 127.8 |
| 122.9 |
| 124.5 |
| 125.1 |
|
Incremental shares based upon the assumed exercise of stock options and unvested restricted stock units | 0.5 |
| 0.7 |
| 1.1 |
| 0.6 |
| 0.6 |
| 0.4 |
|
| Weighted-average shares for diluted EPS | 129.1 |
| 129.9 |
| 128.9 |
| 123.5 |
| 125.1 |
| 125.5 |
|
For the years ended January 31, 2016, 20152019, 2018 and 2014,2017, there were 0.80.7 million, 0.30.6 million and 0.41.3 million stock options and restricted stock units excluded from the computations of earnings per diluted share due to their antidilutive effect.effect, respectively.
New Accounting Standards
In May 2014,February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09ASU 2016-02 – Leases, which was amended in January 2018 and requires an entity that leases assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Leases will be classified as either financing or operating, similar to current accounting requirements, with the applicable classification determining the pattern of expense recognition in the statement of earnings.
This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and must be adopted using a modified retrospective approach, which requires lessees and lessors to recognize and measure all leases within the scope of this ASU using one of the following transition methods: (i) as of the beginning of the earliest comparative period presented in the financial statements, or (ii) as of the beginning of the period in which this ASU is adopted. The Company elected to adopt the ASU in the first quarter of 2019 by applying its provisions prospectively and recognizing a cumulative-effect adjustment to the opening balance of retained earnings as of February 1, 2019. The Company also elected the package of practical expedients permitted under the transition guidance, which provides that an entity need not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. The Company also elected to not reassess lease terms using hindsight and expects to combine lease and non-lease components for new leases subsequent to February 1, 2019.
The Company estimates the following impacts to its consolidated balance sheet as of February 1, 2019:
The establishment of a lease liability of approximately $1.2 billion and
The reclassification of $31.1 million of deferred gains on sale-leasebacks to opening retained earnings.
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses. The new standard applies to financial assets measured at amortized cost basis, including receivables that result from revenue transactions and held-to-maturity debt securities. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted for fiscal years beginning after December 15, 2018. Management continues to evaluate the impact of this ASU on the consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12 - Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. This ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. The amendments in this ASU must be applied on a modified retrospective basis, while presentation and disclosure requirements set forth under this
ASU are required prospectively in all interim periods and fiscal years ending after the date of adoption. Management is currently evaluating the impact of this ASU on the consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02 - Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for the reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the tax effects on deferred tax items included within AOCI (referred to in the ASU as "stranded tax effects") resulting from the reduction of the U.S. federal statutory income tax rate to 21% from 35% that was effected by the 2017 Tax Act. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2018-02 will result in a reclassification from AOCI to retained earnings, and will have no impact on the Company's results of operations, financial position or cash flows.
In August 2018, the FASB issued ASU 2018-15 - Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in such cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted. Entities can choose to adopt the new guidance prospectively or retrospectively. Management is currently evaluating the impact of this ASU on the consolidated financial statements.
Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU 2014-09 - Revenue Fromfrom Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. Generally Accepted Accounting Principles ("GAAP")GAAP and International Financial Reporting Standards. The core principle of the guidance is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under currentprevious guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 – Revenue from Contracts with Customers (Topic 606):Customers: Deferral of the Effective Date, deferring the effective date of ASU 2014-09 for one year to interim and annual reporting periods beginning after December 15, 2017. Early adoption iswas also permitted as of the original effective date (interim and annual periods beginning after December 15, 2016) and full or modified retrospective application was permitted. Subsequently, the FASB issued a number of ASU's amending ASU 2014-09 and providing further guidance related to revenue recognition, which management evaluated. The effective date and transition requirements for these amendments were the same as ASU 2014-09, as amended by ASU 2015-14. Management adopted this guidance on February 1, 2018 using the modified retrospective approach. The impact of the adoption of ASU 2014-09 on the Company's consolidated financial statements is required. Managementas follows:
The Company's revenue is currently evaluatingprimarily generated from the impactsale of finished products to customers (primarily through the retail, e-commerce or wholesale channels). The Company's performance obligations underlying such sales, and the timing of revenue recognition related thereto, remain substantially unchanged following the adoption of this ASU.
The Company now recognizes breakage income on gift cards and merchandise credits (which represents income recognized from the customer's unexercised right to receive merchandise through the redemption of such gift cards and merchandise credits) based on the historical pattern of gift card and merchandise credit redemptions. Breakage income recognized during 2018 was not significant.
This ASU requires sales returns reserves to be presented on a gross basis on the consolidated balance sheet, with the asset related to merchandise expected to be returned recorded outside of Accounts receivable, net. Prior to the adoption of this ASU, sales returns reserves were recorded on a net basis within Accounts receivable, net.
The impact of the adoption of ASU 2014-09 on the Company's consolidated financial statements.balance sheet was as follows:
|
| | | | | | | | | | | |
| | January 31, 2019 |
| (in millions) | As Reported | | Balances Without Adoption of ASC 606 | | Effect of Adoption Increase/(Decrease) |
| Assets | | | | | |
| Accounts receivable, net | $ | 245.4 |
| | $ | 257.6 |
| | $ | (12.2 | ) |
| Prepaid expenses and other current assets | 230.8 |
| | 218.6 |
| | 12.2 |
|
TIFFANY & CO.There was no significant impact from the adoption of ASU 2014-09 on the Company's consolidated statement of earnings or consolidated statement of cash flows.
K-67
In February 2015,August 2016, the FASB issued ASU No. 2015-022016-15 – Amendments to the Consolidation AnalysisStatement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which amends the criteria for determining which entities are considered VIEs, amends the criteria for determining if a service provider possesses a variable interest in a VIE, and ends the deferral granted to investment companies for application of the VIE consolidation model. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2015 and early adoption is permitted. This ASU is not expected to have a material impact on the consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03 – Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity will present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. In August 2015, the FASB issued ASU No. 2015-15 – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which indicates the Securities and Exchange Commission staff would not object to an entity deferring and continuing to present debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 is effective retrospectively for interim and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company expects to adopt ASU 2015-03 beginning on February 1, 2016 and the adoption of the new guidance is not expected to have a material impact on the Company's financial condition and financial statement disclosures.
In April 2015, the FASB issued ASU No. 2015-05 – Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (an update to Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software), which provides guidance on accounting for cloud computing fees. If a cloud computing arrangement includes a software license, theneight specific cash flow issues in an effort to reduce diversity in practice in how certain transactions are classified within the customer should account for the license elementstatement of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract.cash flows. This ASU is effective for arrangements entered into, or materially modified, in interim and annual periods beginning after December 15, 2015. Retrospective application is permitted but not required. This ASU is not expected to have a material impact on the consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11 – Inventory (Topic 330): Simplifying the Measurement of Inventory, which states an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This amendment applies to all inventory that is measured using the average costs or first-in first-out (FIFO) methods. This supersedes prior guidance which allowed entities to measure inventory at the lower of cost or market, where market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. This ASU is effective for interim and annual periods beginning after December 15, 2016. The amendments should be applied prospectively and earlier application is permitted. This ASU is not expected to have a material impact on the consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17 – Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which states an entity should classify deferred tax liabilities and assets as noncurrent amounts. This supersedes prior guidance under which an entity was required to classify deferred tax liabilities and assets as current or noncurrent based on the classification of the related asset or liability. This ASU is effective for interim and annual periods beginning after December 15, 2016, with earlier adoption permitted. The amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company adopted this ASU retrospectively as of January 31, 2016. Accordingly, current deferred taxes were reclassified to noncurrent on the January 31, 2015 Consolidated Balance Sheet, which increased noncurrent assets by $102.6 million and noncurrent liabilities by $0.1 million.
In February 2016, the FASB issued ASU No. 2016-02 – Leases, which requires an entity that leases assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 20182017. Early adoption was permitted and mustthe amendments are applied using a retrospective method. Management adopted this ASU on February 1, 2018. The adoption of this ASU did not have any impact on the consolidated statements of cash flows and related disclosures.
In October 2016, the FASB issued ASU 2016-16 – Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. This ASU eliminates the requirement to defer the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Therefore, under this guidance, an entity recognizes the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This ASU was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption was permitted as of the first interim period of 2017. The amendments in this ASU were required to be adopted usingapplied on a modified retrospective approach.basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Management is currently evaluating the impactadopted this ASU on February 1, 2018. The adoption of this ASU did not have any impact on the consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07 - Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Under this ASU, only the service cost component of the net periodic benefit cost is presented in the same income statement line item as other employee compensation costs arising from services rendered during the period, while the non-service cost components of net periodic benefit cost are required to be presented in the income statement separate from Earnings from operations. In addition, only the service cost component is eligible for capitalization in assets. This ASU was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The amendments in this ASU were applied retrospectively for the presentation of the components of net periodic benefit cost other than service cost in the statement of earnings, and prospectively for the capitalization of the service cost component. Management adopted this ASU on February 1, 2018 using the practical expedient permitted by this ASU and reclassified the non-service cost components of the net periodic benefit cost from within Earnings from operations to Other expense, net. This increased Earnings from operations for the years ended January 31, 2018 and 2017 by $14.9 million (with $6.0 million reclassified from Cost of sales and $8.9 million reclassified from SG&A expenses) and $25.2 million (with $8.7 million reclassified from Cost of sales and $16.5 million reclassified from SG&A expenses), respectively, but had no impact on Net earnings for those periods. The requirement set forth under this ASU that allows only the service cost component of net periodic benefit cost to be capitalized did not have a significant impact on the Company's results of operations in 2018.
In May 2017, the FASB issued ASU 2017-09 - Compensation-Stock Compensation: Scope of Modification Accounting, clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. This guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. This ASU was effective prospectively for annual periods beginning after December 15, 2017 and early adoption was permitted. Management adopted this ASU on February 1, 2018 and applies the provisions of this ASU to any share-based payment awards modified on or after February 1, 2018.
| |
| C. | SUPPLEMENTAL CASH FLOW INFORMATION |
Cash paid during the year for:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Interest, net of interest capitalization | $ | 42.5 |
| $ | 59.7 |
| $ | 58.5 |
| $ | 40.6 |
| $ | 41.5 |
| $ | 40.6 |
|
| Income taxes | $ | 237.5 |
| $ | 133.4 |
| $ | 160.7 |
| $ | 291.4 |
| $ | 156.2 |
| $ | 213.9 |
|
Supplemental noncash investing and financing activities:
| | | | Years Ended January 31, | | January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Issuance of Common Stock under the Employee Profit Sharing and Retirement Savings Plan | $ |
|
| $ | 3.9 |
| $ |
|
| |
| Accrued capital expenditures | | $ | 11.0 |
| $ | 20.1 |
| $ | 10.7 |
|
| | | | January 31, | | January 31, | |
| (in millions) | 2016 |
| | 2015 |
| 2019 |
| 2018 |
|
| Finished goods | $ | 1,292.9 |
| | $ | 1,386.8 |
| $ | 1,484.3 |
| $ | 1,314.6 |
|
| Raw materials | 813.7 |
| | 866.9 |
| 781.8 |
| 821.4 |
|
| Work-in-process | 118.4 |
| | 108.4 |
| 161.9 |
| 117.5 |
|
| Inventories, net | $ | 2,225.0 |
| | $ | 2,362.1 |
| $ | 2,428.0 |
| $ | 2,253.5 |
|
| |
| E. | PROPERTY, PLANT AND EQUIPMENT |
| | | | January 31, | | January 31, | |
| (in millions) | 2016 |
| | 2015 |
| 2019 |
| 2018 |
|
| Land | $ | 45.6 |
| | $ | 42.7 |
| $ | 41.8 |
| $ | 41.8 |
|
| Buildings | 120.9 |
| | 125.8 |
| 122.6 |
| 123.0 |
|
| Leasehold and building improvements | 1,102.8 |
| | 1,036.4 |
| 1,378.1 |
| 1,328.6 |
|
| Office equipment | 554.9 |
| | 586.2 |
| 286.0 |
| 267.4 |
|
| Software | | 452.2 |
| 353.2 |
|
| Furniture and fixtures | 265.3 |
| | 261.1 |
| 315.0 |
| 311.6 |
|
| Machinery and equipment | 169.2 |
| | 155.2 |
| 197.8 |
| 187.4 |
|
| Construction-in-progress | 95.7 |
| | 59.8 |
| 98.7 |
| 105.1 |
|
| | 2,354.4 |
| | 2,267.2 |
| 2,892.2 |
| 2,718.1 |
|
| Accumulated depreciation and amortization | (1,418.6 | ) | | (1,367.7 | ) | (1,865.5 | ) | (1,727.6 | ) |
| | $ | 935.8 |
| | $ | 899.5 |
| $ | 1,026.7 |
| $ | 990.5 |
|
The provision for depreciationDepreciation and amortization expense for the years ended January 31, 2016, 20152019, 2018 and 20142017 was $196.3$223.6 million, $182.8$200.8 million and $202.5 million, respectively.
Information Systems Assessment. $171.5 million.The Company is engaged in a multi-year program to upgrade and/or replace certain of its information systems. As part of this program, the Company concluded that the development of a previous system originally intended to deliver enhanced finished goods inventory management and merchandising capabilities would instead be delivered through further development of the Company's Enterprise Resource Planning system and the continued implementation of a new order management system. Accordingly, the Company evaluated the costs capitalized in connection with the development of the previous system for impairment in accordance with its policy on the review of long-lived assets (see "Note B. Summary of Significant Accounting Policies”) and recorded a related pre-tax impairment charge of $25.4 million within SG&A during 2016.
| |
| F. | ACCOUNTS PAYABLE AND ACCRUED LIABILTIES |
| | | | January 31, | | January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2019 |
| 2018 |
|
| Accounts payable - trade | $ | 127.8 |
| $ | 118.0 |
| $ | 217.1 |
| $ | 201.5 |
|
| Accrued compensation and commissions | 77.9 |
| 83.9 |
| 120.9 |
| 110.0 |
|
| Accrued sales, withholding and other taxes | 21.9 |
| 21.8 |
| |
| Other | 101.5 |
| 94.3 |
| 175.4 |
| 125.9 |
|
| | $ | 329.1 |
| $ | 318.0 |
| $ | 513.4 |
| $ | 437.4 |
|
| | | | | January 31, |
| | January 31, |
|
| (in millions) | 2016 |
| 2015 |
| 2019 |
| 2018 |
|
| Short-term borrowings: | | |
| Credit Facilities | $ | 76.6 |
| $ | 92.5 |
| $ | 13.5 |
| $ | 33.5 |
|
| Other credit facilities | 145.0 |
| 141.5 |
| 99.9 |
| 87.1 |
|
| | $ | 221.6 |
| $ | 234.0 |
| $ | 113.4 |
| $ | 120.6 |
|
|
| | | | | | |
| Long-term debt: | | |
| Unsecured Senior Notes: | | |
2010 1.72% Notes, due September 2016 a, b | $ | 84.2 |
| $ | 84.5 |
|
2012 4.40% Series B Notes, due July 2042 c | 250.0 |
| 250.0 |
|
2014 3.80% Senior Notes, due October 2024 a, d | 249.3 |
| 249.3 |
|
2014 4.90% Senior Notes, due October 2044 a, d | 298.8 |
| 298.7 |
|
| | 882.3 |
| 882.5 |
|
| Less current portion of long-term debt | 84.2 |
| — |
|
| | $ | 798.1 |
| $ | 882.5 |
|
|
| | | | | | |
| Long-term debt: | | |
| Unsecured Senior Notes: | | |
2012 4.40% Series B Notes, due July 2042 a | $ | 250.0 |
| $ | 250.0 |
|
2014 3.80% Senior Notes, due October 2024 b, c | 250.0 |
| 250.0 |
|
2014 4.90% Senior Notes, due October 2044 b, c | 300.0 |
| 300.0 |
|
2016 0.78% Senior Notes, due August 2026 b, d | 91.8 |
| 91.9 |
|
| | 891.8 |
| 891.9 |
|
| Less unamortized discounts and debt issuance costs | 8.4 |
| 9.0 |
|
| | $ | 883.4 |
| $ | 882.9 |
|
| |
a | The agreements governing these Senior Notes require repayments of $50.0 million in aggregate every five years beginning in July 2022. |
| |
b | These agreements require lump sum repayments upon maturity. |
| |
b
| These Notes were issued, at par, ¥10.0 billion.
|
| |
c | The agreements governing these Notes require repayments of $50.0 million in aggregate every five years beginning in 2022.
|
| |
d
| These Senior Notes were issued at a discount, which will be amortized until the debt maturity. |
| |
d | These Senior Notes were issued at par, ¥10.0 billion. |
Credit Facilities
In 2014, Tiffany & Co.On October 25, 2018, the Registrant, along with certain of its subsidiaries designated as borrowers thereunder, entered into a four-year $375.0 million and a five-year $375.0 million multi-bank, multi-currency committed unsecured revolving credit facility, including a letter of credit subfacilities, (collectively,subfacility, consisting of basic commitments in an amount up to $750.0 million (which commitments may be increased, subject to certain conditions and limitations, at the "New request of the Registrant) (“Credit Facilities"Facility”) resulting in a total borrowing capacity of $750.0 million.. The New Credit FacilitiesFacility replaced the Registrant's previously existing $275.0$375.0 million three-yearfour-year unsecured revolving credit facility and $275.0$375.0 million five-year unsecured revolving credit facility, which were each terminated and repaid concurrentlyin connection with Tiffany & Co.'sthe Registrant’s entry into the New Credit Facilities. The New Credit Facilities are available for working capital and other corporate purposes. Facility.
Borrowings under the New Credit Facilities willFacility bear interest at a rate per annum equal to, at the option of the Company,Registrant, (1) LIBOR (or other applicable or successor reference rate) for the relevant currency plus an applicable margin based upon the Company'smore favorable to the Registrant of (i) a leverage ratio as defined underfinancial metric of the New Credit Facilities,Registrant and (ii) the Registrant's debt rating for long-term unsecured senior, non-credit enhanced debt, or (2) an alternate base rate equal to the highest of (i) the Federal Funds Ratefederal funds effective rate plus 0.50%, (ii) MUFG Bank, of America, N.A.’sLtd.'s prime rate and (iii) one-month LIBOR plus 1%1.00%, plus an applicable margin based upon the Company'smore favorable to the Registrant of (x) a leverage ratio as defined underfinancial metric of the NewRegistrant and (y) the Registrant's debt rating for long-term unsecured senior, non-credit enhanced debt.
The Credit Facilities. The New Credit FacilitiesFacility also requirerequires payment to the lenders of a facility fee on the amount of the lenders’lenders' commitments under the credit facilitiesfacility from time to time at rates based upon the Company'smore favorable to the Registrant of (1) a leverage ratio as defined underfinancial metric of the New Credit Facilities.Registrant and (2) the Registrant's debt rating for long-term unsecured senior, non-credit enhanced debt. Voluntary prepayments of the loans and voluntary reductions of the unutilized portion of the commitments under the New Credit FacilitiesFacility are permissible without penalty, subject to certain conditions pertaining to minimum notice and minimum reduction amounts.
TIFFANY & CO.The Credit Facility is available for working capital and other corporate purposes.
K-71
At January 31, 2016,2019, there were $76.6$13.5 million of borrowings outstanding, $5.6$6.1 million of letters of credit issued but not outstanding and $667.8$730.4 million available for borrowing under the New Credit Facilities.Facility. At January 31, 2015,2018, there were $92.5$33.5 million of borrowings outstanding, $5.7$6.8 million of letters of credit issued but not outstanding and $651.8$709.7 million available for borrowings.borrowing under the previously existing revolving credit facilities. The weighted-average interest rate for borrowings outstanding was 1.54%1.05% at January 31, 20162019 and 1.49%1.10% at January 31, 2015.2018.
Commercial Paper
In August 2017, the Registrant and one of its wholly owned subsidiaries established a commercial paper program (the "Commercial Paper Program") for the issuance of commercial paper in the form of short-term promissory notes in an aggregate principal amount not to exceed $750.0 million. Borrowings under the Commercial Paper Program may be used for general corporate purposes. The four-year credit facility will expire in October 2018.aggregate amount of borrowings that the Company is currently authorized to have outstanding under the Commercial Paper Program and the Registrant's Credit Facility is $750.0 million. The five-year credit facility will expire in October 2019.Registrant guarantees the obligations of its wholly owned subsidiary under the Commercial Paper Program. Maturities of commercial paper notes may vary, but cannot exceed 397 days from the date of issuance. Notes issued under the Commercial Paper Program rank equally with the Registrant's present and future unsecured and unsubordinated indebtedness. As of January 31, 2019 and 2018, there were no borrowings outstanding under the Commercial Paper Program.
Other Credit Facilities
Tiffany-Shanghai Credit Agreement. In 2013, Tiffany & Co.'s wholly-ownedJuly 2016, the Registrant's wholly owned subsidiary, Tiffany & Co. (Shanghai) Commercial Company Limited ("Tiffany-Shanghai"), entered into a three-year multi-bank revolving credit agreement (the "Tiffany-Shanghai Credit Agreement"). The Tiffany-Shanghai Credit Agreement has an aggregate borrowing limit of RMB 930.0990.0 million ($141.4($147.4 million at January 31, 2016). The Tiffany-Shanghai Credit Agreement is available for Tiffany-Shanghai's general working capital requirements, which included repayment of a portion of the indebtedness under Tiffany-Shanghai's existing bank loan facilities.2019) and matures in July 2019. The six lenders that are party to the
Tiffany-Shanghai Credit Agreement will make loans, upon Tiffany-Shanghai's request, for periods of up to 12 months at the applicable interest rates as announced by the People's Bank of China. At January 31, 2016, there was $99.3 million availableChina (provided, that if such announced rate is below zero, the applicable interest rate shall be deemed to be borrowed underzero). In connection with the Tiffany-Shanghai Credit Agreement, of which $42.1 million was outstanding at a weighted-average interest rate of 4.72%. At January 31, 2015, there was $111.3 million available to be borrowed, of which $37.6 million was outstanding at a weighted-average interest rate of 6.00%. The Tiffany-Shanghai Credit Agreement matures in July 2016. In connection with this agreement,2016, the CompanyRegistrant entered into a guaranty agreementGuaranty Agreement by and between the CompanyRegistrant and the facility agent under the Tiffany-Shanghai Credit Agreement (the "Guaranty"). At January 31, 2019, there was $120.6 million available to be borrowed under the Tiffany-Shanghai Credit Agreement and $26.8 million was outstanding at a weighted-average interest rate of 4.35%. At January 31, 2018, there was $112.7 million available to be borrowed under the Tiffany-Shanghai Credit Agreement and $43.8 million was outstanding at a weighted-average interest rate of 4.35%.
Other. The Company has various other revolving credit facilities, primarily in Japan and China. At
January 31, 2016,2019, the facilities totaled $126.6$135.6 million of which $102.9and $73.1 million was outstanding at a weighted-average interest rate of 3.16%3.93%. At January 31, 2015,2018, the facilities totaled $113.0$139.0 million of which $103.9and $43.3 million was outstanding at a weighted-average interest rate of 3.90%6.87%.
Senior Notes
2016 Senior Notes.In 2014, Tiffany & Co.August 2016, the Registrant issued $250.0¥10.0 billion ($91.8 million aggregate principal amountat January 31, 2019) of 3.80%0.78% Senior Notes due 2024August 2026 (the "2024"Yen Notes") and $300.0 million aggregate principal amount of 4.90% Senior Notes due 2044 (the "2044 Notes" and, together with the 2024 Notes, the "Notes").in a private transaction. The Notes were issued at a discount with aggregate net proceeds of $548.0 million (with an effective yield of 3.836% for the 2024 Notes and an effective yield of 4.926% for the 2044 Notes). Tiffany & Co. used the net proceeds from the issuance of the Yen Notes were used to redeem all ofrepay the aggregate principal amount outstanding of its (i) $100.0 million principal amount of 9.05% Series ARegistrant's ¥10.0 billion 1.72% Senior Notes due December 23, 2015; (ii) $125.0 million principal amount of 10.0% Series A-2009 SeniorSeptember 2016 upon the maturity thereof. Interest on the Yen Notes due February 13, 2017; (iii) $50.0 million principal amount of 10.0% Series A Senior Notes due April 9, 2018; and (iv) $125.0 million principal amount of 10.0% Series B-2009 Senior Notes due February 13, 2019 (collectively, the "Private Placement Notes") prior to maturity in accordance with the respective note purchase agreements governing each series of Private Placement Notes, which included provisions for make-whole payments in the event of early redemption. As a result of the redemptions, the Company recorded a loss on extinguishment of debt of $93.8 million in 2014. The Company used the remaining net proceeds from the sale of the Notes for general corporate purposes. The Notes are Tiffany & Co.’s general unsecured obligations and rank equally in right of payment with all of Tiffany & Co.’s existing and any future unsecured senior debt and rank senior in right of payment to any of Tiffany & Co.’s future subordinated debt.
The 2024 Notes bear interest at a fixed rate of 3.80% per annum and the 2044 Notes bear interest at a fixed rate of 4.90% per annum,is payable semi-annually in arrears on April 1February 26 and October 1August 26 of each year, commencing on April 1, 2015. Tiffany & Co. will make each interest payment to the holders of recordFebruary 26, 2017. The Registrant may redeem all or part of the Yen Notes on the immediately preceding March 15 and September 15.
Tiffany & Co. has the option to redeem the Notes, in whole or in part, by providing noupon not less than 30 nor more than 60 days' prior notice at a redemption price equal to the sum of (i) 100% of the principal amount of the Yen Notes to be redeemed, plus (ii) accrued and unpaid interest, if any, on those Yen Notes to the redemption date, plus (iii) a make-whole premium as of the redemption date, as defined in the indenture governing the Notes, as amended and supplemented in respect of each series of Notes (the "Indenture"). In addition, Tiffany & Co. has the option to redeem some or all of the 2024 Notes on or after July 1, 2024, at a redemption price equal to the sum of 100% of the principal amount of the 2024 Notes to be redeemed, together with accrued and unpaid interest, if any, on those 2024 Notes to the redemption date. Tiffany & Co. also has the option to redeem some or all of the 2044 Notes on or after April 1, 2044, at a redemption price equal to the sum of 100% of the principal amount of the 2044 Notes to be redeemed, together with accrued and unpaid interest, if any, on those 2044 Notes to the redemption date.
Upon the occurrence of a change of control triggering event (as defined in the Indenture), unless
Tiffany & Co. has exercised its right to redeem the Notes, each holder of Notes will have the right to require Tiffany & Co. to repurchase all or a portion of such holder’s Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
Debt Covenants
The agreementsagreement governing the New Credit Facilities includeFacility includes a specific financial covenants,covenant, as well as other covenants that limit the ability of Tiffany & Co.the Company to incur certain subsidiary indebtedness, incur liens impose restrictions on subsidiary distributions and engage in mergers, consolidations and sales of all or substantially all of Tiffany & Co.its and its subsidiaries’subsidiaries' assets, in addition to other requirements and “Events"Events of Default”Default" (as defined in the agreementsagreement governing the New Credit Facilities)Facility) customary to such borrowings.
The Tiffany-Shanghai Credit Agreement includes certain covenants that limit Tiffany-Shanghai's ability to pay certain dividends, make certain investments and incur certain indebtedness, and the Guaranty requires maintenance by Tiffany & Co.the Registrant of specific financial covenants, and ratios, in addition to other requirements and limitations customary to such borrowings.
The Indentureindenture governing the 2014 3.80% Senior Notes and 2014 4.90% Senior Notes, as amended and supplemented in respect of each such series of Notes (the "Indenture"), contains covenants that, among other things, limit the ability of Tiffany & Co.the Registrant and its subsidiaries under certain circumstances to create liens and impose conditions on Tiffany & Co.’sthe Registrant's ability to engage in mergers, consolidations and sales of all or substantially all of its or its subsidiaries’subsidiaries' assets. The Indenture also contains certain “Events"Events of Default”Default" (as defined in the Indenture) customary for indentures of this type. The Indenture does not contain any specific financial covenants.
The agreements governing the 2010 1.72% Notes and the 2012 4.40% Series B Senior Notes and the Yen Notes require maintenance of a specific financial covenants and ratioscovenant and limit certain changes to indebtedness of Tiffany & Co.the Registrant and its subsidiaries and the general nature of the business, in addition to other requirements customary to such borrowings.
At January 31, 2016,2019, the Company was in compliance with all debt covenants. In the event of any default of payment or performance obligations extending beyond applicable cure periods as set forth in the agreements governing the Company's applicable debt instruments, such agreements may be terminated or payment of the applicable debt may be accelerated. Further, each of the New Credit Facilities,Facility, the Tiffany-Shanghai Credit Agreement, the agreements governing the 2010 1.72%2012 4.40% Series B Senior Notes and the 2012 4.40% Series BYen Notes, and certain other loan agreements contain cross default provisions permitting the
termination and acceleration of the loans, or acceleration of the notes, as the case may be, in the event that certain of the Company's other debt obligations are terminated or accelerated prior to their maturity.
Long-Term Debt Maturities
Aggregate maturities of long-term debt as of January 31, 20162019 are as follows:
| | | Years Ending January 31, | Amount a (in millions) |
| Amount a (in millions) |
|
| 2017 | $ | 84.2 |
| |
| 2018 | — |
| |
| 2019 | — |
| |
| 2020 | — |
| $ |
|
|
| 2021 | — |
| — |
|
| 2022 | | — |
|
| 2023 | | 50.0 |
|
| 2024 | | — |
|
| Thereafter | 800.0 |
| 841.8 |
|
| | $ | 884.2 |
| $ | 891.8 |
|
| |
a | Amounts exclude any unamortized discount or premium. |
Letters of Credit
The Company has available letters of credit and financial guarantees of $75.0$77.7 million, of which $26.6$28.3 million was outstanding at January 31, 2016.2019. Of those available letters of credit and financial guarantees, $60.2$64.1 million expires within one year. These amounts do not include letters of credit issued under the Credit Facilities.Facility.
H. HEDGING INSTRUMENTS
Background Information
The Company uses derivative financial instruments, including interest rate swaps, cross-currency swaps, forward contracts, put option contracts and net-zero-cost collar arrangements (combination of call and put option contracts) to mitigate a portion of its exposures to changes in interest rates, foreign currency exchange rates and precious metal prices.
Derivative Instruments Designated as Hedging Instruments. If a derivative instrument meets certain hedge accounting criteria, it is recorded on the consolidated balance sheet at its fair value, as either an asset or a liability, with an offset to current or other comprehensive earnings, depending on whether the hedge is designated as one of the following on the date it is entered into:
Fair Value Hedge – A hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment. For fair value hedge transactions, both the effective and ineffective portions of the changes in the fair value of the derivative and changes in the fair value of the item being hedged are recorded in current earnings.
Cash Flow Hedge – A hedge of the exposure to variability in the cash flows of a recognized asset, liability or a forecasted transaction. For cash flow hedge transactions, the effective portion of the changes in fair value of derivatives areis reported as other comprehensive income ("OCI") and areis recognized in current earnings in the period or periods during which the hedged transaction affects current earnings. Amounts excluded from the effectiveness calculation and any ineffective portions of the change in fair value of the derivative are recognized in current earnings.
The Company formally documents the nature of and relationships between the hedging instruments and hedged items for a derivative to qualify as a hedge at inception and throughout the hedged period. The Company also documents its risk management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss on the derivative financial instrument would be recognized in current earnings. Derivative financial instruments
qualifying for hedge accounting must maintain a specified level of effectiveness between the hedge instrument and the item being hedged, both at inception and throughout the hedged period.
Derivative Instruments Not Designated as Hedging Instruments. Derivative instruments which do not meet the criteria to be designated as a hedge are recorded on the consolidated balance sheet at their fair values, as either assets or liabilities, with an offset to current earnings. The gains or losses on undesignated foreign exchange forward contracts substantially offset foreign exchange losses or gains on the underlying liabilities or transactions being hedged.
The Company does not use derivative financial instruments for trading or speculative purposes.
Types of Derivative Instruments
Interest Rate Swaps – In 2012, the Company entered into forward-starting interest rate swaps to hedge the impact of interest rate volatility on future interest payments associated with the anticipated incurrence of $250.0 million of additional debt, which was incurred in July 2012. The Company accounted for the forward-starting interest rate swaps as cash flow hedges. The Company settled the interest rate swaps in 2012 and recorded a loss within accumulated other comprehensive loss. As of January 31, 2016, $21.12019, $17.3 million remains recorded as an unrealizeda loss in accumulated other comprehensive loss, which is being amortized over the term of the 2042 Notes to which the interest rate swaps related.
In 2014, the Company entered into forward-starting interest rate swaps to hedge the impact of interest rate volatility on future interest payments associated with the anticipated incurrence of long-term debt which was incurred in September 2014 (refer to "Note G - Debt").2014. The Company accounted for the forward-starting interest rate swaps as cash flow hedges. The Company settled the interest rate swapswaps in 2014 and recorded an unrealizeda loss within accumulated other comprehensive loss. As of January 31, 2016, $4.02019, $3.5 million remains recorded as an unrealizeda loss andin accumulated other comprehensive loss, which is being amortized over the terms of the respective 2024 Notes or 2044 Notes to which the interest rate swaps related.
Cross-currency Swaps – In 2016 and 2017, the Company entered into cross-currency swaps to hedge the foreign currency exchange risk associated with Japanese yen-denominated intercompany loans. These cross-currency swaps are designated and accounted for as cash flow hedges. As of January 31, 2019, the notional amounts of cross-currency swaps accounted for as cash flow hedges and the respective maturity dates were as follows:
|
| | | | | | | |
| Cross-Currency Swap | | Notional Amount |
| Effective Date | Maturity Date | (in billions) | (in millions) |
| July 2016 | October 1, 2024 | ¥ | 10.6 |
| $ | 100.0 |
|
| March 2017 | April 1, 2027 | 11.0 |
| 96.1 |
|
| May 2017 | April 1, 2027 | 5.6 |
| 50.0 |
|
Foreign Exchange Forward Contracts – The Company uses foreign exchange forward contracts to offset a portion of the foreign currency exchange risks associated with foreign currency-denominated liabilities, intercompany transactions and forecasted purchases of merchandise between entities with differing functional currencies. The Company assesses hedge effectiveness based on the total changes in the foreign exchange forward contracts' cash flows. These foreign exchange forward contracts are designated and accounted for as either cash flow hedges or economic hedges that are not designated as hedging instruments.
As of January 31, 2016,2019, the notional amountamounts of foreign exchange forward contracts accounted forwere as cash flow hedges was as follows:
| | | (in millions) | | Notional Amount |
| | USD Equivalent |
| | Notional Amount |
| | USD Equivalent |
|
| Derivatives designated as hedging instruments: | | | | | | | | |
| Japanese yen | ¥ | 17,444.7 |
| $ | 145.5 |
| ¥ | 16,902.4 |
| $ | 157.4 |
|
| British pound | £ | 15.0 |
| | 23.0 |
| £ | 14.7 |
| | 19.4 |
|
| Derivatives not designated as hedging instruments: | | | | | | | | |
| U.S. dollar | $ | 52.8 |
| $ | 52.8 |
| $ | 47.4 |
| $ | 47.4 |
|
| Euro | € | 15.1 |
| | 16.5 |
| € | 6.6 |
| | 7.7 |
|
| Australian dollar | | AU$ | 44.0 |
| | 31.8 |
|
| British pound | £ | 3.9 |
| | 5.5 |
| £ | 6.3 |
| | 8.3 |
|
| Czech koruna | | CZK | 134.1 |
| | 6.0 |
|
| Japanese yen | ¥ | 1,048.5 |
| | 8.8 |
| ¥ | 1,816.6 |
| | 16.6 |
|
| Hong Kong dollar | HK$ | 58.2 |
| | 7.4 |
| HKD | 63.7 |
| | 8.1 |
|
| Mexican peso | ₱ | 215.2 |
| | 12.3 |
| |
| New Zealand dollar | | NZ$ | 11.2 |
| | 7.3 |
|
| Singapore dollar | S$ | 28.6 |
| | 19.9 |
| S$ | 20.3 |
| | 15.0 |
|
| Swiss franc | Fr. | 22.2 |
| | 22.1 |
| |
| Korean won | | W | 21,516.5 |
| | 19.2 |
|
| Danish kroner | | DKK | 50.4 |
| | 7.7 |
|
The maximum term of the Company's outstanding foreign exchange forward contracts as of January 31, 20162019 is 12 months.
Precious Metal Collars and Forward Contracts – The Company periodically hedges a portion of its forecasted purchases of precious metals for use in its internal manufacturing operations in order to manage the effect of volatility in precious metal prices. The Company may use either a combination of call and put option contracts in net-zero-cost collar arrangements ("precious metal collars") or forward contracts. For precious metal collars, if the price of the precious metal at the time of the expiration of the precious metal collar is within the call and put price, the precious metal collar expires at no cost to the Company. The Company accounts for its precious metal collars and forward contracts as cash flow hedges. The Company assesses hedge effectiveness based on the total changes in the precious metal collars and forward contracts' cash flows. In 2015, the Company increased the term over which it is hedging its exposure to volatility in precious metal prices, as well as the portion of expected future metals purchases hedged, which has increased the number of precious metal derivative instruments outstanding at the end of the period. As of January 31, 2016,2019, the maximum term over which the Company is hedging its exposure to the variability of future cash flows for all forecasted precious metals transactions is 2417 months. As of January 31, 2016,2019, there were precious metal derivative instruments outstanding for approximately 72,00034,000 ounces of platinum, 1,440,000624,000 ounces of silver and 50,00083,300 ounces of gold.
Information on the location and amounts of derivative gains and losses in the consolidated financial statements is as follows:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| | 2016 | | 2015 | 2019 | | 2018 |
| (in millions) | Pre-Tax Gain (Loss) Recognized in OCI (Effective Portion) | | Pre-Tax Gain (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) | | Pre-Tax Gain (Loss) Recognized in OCI (Effective Portion) | | Pre-Tax Gain (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) | Pre-Tax Gain (Loss) Recognized in OCI (Effective Portion) | | Pre-Tax Gain (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) | | Pre-Tax Gain (Loss) Recognized in OCI (Effective Portion) | | Pre-Tax Gain (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) |
Derivatives in Cash Flow Hedging Relationships: | | | | | | | | | | | | | | |
Foreign exchange forward contracts a | $ | 3.9 |
| | $ | 20.2 |
| | $ | 23.2 |
| | $ | 18.7 |
| $ | 5.8 |
| | $ | 2.6 |
| | $ | (6.3 | ) | | $ | 0.1 |
|
Precious metal collars a | 0.2 |
| | — |
| | — |
| | — |
| — |
| | 0.6 |
| | 1.0 |
| | 0.3 |
|
Precious metal forward contracts a | (26.3 | ) | | (7.0 | ) | | (4.4 | ) | | (4.2 | ) | (7.2 | ) | | (1.0 | ) | | 4.2 |
| | (0.9 | ) |
Forward-starting interest rate swaps b | — |
| | (1.5 | ) | | (4.2 | ) | | (1.5 | ) | |
Cross-currency swaps b | | 0.3 |
| | 0.4 |
| | (19.9 | ) | | (11.1 | ) |
Forward-starting interest rate swaps c | | — |
| | (1.4 | ) | | — |
| | (1.4 | ) |
| | $ | (22.2 | ) | | $ | 11.7 |
| | $ | 14.6 |
| | $ | 13.0 |
| $ | (1.1 | ) | | $ | 1.2 |
| | $ | (21.0 | ) | | $ | (13.0 | ) |
| |
a | The gain or loss recognized in earnings is included within Cost of sales. |
| |
b | The gain or loss recognized in earnings is included within Other expense, net. |
| |
c | The gain or loss recognized in earnings is included within Interest expense and financing costs. |
The pre-tax gains and losses(losses) on derivatives not designated as hedging instruments were not significant infor the yearyears ended January 31, 2016. Such gains were $10.5 million in the year ended January 31, 20152019 and 2018 and were included in otherOther expense, (income), net. There was no material ineffectiveness related to the Company's hedging instruments for the periodsyears ended January 31, 20162019 and 2015.2018. The Company expects approximately $7.8$2.5 million of net pre-tax derivative losses included in accumulated other comprehensive incomeloss at January 31, 20162019 will be reclassified into earnings within the next 12 months. ThisThe actual amount reclassified will vary due to fluctuations in foreign currency exchange rates and precious metal prices.
For information regarding the location and amount of the derivative instruments in the Consolidated Balance Sheet,consolidated balance sheet, see "Note I -I. Fair Value of Financial Instruments."
Concentration of Credit Risk
A number of major international financial institutions are counterparties to the Company's derivative financial instruments. The Company enters into derivative financial instrument agreements only with counterparties meeting certain credit standards (a(an investment grade credit rating of A-/A2 or better at the time of the agreement) and limits the amount of agreements or contracts it enters into with any one party. The Company may be exposed to credit losses in the event of nonperformance by individual counterparties or the entire group of counterparties.
| |
| I. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP 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. U.S. GAAP prescribes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities, andwhich are considered to be most reliable.
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, andwhich require the most judgment.
The Company's derivative instruments are considered Level 2 instruments for the purposespurpose of determining fair value. The Company's foreign exchange forward contracts, as well as its put option contracts and cross-currency swaps, are primarily valued using the appropriate foreign exchange spot rates. The Company's precious metal forward contracts and collars are primarily valued using the relevant precious metal spot rate. The Company's interest rate swaps were primarily valued using the 3-month LIBOR rate. For further information on the Company's hedging instruments and program, see "Note H -H. Hedging Instruments."
Financial assets and liabilities carried at fair value at January 31, 20162019 are classified in the table below in one of the three categories described above:
| | | | Carrying Value | | Estimated Fair Value | | Total Fair Value | Estimated Fair Value | | Total Fair Value |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | |
Marketable securities a | $ | 31.8 |
| | $ | 31.8 |
| | $ | — |
| | $ | — |
| | $ | 31.8 |
| |
Time deposits b | 43.0 |
| | 43.0 |
| | — |
| | — |
| | 43.0 |
| |
| Financial assets | | | | | | | | |
Time deposits a | | $ | 62.7 |
| | $ | — |
| | $ | — |
| | $ | 62.7 |
|
Marketable securities b | | 36.3 |
| | — |
| | — |
| | 36.3 |
|
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
Precious metal forward contracts c | 0.6 |
| | — |
| | 0.6 |
| | — |
| | 0.6 |
| — |
| | 5.2 |
| | — |
| | 5.2 |
|
Precious metal collar contracts c | 0.2 |
| | — |
| | 0.2 |
| | — |
| | 0.2 |
| |
Foreign exchange forward contracts c | 1.6 |
| | — |
| | 1.6 |
| | — |
| | 1.6 |
| — |
| | 1.8 |
| | — |
| | 1.8 |
|
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts c | 1.3 |
| | — |
| | 1.3 |
| | — |
| | 1.3 |
| — |
| | 0.9 |
| | — |
| | 0.9 |
|
| Total financial assets | $ | 78.5 |
| | $ | 74.8 |
| | $ | 3.7 |
| | $ | — |
| | $ | 78.5 |
| $ | 99.0 |
| | $ | 7.9 |
| | $ | — |
| | $ | 106.9 |
|
| | | | Carrying Value | | Estimated Fair Value | | Total Fair Value | Estimated Fair Value | | Total Fair Value |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | |
| Financial liabilities | | | | | | | | |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
Precious metal forward contracts d | $ | 13.4 |
| | $ | — |
| | $ | 13.4 |
| | $ | — |
| | $ | 13.4 |
| $ | — |
| | $ | 2.7 |
| | $ | — |
| | $ | 2.7 |
|
Foreign exchange forward contracts d | 2.4 |
| | — |
| | 2.4 |
| | — |
| | 2.4 |
| — |
| | 2.1 |
| | — |
| | 2.1 |
|
Cross-currency swaps d | | — |
| | 19.9 |
| | — |
| | 19.9 |
|
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts d | 1.4 |
| | — |
| | 1.4 |
| | — |
| | 1.4 |
| — |
| | 2.7 |
| | — |
| | 2.7 |
|
| Total financial liabilities | $ | 17.2 |
| | $ | — |
| | $ | 17.2 |
| | $ | — |
| | $ | 17.2 |
| $ | — |
| | $ | 27.4 |
| | $ | — |
| | $ | 27.4 |
|
Financial assets and liabilities carried at fair value at January 31, 20152018 are classified in the table below in one of the three categories described above:
| | | | Carrying Value | | Estimated Fair Value | | Total Fair Value | Estimated Fair Value | | Total Fair Value |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | |
Marketable securities a | $ | 53.5 |
| | $ | 53.5 |
| | $ | — |
| | $ | — |
| | $ | 53.5 |
| |
Time deposits b | 1.5 |
| | 1.5 |
| | — |
| | — |
| | 1.5 |
| |
| Financial assets | | | | | | | | |
Time deposits a | | $ | 320.5 |
| | $ | — |
| | $ | — |
| | $ | 320.5 |
|
Marketable securities b | | 22.5 |
| | — |
| | — |
| | 22.5 |
|
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
Precious metal forward contracts c | 0.3 |
| | — |
| | 0.3 |
| | — |
| | 0.3 |
| — |
| | 3.6 |
| | — |
| | 3.6 |
|
Foreign exchange forward contracts c | 15.1 |
| | — |
| | 15.1 |
| | — |
| | 15.1 |
| — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts c | 7.1 |
| | — |
| | 7.1 |
| | — |
| | 7.1 |
| — |
| | 1.0 |
| | — |
| | 1.0 |
|
| Total financial assets | $ | 77.5 |
| | $ | 55.0 |
| | $ | 22.5 |
| | $ | — |
| | $ | 77.5 |
| $ | 343.0 |
| | $ | 4.7 |
| | $ | — |
| | $ | 347.7 |
|
| | | | Carrying Value | | Estimated Fair Value | | Total Fair Value | Estimated Fair Value | | Total Fair Value |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | |
| Financial liabilities | | | | | | | | |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
Precious metal forward contracts d | $ | 3.2 |
| | $ | — |
| | $ | 3.2 |
| | $ | — |
| | $ | 3.2 |
| $ | — |
| | $ | 1.9 |
| | $ | — |
| | $ | 1.9 |
|
Foreign exchange forward contracts d | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| — |
| | 4.8 |
| | — |
| | 4.8 |
|
Cross-currency swaps d | | — |
| | 20.2 |
| | — |
| | 20.2 |
|
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts d | 2.0 |
| | — |
| | 2.0 |
| | — |
| | 2.0 |
| — |
| | 1.4 |
| | — |
| | 1.4 |
|
| Total financial liabilities | $ | 5.3 |
| | $ | — |
| | $ | 5.3 |
| | $ | — |
| | $ | 5.3 |
| $ | — |
| | $ | 28.3 |
| | $ | — |
| | $ | 28.3 |
|
| |
a | Included within Other assets, net.Short-term investments. |
| |
b | Included within Short-term investments.Other assets, net. |
| |
c | Included within Prepaid expenses and other current assets or Other assets, net evaluated based on the maturity of the contract. |
| |
d | Included within Accounts payable and accrued liabilities or Other long-term liabilities evaluated based on the maturity of the contract. |
The fair valuevalues of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximatesapproximate their carrying valuevalues due to the short-term maturities of these assets and liabilities and as such isare measured using Level 1 inputs. The fair value of debt with variable interest rates approximates carrying value and is measured using Level 2 inputs. The fair value of debt with fixed interest rates was determined using the quoted market prices of debt instruments with similar terms and maturities, which are considered Level 2 inputs. The total carrying value of short-term borrowings and long-term debt was $1.1approximately $1.0 billion at January 31, 2019 and 2018 and the corresponding fair value was approximately $1.1$1.0 billion and $1.2 billionat January 31, 20162019 and 2015.2018.
J. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain office, distribution, retail and manufacturing facilities, land and equipment. Retail store leases may require the payment of minimum rentals and contingent rent based on a percentage of sales exceeding a stipulated amount. The lease agreements, which expire at various dates through 2062, are subject, in many cases, to renewal options and provide for the payment of taxes,
insurance and maintenance. Certain leases contain escalation
clauses resulting from the pass-through of increases in operating costs, property taxes and the effect on costs from changes in consumer price indices.
Rent-free periods and other incentives granted under certain leases and scheduled rent increases are charged to rent expense on a straight-line basis over the related terms of such leases.leases, beginning from when the Company takes possession of the leased facility. Lease expense includes predetermined rent escalations (including escalations based on the Consumer Price Index or other indices) and is recorded on a straight-line basis over the term of the lease. Adjustments to indices are treated as contingent rent and recorded in the period that such adjustments are determined.
The Company entered into sale-leaseback arrangements for its Retail Service Center, a distribution and administrative office facility in New Jersey, in 2005 and for the TIFFANY & CO. stores in Tokyo's Ginza shopping district and on London's Old Bond Street in 2007. These sale-leaseback arrangements resulted in total deferred gains of $144.5 million, which are beinghave been amortized in SG&A expenses over periods that range from 15 to 20 years. As of January 31, 2016, $55.12019, $31.1 million of these deferred gains remained on the Company's consolidated balance sheet and were reclassified to be amortized.opening retained earnings in the first quarter of 2019 in accordance with ASU 2016-02 (see "Note B. Summary of Significant Accounting Policies–New Accounting Standards" for additional information).
Rent expense for the Company's operating leases consisted of the following:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Minimum rent for retail locations | $ | 172.2 |
| $ | 158.2 |
| $ | 146.1 |
| $ | 217.0 |
| $ | 198.7 |
| $ | 184.1 |
|
| Contingent rent based on sales | 34.9 |
| 38.6 |
| 36.3 |
| 38.9 |
| 32.7 |
| 32.4 |
|
| Office, distribution and manufacturing facilities and equipment | 37.0 |
| 35.8 |
| 42.5 |
| 38.3 |
| 40.0 |
| 40.0 |
|
| | $ | 244.1 |
| $ | 232.6 |
| $ | 224.9 |
| $ | 294.2 |
| $ | 271.4 |
| $ | 256.5 |
|
In addition, the Company operates certain TIFFANY & CO. stores within various department stores outside the U.S. and has agreements where the department store operators provide store facilities and other services. The Company pays the department store operators a percentage fee based on sales generated in these locations (recorded as commission expense within SG&A expenses) which totaled $109.4$129.0 million, $113.7$118.9 million and $117.1$117.9 million in 2015, 20142018, 2017 and 2013,2016, respectively, and which are not included in the table above.
Aggregate annual minimum rental payments under non-cancelable operating leases are as follows:
| | | Years Ending January 31, | Annual Minimum Rental Payments a (in millions) |
| Annual Minimum Rental Payments a (in millions) |
|
| 2017 | $ | 273.6 |
| |
| 2018 | 244.7 |
| |
| 2019 | 172.1 |
| |
| 2020 | 156.3 |
| $ | 292.8 |
|
| 2021 | 141.4 |
| 239.2 |
|
| 2022 | | 212.8 |
|
| 2023 | | 177.4 |
|
| 2024 | | 146.8 |
|
| Thereafter | 597.7 |
| 438.0 |
|
| |
a | Operating lease obligations do not include obligations for property taxes, insurance and maintenance that are required by most lease agreements. |
Diamond Sourcing Activities
The Company has agreements with various diamond producers to purchase defined portionsa minimum volume of their mines' outputrough diamonds at prevailing fair market prices. Under those agreements, management anticipates that it will purchase approximately $100.0$60.0 million of rough diamonds in 2016. Purchases beyond 2016 that are contingent upon mine production at then-prevailing fair market prices cannot be reasonably estimated. In addition, the2019. The Company also regularly purchases rough and polished diamonds from
other suppliers, although it has no contractual obligations to do so.
In consideration of its diamond supply agreements, the Company has provided financing to certain suppliers of its rough diamonds. In March 2011, Laurelton Diamonds, Inc. ("Laurelton"), a wholly-owned subsidiary of the Company, as lender, entered into a $50.0 million amortizing term loan facility agreement with Koidu, as borrower, and BSG Resources Limited, as a limited guarantor. Koidu operates a kimberlite diamond mine in Sierra Leone (the "Mine") from which Laurelton acquires diamonds. Koidu was required Purchases beyond 2019 under the terms of the Loan to apply the proceeds of the Loan to capital expenditures necessary to increase the output of the Mine, among other purposes. As of July 31, 2011, the Loan was fully funded. In consideration of the Loan, Laurelton entered into a supply agreement, pursuant to which Laurelton is required to purchase at fair market value certain diamonds recovered from the Mine that meet Laurelton's quality standards. The assets of Koidu, including all equipment and rights in respect of the Mine, are subject to the security interest of a lender that is not affiliated with the Company. The Loan is partially secured by the diamonds, if any, that have been extracted from the Mine and that have not been sold to third parties. The Company has evaluated the variable interest entity consolidation requirements with respect to this transaction and has determined that it is not the primary beneficiary, as it does not have the power to direct any of the activities that most significantly impact Koidu's economic performance.
On March 29, 2013, the Company entered into an amendment relating to the Loan which deferred principal and interest payments due in 2013 to subsequent years, and, on March 31, 2014, the Company entered into a further amendment providing that the principal payments due in 2014aforementioned agreements cannot be paid on a monthly basis rather than on a semi-annual basis. On April 30, 2015, the Company entered into a further amendment (the "2015 Amendment"). Pursuant to the 2015 Amendment, once certain customary conditions relating to the addition of one of Koidu's affiliates as an obligor under the Loan were satisfied, the principal payment due on March 30, 2015 would be deferred until a date to be specified by the Company (which date may be upon at least 30 days' written notice to Koidu, or upon the occurrence of certain specified acceleration conditions). As of June 2015, all of the conditions had been satisfied and the deferral of the principal payment due on March 30, 2015 had become effective, subject to the acceleration conditions set forth in the 2015 Amendment, which include Koidu remaining current on its other payment obligations to the Company. The Loan, as amended, is required to be repaid in full by March 2017 through semi-annual payments. Under the 2015 Amendment, the interest rate on the Loan was increased and, as of April 1, 2015, interest will accrue at a rate per annum that is the greater of (i) LIBOR plus 3.5% or (ii) 6.75%. Koidu also agreed to pay, and subsequently paid, an additional 2% per annum of interest on all deferred principal repayments.
At January 31, 2016, there was $43.8 million of principal outstanding under this Loan (see "Note B - Summary of Significant Accounting Policies"). In August 2015, Koidu requested that its interest payment due in July 2015 be deferred until a future date to be determined, and it advised the Company that it was likely to request a deferral of interest payments due in August and September of 2015. Based on these requests and other discussions with Koidu, in which Koidu had informed the Company that it was seeking additional sources of capital to fund ongoing operations of the mine, and with consideration given to the fact that Koidu did not respond to the Company's request for a proposed revised payment schedule for its obligations under the Loan, management believed that it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the Loan, and recorded an impairment charge, and related valuation allowance, of $9.6 million in the second quarter of 2015. Additionally, the Company ceased accruing interest income on the outstanding Loan balance as of July 31, 2015.
As of January 31, 2016, Koidu has not made any of its interest payments due in July 2015 and thereafter, nor its principal payment due in September 2015. The missed payments constitute events of default under the Loan. Koidu has yet to provide a proposed revised payment schedule for its obligations under the Loan. In February 2016, the Company received the results from two separate and independent reviews of Koidu's operational plans, forecasts, and cash flow projections for the mine, which were commissioned by the Company and by Koidu's largest creditor, respectively. Based on these factors, ongoing discussions with Koidu, and consideration of the possible actions that all parties, including the Government of Sierra Leone and Koidu's largest creditor, may take under the circumstances, management believes that it is probable that the portion of the amounts due under the contractual terms of the Loan that the Company will be unable to collect will be greater than originally estimated, and recorded an impairment charge, and related valuation allowance, of $28.3 million in the fourth quarter of 2015. The carrying amount of the Company’s loan receivable from Koidu, net of the valuation allowance, is $5.9 million at January 31, 2016.
The Company intends to continue to participate in discussions with Koidu regarding operational plans, forecasts and cash flow projections for the mine, as well as revisions to the payment schedule for the Loan. The Company also intends to continue to participate in discussions with certain of Koidu's stakeholders, including its largest creditor and the Government of Sierra Leone. The outcome of these discussions, as well as any other developments, will inform management's ongoing evaluation of the collectability of the Loan and the accrual of interest income. It is possible that such ongoing evaluation may result in additional changes to management's assessment of collectability. While such changes in management's assessment would not have a material adverse effect on the Company's financial position or cash flows, it is possible that such a change in assessment could affect the Company's earnings in the period in which such a change were to occur.
The Company also provided financing of $3.1 million during the year ended January 31, 2014 to a diamond mining and exploration company.reasonably estimated.
Contractual Cash Obligations and Contingent Funding Commitments
At January 31, 2016,2019, the Company's contractual cash obligations and contingent funding commitments were for inventory purchases of $319.1$283.9 million (which includes the $100.0$60.0 million obligation discussed in Diamond Sourcing Activities above), as well as for other contractual obligations of $91.7$113.8 million (primarily for construction-in-progress, technology licensing and service contracts, advertising and media agreements, and fixed royalty commitments)commitments and the Transition Tax liability).
Litigation
Arbitration Award. On December 21, 2013, an award was issued (the "Arbitration Award") in favor of The Swatch Group Ltd. ("Swatch") and its wholly-owned subsidiary Tiffany Watch Co. ("Watch Company"; Swatch and Watch Company, together, the "Swatch Parties") in an arbitration proceeding (the "Arbitration") between the Registrant and its wholly-owned subsidiaries, Tiffany and Company and Tiffany (NJ) Inc. (the Registrant and such subsidiaries, together, the "Tiffany Parties") and the Swatch Parties.
The Arbitration was initiated in June 2011 by the Swatch Parties, who sought damages for alleged breach of agreements entered into by and among the Swatch Parties and the Tiffany Parties in December 2007 (the "Agreements"). The Agreements pertained to the development and commercialization of a watch business and, among other things, contained various licensing and governance provisions and approval requirements relating to business, marketing and branding plans and provisions allocating profits relating to sales of the watch business between the Swatch Parties and the Tiffany Parties.
In general terms, the Swatch Parties alleged that the Tiffany Parties breached the Agreements by obstructing and delaying development of Watch Company’s business and otherwise failing to proceed in good faith. The Swatch Parties sought damages based on alternate theories ranging from CHF 73.0 million
(or approximately $72.0 million at January 31, 2016) (based on its alleged wasted investment) to CHF 3.8 billion (or approximately $3.7 billion at January 31, 2016) (calculated based on alleged future lost profits of the Swatch Parties and their affiliates over the entire term of the Agreements).
The Registrant believes that the claims of the Swatch Parties are without merit. In the Arbitration, the Tiffany Parties defended against the Swatch Parties’ claims vigorously, disputing both the merits of the claims and the calculation of the alleged damages. The Tiffany Parties also asserted counterclaims for damages attributable to breach by the Swatch Parties, stemming from the Swatch Parties’ September 12, 2011 public issuance of a Notice of Termination purporting to terminate the Agreements due to alleged material breach by the Tiffany Parties, and for termination due to such breach. In general terms, the Tiffany Parties alleged that the Swatch Parties did not have grounds for termination, failed to meet the high standard for proving material breach set forth in the Agreements and failed to provide appropriate management, distribution, marketing and other resources for TIFFANY & CO. brand watches and to honor their contractual obligations to the Tiffany Parties regarding brand management. The Tiffany Parties’ counterclaims sought damages based on alternate theories ranging from CHF 120.0 million (or approximately $118.0 million at January 31, 2016) (based on its wasted investment) to approximately CHF 540.0 million (or approximately $533.0 million at January 31, 2016) (calculated based on alleged future lost profits of the Tiffany Parties).
The Arbitration hearing was held in October 2012 before a three-member arbitral panel convened in the Netherlands pursuant to the Arbitration Rules of the Netherlands Arbitration Institute (the "Rules"), and the Arbitration record was completed in February 2013.
Under the terms of the Arbitration Award, and at the request of the Swatch Parties and the Tiffany Parties, the Agreements were deemed terminated. The Arbitration Award stated that the effective date of termination was March 1, 2013. Pursuant to the Arbitration Award, the Tiffany Parties were ordered to pay the Swatch Parties damages of CHF 402.7 million (the "Arbitration Damages"), as well as interest from June 30, 2012 to the date of payment, two-thirds of the cost of the Arbitration and two-thirds of the Swatch Parties' legal fees, expenses and costs. These amounts were paid in full in January 2014.
Prior to the ruling of the arbitral panel, no accrual was established in the Company's consolidated financial statements because management did not believe the likelihood of an award of damages to the Swatch Parties was probable. As a result of the ruling, in the fourth quarter of 2013, the Company recorded a charge of $480.2 million, which included the damages, interest, and other costs associated with the ruling and which was classified as Arbitration award expense in the consolidated statement of earnings.
On March 31, 2014, the Tiffany Parties took action in the District Court of Amsterdam to annul the Arbitration Award. Generally, arbitration awards are final; however, Dutch law does provide for limited grounds on which arbitral awards may be set aside. The Tiffany Parties petitioned to annul the Arbitration Award on these statutory grounds. These grounds include, for example, that the arbitral tribunal violated its mandate by changing the express terms of the Agreements.
A three-judge panel presided over the annulment hearing on January 19, 2015, and, on March 4, 2015, issued a decision in favor of the Tiffany Parties. Under this decision, the Arbitration Award is set aside. However, the Swatch Parties have taken action in the Dutch courts to appeal the District Court's decision, and the Arbitration Award may ultimately be upheld by the courts of the Netherlands. Registrant’s management expects that the annulment action will not be ultimately resolved until at the earliest, Registrant's fiscal year ending January 31, 2017.
If the Arbitration Award is finally annulled, management anticipates that the claims and counterclaims that formed the basis of the Arbitration, and potentially additional claims and counterclaims, will be litigated in court proceedings between and among the Swatch Parties and the Tiffany Parties. The identity
and location of the courts that would hear such actions have not been determined at this time. Management also anticipates that the Tiffany Parties would seek the return of the amounts paid by them under the Arbitration Award in court proceedings.
In any litigation regarding the claims and counterclaims that formed the basis of the arbitration, issues of liability and damages will be pled and determined without regard to the findings of the arbitral panel. As such, it is possible that the court could find that the Swatch Parties were in material breach of their obligations under the Agreements, that the Tiffany Parties were in material breach of their obligations under the Agreements or that neither the Swatch Parties nor the Tiffany Parties were in material breach. If the Swatch Parties’ claims of liability were accepted by the court, the damages award cannot be reasonably estimated at this time, but could exceed the Arbitration Damages and could have a material adverse effect on the Registrant’s consolidated financial statements or liquidity.
Although the District Court has issued a decision in favor of the Tiffany Parties, an amount will only be recorded for any return of amounts paid under the Arbitration Award when the District’s Court decision is final (i.e., after all rights of appeal have been exhausted) and return of these amounts is deemed probable and collection is reasonably assured. As such, the Company has not recorded any amounts in its consolidated financial statements related to the District Court’s decision.
Additionally, management has not established any accrual in the Company's consolidated financial statements for the year ended January 31, 2016 related to the annulment process or any potential subsequent litigation because it does not believe that the final annulment of the Arbitration Award and a subsequent award of damages exceeding the Arbitration Damages is probable.
Royalties payable to the Tiffany Parties by Watch Company under the Agreements were not significant in any year and watches manufactured by Watch Company and sold in TIFFANY & CO. stores constituted 1% of worldwide net sales in 2013. In April 2015, management introduced new TIFFANY & CO. brand watches, which have been designed, produced, marketed and distributed through certain of the Company's Swiss subsidiaries.
Other Litigation Matters. The Company is from time to time involved in routine litigation incidental to the conduct of its business, including proceedings to protect its trademark rights, litigation with parties claiming infringement of patents and other intellectual property rights by the Company, litigation instituted by persons alleged to have been injured upon premises under the Company's control and litigation with present and former employees and customers. Although litigation with present and former employees is routine and incidental to the conduct of the Company's business, as well as for any business employing significant numbers of employees, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages for actions such as those claiming discrimination on the basis of age, gender, race, religion, disability or other legally-protected characteristic or for termination of employment that is wrongful or in violation of implied contracts. However, the Company believes that all such litigation currently pending to which it is a party or to which its properties are subject will be resolved without any material adverse effect on the Company's financial position, earnings or cash flows.
Gain Contingency. On February 14, 2013, Tiffany and Company and Tiffany (NJ) LLC (collectively, the "Tiffany plaintiffs") initiated a lawsuit against Costco Wholesale Corp. ("Costco") for trademark infringement, false designation of origin and unfair competition, trademark dilution and trademark counterfeiting (the "Costco Litigation"). The Tiffany plaintiffs sought injunctive relief, monetary recovery and statutory damages on account of Costco's use of "Tiffany" on signs in the jewelry cases at Costco stores used to describe certain diamond engagement rings that were not manufactured by Tiffany. Costco filed a counterclaim arguing that the TIFFANY trademark was a generic term for multi-pronged ring settings and seeking to have the trademark invalidated, modified or partially canceled in that respect. On September 8, 2015, the U.S. District Court for the Southern District of New York (the "Court") granted the Tiffany plaintiffs' motion for summary judgment of liability in its entirety, dismissing Costco's genericism counterclaim and finding that Costco was liable for trademark infringement, trademark counterfeiting and unfair competition under New York law in its use of "Tiffany" on the above-referenced signs. On September 29, 2016, a civil jury rendered its verdict, finding that Costco's profits on the sale of the infringing rings should be awarded at $5.5 million, and further finding that an award of punitive damages was warranted. On October 5, 2016, the jury awarded $8.25 million in punitive damages. The aggregate award of $13.75 million was not final, as it was subject to post-verdict motion practice and ultimately to adjustment by the Court. On August 14, 2017, the Court issued its ruling, finding that the Tiffany plaintiffs are entitled to recover (i) $11.1 million in respect of Costco's profits on the sale of the infringing rings (which amount is three times the amount of such profits, as determined by the Court), (ii) prejudgment interest on such amount (calculated at the applicable statutory rate) from February 15, 2013 through August 14, 2017, (iii) an additional $8.25 million in punitive damages, and (iv) Tiffany's reasonable attorneys' fees, and, on August 24, 2017, the Court entered judgment in the amount of $21.0 million in favor of the Tiffany plaintiffs (reflecting items (i) through (iii) above). On February 7, 2019, the Court awarded the Tiffany plaintiffs $5.9 million in respect of the aforementioned attorneys' fees and costs, bringing the total judgment to $26.9 million. The Court has denied a motion made by Costco for a new trial; however, Costco has also filed an appeal from the judgment, which is pending before the Second Circuit Court of Appeals. As the Tiffany plaintiffs may not enforce the Court's judgment during the appeals process, the Company has not recorded any amount in its consolidated financial statements related to this gain contingency as of January 31, 2019. The Company expects that this matter will not ultimately be resolved until, at the earliest, a future date during the Company's fiscal year ending January 31, 2020.
Environmental Matter
In 2005, the USU.S. Environmental Protection Agency ("EPA") designated a 17-mile stretch of the Passaic River (the "River") part of the Diamond Alkali “Superfund”"Superfund" site. This designation resulted from the detection of hazardous substances emanating from the site, which was previously home to the Diamond Shamrock Corporation, a manufacturer of pesticides and herbicides. Under the Superfund law, the EPA will negotiate with potentially responsible parties to agree on remediation approaches.approaches and may also enter into settlement agreements pursuant to an allocation process.
The Company, which operated a silverware manufacturing facility near a tributary of the River from approximately 1897 to 1985, is one of more than 300 parties (the "Potentially Responsible Parties") designated in litigation as potentially responsible parties with respect to the River. The EPA issued general notice letters to 125 of these parties. The Company, along with approximately 70 other Potentially Responsible Parties (collectively, the "Cooperating Parties Group" or "CPG") voluntarily entered into an Administrative Settlement Agreement and Order on Consent ("AOC") with the EPA in May 2007 to perform a Remedial Investigation/Feasibility Study (the "RI/FS") of the lower 17 miles of the River. In June 2012, most of the CPG voluntarily entered into a second AOC related to focused remediation actions at Mile 10.9 of the River. The actions under the Mile 10.9 AOC are complete (except for continued monitoring), the Remedial Investigation ("RI") portion of the RI/FS was submitted to the EPA on February 19, 2015, and the Feasibility Study ("FS") portion of the RI/FS was submitted to the EPA on April 30, 2015. The Company nonetheless remained in the CPG until October 24, 2017. The Company has accrued for its financial obligations under both AOCs, which have not been material to its financial position or results of operations in previous financial periods or on a cumulative basis.
The FS presented and evaluated three options for remediating the lower 17 miles of the River, including the approach recommended by the EPA in its Focused Feasibility Study discussed below, as well as a fourth option of taking no action, and recommended an approach for a targeted remediation of the entire 17-mile stretch of the River. The estimated cost of the approach recommended by the CPG in the FS is approximately $483.0 million. The RI and FS are being reviewed by the EPA and other governmental agencies and stakeholders. Ultimately, the Company expects that the EPA will identify and negotiate with any or all of the potentially responsible parties regarding any remediation action that may be necessary, and issue a Record of Decision with a proposed approach to remediating the entire lower 17-mile stretch of the River.
Separately, on April 11, 2014, the EPA issued a proposed plan for remediating just the lower eight miles of the River, which is supported by a Focused Feasibility Study (the "FFS"). The FFS evaluated three remediation options, for the lower eight miles, as well as a fourth option of taking no action. Following a public review and comment period and the EPA's review of comments received, the EPA issued a Record of Decision on March 4, 2016 that set forth its decision on a remediation plan for the lower eight miles of the River.River (the "RoD Remediation"). The identified remediation planRoD Remediation is estimated by the EPA to cost $1.38 billion. The Record of Decision did not identify any party or parties as being responsible for the design of the remediation or for the remediation itself. However, concurrent with issuing its Record of Decision, theThe EPA noteddid note that it plans to begin discussions with the parties responsible for the contamination to seek their performance of, or payment for, the remediation work for the lower eight miles of the River. The EPA further noted that it expectsestimates the design of the necessary remediation activities will take three to four years, with the remediation to follow, which is estimated to take three to four years, to be outlined in a legally binding document. The remediation is expected to follow the design process, and the EPA has estimated that remediation would take anotheran additional six years to complete.
With respectOn March 31, 2016, the EPA issued a letter to remediationapproximately 100 companies (including the Company) (collectively, the "notified companies") notifying them of potential liability for the RoD Remediation and of the lower eight milesEPA's planned approach to addressing the cost of the River,RoD Remediation, which included the possibility of a de-minimis cash-out settlement (the "settlement option") for certain parties. In April of 2016, the Company notified the EPA of its interest in pursuing the settlement option, and accordingly recorded an immaterial liability representing its best estimate of its minimum liability for the RoD Remediation, which reflects the possibility of a de-minimis settlement. On March 30, 2017, the EPA issued offers related to the settlement option to 20 parties; while the Company was not one of the parties receiving such an offer, the EPA has indicated that the settlement option may be made available to additional parties beyond those notified on March 30, 2017. Although the EPA must determine which additional parties are eligible for the settlement option, the Company does not expect any settlement amount that it might agree with the EPA to be material to its financial position, results of operations or cash flows.
In the absence of a viable settlement option with the EPA, the Company is unable to determine its participation in the overall RoD Remediation, if any, relative to the other potentially responsible parties, or the allocation of the estimated cost thereof among the potentially responsible parties, until such time as the EPA reaches an agreement if any, with any potentially responsible party or parties to fund the design and remediation workRoD Remediation (or pursues legal or administrative
action to require any potentially responsible party or parties to perform, or pay for, the design and remediation work), it cannot be determined which potentially responsible party or parties will be responsible for such design and remediation, or howRoD Remediation). With respect to the estimated $1.38 billion cost identified inRI/FS (which is distinct from the Record of Decision will be allocated among any potentially responsible parties. Further,RoD Remediation), until a Record of Decision is issued with respect to the RI/FS, neither the ultimate remedial approach for the remaining upper nine miles of the relevant 17-mile stretch of the River and its cost, nor the Company's participation, if any, relative to the other potentially responsible parties in this approach and cost, can be determined.
AsIn October 2016, the EPA announced that it entered into a legal agreement with Occidental Chemical Corporation ("OCC"), pursuant to which OCC agreed to spend $165.0 million to perform the engineering and design work required in advance of the clean-up contemplated by the RoD Remediation (the "RoD Design Phase"). OCC has waived any rights to collect contribution from the Company (the "Waiver") for certain costs, including those associated with such engineering and design work, incurred by OCC through July 14, 2016. However, on June 29, 2018, OCC filed a lawsuit in the United States District Court for the District of New Jersey against Tiffany and Company and 119 other companies (the "defendant companies") seeking to have the defendant companies reimburse OCC for certain response costs incurred by OCC in connection with its and its predecessors' remediation work relating to the River, other than those costs subject to the Waiver. OCC is also seeking a declaratory judgment to hold the defendant companies liable for their alleged shares of future response costs, including costs related to the RoD Remediation. The suit does not quantify damages sought, and the Company is unable to determine at this time whether, or to what extent, the OCC lawsuit will impact the cost allocation described in the immediately preceding paragraph or will otherwise result in any liabilities for the Company.
Given the uncertainties described above, the Company's obligations,liability, if any, beyond thosethat already recorded for (1) its obligations under the 2007 AOC and the Mile 10.9 AOC, and (2) its estimate related to a de-minimis cash-out settlement for the RoD Remediation, cannot be determined at this time, andtime. However, the Company has thereforedoes not recorded any additionalexpect that its ultimate liability related to this matter. Inthe relevant 17-mile stretch of the River will be material to its financial position, in light of the number of companies that have previously been identified as Potentially Responsible Parties (i.e., the more than 300 parties that were initially designated in litigation as potentially responsible parties), which includes, but goes well beyond those approximately 70
CPG member companies in the CPG that participated in the 2007 AOC and the Mile 10.9 AOC, and the Company's relative participation in the costs related to the 2007 AOC and Mile 10.9 AOC, the Company does not expect that its ultimate liability, if any, related to these matters will be material to its financial position.AOC. It is however,nonetheless possible that any resulting liability when the uncertainties discussed above are resolved any resulting liability could be material to itsthe Company's results of operations or cash flows in the period in which such uncertainties are resolved.
Other
In the normal course of business, the Company entrusts precious scrap metals generated through its internal manufacturing operations to metal refiners. In November 2018, one such refiner filed for relief under chapter 11 of the U.S. Bankruptcy Code. As a result, the Company recognized a charge of $8.5 million during the three months ended October 31, 2018, which represented the carrying value of such precious scrap metals entrusted to the refiner, net of expected insurance recoveries.
During 2018, the Company received an offer of AUD $48.0 million as compensation for the previous acquisition of the premises containing one of its leased retail stores and an administrative office in Sydney, Australia under compulsory acquisition laws in Australia. The Company did not accept the offer of compensation and has filed an appeal of the compensation amount with the Land and Environment Court in Australia. In accordance with local law, the Company received an advance payment of 90% ($31.1 million, based on foreign currency exchange rates on the date of receipt) of the offered compensation during the fourth quarter of 20152018. The appeal process is inherently uncertain and the first quarterLand and Environment Court will make an independent assessment of 2013,the amount of compensation in this matter, which may require the Company implemented specific cost-reduction initiatives and recorded $8.8 million and $9.4 million, respectively, of expense within SG&A expenses. These unrelated cost-reduction initiatives included severance related to staffing reductions and subleasing of certain office space for which onlyrepay all or a portion of the Company's future rent obligations will be recovered.advance payment. Therefore, the Company cannot currently determine an amount, or any minimum amount, it ultimately expects to realize in connection with this matter. Accordingly, the Company did not recognize any gain in the accompanying consolidated statement of earnings for the year ended January 31, 2019. Instead, the Company recognized the advance payment within Cash and cash equivalents and as a liability within Accounts payable and accrued liabilities as of January 31, 2019. The Company classified $19.2 million of the advance payment within operating cash flows and $11.9 million within investing cash flows on the consolidated statement of cash flows, with such classification determined by the nature of the underlying components of the cash receipt.
K. STOCKHOLDERS' EQUITY
Accumulated Other Comprehensive Loss |
| | | | | | | |
| | January 31, | |
| (in millions) | 2019 |
| | 2018 |
|
| Accumulated other comprehensive loss, net of tax: | | | |
| Foreign currency translation adjustments | $ | (108.2 | ) | | $ | (48.0 | ) |
Unrealized loss on marketable securities a | — |
| | (1.8 | ) |
| Deferred hedging loss | (24.5 | ) | | (22.9 | ) |
| Net unrealized loss on benefit plans | (72.1 | ) | | (65.3 | ) |
| | $ | (204.8 | ) | | $ | (138.0 | ) |
| |
K.a | RELATED PARTIESThe Company adopted ASU 2016-01 - Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities on February 1, 2018 using the modified retrospective method. Under ASU 2016-01, the Company recognizes both realized and unrealized gains and losses on marketable securities in Other expense, net. Previously, unrealized gains and losses were recorded as a separate component of stockholders' equity. |
The Company's Chairman of the Board was a member of the Board of Directors of The Bank of New York Mellon through April 14, 2015. The Bank of New York Mellon serves as the Company's trustee for its Senior Notes due in 2024 and 2044, participates as a co-syndication agent and lender for its New Credit Facilities, provides other general banking services and serves as the trustee and an investment manager for the Company's pension plan. Fees paid to the bank for services rendered and interest on debt amounted to $0.7 million, $1.3 million and $1.6 million in 2015, 2014 and 2013.
L. STOCKHOLDERS' EQUITY
Accumulated Other Comprehensive Loss
|
| | | | | | | |
| | January 31, | |
| (in millions) | 2016 |
| | 2015 |
|
| Accumulated other comprehensive (loss) earnings, net of tax: | | | |
| Foreign currency translation adjustments | $ | (135.3 | ) | | $ | (76.3 | ) |
| Unrealized (loss) gain on marketable securities | (1.0 | ) | | 1.9 |
|
| Deferred hedging loss | (26.8 | ) | | (5.4 | ) |
| Net unrealized loss on benefit plans | (115.0 | ) | | (210.7 | ) |
| | $ | (278.1 | ) | | $ | (290.5 | ) |
Additions to and reclassifications out of accumulated other comprehensive earnings (loss) arewere as follows:
|
| | | | | | | | | |
| | Years Ended January 31, | |
(in millions) | 2016 |
| 2015 |
| 2014 |
|
| Foreign currency translation adjustments | $ | (59.9 | ) | $ | (101.9 | ) | $ | (31.7 | ) |
| Income tax benefit | 0.9 |
| 8.8 |
| 4.5 |
|
| Foreign currency adjustments, net of tax | (59.0 | ) | (93.1 | ) | (27.2 | ) |
| Unrealized (loss) gain on marketable securities | (4.1 | ) | (0.9 | ) | 1.2 |
|
Reclassification for gain included in net earnings a | (0.4 | ) | — |
| — |
|
| Income tax benefit (expense) | 1.6 |
| 0.1 |
| (0.4 | ) |
| Unrealized (loss) gain on marketable securities, net of tax | (2.9 | ) | (0.8 | ) | 0.8 |
|
| Unrealized (loss) gain on hedging instruments | (22.2 | ) | 14.6 |
| 8.7 |
|
Reclassification adjustment for gain included in net earnings b | (11.7 | ) | (13.0 | ) | (14.0 | ) |
| Income tax benefit (expense) | 12.5 |
| (0.4 | ) | 1.9 |
|
| Unrealized (loss) gain on hedging instruments, net of tax | (21.4 | ) | 1.2 |
| (3.4 | ) |
| Prior service cost | — |
| (0.5 | ) | — |
|
| Net actuarial gain (loss) | 122.5 |
| (234.6 | ) | 86.3 |
|
Amortization of net loss included in net earnings c | 30.4 |
| 13.1 |
| 19.2 |
|
Amortization of prior service (credit) cost included in net earnings c | (0.6 | ) | (0.4 | ) | 0.3 |
|
| Income tax (expense) benefit | (56.6 | ) | 83.2 |
| (40.7 | ) |
| Net unrealized gain (loss) on benefit plans, net of tax | 95.7 |
| (139.2 | ) | 65.1 |
|
| Total other comprehensive earnings (loss), net of tax | $ | 12.4 |
| $ | (231.9 | ) | $ | 35.3 |
|
|
| | | | | | | | | |
| | Years Ended January 31, | |
(in millions) | 2019 |
| 2018 |
| 2017 |
|
| Foreign currency translation adjustments | $ | (62.9 | ) | $ | 97.9 |
| $ | 8.3 |
|
| Income tax benefit (expense) | 2.7 |
| (2.2 | ) | (16.7 | ) |
| Foreign currency translation adjustments, net of tax | (60.2 | ) | 95.7 |
| (8.4 | ) |
| Unrealized gain on marketable securities | — |
| 0.2 |
| 2.7 |
|
| Reclassification for gain included in net earnings | — |
| (3.5 | ) | — |
|
| Income tax benefit (expense) | — |
| 0.7 |
| (0.9 | ) |
| Unrealized (loss) gain on marketable securities, net of tax | — |
| (2.6 | ) | 1.8 |
|
| Unrealized (loss) gain on hedging instruments | (1.1 | ) | (21.0 | ) | 12.1 |
|
Reclassification adjustment for (gain) loss included in net earnings a | (1.2 | ) | 13.0 |
| 4.9 |
|
| Income tax benefit (expense) | 0.7 |
| 1.2 |
| (6.3 | ) |
| Unrealized (loss) gain on hedging instruments, net of tax | (1.6 | ) | (6.8 | ) | 10.7 |
|
| Net actuarial (loss) gain | (24.2 | ) | 30.6 |
| 14.1 |
|
Amortization of net loss included in net earnings b | 15.1 |
| 13.3 |
| 14.7 |
|
Amortization of prior service credit included in net earnings b | (0.6 | ) | (0.5 | ) | (0.7 | ) |
| Income tax benefit (expense) | 2.9 |
| (11.5 | ) | (10.3 | ) |
| Net unrealized (loss) gain on benefit plans, net of tax | (6.8 | ) | 31.9 |
| 17.8 |
|
| Total other comprehensive (loss) earnings, net of tax | $ | (68.6 | ) | $ | 118.2 |
| $ | 21.9 |
|
| |
a | These losses are reclassified into Other expense (income), net. |
| |
b
| These gains(gains) are reclassified into Interest expense and financing costs and Cost of sales (see "Note H -H. Hedging Instruments" for additional details). |
| |
cb
| These accumulated other comprehensive income componentslosses (gains) are included in the computation of net periodic pension costsbenefit cost (see "Note N -M. Employee Benefit Plans" for additional details). and are reclassified into Other expense, net. |
Stock Repurchase Program
In January 2011,May 2018, the Company's Board of Directors approved a stock repurchase program ("2011 Program") and terminated a previously-existing program. The 2011 Program authorized the Company to repurchase up to $400.0 million of its Common Stock through open market or private transactions. The timing of repurchases and the actual number of shares to be repurchased depended on a variety of discretionary factors such as stock price, cash-flow forecasts and other market conditions. The Company suspended share repurchases during the second quarter of 2012. In January 2013, the Board of Directors extended the expiration date of the 2011 Program to January 31, 2014. The 2011 Program expired on January 31, 2014 with $163.8 million of unused capacity.
In March 2014, the Company's Board of Directors approved a share repurchase program ("2014 Program") which authorized the Company to repurchase up to $300.0 million of its Common Stock through open market transactions. The program had an expiration date of March 31, 2017, but was terminated in January 2016 in connection with the authorization of a new program with increased
repurchase capacity (as described in more detail below). Approximately $58.6 million remained available for repurchase under the 2014 Program at the time of its termination.
In January 2016, the Company'sRegistrant's Board of Directors approved a new share repurchase program ("2016(the "2018 Program"). The 2018 Program, which became effective June 1, 2018 and expires on January 31, 2022, authorizes the Company to repurchase up to $500.0 million$1.0 billion of its Common Stock through open market transactions, block trades including through Rule 10b5-1 plans and one or more accelerated share repurchase ("ASR") or other structured repurchase transactions, and/or privately negotiated transactions and terminated the 2014 Program.transactions. Purchases under the 2014 Program were,this program are discretionary and purchases under the 2016 Program have been, executed under a written plan for trading securities as specified under Rule 10b5-1 promulgated under the Securities and Exchange Act of 1934, as amended, the terms of which are within the Company's discretion, subjectwill be made from time to applicable securities laws, and aretime based on market conditions and the Company's liquidity needs. The Company may fund repurchases under the 2018 Program from existing cash at such time or from proceeds of any existing borrowing facilities at such time and/or the issuance of new debt. The 2018 Program replaced the Company's previous share repurchase program approved in January 2016 Program will expire on January 31, 2019. Approximately $494.0(the "2016 Program"), under which the Company was authorized to repurchase up to $500.0 million of its Common Stock. At the time of termination, $154.9 million remained available for repurchase under the 2016 Program atProgram. As of January 31, 2016.2019, $635.0 million remained available under the 2018 Program.
During the three months ended July 31, 2018, the Company entered into ASR agreements with two third-party financial institutions to repurchase an aggregate of $250.0 million of its Common Stock. The ASR agreements were entered into under the 2018 Program. Pursuant to the ASR agreements, the Company made an aggregate payment of $250.0 million from available cash on hand in exchange for an initial delivery of 1,529,286 shares of its Common Stock. Final settlement of the ASR agreements was completed in July 2018, pursuant to which the Company received an additional 353,112 shares of its Common Stock. In total, 1,882,398 shares of the Company's Common Stock were repurchased under these ASR agreements at an average cost per share of $132.81 over the term of the agreements.
The Company's share repurchase activity was as follows:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions, except per share amounts) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Cost of repurchases | $ | 220.4 |
| $ | 27.0 |
| $ | — |
| $ | 421.4 |
| $ | 99.2 |
| $ | 183.6 |
|
| Shares repurchased and retired | 2.8 |
| 0.3 |
| — |
| 3.5 |
| 1.0 |
| 2.8 |
|
| Average cost per share | $ | 78.40 |
| $ | 89.91 |
| $ | — |
| $ | 121.28 |
| $ | 94.86 |
| $ | 65.24 |
|
Cash Dividends
The Company's Board of Directors declared quarterly dividends which, on an annual basis, totaled $1.58, $1.48$2.15, $1.95 and $1.34$1.75 per share of Common Stock in 2015, 20142018, 2017 and 2013.2016, respectively.
On February 18, 2016,21, 2019, the Company's Board of Directors declared a quarterly dividend of $0.40$0.55 per share of Common Stock. This dividend will be paid on April 11, 201610, 2019 to stockholders of record on March 21, 2016.20, 2019.
M.L. STOCK COMPENSATION PLANS
The Company has two stock compensation plans under which awards may be made: the Employee Incentive Plan and the Directors Equity Compensation Plan, both of which were approved by the Company's stockholders. No award may be made under the Employee Incentive Plan after May 22, 2024 or under the Directors Equity Compensation Plan after May 15, 2018.25, 2027.
Under the Employee Incentive Plan, the maximum number of common shares authorized for issuance was is 8.7 million. Awards may be made to employees of the Company or its related companies in the form of stock options, stock appreciation rights, shares of stock (or rights to receive shares of stock) and cash. Awards made in the form of non-qualified stock options, tax-qualified incentive stock options or stock appreciation rights have a maximum term of 10 years from the grant date and may not be granted for an exercise price below fair market value.
The Company has granted time-vesting restricted stock units ("RSUs"), performance-based restricted stock units ("PSUs") and stock options under the Employee Incentive Plan. Stock options and RSUs typically vest primarily in increments of 25% per year over four years. RSUs and PSUs issued to the executive officers vest primarily at the end of a three-year period. RSUs issued to other management employees vest primarily in increments of 25% per year over a four-yearthree-year period. Vesting of all PSUs is contingent on the Company's performance against pre-set objectives established by the Compensation Committee of the Company's Board of Directors. The PSUs and RSUs require no payment from the employee. PSU and RSU payouts
will be are in shares of Company stock at vesting.vesting (aside from fractional dividend equivalents, which are settled in cash). Compensation expense is recognized using the fair market value of the award at the date of grant and recorded ratably over the vesting period. However, PSU compensation expense may be adjusted over the vesting period based on interim estimates of performance against the pre-setestablished objectives. Award holders are not entitled to receive dividends or dividend equivalents on PSUs or RSUs granted prior to January 2017 or on unvested stock options,options. PSUs and RSUs granted in or RSUs.after January 2017 accrue dividend equivalents that may only be paid or delivered upon vesting of the underlying stock units.
Under the Directors Equity Compensation Plan, the maximum number of shares of Common Stock authorized for issuance was is 1.0 million (subject to adjustment); awards may be made to non-employee directors of the Company in the form of stock options or shares of stock but may not exceed 25 thousand (subject$750,000 of total compensation (including without limitation, non-equity compensation and the grant-date fair value of options or stock awards, or any combination of options and stock awards) that may be awarded to adjustment) shares per non-employee directorany one participant in any single fiscal year. Awardsyear of shares (or rightsthe Company in connection with his or her service as a member of the Board; provided, however, that this limitation shall not apply to receive shares) reducea non-executive chairperson of the above authorized amount by 1.58 shares for every share delivered pursuant to such an award.Board. Awards made in the form of stock options may have a maximum term of 10 years from the grant date and may not be granted for an exercise price below fair market value unless the director has agreed to forego all or a portion of his or her annual cash retainer or other fees for service as a director in exchange for below-market exercise price options.value. Director options vest immediately. Director RSUs vest overat the end of a one-yearone-year period.
The Company uses newly-issuednewly issued shares to satisfy stock option exercises and the vesting of PSUs and RSUs.
The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model and compensation expense is recognized ratably over the vesting period. The valuation model uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company's stock. The Company uses historical data to estimate the expected term of the option that represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual lifeexpected term of the option is based on the U.S. Treasury yield curve in effect at the grant date.
| | | | Years Ended January 31, | | Years Ended January 31, | |
| | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Dividend yield | 1.9 | % | 1.3 | % | 1.2 | % | 2.2 | % | 1.8 | % | 2.0 | % |
| Expected volatility | 28.1 | % | 30.2 | % | 39.6 | % | 24.2 | % | 22.0 | % | 23.8 | % |
| Risk-free interest rate | 1.5 | % | 1.5 | % | 1.4 | % | 2.5 | % | 2.2 | % | 1.8 | % |
| Expected term in years | 5 |
| 5 |
| 5 |
| 4 |
| 5 |
| 5 |
|
A summary of the option activity for the Company's stock option plansactivity is presented below:
| | | | Number of Shares (in millions) |
| Weighted- Average Exercise Price |
| Weighted- Average Remaining Contractual Term in Years | Aggregate Intrinsic Value (in millions) |
| Number of Shares (in millions) |
| Weighted- Average Exercise Price |
| Weighted- Average Remaining Contractual Term in Years | Aggregate Intrinsic Value (in millions) |
|
| Outstanding at January 31, 2015 | 1.7 |
| $ | 68.76 |
| 7.38 | $ | 32.3 |
| |
| Outstanding at January 31, 2018 | | 1.7 |
| $ | 84.25 |
| 7.87 | $ | 41.1 |
|
| Granted | 0.7 |
| 64.58 |
| | | 1.1 |
| 92.05 |
| | |
| Exercised | (0.1 | ) | 38.19 |
| | | (0.3 | ) | 70.35 |
| | |
| Forfeited/canceled | (0.2 | ) | 76.61 |
| | | (0.1 | ) | 76.46 |
| | |
| Outstanding at January 31, 2016 | 2.1 |
| $ | 67.59 |
| 7.02 | $ | 7.9 |
| |
| Exercisable at January 31, 2016 | 1.1 |
| $ | 62.78 |
| 4.74 | $ | 7.3 |
| |
| Outstanding at January 31, 2019 | | 2.4 |
| $ | 89.84 |
| 8.33 | $ | 11.3 |
|
| Exercisable at January 31, 2019 | | 0.7 |
| $ | 84.21 |
| 6.45 | $ | 7.0 |
|
The weighted-average grant-date fair value of options granted for the years ended January 31, 2016, 20152019, 2018 and 20142017 was $14.42, $22.25$16.97, $18.33 and $29.11.$14.36, respectively. The total intrinsic value (market value on date of exercise less grant price) of options exercised during the years ended January 31, 2016, 20152019, 2018 and 20142017 was $2.4$16.3 million, $44.1$31.2 million and $39.5 million.$4.5 million, respectively.
A summary of the activity for the Company's RSUsRSU activity is presented below:
| | | | Number of Shares (in millions) |
| Weighted-Average Grant-Date Fair Value |
| Number of Shares (in millions) |
| Weighted-Average Grant-Date Fair Value |
|
| Non-vested at January 31, 2015 | 0.6 |
| $ | 75.46 |
| |
| Non-vested at January 31, 2018 | | 0.6 |
| $ | 81.12 |
|
| Granted | 0.3 |
| 80.44 |
| 0.3 |
| 103.40 |
|
| Vested | (0.3 | ) | 84.73 |
| (0.2 | ) | 103.47 |
|
| Forfeited | (0.1 | ) | 78.44 |
| (0.1 | ) | 88.57 |
|
| Non-vested at January 31, 2016 | 0.5 |
| $ | 79.02 |
| |
| Non-vested at January 31, 2019 | | 0.6 |
| $ | 88.49 |
|
A summary of the activity for the Company's PSUsPSU activity is presented below:
| | | | Number of Shares (in millions) |
| Weighted-Average Grant-Date Fair Value |
| Number of Shares (in millions) |
| Weighted-Average Grant-Date Fair Value |
|
| Non-vested at January 31, 2015 | 0.7 |
| $ | 70.80 |
| |
| Non-vested at January 31, 2018 | | 0.5 |
| $ | 84.85 |
|
| Granted | 0.3 |
| 58.09 |
| 0.2 |
| 85.26 |
|
| Vested | (0.1 | ) | 57.06 |
| (0.1 | ) | 84.16 |
|
| Forfeited/canceled | (0.2 | ) | 61.96 |
| (0.1 | ) | 83.46 |
|
| Non-vested at January 31, 2016 | 0.7 |
| $ | 70.56 |
| |
| Non-vested at January 31, 2019 | | 0.5 |
| $ | 85.30 |
|
The weighted-average grant-date fair value of RSUs granted for the years ended January 31, 20152018 and 20142017 was $90.68$91.69 and $68.66.$67.46, respectively. The weighted-average grant-date fair value of PSUs granted for the years ended January 31, 20152018 and 20142017 was $82.88$108.99 and $79.23, respectively. The total fair value of RSUs vested during the years ended January 31, 2019, 2018 and 2017 was $24.3 million, $22.2 million and $83.73.$13.6 million, respectively. The total fair value of PSUs vested during the years ended January 31, 2019, 2018 and 2017 was $2.7 million, $3.4 million and $6.3 million, respectively.
As of January 31, 2016,2019, there was $65.6$87.3 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the Employee Incentive Plan and Directors Equity Compensation Plan. The expense is expected to be recognized over a weighted-average period of 2.62.7 years. The total fair value of RSUs vested during the years ended January 31, 2016, 2015 and 2014 was $18.0 million, $27.7 million and $26.5 million. The total fair value of PSUs vested during the years ended January 31, 2016, 2015 and 2014 was $4.1 million, $8.1 million and $10.2 million.
Total compensation cost for stock-based compensation awards recognized in income and the related income tax benefit was $24.5$34.1 million and $7.9 million for the year ended January 31, 2016, $26.5 million and $8.9$6.8 million for the year ended January 31, 2015 and $32.22019, $28.0 million and $11.4$8.5 million for the year ended January 31, 2014.2018 and $24.3 million and $7.7 million for the year ended January 31, 2017. Total stock-based compensation cost capitalized in inventory was not significant.
| |
N.M. | EMPLOYEE BENEFIT PLANS |
Pensions and Other Postretirement Benefits
The Company maintains the following pension plans: a noncontributory defined benefit pension plan qualified in accordance with the Internal Revenue Service Code ("Qualified Plan") covering substantially all U.S. employees hired before January 1, 2006, a non-qualified unfunded retirement income plan
(" ("Excess Plan") covering certain U.S. employees hired before January 1, 2006 and affected by Internal Revenue Service Code compensation limits, a non-qualified unfunded Supplemental Retirement Income Plan ("SRIP") covering certain executive officers of the Company hired before January 1, 2006 and noncontributory defined benefit pension plans in certain of its international locations ("Other Plans").
Qualified Plan benefits are based on (i) average compensation in the highest paid five years of the last 10 years of employment ("average final compensation") and (ii) the number of years of service. ParticipantsThe normal retirement age under the Qualified Plan is age 65; however, participants who retire with at least 10 years of service who retire after attaining age 55 may elect to receive reduced retirement benefits. Participants who havebenefits starting at least five years of service when their employment with the Company terminates may also receive certain benefits.age 55. The Company funds the Qualified Plan's trust in accordance with regulatory limits to provide for current service and for the unfunded benefit obligation over a reasonable period and for current service benefit accruals. To the extent that these requirements are fully covered by assets in the Qualified Plan, the Company may elect not to make any contribution in a particular year. No cash contribution was required in 20152018 and none is required in 20162019 to meet the minimum funding requirements of the Employee Retirement Income Security Act. TheHowever, the Company periodically evaluates whether to make discretionary cash contributions to the Qualified Plan didand made voluntary cash contributions of $11.8 million in 2018, $15.0 million in 2017 and $120.0 million in 2016. The Company also made such a contribution of $30.0 million in March 2019. The Company does not currently expect to make suchany additional contributions in 2015 and currently does not anticipate making such contributions in 2016.2019. This expectation is subject to change based on management’smanagement's assessment of a variety of factors, including, but not limited to, asset performance, interest rates and changes in actuarial assumptions.
The Qualified Plan, Excess Plan and SRIP exclude all employees hired on or after January 1, 2006. Instead, employees hired on or after January 1, 2006 are eligible to receive a defined contribution retirement benefit under the Employee Profit Sharing and Retirement Savings ("EPSRS") Plan (see "Employee Profit Sharing and Retirement Savings Plan" below). Employees hired before January 1, 2006 continue to be eligible for and accrue benefits under the Qualified Plan.
The Excess Plan uses the same retirement benefit formula set forth in the Qualified Plan, but includes earnings that are excluded under the Qualified Plan due to Internal Revenue Service Code qualified pension plan limitations. Benefits payable under the Qualified Plan offset benefits payable under the Excess Plan. Employees vested under the Qualified Plan are vested under the Excess Plan; however, benefits under the Excess Plan are subject to forfeiture if employment is terminated for cause and, for those who leave the Company prior to age 65, if they fail to execute and adhere to noncompetition and confidentiality covenants. TheUnder the Excess Plan, allows participants who retire with at least 10 years of service who retire after attaining age 55may elect to receive reduced retirement benefits.benefits starting at age 55.
The SRIP supplements the Qualified Plan, Excess Plan and Social Security by providing additional payments upon a participant's retirement. SRIP benefits are determined by a percentage of average final compensation; this percentage increases as specified service plateaus are achieved. Benefits payable under the Qualified Plan, Excess Plan and Social Security offset benefits payable under the SRIP. Under the SRIP, benefits vest when a participant both (i) attains age 55 while employed by the Company and (ii) has provided at least 10 years of service. In certain limited circumstances, early vesting can occur due to a change in control. Benefits under the SRIP are forfeited if benefits under the Excess Plan are forfeited.
Benefits for the Other Plans are typically based on monthly eligible compensation and the number of years of service. Benefits are typically payable in a lump sum upon retirement, termination, resignation or death if the participant has completed the requisite service period.
The Company accounts for pension expense using the projected unit credit actuarial method for financial reporting purposes. The actuarial present value of the benefit obligation is calculated based on the expected date of separation or retirement of the Company's eligible employees.
The Company provides certain health-care and life insurance benefits ("Other Postretirement Benefits") for certain retired employees and accrues the cost of providing these benefits throughout the employees' active service period until they attain full eligibility for those benefits. Substantially all of the Company's
U.S. full-time employees hired on or before March 31, 2012 may become eligible for these benefits if they reach normal or early retirement age while working for the Company. The cost of providing postretirement health-care benefits is shared by the retiree and the Company, with retiree contributions evaluated annually and adjusted in order to maintain the Company/retiree cost-sharing target ratio. The life insurance benefits are noncontributory. The Company's employee and retiree health-care benefits are administered by an insurance company, and premiums on life insurance are based on prior years' claims experience.
Obligations and Funded Status
The following tables provide a reconciliation of benefit obligations, plan assets and funded status of the pension and other postretirement benefit plans as of the measurement date:
| | | | January 31, | Years Ended January 31, | |
| | Pension Benefits | | | Other Postretirement Benefits | | Pension Benefits | | | Other Postretirement Benefits | |
| (in millions) | 2016 |
| 2015 |
| | 2016 |
| 2015 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| Change in benefit obligation: | | | | | | |
| Benefit obligation at beginning of year | $ | 841.7 |
| $ | 615.9 |
| | $ | 92.9 |
| $ | 54.7 |
| |
| Projected benefit obligation at beginning of year | | $ | 795.6 |
| $ | 783.7 |
| | $ | 78.5 |
| $ | 72.5 |
|
| Service cost | 22.6 |
| 16.8 |
| | 4.2 |
| 2.4 |
| 17.9 |
| 17.3 |
| | 3.0 |
| 2.8 |
|
| Interest cost | 30.6 |
| 28.3 |
| | 3.2 |
| 2.6 |
| 30.7 |
| 32.0 |
| | 3.0 |
| 3.0 |
|
| Participants' contributions | — |
| — |
| | 1.3 |
| 1.5 |
| — |
| — |
| | 1.3 |
| 1.0 |
|
| Amendments | — |
| 0.8 |
| | — |
| — |
| |
| MMA retiree drug subsidy | — |
| — |
| | 0.2 |
| 0.1 |
| — |
| — |
| | 0.1 |
| 0.2 |
|
| Actuarial (gain) loss | (128.8 | ) | 202.3 |
| | (20.4 | ) | 34.9 |
| (22.4 | ) | 21.1 |
| | (7.0 | ) | 1.5 |
|
| Benefits paid | (23.1 | ) | (20.2 | ) | | (3.0 | ) | (3.3 | ) | (26.8 | ) | (59.4 | ) | | (2.8 | ) | (2.5 | ) |
| Curtailments | (0.2 | ) | — |
| | — |
| — |
| |
| Translation | (0.2 | ) | (2.2 | ) | | — |
| — |
| — |
| 0.9 |
| | — |
| — |
|
| Benefit obligation at end of year | 742.6 |
| 841.7 |
| | 78.4 |
| 92.9 |
| |
| Projected benefit obligation at end of year | | 795.0 |
| 795.6 |
| | 76.1 |
| 78.5 |
|
| Change in plan assets: | | | | | | |
| Fair value of plan assets at beginning of year | 406.0 |
| 397.4 |
| | — |
| — |
| 578.1 |
| 530.1 |
| | — |
| — |
|
| Actual return on plan assets | (2.2 | ) | 26.0 |
| | — |
| — |
| (20.1 | ) | 86.1 |
| | — |
| — |
|
| Employer contribution | 5.1 |
| 2.8 |
| | 1.5 |
| 1.7 |
| 18.5 |
| 21.3 |
| | 1.4 |
| 1.3 |
|
| Participants' contributions | — |
| — |
| | 1.3 |
| 1.5 |
| — |
| — |
| | 1.3 |
| 1.0 |
|
| MMA retiree drug subsidy | — |
| — |
| | 0.2 |
| 0.1 |
| — |
| — |
| | 0.1 |
| 0.2 |
|
| Benefits paid | (23.1 | ) | (20.2 | ) | | (3.0 | ) | (3.3 | ) | (26.8 | ) | (59.4 | ) | | (2.8 | ) | (2.5 | ) |
| Fair value of plan assets at end of year | 385.8 |
| 406.0 |
| | — |
| — |
| 549.7 |
| 578.1 |
| | — |
| — |
|
| Funded status at end of year | $ | (356.8 | ) | $ | (435.7 | ) | | $ | (78.4 | ) | $ | (92.9 | ) | $ | (245.3 | ) | $ | (217.5 | ) | | $ | (76.1 | ) | $ | (78.5 | ) |
Actuarial gains in 2015 reflect increases in the discount rates for all plans. Actuarial losses in 2014 reflect decreases in the discount rates for all plans, and for the U.S. plans, also reflect the impact of adopting updated mortality assumptions issued by the Society of Actuaries in October 2014.
The following tables provide additional information regarding the Company's pension plans' projected benefit obligations and assets (included in pension benefits in the table above) and accumulated benefit obligation:
| |
| January 31, 2016 | | January 31, 2019 | |
| (in millions) | Qualified |
| Excess/SRIP |
| Other |
| Total |
| Qualified |
| Excess/SRIP |
| Other |
| Total |
|
| Projected benefit obligation | $ | 620.8 |
| $ | 105.5 |
| $ | 16.3 |
| $ | 742.6 |
| $ | 658.5 |
| $ | 109.4 |
| $ | 27.1 |
| $ | 795.0 |
|
| Fair value of plan assets | 385.8 |
| — |
| — |
| 385.8 |
| 549.7 |
| — |
| — |
| 549.7 |
|
| Funded status | $ | (235.0 | ) | $ | (105.5 | ) | $ | (16.3 | ) | $ | (356.8 | ) | $ | (108.8 | ) | $ | (109.4 | ) | $ | (27.1 | ) | $ | (245.3 | ) |
| Accumulated benefit obligation | $ | 556.8 |
| $ | 92.1 |
| $ | 13.5 |
| $ | 662.4 |
| $ | 598.8 |
| $ | 94.0 |
| $ | 22.2 |
| $ | 715.0 |
|
| | | | January 31, 2015 | | January 31, 2018 | |
| (in millions) | Qualified |
| Excess/SRIP |
| Other |
| Total |
| Qualified |
| Excess/SRIP |
| Other |
| Total |
|
| Projected benefit obligation | $ | 693.3 |
| $ | 133.1 |
| $ | 15.3 |
| $ | 841.7 |
| $ | 662.0 |
| $ | 112.6 |
| $ | 21.0 |
| $ | 795.6 |
|
| Fair value of plan assets | 406.0 |
| — |
| — |
| 406.0 |
| 578.1 |
| — |
| — |
| 578.1 |
|
| Funded status | $ | (287.3 | ) | $ | (133.1 | ) | $ | (15.3 | ) | $ | (435.7 | ) | $ | (83.9 | ) | $ | (112.6 | ) | $ | (21.0 | ) | $ | (217.5 | ) |
| Accumulated benefit obligation | $ | 620.6 |
| $ | 97.4 |
| $ | 12.6 |
| $ | 730.6 |
| $ | 600.2 |
| $ | 98.5 |
| $ | 19.3 |
| $ | 718.0 |
|
At January 31, 2016,2019, the Company had a current liability of $7.1$9.0 million and a non-current liability of $428.1$312.4 million for pension and other postretirement benefits. At January 31, 2015,2018, the Company had a current liability of $4.3$8.6 million and a non-current liability of $524.2$287.4 million for pension and other postretirement benefits.
AmountsPre-tax amounts recognized in accumulated other comprehensive loss consistconsisted of:
| | | | January 31, | | Years Ended January 31, | |
| | Pension Benefits | | | Other Postretirement Benefits | | Pension Benefits | | | Other Postretirement Benefits | |
| (in millions) | 2016 |
| 2015 |
| | 2016 |
| 2015 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| Net actuarial loss | $ | 180.1 |
| $ | 311.2 |
| | $ | 10.4 |
| $ | 32.4 |
| |
| Net actuarial loss (gain) | | $ | 132.7 |
| $ | 116.5 |
| | $ | (5.8 | ) | $ | 1.3 |
|
| Prior service cost (credit) | 0.8 |
| 0.9 |
| | (3.0 | ) | (3.7 | ) | 0.5 |
| 0.6 |
| | (1.0 | ) | (1.7 | ) |
| Total before tax | $ | 180.9 |
| $ | 312.1 |
| | $ | 7.4 |
| $ | 28.7 |
| $ | 133.2 |
| $ | 117.1 |
| | $ | (6.8 | ) | $ | (0.4 | ) |
The estimated pre-tax amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost within the next 12 months is as follows:
|
| | | | | | | |
| (in millions) | Pension Benefits |
| | Other Postretirement Benefits |
|
| Net actuarial loss | $ | 15.5 |
| | $ | 0.2 |
|
| Prior service credit | — |
| | (0.7 | ) |
| | $ | 15.5 |
| | $ | (0.5 | ) |
TIFFANY & CO. |
| | | | | | | |
| (in millions) | Pension Benefits |
| | Other Postretirement Benefits |
|
| Net actuarial loss | $ | 10.5 |
| | $ |
|
|
| Prior service cost (credit) | 0.1 |
| | (0.7 | ) |
| | $ | 10.6 |
| | $ | (0.7 | ) |
K-93
Components of Net Periodic Benefit Cost and
Other Amounts Recognized in Other Comprehensive Earnings
| | | | Years Ended January 31, | | Years Ended January 31, | |
| | Pension Benefits | | | Other Postretirement Benefits | | Pension Benefits | | | Other Postretirement Benefits | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
| Service cost | $ | 22.6 |
| $ | 16.8 |
| $ | 19.1 |
| | $ | 4.2 |
| $ | 2.4 |
| $ | 2.8 |
| $ | 17.9 |
| $ | 17.3 |
| $ | 17.4 |
| | $ | 3.0 |
| $ | 2.8 |
| $ | 2.8 |
|
| Interest cost | 30.6 |
| 28.3 |
| 27.0 |
| | 3.2 |
| 2.6 |
| 2.8 |
| 30.7 |
| 32.0 |
| 31.6 |
| | 3.0 |
| 3.0 |
| 3.1 |
|
| Expected return on plan assets | (24.7 | ) | (23.6 | ) | (22.2 | ) | | — |
| — |
| — |
| (33.4 | ) | (32.9 | ) | (23.5 | ) | | — |
| — |
| — |
|
| Curtailments | 0.2 |
| — |
| — |
| | — |
| — |
| — |
| |
| Amortization of prior service cost | — |
| 0.3 |
| 1.0 |
| | (0.7 | ) | (0.7 | ) | (0.7 | ) | 0.1 |
| 0.2 |
| — |
| | (0.7 | ) | (0.7 | ) | (0.7 | ) |
| Amortization of net loss | 28.9 |
| 13.1 |
| 19.0 |
| | 1.5 |
| — |
| 0.2 |
| 15.0 |
| 13.2 |
| 14.7 |
| | 0.1 |
| 0.1 |
| — |
|
| Net periodic benefit cost | 57.6 |
| 34.9 |
| 43.9 |
| | 8.2 |
| 4.3 |
| 5.1 |
| 30.3 |
| 29.8 |
| 40.2 |
| | 5.4 |
| 5.2 |
| 5.2 |
|
| | | | | | | |
| Net actuarial (gain) loss | (102.1 | ) | 199.8 |
| (71.2 | ) | | (20.4 | ) | 34.8 |
| (15.1 | ) | |
| Net actuarial loss (gain) | | 31.2 |
| (32.1 | ) | (3.6 | ) | | (7.0 | ) | 1.5 |
| (10.5 | ) |
| Recognized actuarial loss | (28.9 | ) | (13.1 | ) | (19.0 | ) | | (1.5 | ) | — |
| (0.2 | ) | (15.0 | ) | (13.2 | ) | (14.7 | ) | | (0.1 | ) | (0.1 | ) | — |
|
| Prior service cost | — |
| 0.5 |
| — |
| | — |
| — |
| — |
| |
| Recognized prior service (cost) credit | (0.1 | ) | (0.3 | ) | (1.0 | ) | | 0.7 |
| 0.7 |
| 0.7 |
| (0.1 | ) | (0.2 | ) | — |
| | 0.7 |
| 0.7 |
| 0.7 |
|
| Total recognized in other comprehensive earnings | (131.1 | ) | 186.9 |
| (91.2 | ) | | (21.2 | ) | 35.5 |
| (14.6 | ) | 16.1 |
| (45.5 | ) | (18.3 | ) | | (6.4 | ) | 2.1 |
| (9.8 | ) |
| Total recognized in net periodic benefit cost and other comprehensive earnings | $ | (73.5 | ) | $ | 221.8 |
| $ | (47.3 | ) | | $ | (13.0 | ) | $ | 39.8 |
| $ | (9.5 | ) | $ | 46.4 |
| $ | (15.7 | ) | $ | 21.9 |
| | $ | (1.0 | ) | $ | 7.3 |
| $ | (4.6 | ) |
Assumptions
Weighted-average assumptions used to determine benefit obligations:
| | | | January 31, | | January 31, | |
| | 2016 |
| 2015 |
| 2019 |
| 2018 |
|
| Discount rate: | | |
| Qualified Plan | 4.50 | % | 3.75 | % | 4.25 | % | 4.00 | % |
| Excess Plan/SRIP | 4.25 | % | 3.75 | % | 4.25 | % | 3.75 | % |
| Other Plans | 1.05 | % | 1.12 | % | 0.81 | % | 0.83 | % |
| Other Postretirement Benefits | 4.50 | % | 3.50 | % | 4.50 | % | 4.00 | % |
| Rate of increase in compensation: | | |
| Qualified Plan | 3.00 | % | 2.75 | % | 3.00 | % | 3.00 | % |
| Excess Plan | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % |
| SRIP | 6.50 | % | 7.25 | % | 6.50 | % | 6.50 | % |
| Other Plans | 1.18 | % | 1.22 | % | 2.56 | % | 1.13 | % |
Weighted-average assumptions used to determine net periodic benefit cost:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Discount rate: | | |
| Qualified Plan | 3.75 | % | 4.75 | % | 4.50 | % | 4.00 | % | 4.25 | % | 4.50 | % |
| Excess Plan/SRIP | 3.75 | % | 5.00 | % | 4.50 | % | 3.75 | % | 4.25 | % | 4.25 | % |
| Other Plans | 1.71 | % | 1.81 | % | 1.25 | % | 1.54 | % | 1.49 | % | 1.40 | % |
| Other Postretirement Benefits | 3.50 | % | 5.00 | % | 4.50 | % | 4.00 | % | 4.25 | % | 4.50 | % |
| Expected return on plan assets | 7.50 | % | 7.50 | % | 7.50 | % | 7.00 | % | 7.00 | % | 7.00 | % |
| Rate of increase in compensation: | | |
| Qualified Plan | 2.75 | % | 2.75 | % | 2.75 | % | 3.00 | % | 3.00 | % | 3.00 | % |
| Excess Plan | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % |
| SRIP | 7.25 | % | 7.25 | % | 7.25 | % | 6.50 | % | 6.50 | % | 6.50 | % |
| Other Plans | 1.56 | % | 1.33 | % | 1.00 | % | 1.41 | % | 1.38 | % | 1.38 | % |
The expected long-term rate of return on Qualified Plan assets is selected by taking into account the average rate of return expected on the funds invested or to be invested to provide for benefits included in the projected benefit obligation. More specifically, consideration is given to the expected rates of return (including reinvestment asset return rates) based upon the plan's current asset mix, investment strategy and the historical performance of plan assets.
For postretirement benefit measurement purposes, a 7.25%6.75% annual rate of increase in the per capita cost of covered health care was assumed for 2016.2019. This rate was assumed to decrease gradually to 4.75% by 2023 and remain at that level thereafter.
Assumed health-care cost trend rates can affect amounts reported for the Company's postretirement health-care benefits plan. A one-percentage-point increase in the assumed health-care cost trend rate would increase the Company's accumulated postretirement benefit obligation by approximately $3.9 million for the year ended January 31, 2016. Decreasing the assumed health-care cost trend rate by one-percentage point would decrease the Company's accumulated postretirement benefit obligation by approximately $2.8 million for the year ended January 31, 2016. A one-percentage-point change in the assumed health-care cost trend rate would not have had a significant effect on the Company's accumulated postretirement benefit obligation as of January 31, 2019 or aggregate service and interest cost components of the 20152018 postretirement expense.
Plan Assets
The Company's investment objectives related to the Qualified Plan's assets are the preservation of principal and balancing the management of interest rate risk associated with the duration of the plan's liabilities with the achievement of a reasonable rate of return over time. The Qualified Plan's assets are allocated based on an expectation that equity securities will outperform debt securities over the long term, but that as the plan's funded status (assets relative to liabilities) increases, the amount of assets allocated to fixed income securities which match the interest rate risk profile of the plan's liabilities will increase. The Company's target asset allocationsallocation based on its funded status as of January 31, 20162019 is as follows: approximately 50% in equity securities; approximately 35% in fixed income securities; and approximately 15% in other securities. The Company attempts to mitigate investment risk by rebalancing the asset allocation periodically.
The fair value of the Qualified Plan's assets at January 31, 20162019 and 20152018 by asset category is as follows:
| | | | Fair Value at | Fair Value Measurements Using Inputs Considered as* | Fair Value at | Fair Value Measurements Using Inputs Considered as* |
| (in millions) | January 31, 2016 | Level 1 | Level 2 | Level 3 | January 31, 2019 | Level 1 | Level 2 | Level 3 |
| Equity securities: | | |
Common/collective trusts a | 115.9 |
| — |
| 115.9 |
| — |
| |
| U.S. equity securities | 45.6 |
| 45.6 |
| — |
| — |
| $ | 63.4 |
| $ | 63.4 |
| $ | — |
| $ | — |
|
| Mutual fund | 27.4 |
| 27.4 |
| — |
| — |
| 38.7 |
| 38.7 |
| — |
| — |
|
| Fixed income securities: | | |
| Government bonds | 62.3 |
| 61.3 |
| 1.0 |
| — |
| 80.8 |
| 79.6 |
| 1.2 |
| — |
|
| Corporate bonds | 87.7 |
| — |
| 87.7 |
| — |
| 122.7 |
| — |
| 122.7 |
| — |
|
| Other types of investments: | | |
| Cash and cash equivalents | 2.5 |
| 2.5 |
| — |
| — |
| 2.7 |
| 2.7 |
| — |
| — |
|
| Mutual funds | 25.6 |
| 25.6 |
| — |
| — |
| 52.0 |
| 52.0 |
| — |
| — |
|
| Limited partnerships | 18.8 |
| — |
| — |
| 18.8 |
| |
| | $ | 385.8 |
| $ | 162.4 |
| $ | 204.6 |
| $ | 18.8 |
| |
| Net assets in fair value hierarchy | | 360.3 |
| 236.4 |
| 123.9 |
| — |
|
Investments at NAV practical expedient a | | 189.4 |
| |
| Plan assets at fair value | | $ | 549.7 |
| $ | 236.4 |
| $ | 123.9 |
| $ | — |
|
| | | |
| | Fair Value at | Fair Value Measurements Using Inputs Considered as* | Fair Value at | Fair Value Measurements Using Inputs Considered as* |
| (in millions) | January 31, 2015 | Level 1 | Level 2 | Level 3 | January 31, 2018 | Level 1 | Level 2 | Level 3 |
| Equity securities: | | |
Common/collective trusts a | $ | 288.4 |
| $ | — |
| $ | 288.4 |
| $ | — |
| |
| U.S. equity securities | | $ | 74.3 |
| $ | 74.3 |
| $ | — |
| $ | — |
|
| Mutual fund | | 44.7 |
| 44.7 |
| — |
| — |
|
| Fixed income securities: | | |
| Government bonds | 27.7 |
| 23.6 |
| 4.1 |
| — |
| 79.0 |
| 77.3 |
| 1.7 |
| — |
|
| Corporate bonds | 33.9 |
| — |
| 33.9 |
| — |
| 115.2 |
| — |
| 115.2 |
| — |
|
| Mortgage obligations | 37.0 |
| — |
| 37.0 |
| — |
| |
| Other types of investments: | | |
| Limited partnerships | 19.0 |
| — |
| — |
| 19.0 |
| |
| | $ | 406.0 |
| $ | 23.6 |
| $ | 363.4 |
| $ | 19.0 |
| |
| Cash and cash equivalents | | 2.3 |
| 2.3 |
| — |
| — |
|
| Mutual funds | | 49.6 |
| 49.6 |
| — |
| — |
|
| Net assets in fair value hierarchy | | 365.1 |
| 248.2 |
| 116.9 |
| — |
|
Investments at NAV practical expedient a | | 213.0 |
| |
| Plan assets at fair value | | $ | 578.1 |
| $ | 248.2 |
| $ | 116.9 |
| $ | — |
|
| |
| * | See "Note I -I. Fair Value of Financial Instruments" for a description of the levels of inputs. |
| |
a | Common/collective trusts includeIn accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value ("NAV") per share (or its equivalent) practical expedient have not been classified in U.S. and international large, middle and small capitalization equities.the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the Qualified Plan's fair value of plan assets at the end of each respective year. |
The changes in fair value of the Qualified Plan's Level 3 assets is as follows:
|
| | | |
(in millions) | Limited partnerships |
|
January 31, 2014 | $ | 14.4 |
|
Unrealized gain, net | 1.4 |
|
Realized gain, net | 0.6 |
|
Purchases | 5.6 |
|
Settlements | (3.0 | ) |
January 31, 2015 | 19.0 |
|
Unrealized gain, net | 1.2 |
|
Realized gain, net | 0.1 |
|
Purchases | 3.7 |
|
Settlements | (5.2 | ) |
January 31, 2016 | $ | 18.8 |
|
Valuation Techniques
Investments in common/collective trusts and mutual funds are stated at estimatedwithin the fair value which represents the net asset value of shares held by the Qualified Plan as reported by the investment advisor. The net asset value is based on the value of the underlying assets owned by the fund, minus its liabilities and then divided by the number of shares outstanding. Investments in limited partnerships are valued at estimated fair value based on financial information received from the investment advisor and/or general partner.
hierarchy. Securities traded on the national securities exchange (certain government bonds) are valued at the last reported sales price or closing price on the last business day of the fiscal year. Investments traded in the over-the-counter market and listed securities for which no sales were reported (certain government bonds, corporate bonds and mortgage obligations) are valued at the last reported bid price.
Certain fixed income investments are held in separately managed accounts and those investments are valued using the underlying securities in the accounts.
Investments in mutual funds are stated at fair value as determined by quoted market prices based on the NAV of shares held by the Qualified Plan at year-end. Investments in U.S. equity securities are valued at the closing price reported on the active market on which the individual securities are traded.
Investments measured at NAV. This category consists of common/collective trusts and limited partnerships.
Common/collective trusts include investments in U.S. and international large, middle and small capitalization equities. Investments in common/collective trusts are stated at estimated fair value, which represents the NAV of shares held by the Qualified Plan as reported by the investment advisor. The NAV is based on the value of the underlying assets owned by the common/collective trust, minus its liabilities and then divided by the number of shares outstanding. The NAV is used as a practical expedient to estimate fair value.
The Qualified Plan maintains investments in limited partnerships that are valued at estimated fair value based on financial information received from the investment advisor and/or general partner. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities and then divided by the number of shares outstanding. The NAV is used as a practical expedient to estimate fair value.
Benefit Payments
The Company expectsestimates the following future benefit payments to be paid:payments:
|
| | | | | | |
| Years Ending January 31, | Pension Benefits (in millions) |
| Other Postretirement Benefits (in millions) |
|
| 2017 | $ | 24.4 |
| $ | 1.7 |
|
| 2018 | 24.9 |
| 1.8 |
|
| 2019 | 26.6 |
| 1.9 |
|
| 2020 | 27.3 |
| 2.0 |
|
| 2021 | 28.9 |
| 2.1 |
|
| 2022-2026 | 166.4 |
| 12.9 |
|
|
| | | | | | |
| Years Ending January 31, | Pension Benefits (in millions) |
| Other Postretirement Benefits (in millions) |
|
| 2020 | $ | 28.4 |
| $ | 2.0 |
|
| 2021 | 29.3 |
| 2.1 |
|
| 2022 | 30.3 |
| 2.2 |
|
| 2023 | 31.3 |
| 2.4 |
|
| 2024 | 32.5 |
| 2.6 |
|
| 2025-2029 | 188.0 |
| 16.1 |
|
Employee Profit Sharing and Retirement Savings ("EPSRS") Plan
The Company maintains an EPSRS Plan that covers substantially all U.S.-based employees. Under the profit-sharing feature of the EPSRS Plan, the Company made contributions, in the form of newly-issued
newly issued Company Common Stock through 2014, to the employees' accounts based on the achievement of certain targeted earnings objectives established by, or as otherwise determined by, the Company's Board of Directors. Beginning in 2015, these contributions were made in cash. The Company recorded no expense in 2015EPSRS Plan provides a retirement savings feature, a profit sharing feature and recorded expense of $3.1 million in 2014a defined contribution retirement benefit (“DCRB”). The DCRB is provided to eligible employees hired on or after January 1, 2006. Contributions related to the retirement savings feature and $3.9 million in 2013. profit sharing feature for a particular plan year are made the following year.
Under the retirement savings feature of the EPSRS Plan, employees who meet certain eligibility requirements may participate by contributing up to 50% of their annual compensation, not to exceed Internal Revenue Service limits, and the Company may provide a matching cash contribution of 50% of each participant's contributions, with a maximum matching contribution of 3% of each participant's total compensation. The Company recorded expense of $7.3$8.6 million, $7.7$8.2 million and $7.1$7.5 million in 2015, 20142018, 2017 and 2013. Contributions2016, respectively, related to both featuresthe retirement savings feature of the EPSRS Plan are made in the following year.Plan.
Under the profit-sharing feature of the EPSRS Plan, for contributions made in the Company's stock, the Company's stock contribution is required to be maintained in such stock until the employee has two or more years of service, at which time the employee may diversify his or her Company stock account into other investment options provided under the plan. For contributionsare made in cash the contribution isand are allocated within the respective participant's account based on their investment elections made under the EPSRS Plan. If the participant has made no election, the contribution will be invested in the appropriate default target fund as determined by each participant's date of birth. Under the retirement savings portion of the EPSRS Plan, employees may invest their contributions and the related matching contribution to their accounts in a similar manner. Under both the profit-
sharing and retirement savings features, employees have the ability tomay elect to invest a portion of the contributions to their contribution and the related matching contributionaccounts in Company stock. At January 31, 2016,2019, investments in Company stock represented 21%17% of total EPSRS Plan assets. The Company recorded expense of $4.9 million, $3.9 million and $2.3 million in 2018, 2017 and 2016, respectively, related to the profit sharing feature of the EPSRS Plan.
The EPSRS Plan provides a defined contribution retirement benefit ("DCRB") to eligible employees hired on or after January 1, 2006. Under the DCRB, the Company makes contributions each year to each employee's account at a rate based upon age and years of service. These contributions are deposited into individual accounts in each employee's name to be invested in a manner similar to the profit-sharing and retirement savings portionportions of the EPSRS Plan.Plan (except that DCRB contributions may not be invested in Company stock). The Company recorded expense of $3.2$4.7 million, $4.6$5.2 million and $3.6$4.6 million in 2015, 20142018, 2017 and 2013.2016, respectively, related to the DCRB.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan for directors, executives and certain management employees, whereby eligible participants may defer a portion of their compensation for payment at specified future dates, upon retirement, death or termination of employment. This plan also provides for an excess defined contribution retirement benefit ("Excess DC benefit") for certain eligible executives and management employees, hired on or after January 1, 2006. The Excess DC benefit is credited to the eligible employee's account, based on the compensation paid to the employee in excess of the IRS limits for contributioncontributions under the DCRB Plan. Under the plan, the deferred compensation is adjusted to reflect performance, whether positive or negative, of selected investment options chosen by each participant during the deferral period. The amounts accrued under the plans were $24.9$22.6 million and $27.1$28.9 million at January 31, 20162019 and 2015,2018, respectively, and are reflected in otherOther long-term liabilities. The Company does not promise or guarantee any rate of return on amounts deferred.
O.N. INCOME TAXES
U.S. Federal Income Tax Reform
On December 22, 2017, the 2017 Tax Act was enacted in the U.S. This enactment resulted in a number of significant changes to U.S. federal income tax law for U.S. taxpayers. Changes in tax law are accounted for in the period of enactment. As such, the 2017 consolidated financial statements reflected the estimated immediate tax effect of the 2017 Tax Act. The 2017 Tax Act contains a number of key provisions, including, among other items:
The reduction of the statutory U.S. federal corporate income tax rate from 35.0% to 21.0% effective January 1, 2018;
A one-time transition tax via a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (the "Transition Tax");
A deduction for Foreign Derived Intangible Income ("FDII") for tax years beginning after December 31, 2017;
A tax on global intangible low-taxed income ("GILTI") for tax years beginning after December 31, 2017;
A limitation on net interest expense deductions to 30% of adjusted taxable income for tax years beginning after December 31, 2017;
Broader limitations on the deductibility of compensation of certain highly compensated employees;
The ability to elect to accelerate tax depreciation on certain qualified assets;
A territorial tax system providing a 100% dividends received deduction on certain qualified dividends from foreign subsidiaries for tax years beginning after December 31, 2017;
The Base Erosion and Anti-Abuse Tax ("BEAT") for tax years beginning after December 31, 2017; and
Changes in the application of the U.S. foreign tax credit regulations for tax years beginning after December 31, 2017.
Additionally, on December 22, 2017, the SEC issued SAB 118 to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. Specifically, SAB 118 provided a measurement period for companies to evaluate the impacts of the 2017 Tax Act on their financial statements. This measurement period began in the reporting period that included the enactment date and ended when an entity obtained, prepared and analyzed the information that was needed in order to complete the
accounting requirements, but could not exceed one year. The Company adopted the provisions of SAB 118 with respect to the impact of the 2017 Tax Act on its 2017 consolidated financial statements.
During the year ended January 31, 2018, the Company recorded an estimated net tax expense of $146.2 million as a result of the effects of the 2017 Tax Act. The tax effects recorded included:
Estimated tax expense of $94.8 million for the impact of the reduction in the U.S. statutory tax rate on the Company's deferred tax assets and liabilities;
Estimated tax expense of $56.0 million for the Transition Tax; and
A tax benefit of $4.6 million resulting from the effect of the 21% statutory income tax rate for the month of January 2018 on the Company's annual statutory income tax rate for the year ended January 31, 2018. Because the Company's fiscal year ended on January 31, 2018, the Company’s statutory income tax rate for fiscal 2017 was 33.8% rather than 35.0%.
Consistent with SAB 118, the Company calculated and recorded reasonable estimates for the impact of the Transition Tax and the remeasurement of its deferred tax assets and deferred tax liabilities, as set forth above. The Company also adopted the provisions of SAB 118 as it related to the assertion of the indefinite reinvestment of foreign earnings and profits. The charges associated with the Transition Tax and the remeasurement of the Company's deferred tax assets and deferred tax liabilities, as a result of applying the 2017 Tax Act, represented provisional amounts for which the Company's analysis was incomplete but reasonable estimates could be determined and were recorded during the fourth quarter of 2017. Further, the impact of the 2017 Tax Act on the Company's assertion to indefinitely reinvest foreign earnings was incomplete as the Company was analyzing the relevant provisions of the 2017 Tax Act and related accounting guidance.
During the year ended January 31, 2019, as permitted by SAB 118, the Company completed its analyses under the 2017 Tax Act, including those related to: (i) the provisional estimate recorded during the year ended January 31, 2018 for the Transition Tax; (ii) the provisional estimate recorded during the year ended January 31, 2018 to remeasure the Company's deferred tax assets and liabilities; and (iii) the Company's assertion to indefinitely reinvest undistributed foreign earnings and profits.
As a result of completing these analyses, during the year ended January 31, 2019, the Company: (i) recorded tax benefits totaling $12.6 million to adjust the provisional estimate recorded in the year ended January 31, 2018 to remeasure the Company's deferred tax assets and liabilities; (ii) recorded tax benefits totaling $3.3 million to adjust the provisional estimate recorded in the year ended January 31, 2018 for the Transition Tax; and (iii) determined to maintain its assertion to indefinitely reinvest undistributed foreign earnings and profits, which amounted to approximately $900.0 million as of January 31, 2019.
Upon distribution of those foreign earnings and profits in the form of dividends or otherwise, the Company would be subject to U.S. state and local taxes, taxes on foreign currency gains and withholding taxes payable in various jurisdictions, which may be partially offset by foreign tax credits. Determination of the amount of the unrecognized deferred tax liability is not practicable because of the complexities associated with its hypothetical calculation.
The Company expects to continue to account for the tax on GILTI as a period cost and therefore has not adjusted any of the deferred tax assets and liabilities of its foreign subsidiaries in connection with the 2017 Tax Act.
Income Taxes
Earnings from operations before income taxes consisted of the following:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| United States | $ | 502.5 |
| $ | 484.5 |
| $ | 65.2 |
| $ | 584.5 |
| $ | 597.1 |
| $ | 478.2 |
|
| Foreign | 207.4 |
| 253.0 |
| 189.7 |
| 159.0 |
| 163.4 |
| 198.4 |
|
| | $ | 709.9 |
| $ | 737.5 |
| $ | 254.9 |
| $ | 743.5 |
| $ | 760.5 |
| $ | 676.6 |
|
The settlement of the Arbitration Award, as discussed in "Note J - Commitments and Contingencies", resulted in a significant change in the composition of geographical earnings from operations for the year ended January 31, 2014. This change resulted in a lower effective tax rate for the year ended January 31, 2014 because of lower tax rates on foreign earnings.
Components of the provision for income taxes were as follows:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Current: | | |
| Federal | $ | 175.8 |
| $ | 130.9 |
| $ | 39.0 |
| $ | 112.5 |
| $ | 227.9 |
| $ | 125.5 |
|
| State | 22.3 |
| 18.2 |
| 9.9 |
| 18.2 |
| 16.7 |
| 15.4 |
|
| Foreign | 49.8 |
| 66.5 |
| 52.5 |
| 47.7 |
| 49.0 |
| 43.5 |
|
| | 247.9 |
| 215.6 |
| 101.4 |
| 178.4 |
| 293.6 |
| 184.4 |
|
| Deferred: | | |
| Federal | (15.4 | ) | 25.2 |
| (28.6 | ) | (23.2 | ) | 94.1 |
| 36.7 |
|
| State | 3.9 |
| 13.2 |
| (2.3 | ) | (2.0 | ) | 1.1 |
| 7.1 |
|
| Foreign | 9.6 |
| (0.7 | ) | 3.0 |
| 3.9 |
| 1.6 |
| 2.3 |
|
| | (1.9 | ) | 37.7 |
| (27.9 | ) | (21.3 | ) | 96.8 |
| 46.1 |
|
| | $ | 246.0 |
| $ | 253.3 |
| $ | 73.5 |
| $ | 157.1 |
| $ | 390.4 |
| $ | 230.5 |
|
Reconciliations of the provision for income taxes at the statutory Federal income tax rate to the Company's effective income tax rate were as follows:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Statutory Federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 21.0 | % | 33.8 | % | 35.0 | % |
| State income taxes, net of Federal benefit | 2.4 |
| 2.8 |
| 2.0 |
| 1.5 |
| 1.5 |
| 2.2 |
|
| Foreign losses with no tax benefit | — |
| 0.7 |
| 1.3 |
| — |
| 0.2 |
| 0.2 |
|
| Undistributed foreign earnings | (2.5 | ) | (4.2 | ) | (7.8 | ) | |
| Foreign tax rate differences | | 1.1 |
| (1.4 | ) | (2.3 | ) |
| Net change in uncertain tax positions | 0.5 |
| 0.3 |
| 0.5 |
| (0.4 | ) | 0.2 |
| (0.7 | ) |
| Domestic manufacturing deduction | (1.3 | ) | (1.3 | ) | (2.5 | ) | — |
| (1.8 | ) | (0.9 | ) |
Foreign Derived Intangible Income deduction
| | (2.6 | ) | — |
| — |
|
| Impact of the 2017 Tax Act | | 1.3 |
| 19.8 |
| — |
|
| Other | 0.6 |
| 1.1 |
| 0.3 |
| (0.8 | ) | (1.0 | ) | 0.6 |
|
| | 34.7 | % | 34.4 | % | 28.8 | % | 21.1 | % | 51.3 | % | 34.1 | % |
The Company has the intent to indefinitely reinvest any undistributed earnings of all foreign subsidiaries. As of January 31, 2016 and 2015, the Company has not provided deferred taxes on approximately $685.0 million and $612.0 million of undistributed earnings. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. U.S. Federal income taxes of approximately $118.0 million and $107.0 million would be incurred if these earnings were distributed.
Deferred tax assets (liabilities) consisted of the following:
| | | | January 31, | | January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2019 |
| 2018 |
|
| Deferred tax assets: | | |
| Pension/postretirement benefits | $ | 166.7 |
| $ | 203.0 |
| $ | 82.1 |
| $ | 81.2 |
|
| Accrued expenses | 34.3 |
| 36.4 |
| 31.3 |
| 25.4 |
|
| Share-based compensation | 18.3 |
| 17.3 |
| 7.9 |
| 7.2 |
|
| Depreciation | 6.6 |
| 14.4 |
| |
| Amortization | 11.4 |
| 11.4 |
| |
| Depreciation and amortization | | 18.1 |
| 14.8 |
|
| Foreign and state net operating losses | 23.5 |
| 22.9 |
| 7.0 |
| 9.2 |
|
| Sale-leaseback | 30.4 |
| 36.3 |
| |
| Sale-leasebacks | | 13.1 |
| 17.2 |
|
| Inventory | 50.9 |
| 72.7 |
| 42.5 |
| 35.8 |
|
| Financial hedging instruments | 19.7 |
| 14.1 |
| |
| Unearned income | 11.3 |
| 11.2 |
| 7.2 |
| 7.7 |
|
| Other | 53.6 |
| 37.1 |
| 28.8 |
| 23.2 |
|
| | 426.7 |
| 476.8 |
| 238.0 |
| 221.7 |
|
| Valuation allowance | (19.5 | ) | (16.2 | ) | (8.5 | ) | (9.6 | ) |
| | 407.2 |
| 460.6 |
| 229.5 |
| 212.1 |
|
| Deferred tax liabilities: | | |
| Foreign tax credit | (25.1 | ) | (34.8 | ) | |
| Foreign tax credit and other tax liabilities | | (21.5 | ) | (24.9 | ) |
| Net deferred tax asset | $ | 382.1 |
| $ | 425.8 |
| $ | 208.0 |
| $ | 187.2 |
|
The Company has recorded a valuation allowance against certain deferred tax assets related to foreign net operating loss carryforwards where management has determined it is more likely than not that deferred tax assets will not be realized in the future. The overall valuation allowance relates to tax loss carryforwards and temporary differences for which no benefit is expected to be realized. Tax loss carryforwards of approximately $84.0$23.3 million exist in certain foreign jurisdictions. Whereas some of these tax loss carryforwards do not have an expiration date, others expire at various times from 20182019 through 2026.2035.
The following table reconciles the unrecognized tax benefits:
| | | | | January 31, |
| Years ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Unrecognized tax benefits at beginning of year | $ | 8.3 |
| $ | 27.6 |
| $ | 28.2 |
| $ | 10.1 |
| $ | 7.2 |
| $ | 14.0 |
|
| Gross increases – tax positions in prior period | 1.0 |
| 1.0 |
| 0.3 |
| 8.0 |
| 3.2 |
| 0.9 |
|
| Gross decreases – tax positions in prior period | (0.4 | ) | (5.4 | ) | (0.4 | ) | — |
| (0.9 | ) | (5.0 | ) |
| Gross increases – tax positions in current period | 1.4 |
| 0.1 |
| 0.1 |
| 1.3 |
| 0.6 |
| 0.3 |
|
| Settlements | — |
| (14.8 | ) | (0.3 | ) | — |
| — |
| (3.0 | ) |
| Lapse of statute of limitations | (0.1 | ) | (0.2 | ) | (0.3 | ) | (2.1 | ) | — |
| — |
|
| Unrecognized tax benefits at end of year | $ | 10.2 |
| $ | 8.3 |
| $ | 27.6 |
| $ | 17.3 |
| $ | 10.1 |
| $ | 7.2 |
|
IncludedThe amount of tax benefits included in the balance of unrecognized tax benefits at January 31, 2016, 2015 and 2014 are $9.1 million, $5.3 million and $18.7 million of tax benefits2019 that, if recognized, would affect the effective income tax rate.rate was not significant.
The Company recognizes expense for interest expense and penalties related to unrecognized tax benefits within the provision for income taxes. During the years ended January 31, 2016, 2015 and 2014, theThe Company recognized approximately $1.7a benefit of $6.2 million $1.8in 2018 and recognized expense of $2.0 million and $1.9 million of expense associated withfor interest and penalties.penalties during 2017. No expense for interest and penalties was recognized in 2016. Accrued interest and penalties, arewhich amounted to $4.2 million and $10.3 million at January 31, 2019 and 2018,
respectively, is included within accountsAccounts payable and accrued liabilities and otherOther long-term liabilities and were $7.8 million and $6.0 million at January 31, 2016 and 2015.on the consolidated balance sheets.
The Company conducts business globally and, as a result, is subject to taxation in the U.S. and various state and foreign jurisdictions. As a matter of course, tax authorities regularly audit the Company. The Company's tax filings are currently being examined by a number of tax authorities, in several jurisdictions, both in the U.S. and in foreign jurisdictions. Ongoing audits where subsidiaries have a material presence include New York City (tax years 2011–2013) and2011-2014), New York State (tax years 2012–2014), as well as an audit that is being conducted by the IRS2012-2014) and Japan (tax years 2010–2012)2015-2017). Tax years from 2010–present2010-present are open to examination in the U.S. Federal jurisdiction and 2006–present2006-present are open in various state, local and foreign jurisdictions. As part of these audits, the Company engages in discussions with taxing authorities regarding tax positions. At January 31, 2016, total unrecognized tax benefits were $10.2 million of which approximately $9.1 million, if recognized, would affect the effective income tax rate. Management believesanticipates that it is reasonably possible that a majority of the total gross amount provided forof unrecognized tax benefits will decrease by approximately $6.0 million in the next 12 months.months; however management does not currently anticipate a corresponding impact on net earnings. Future developments may result in a change in this assessment.
P.O. SEGMENT INFORMATION
The Company's products are primarily sold in TIFFANY & CO. retail locations around the world. Net sales by geographic area are presented by attributing revenues from external customers on the basis of the country in which the merchandise is sold.
In deciding how to allocate resources and assess performance, the Company's Chief Operating Decision Maker regularly evaluates the performance of its reportable segments on the basis of net sales and earnings from operations, after the elimination of inter-segment sales and transfers. The accounting policies of the reportable segments are the same as those described in the summary"Note B. Summary of significant accounting policies.Significant Accounting Policies."
Certain information relating to the Company's segments is set forth below:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| | 2015 |
| | 2014 |
| 2019 |
| | 2018 |
| | 2017 |
|
| Net sales: | | | | | | | | | | |
| Americas | $ | 1,947.0 |
| | $ | 2,033.5 |
| | $ | 1,926.9 |
| $ | 1,960.3 |
| | $ | 1,870.9 |
| | $ | 1,841.9 |
|
| Asia-Pacific | 1,003.1 |
| | 1,025.2 |
| | 944.7 |
| 1,239.0 |
| | 1,095.0 |
| | 999.1 |
|
| Japan | 541.3 |
| | 554.3 |
| | 578.6 |
| 643.0 |
| | 596.3 |
| | 604.4 |
|
| Europe | 505.7 |
| | 513.3 |
| | 476.2 |
| 504.4 |
| | 489.0 |
| | 462.5 |
|
| Total reportable segments | 3,997.1 |
| | 4,126.3 |
| | 3,926.4 |
| 4,346.7 |
| | 4,051.2 |
| | 3,907.9 |
|
| Other | 107.8 |
| | 123.6 |
| | 104.7 |
| 95.4 |
| | 118.6 |
| | 93.9 |
|
| | $ | 4,104.9 |
| | $ | 4,249.9 |
| | $ | 4,031.1 |
| $ | 4,442.1 |
| | $ | 4,169.8 |
| | $ | 4,001.8 |
|
| Earnings (losses) from operations*: | | | | | | |
| Earnings from operations*: | | | | | | |
| Americas | $ | 390.8 |
| | $ | 435.5 |
| | $ | 374.3 |
| $ | 386.7 |
| | $ | 399.0 |
| | $ | 387.9 |
|
| Asia-Pacific | 264.4 |
| | 281.6 |
| | 244.1 |
| 311.5 |
| | 287.7 |
| | 258.4 |
|
| Japan | 199.9 |
| | 196.0 |
| | 215.6 |
| 237.2 |
| | 209.3 |
| | 208.1 |
|
| Europe | 97.4 |
| | 110.5 |
| | 102.4 |
| 86.2 |
| | 90.4 |
| | 85.9 |
|
| Total reportable segments | 952.5 |
| | 1,023.6 |
| | 936.4 |
| 1,021.6 |
| | 986.4 |
| | 940.3 |
|
| Other | 6.4 |
| | 4.9 |
| | (1.8 | ) | (6.4 | ) | | 3.6 |
| | 4.0 |
|
| | $ | 958.9 |
| | $ | 1,028.5 |
| | $ | 934.6 |
| $ | 1,015.2 |
| | $ | 990.0 |
| | $ | 944.3 |
|
| |
| * | Represents earnings (losses) from operations before (i) unallocated corporate expenses, (ii) interestInterest expense and financing costs and otherOther expense, (income), net, (iii) loss on extinguishment of debt, and (iv)(iii) other operating expenses. |
The Company's Chief Operating Decision Maker does not evaluate the performance of the Company's assets on a segment basis for internal management reporting and, therefore, such information is not presented. The following
The following table sets forth a reconciliation of the segments' earnings from operations to the Company's consolidated earnings from operations before income taxes:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| | 2015 |
| | 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Earnings from operations for segments | $ | 958.9 |
| | $ | 1,028.5 |
| | $ | 934.6 |
| $ | 1,015.2 |
| $ | 990.0 |
| $ | 944.3 |
|
| Unallocated corporate expenses | (152.1 | ) | | (137.1 | ) | | (140.7 | ) | (224.9 | ) | (180.6 | ) | (159.9 | ) |
| Interest expense, financing costs and other expense (income), net | (50.2 | ) | | (60.1 | ) | | (49.4 | ) | |
| Loss on extinguishment of debt | — |
| | (93.8 | ) | | — |
| |
| Other operating expense | (46.7 | ) | | — |
| | (489.6 | ) | |
| Interest expense and financing costs and Other expense, net | | (46.8 | ) | (48.9 | ) | (69.8 | ) |
| Other operating expenses | | — |
| — |
| (38.0 | ) |
| Earnings from operations before income taxes | $ | 709.9 |
| | $ | 737.5 |
| | $ | 254.9 |
| $ | 743.5 |
| $ | 760.5 |
| $ | 676.6 |
|
Unallocated corporate expenses includesinclude certain costs related to administrative support functions which the Company does not allocate to its segments. Such unallocated costs include those for centralized information technology, finance, legal and human resources departments.
Other operating expenseexpenses in the year ended January 31, 2016 represents2017 represented an impairment charge related to software costs capitalized in connection with the development of a finished goods inventory management and merchandising information system and impairment charges related to a financing arrangementarrangements with Koidudiamond mining and expenses related to specific cost-reduction initiatives.exploration companies. See "Note J - CommitmentsB. Summary of Significant Accounting Policies" and Contingencies""Note E. Property, Plant and Equipment" for additional details.
Lossdetails on extinguishmentthe asset impairment and "Note B. Summary of debt in the year ended January 31, 2015 was related to the redemption of $400.0 million in aggregate principal amount of the Private Placement Notes prior to their scheduled maturities. See "Note G - Debt"Significant Accounting Policies" for additional details.
Other operating expense indetails on the year ended January 31, 2014 was related to specific cost-reduction initiatives and the Arbitration Award. See "Note J - Commitments and Contingencies" for additional details.loan impairments.
Sales to unaffiliated customers and long-lived assets by geographic areasarea were as follows:
| | | | Years Ended January 31, | | Years Ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
| 2019 |
| 2018 |
| 2017 |
|
| Net sales: | | |
| United States | $ | 1,795.5 |
| $ | 1,870.8 |
| $ | 1,770.7 |
| $ | 1,837.5 |
| $ | 1,739.0 |
| $ | 1,691.4 |
|
| Japan | 541.3 |
| 554.3 |
| 578.6 |
| 643.0 |
| 596.3 |
| 604.4 |
|
| Other countries | 1,768.1 |
| 1,824.8 |
| 1,681.8 |
| 1,961.6 |
| 1,834.5 |
| 1,706.0 |
|
| | $ | 4,104.9 |
| $ | 4,249.9 |
| $ | 4,031.1 |
| $ | 4,442.1 |
| $ | 4,169.8 |
| $ | 4,001.8 |
|
| Long-lived assets: | | |
| United States | $ | 706.9 |
| $ | 680.1 |
| $ | 632.9 |
| |
| Japan | 20.6 |
| 24.4 |
| 21.6 |
| |
| Other countries | 256.7 |
| 239.2 |
| 241.9 |
| |
| | $ | 984.2 |
| $ | 943.7 |
| $ | 896.4 |
| |
ClassesNet sales information for classes of Similar Productssimilar products is presented in "Note B. Summary of Significant Accounting Policies."
Long-lived assets by geographic area were as follows:
|
| | | | | | | | | |
| | Years Ended January 31, | |
| (in millions) | 2016 |
| 2015 |
| 2014 |
|
| Net sales: | | | |
| Statement, fine & solitaire jewelry | $ | 910.8 |
| $ | 930.2 |
| $ | 916.8 |
|
| Engagement jewelry & wedding bands | 1,170.2 |
| 1,245.1 |
| 1,182.2 |
|
| Fashion jewelry | 1,716.1 |
| 1,755.2 |
| 1,618.2 |
|
| All other | 307.8 |
| 319.4 |
| 313.9 |
|
| | $ | 4,104.9 |
| $ | 4,249.9 |
| $ | 4,031.1 |
|
|
| | | | | | |
| | January 31, | |
| (in millions) | 2019 |
| 2018 |
|
| Long-lived assets: | | |
| United States | $ | 762.9 |
| $ | 724.5 |
|
| Japan | 18.9 |
| 21.4 |
|
| Other countries | 306.1 |
| 301.4 |
|
| | $ | 1,087.9 |
| $ | 1,047.3 |
|
Q.P. QUARTERLY FINANCIAL DATA (UNAUDITED)
| | | | 2015 Quarters Ended* | | 2018 Quarters Ended | |
| (in millions, except per share amounts) | April 30 |
| July 31 a |
| October 31 |
| January 31 b |
| April 30 |
| July 31 |
| October 31 |
| January 31 |
|
| Net sales | $ | 962.4 |
| $ | 990.5 |
| $ | 938.2 |
| $ | 1,213.6 |
| $ | 1,033.2 |
| $ | 1,075.9 |
| $ | 1,012.4 |
| $ | 1,320.6 |
|
| Gross profit | 569.0 |
| 593.0 |
| 564.5 |
| 764.8 |
| 650.9 |
| 688.8 |
| 629.3 |
| 842.0 |
|
| Earnings from operations | 170.0 |
| 172.8 |
| 156.4 |
| 260.9 |
| 204.3 |
| 191.2 |
| 126.4 |
| 268.4 |
|
| Net earnings | 104.9 |
| 104.9 |
| 91.0 |
| 163.2 |
| 142.3 |
| 144.7 |
| 94.9 |
| 204.5 |
|
| Net earnings per share: | | |
| Basic | $ | 0.81 |
| $ | 0.81 |
| $ | 0.71 |
| $ | 1.28 |
| $ | 1.14 |
| $ | 1.17 |
| $ | 0.78 |
| $ | 1.68 |
|
| Diluted | $ | 0.81 |
| $ | 0.81 |
| $ | 0.70 |
| $ | 1.28 |
| $ | 1.14 |
| $ | 1.17 |
| $ | 0.77 |
| $ | 1.67 |
|
|
| | | | | | | | | | | | |
| | 2017 Quarters Ended | |
| (in millions, except per share amounts) | April 30 |
| July 31 |
| October 31 |
| January 31 a |
|
| Net sales | $ | 899.6 |
| $ | 959.7 |
| $ | 976.2 |
| $ | 1,334.3 |
|
| Gross profit | 559.1 |
| 599.6 |
| 600.0 |
| 852.0 |
|
| Earnings from operations | 149.6 |
| 184.7 |
| 164.0 |
| 311.1 |
|
| Net earnings | 92.9 |
| 115.0 |
| 100.2 |
| 61.9 |
|
| Net earnings per share: | | | | |
| Basic | $ | 0.75 |
| $ | 0.92 |
| $ | 0.81 |
| $ | 0.50 |
|
| Diluted | $ | 0.74 |
| $ | 0.92 |
| $ | 0.80 |
| $ | 0.50 |
|
| |
a | OnNet earnings included a pre-tax basis, includes anet charge of $9.6146.2 million for the quarter ended July 31, 2015, which reduced net earnings, or $1.17 per diluted share, by $0.05, associated with an impairment charge related to a financing arrangement with Koidu Limitedthe estimated impact of the 2017 Tax Act (see "Note B - Summary of Significant Accounting Policies" and "Note J - Commitments and Contingencies"N. Income Taxes").
|
| |
b
| On a pre-tax basis, includes charges for the quarter ended January 31, 2016 of: |
| |
i. | $28.3 million, which reduced net earnings per diluted share by $0.14, associated with an impairment charge related to a financing arrangement with Koidu Limited (see "Note B - Summary of Significant Accounting Policies" and "Note J - Commitments and Contingencies"); and2018.
|
| |
ii. | $8.8 million, which reduced net earnings per diluted share by $0.04, associated with severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations will be recovered (see "Note J - Commitments and Contingencies").
|
|
| | | | | | | | | | | | |
| | 2014 Quarters Ended* | |
| (in millions, except per share amounts) | April 30 |
| July 31 |
| October 31 c |
| January 31 |
|
| Net sales | $ | 1,012.1 |
| $ | 992.9 |
| $ | 959.6 |
| $ | 1,285.3 |
|
| Gross profit | 589.5 |
| 595.2 |
| 570.9 |
| 781.6 |
|
| Earnings from operations | 209.8 |
| 208.5 |
| 168.5 |
| 304.6 |
|
| Net earnings | 125.6 |
| 124.1 |
| 38.3 |
| 196.2 |
|
| Net earnings per share: | | | | |
| Basic | $ | 0.97 |
| $ | 0.96 |
| $ | 0.30 |
| $ | 1.52 |
|
| Diluted | $ | 0.97 |
| $ | 0.96 |
| $ | 0.29 |
| $ | 1.51 |
|
| |
c
| On a pre-tax basis, includes a charge of $93.8 million for the quarter ended October 31, which reduced net earnings per diluted share by $0.47, associated with the redemption of $400.0 million in aggregate principal amount of the Private Placement Notes prior to their scheduled maturities (see "Note G - Debt").
|
| |
* | The sum of quarterly amounts may not agree with full year amounts due to rounding. |
Basic and diluted earnings per share are computed independently for each quarter presented. Accordingly, the sum of the quarterly earnings per share may not agree with the calculated full year earnings per share.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
NONENone
Item 9A. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
Based on their evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), the Registrant's chiefprincipal executive officer and chiefprincipal financial officer concluded that, as of the end of the period covered by this report, the Registrant's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Registrant in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, 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 chiefprincipal executive officer and chiefprincipal financial officer, to allow timely decisions regarding required disclosure.
In the ordinary course of business, the 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 the Registrant maintains an effective internal control environment. Changes may include activities such as implementing new, more efficient systems and automating manual processes.
The Registrant's chiefprincipal executive officer and chiefprincipal financial officer have determined that there have been no changes in the Registrant's internal control over financial reporting during the most recently completed fiscal quarter covered by this report identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
The Registrant's management, including its chiefprincipal executive officer and chiefprincipal 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 chiefprincipal executive officer and our chiefprincipal financial officer have concluded that the Registrant's disclosure controls and procedures are (i) designed to provide such reasonable assurance and (ii) are effective at that reasonable assurance level.
Report of Management
Management's Responsibility for Financial Information. The Company's consolidated financial statements were prepared by management, who are responsible for their integrity and objectivity. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, as such, include amounts based on management's best estimates and judgments.
Management is further responsible for maintaining a system of internal accounting control designed to provide reasonable assurance that the Company's assets are adequately safeguarded, and that the accounting records reflect transactions executed in accordance with management's authorization. The system of internal control is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel and a program of internal audit.
The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Their report is shown on page K-54.K-50. The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularlyreviewed and discussed with the Company's management and the independent registered public accounting firm, to discussas appropriate, specific accounting, financial reporting and internal control matters. Both the independent registered public accounting firm and the internal auditors have full and free access to the Audit Committee. Each year the Audit Committee selects the firm that is to perform audit services for the Company.
Management's Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a - 15(f)13a-15(f). Management conducted an evaluation of the effectiveness of internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission in Internal Control - Integrated Framework issued in 2013. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on this evaluation, management concluded that internal control over financial reporting was effective as of January 31, 20162019 based on criteria in Internal Control - Integrated Framework issued by the COSO. The effectiveness of the Company's internal control over financial reporting as of January 31, 20162019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is shown on page K-54.K-50.
/s/ Frederic CumenalAlessandro Bogliolo
Chief Executive Officer
/s/ Ralph NicolettiMark J. Erceg
Executive Vice President and Chief Financial Officer
Item 9B. Other Information.
NONE
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Incorporated by reference from the sections titled "Section 16(a) Beneficial Ownership Reporting Compliance," "Executive Officers of the Company," "Item 1. Election of the Board," and "Board of Directors and Corporate Governance" in Registrant's Proxy Statement dated April 8, 2016.17, 2019.
CODE OF ETHICS AND OTHER CORPORATE GOVERNANCE DISCLOSURES
Registrant has adopted a Code of Business and Ethical Conduct for its Directors, Chief Executive Officer, Chief Financial Officer and all other officers of the Registrant. A copy of this Code is posted on the corporate governance section of the Registrant's website, http:https://investor.tiffany.com/governance.cfm;index.php/corporate-governance; go to "Code of Conduct." The Registrant will also provide a copy of the Code of Business and Ethical Conduct to stockholders upon request.
See Registrant's Proxy Statement dated April 8, 2016,17, 2019, for additional information within the section titled "Business Conduct Policy and Code of Ethics."
Item 11. Executive Compensation.
Incorporated by reference from the sectionsections titled "Board of Directors and Corporate Governance" and "Compensation of the CEO and Other Executive Officers" in Registrant's Proxy Statement dated April 8, 2016.17, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Incorporated by reference from the sectionsections titled "Ownership of the Company" and "Compensation of the CEO and Other Executive Officers" in Registrant's Proxy Statement dated April 8, 2016.17, 2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Incorporated by reference from the sections titled "Board of Directors and Corporate Governance" and "Transactions with Related Persons" in Registrant's Proxy Statement dated April 8, 2016.17, 2019.
Item 14. Principal Accounting Fees and Services.
Incorporated by reference from the section titled "Relationship with Independent Registered Public Accounting Firm" in Registrant's Proxy Statement dated April 8, 2016.17, 2019.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) List of Documents Filed As Part of This Report:
1. Financial Statements
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of January 31, 20162019 and 2015.2018.
Consolidated Statements of Earnings for the years ended January 31, 2016, 20152019, 2018 and 2014.2017.
Consolidated Statements of Comprehensive Earnings for the years ended January 31, 2016, 20152019, 2018 and 2014.2017.
Consolidated Statements of Stockholders' Equity for the years ended January 31, 2016, 20152019, 2018 and 2014.2017.
Consolidated Statements of Cash Flows for the years ended January 31, 2016, 20152019, 2018 and 2014.2017.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
The following financial statement schedule should be read in conjunction with the Consolidated Financial Statements:
Schedule II - Valuation and Qualifying Accounts and Reserves.Reserves for the years ended January 31, 2019, 2018 and 2017, appearing on pages K-112 to K-114.
All other schedules have been omitted since they are not applicable, not required, or because the information required is included in the consolidated financial statements and notes thereto.
3. Exhibits
The information called for by this item is incorporated herein by reference to the Exhibit Index in this report.
SIGNATURESItem 16. Form 10-K Summary.
Pursuant to the requirements of Section 13 or 15(d) 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.
|
| | |
| | |
Date: March 28, 2016 | | TIFFANY & CO. |
| | (Registrant) |
| |
| | By: /s/ Frederic Cumenal |
| | Frederic Cumenal |
| | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
|
| | | | |
By: | /s/ Frederic Cumenal | | By: | /s/ Ralph Nicoletti |
| Frederic Cumenal | | | Ralph Nicoletti |
| Chief Executive Officer | | | Executive Vice President, |
| (Principal Executive Officer) | | | Chief Financial Officer |
| (Director) | | | (Principal Financial Officer) |
| | | | |
| | | | |
By: | /s/ John S. Barresi | | By: | /s/ Michael J. Kowalski |
| John S. Barresi | | | Michael J. Kowalski |
| Vice President, Controller | | | Chairman of the Board |
| (Principal Accounting Officer) | | | Director |
| | | | |
| | | | |
By: | /s/ Rose Marie Bravo | | By: | /s/ Gary E. Costley |
| Rose Marie Bravo | | | Gary E. Costley |
| Director | | | Director |
| | | | |
| | | | |
By: | /s/ Lawrence K. Fish | | By: | /s/ Abby F. Kohnstamm |
| Lawrence K. Fish | | | Abby F. Kohnstamm |
| Director | | | Director |
| | | | |
| | | | |
By: | /s/ Charles K. Marquis | | By: | /s/ Peter W. May |
| Charles K. Marquis | | | Peter W. May |
| Director | | | Director |
| | | | |
| | | | |
By: | /s/ William A. Shutzer | | By: | /s/ Robert S. Singer |
| William A. Shutzer | | | Robert S. Singer |
| Director | | | Director |
Not Applicable.
March 28, 2016
EXHIBIT INDEX
Exhibit Table (numbered in accordance with Item 601 of Regulation S-K)
Exhibit No. Description |
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| Supplemental Indenture No. 1, dated September 25, 2014, among Registrant, as issuer, certain subsidiaries of Registrant, as guarantors thereto, and The Bank of New York Mellon Trust Company, N.A., as trustee. Incorporated by reference from Exhibit 4.6 to Registrant’s Report on Form 8-K dated September 26, 2014. |
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| Supplemental Indenture No. 2, dated September 25, 2014, among Registrant, as issuer, certain subsidiaries of Registrant, as guarantors thereto, and The Bank of New York Mellon Trust Company, N.A., as trustee. Incorporated by reference from Exhibit 4.7 to Registrant’s Report on Form 8-K dated September 26, 2014. |
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| 4.8 | Upon the request of the Securities and Exchange Commission, Registrant will furnish a copy of all instruments defining the rights of holders of all other long-term debt of Registrant. |
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Exhibit No. Description 10.3 |
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10.3 | |
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| Four |
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10.5 | Subsidiary Guaranty dated as of October 7, 2014, with respect to the Four Year Credit Agreement (see
Exhibit 10.4 above) by and among Tiffany and Company, Tiffany & Co. International, and Tiffany & Co. Japan Inc., as Guarantors, and Bank of America, N.A., as Administrative Agent. Incorporated by reference from Exhibit 10.38 filed with Registrant’s Report on Form 8-K dated October 10, 2014.No. Description |
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10.6 | Five Year Credit Agreement dated as of October 7, 2014 by and among Registrant and each other Subsidiary of Registrant that is a Borrower and is a signatory thereto and Bank of America, N.A., as Administrative Agent, and various lenders party thereto. Incorporated by reference from Exhibit 10.39 filed with Registrant’s Report on Form 8-K dated October 10, 2014. |
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10.7 | Subsidiary Guaranty dated as of October 7, 2014, with respect to the Five Year Credit Agreement (see Exhibit 10.6 above) by and among Tiffany and Company, Tiffany & Co. International, and Tiffany & Co. Japan Inc., as Guarantors, and Bank of America, N.A., as Administrative Agent. Incorporated by reference from Exhibit 10.40 filed with Registrant’s Report on Form 8-K dated October 10, 2014. |
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10.8 | |
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10.8a | |
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10.9 | Amended and Restated Guaranty Agreement dated as of July 25, 2012 with respect to the Amended and Restated Note Purchase and Private Shelf Agreement (see Exhibit 10.8 above) by Tiffany and Company, Tiffany & Co. International and Tiffany & Co. Japan Inc. in favor of each of the note purchasers. Incorporated by reference from
Exhibit 10.156 filed with Registrant’s Report on Form 8-K dated July 27, 2012. |
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10.10 | |
Exhibit No. Description
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10.10a | January 17, 2014. |
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10.11 | Amended and Restated Guaranty |
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10.12 | Form of Note Purchase Agreement dated as of September 1, 2010 by and between Registrant and various institutional note purchasers with respect to Registrant’s yen 10,000,000,000 principal amount 1.72% Senior Notes due September 1, 2016. Incorporated by reference from Exhibit 10.161 filed with Registrant’s Report on
Form 10-Q for the Fiscal Quarter ended July 31, 2010. |
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10.12a | Amendment dated as of January 14, 2014 with respect to the Note Purchase Agreement, dated as of September 1, 2010 (see Exhibit 10.12 above), by and among Registrant, and various institutional note purchasers. Incorporated by reference from Exhibit 10.163 filed with Registrant’s Report on Form 8-K dated January 17, 2014. |
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10.13 | Guaranty Agreement dated September 1, 2010 with respect to the Note Purchase Agreement (see Exhibit 10.12 above) by Tiffany and Company, Tiffany & Co. International and Tiffany & Co. Japan Inc. Incorporated by reference from Exhibit 10.162 filed with Registrant’s Report on Form 10-Q for the Fiscal Quarter ended
July 31, 2010.
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10.14 | Amortising term loan facility agreement dated March 30, 2011 between and among Koidu Holdings S.A. (as Borrower), BSG Resources Limited (as Guarantor) and Laurelton Diamonds, Inc. (as Original Lender). Incorporated by reference from Exhibit 10.163 filed with Registrant’s Report on Form 8-K dated March 30, 2011. |
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| Amendment Agreement dated as of May 10, 2011 with respect to the Amortising Term Loan Facility Agreement (see Exhibit 10.14 above) between and among Koidu Holdings S.A. (as Borrower), BSG Resources Limited (as Guarantor) and Laurelton Diamonds, Inc. (as Original Lender). Incorporated by reference from Exhibit 10.15a filed with Registrant’s Report on Form 10-K dated March 28, 2013. |
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10.14b | Second Amendment Agreement dated as of February 12, 2013 with respect to the Amortising Term Loan Facility Agreement (see Exhibit 10.14 above) between and among Koidu Limited (as Borrower), BSG Resources Limited (as Guarantor) and Laurelton Diamonds, Inc. (as Original Lender). Incorporated by reference from Exhibit 10.15b filed with Registrant’s Report on Form 10-K dated March 28, 2013. |
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10.14c | Third Amendment Agreement dated as of March 29, 2013 with respect to the Amortising Term Loan Facility Agreement (see Exhibit 10.14 above) between and among Koidu Limited (as Borrower), BSG Resources Limited (as Guarantor) and Laurelton Diamonds, Inc. (as Original Lender). Incorporated by reference from Exhibit 10.15c filed with Registrant’s Report on Form 8-K dated April 2, 2013.
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Exhibit No. Description
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10.14d | Fourth Amendment Agreement dated as of March 31, 2014 with respect to the Amortising Term Loan Facility Agreement (see Exhibit 10.14 above) between and among Koidu Limited (as Borrower), BSG Resources Limited (as Guarantor) and Laurelton Diamonds, Inc. (as Original Lender). Incorporated by reference from Exhibit 10.15d filed with Registrant’s Report on Form 8-K dated March 31, 2014. |
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10.14e | Fifth Amendment Agreement dated as of April 30, 2015 with respect to the Amortising Term Loan Facility Agreement (see Exhibit 10.14 above) between and among Koidu Limited, Octea Limited, BSG Resources Limited and Laurelton Diamonds, Inc. Incorporated by reference from Exhibit 10.14e filed with Registrant’s Report on
Form 8-K dated May 6, 2015.
|
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10.15 | Credit Agreement dated as of July 19, 201311, 2016 by and among Tiffany & Co. (Shanghai) Commercial Company Limited, Bank of America, N.A., Shanghai Branch and Mizuho Corporate Bank (China), Ltd. as Jointed Coordinators, Mandated Lead Arrangers and Bookrunners, Mizuho Corporate Bank (China), Ltd. as Facility Agent and certain other banks and financial institutions party thereto as original lenders. Incorporated by reference from Exhibit 10.3410.15 filed with Registrant’s Report on Form 8-K dated July 24, 2013.15, 2016. |
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10.16 | |
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10.16a | First Amendment
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Exhibit No. Description |
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12.1 | Ratio of Earnings to Fixed Charges. |
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14.1 | |
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Exhibit No. Description 32.2 |
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32.2 | |
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| 101 | The following financial information from Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2016,2019, filed with the SEC, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Comprehensive Earnings; (iv) the Consolidated Statements of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; (vi) the Notes to the Consolidated Financial Statements; and (vii) Schedule II - Valuation and Qualifying Accounts and Reserves. |
Executive Compensation Plans and Arrangements
Exhibit No. Description |
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10.17 | |
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10.18 | |
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10.19 | |
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10.20 | Summary of informal incentive cash bonus plan for managerial employees. Incorporated by reference from
Exhibit 10.109 filed with Registrant’s Report on Form 8-K dated March 16, 2005.No. Description |
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10.21 | |
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10.22 | Form of 2009 Retention Agreement between and among Registrant and Tiffany and Company and those executive officers indicated within the form and Appendices I and II to such Agreement. Incorporated by reference from Exhibit 10.127c filed with Registrant’s Report on Form 8-K dated February 2, 2009. |
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10.23 | |
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Exhibit No. Description 10.18a |
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10.23a | |
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10.23b | |
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10.23c | March 28,for the Fiscal Year ended January 31, 2013.
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10.24 | |
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10.25 | |
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10.26 | Registrant’s 2005 Employee Incentive Plan as adopted May 19, 2005. Incorporated by reference from Exhibit 10.145 with Registrant’s Report on Form 8-K dated May 23, 2005. |
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10.26a | Registrant’s 2005 Employee Incentive Plan Amended and Adopted as of May 18, 2006. Incorporated by reference from Exhibit 10.151a filed with Registrant’s Report on Form 8-K dated March 26, 2007. |
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10.26b | |
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10.26c | Form of Fiscal 2014 Cash Incentive Award Agreement for certain executive officers as adopted on March 19, 2014 under Registrant’s 2005 Employee Incentive Plan. Incorporated by reference from Exhibit 10.139d filed with Registrant’s Report on Form 8-K dated March 21, 2014. |
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10.26d | Terms of 2010 Performance-Based Restricted Stock Unit Grants to Executive Officers under Registrant’s 2005 Employee Incentive Plan as adopted on January 20, 2010 for use with grants made that same date and on January 20, 2011, amended and restated effective December 29, 2011. Incorporated by reference from Exhibit 10.140c filed with Registrant’s Report on Form 8-K dated January 27, 2012. |
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Exhibit No. Description
|
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10.26e | Form of Non-Competition and Confidentiality Covenants for use in connection with Performance-Based Restricted Stock Unit Grants to Registrant’s Executive Officers and Time-Vested Restricted Unit Awards made to other officers of Registrant’s affiliated companies pursuant to the Registrant’s 2005 Employee Incentive Plan and pursuant to the Tiffany and Company Un-funded Retirement Income Plan to Recognize Compensation in Excess of Internal Revenue Code Limits. Incorporated by reference from Exhibit 10.141a filed with Registrant’s Report on Form 8-K dated May 23, 2005. |
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10.26f | Form of Notice of Grant as referenced in and attached to the Terms of 2010 Performance-Based Restricted Stock Unit grants to Executive Officers under Registrant’s 2005 Employee Incentive Plan as adopted on January 20, 2010 (see Exhibit 10.26d above) and completed on March 17, 2010 for use with the grants made on January 20, 2010. Incorporated by reference from Exhibit 10.140d filed with Registrant’s Report on Form 8-K dated March 25, 2010. |
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10.26g | Terms of Stock Option Award (Standard Non-Qualified Option) under Registrant’s 2005 Employee Incentive Plan as revised May 19, 2005. Incorporated by reference from Exhibit 10.143a filed with Registrant’s Report on Form 8-K dated May 23, 2005. |
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10.26h | Terms of Stock Option Award (Transferable Non-Qualified Option) under Registrant’s 2005 Employee Incentive Plan as revised May 19, 2005 (form used for Executive Officers). Incorporated by reference from Exhibit 10.144a filed with Registrant’s Report on Form 8-K dated May 23, 2005. |
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10.26i | Stock Option Award (Transferable Non-Qualified Option) under Registrant’s 2005 Employee Incentive Plan as revised January 14, 2009 (form used for grants made to Executive Officersexecutive officers subsequent to that date). Incorporated by reference from Exhibit 10.144b filed with Registrant’s Report on Form 8-K dated February 2, 2009. |
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10.26j | Terms of Time-Vested Restricted Stock Unit Grants under Registrant’s 2005 Employee Incentive Plan as revised January 14, 2009 (form used for grants made to employees other than Executive Officers subsequent to that date). Incorporated by reference from Exhibit 10.150a filed with Registrant’s Report on Form 8-K dated February 2, 2009. |
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10.26k | Terms of Stock Option Award (Transferable Non-Qualified Option) under Registrant’s 2005 Employee Incentive Plan. Incorporated by reference from Exhibit 10.28n filed with Registrant’s Report on Form 8-K dated September 24, 2013. |
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10.26l | Terms of Restricted Stock Grant (Non-Transferable) under Registrant’s 2005 Employee Incentive Plan. Incorporated by reference from Exhibit 10.28o filed with Registrant’s Report on Form 8-K dated September 24, 2013. |
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10.26m | Terms of Time-Vesting Restricted Stock Unit Grant to Executive Officers as adopted on November 20, 2013 under Registrant’s 2005 Employee Incentive Plan. Incorporated by reference from Exhibit 10.28p filed with Registrant’s Report on Form 8-K dated
March 21, 2014.
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Exhibit No. Description
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10.26n | Terms of Performance-Based Restricted Stock Unit Grants to Executive Officers, effective January 15, 2014, under Registrant’s 2005 Employee Incentive Plan. Incorporated by reference from Exhibit 10.28s filed with Registrant’s Report on Form 8-K dated September 19, 2014. |
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10.26o | Form of Non-Competition and Confidentiality Covenants for use in connection with Performance-Based Restricted Stock Unit Grants to Registrant’s Executive Officers, and Time-Vesting Restricted Unit Awards and Certain Non-Qualified Retirement Contributions made to other officers of Registrant’s affiliated companies pursuant to Registrant’s 2005 Employee Incentive Plan and pursuant to the Tiffany and Company Deferral Plan. Incorporated by reference from Exhibit 10.28r filed with Registrant’s Report on
Form 8-K dated March 21, 2014.
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10.26p | |
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10.26q | |
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10.27 | Registrant's 1998 Directors Option Plan. Incorporated by reference from Exhibit 4.3 to Registrant's Registration Statement on Form S-8, file number 333-67725, filed November 23, 1998. |
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10.27a | Terms of Stock Option Award (Transferable Non-Qualified Option) under Registrant’s 1998 Directors Option Plan as revised March 7, 2005. Incorporated by reference from Exhibit 10.142 filed with Registrant’s Report on Form 8-K dated March 16, 2005. |
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10.28 | |
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10.28a | |
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Exhibit No. Description |
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10.28b | |
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10.29 | |
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10.29a | |
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Exhibit No. Description
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10.29b | Terms of Cliff-Vesting Restricted Stock Grant (Non-Transferable) under Registrant’s 2014 Employee Incentive Plan. Incorporated by reference from Exhibit 10.31b filed with Registrant’s Report on Form 8-K dated July 18, 2014. |
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10.29c | Terms of Tranche-Vesting Restricted Stock Grant (Non-Transferable) under Registrant’s 2014 Employee Incentive Plan. Incorporated by reference from Exhibit 10.31c filed with Registrant’s Report on Form 8-K dated July 18, 2014. |
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10.29d | |
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10.29e | Form of Fiscal 2015 Cash Incentive Award Agreement for certain executive officers as adopted on March 16, 2016 under Registrant’s 2014 Employee Incentive Plan. Incorporated by reference from Exhibit 10.29e filed with Registrant’s Report on Form 8-K dated March 22, 2016. |
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10.29f | Form of Non-Competition and Confidentiality Covenants for use in connection with Performance-Based Restricted Stock Unit Grants to Registrant’s Executive Officers, and Time-Vesting Restricted Unit Awards and Certain Non-Qualified Retirement Contributions made to other officers of Registrant’s affiliated companies pursuant to Registrant’s 2014 Employee Incentive Plan and pursuant to the Tiffany and Company Amended and Restated Executive Deferral Plan. Incorporated by reference from Exhibit 10.29f filed with Registrant’s Report on Form 8-K dated March 22, 2016. |
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10.29g | |
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10.29h | Terms of Performance-Based Restricted Stock Unit Grants to Executive Officers, effective March 16, 2016, under Registrant’s 2014 Employee Incentive Plan. Incorporated by reference from Exhibit 10.29h filed with Registrant’s Report on Form 8-K dated March 22, 2016. |
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10.29i | Terms of Cliff-Vesting Restricted Stock Grant (Non-Transferable) under Registrant’s 2014 Employee Incentive Plan, as revised March 16, 2016. Incorporated by reference from Exhibit 10.29i filed with Registrant’s Report on Form 8-K dated March 22, 2016. |
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10.29j | |
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10.29k | Terms |
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10.30 | Senior Executive Employment Agreement between Frederic Cumenal and Tiffany and Company, effective as of March 10, 2011. Incorporated by reference from Exhibit 10.154 filed with Registrant’s Report on Form 8-K dated March 21, 2011.January 25, 2017. |
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Exhibit No. Description |
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10.31 | |
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Exhibit No. Description |
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10.32 |
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10.33 | |
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10.34 | Form |
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10.35 | Share Ownership Policy for Executive Officers
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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| Date: March 22, 2019 | | TIFFANY & CO. |
| | (Registrant) |
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10.36 | Corporate Governance Principles, amended and restated as of January 21, 2016. Incorporated by reference from Exhibit 10.35 filed with Registrant’s Report on
Form 8-K dated January 21, 2016.
| By: /s/ Alessandro Bogliolo |
| | Alessandro Bogliolo |
| | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
K-120 |
| | | | |
| By: | /s/ Alessandro Bogliolo | | By: | /s/ Mark J. Erceg |
| Alessandro Bogliolo | | | Mark J. Erceg |
| Chief Executive Officer | | | Executive Vice President, |
| (Principal Executive Officer) (Director) | | | Chief Financial Officer |
| | | | (Principal Financial Officer) |
| | | | |
| | | | |
| By: | /s/ Michael Rinaldo | | By: | /s/ Rose Marie Bravo |
| Michael Rinaldo | | | Rose Marie Bravo |
| Vice President, Controller | | | Director |
| (Principal Accounting Officer) | | | |
| | | | |
| | | | |
| By: | /s/ Roger N. Farah | | By: | /s/ Lawrence K. Fish |
| Roger N. Farah | | | Lawrence K. Fish |
| Director | | | Director |
| | | | |
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| By: | /s/ Abby F. Kohnstamm | | By: | /s/ James E. Lillie |
| Abby F. Kohnstamm | | | James E. Lillie |
| Director | | | Director |
| | | | |
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| By: | /s/ Robert S. Singer | | By: | /s/ William A. Shutzer |
| Robert S. Singer | | | William A. Shutzer
|
| Director | | | Director |
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| | | | |
| By: | /s/ Francesco Trapani | | By: | /s/ Annie Young - Scrivner |
| Francesco Trapani | | | Annie Young - Scrivner
|
| Director | | | Director |
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Tiffany & Co. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
(in millions)
| | | Column A | Column B | Column C | Column D | | Column E | Column B | Column C | Column D | | Column E |
| | | Additions | | | | | Additions | | | |
| Description | Balance at beginning of period |
| Charged to costs and expenses |
| Charged to other accounts |
| Deductions |
| | Balance at end of period |
| Balance at beginning of period |
| Charged to costs and expenses |
| Charged to other accounts |
| Deductions |
| | Balance at end of period |
|
| Year Ended January 31, 2016: | | | | |
| Year Ended January 31, 2019: | | | | |
| Reserves deducted from assets: | | | | | | |
| Accounts receivable allowances: | | | | | | |
| Doubtful accounts | $ | 1.8 |
| $ | 4.4 |
| $ | — |
| $ | 3.0 |
| a | $ | 3.2 |
| $ | 2.2 |
| $ | 4.1 |
| $ | — |
| $ | 4.7 |
| a | $ | 1.6 |
|
| Sales returns | 8.8 |
| 3.5 |
| — |
| 4.0 |
| b | 8.3 |
| 15.0 |
| 12.6 |
| — |
| 10.1 |
| b | 17.5 |
|
Allowance for inventory liquidation and obsolescence | 63.2 |
| 25.4 |
| — |
| 29.4 |
| c | 59.2 |
| 75.0 |
| 31.9 |
| — |
| 25.4 |
| c | 81.5 |
|
| Allowance for inventory shrinkage | 2.2 |
| 0.8 |
| — |
| 1.8 |
| d | 1.2 |
| 0.7 |
| 1.7 |
| — |
| 1.1 |
| d | 1.3 |
|
| Deferred tax valuation allowance | 16.2 |
| 5.3 |
| — |
| 2.0 |
| e | 19.5 |
| 9.6 |
| 0.2 |
| — |
| 1.3 |
| e | 8.5 |
|
a) Uncollectible accounts written off.
b) Adjustment related to sales returns previously provided for.
c) Liquidation of inventory previously written down to market.net realizable value.
d) Physical inventory losses.
e) Reversal of deferred tax valuation allowance and utilization of deferred tax loss carryforward.
Tiffany & Co. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
(in millions)
| | | Column A | Column B | Column C | Column D | | Column E | Column B | Column C | Column D | | Column E |
| | | Additions | | | | | Additions | | | |
| Description | Balance at beginning of period |
| Charged to costs and expenses |
| Charged to other accounts |
| Deductions |
| | Balance at end of period |
| Balance at beginning of period |
| Charged to costs and expenses |
| Charged to other accounts |
| Deductions |
| | Balance at end of period |
|
| Year Ended January 31, 2015: | | | | |
| Year Ended January 31, 2018: | | | | |
| Reserves deducted from assets: | | | | | | |
| Accounts receivable allowances: | | | | | | |
| Doubtful accounts | $ | 1.9 |
| $ | 1.9 |
| $ | — |
| $ | 2.0 |
| a | $ | 1.8 |
| $ | 1.9 |
| $ | 3.3 |
| $ | — |
| $ | 3.0 |
| a | $ | 2.2 |
|
| Sales returns | 8.5 |
| 1.9 |
| — |
| 1.6 |
| b | 8.8 |
| 9.6 |
| 7.5 |
| — |
| 2.1 |
| b | 15.0 |
|
Allowance for inventory liquidation and obsolescence | 64.1 |
| 33.6 |
| — |
| 34.5 |
| c | 63.2 |
| 65.4 |
| 28.9 |
| — |
| 19.3 |
| c | 75.0 |
|
| Allowance for inventory shrinkage | 1.5 |
| 2.6 |
| — |
| 1.9 |
| d | 2.2 |
| 1.0 |
| 1.1 |
| — |
| 1.4 |
| d | 0.7 |
|
| Deferred tax valuation allowance | 17.7 |
| 4.0 |
| — |
| 5.5 |
| e | 16.2 |
| 24.1 |
| 2.3 |
| — |
| 16.8 |
| e | 9.6 |
|
a) Uncollectible accounts written off.
b) Adjustment related to sales returns previously provided for.
c) Liquidation of inventory previously written down to market.net realizable value.
d) Physical inventory losses.
e) Reversal of deferred tax valuation allowance and utilization of deferred tax loss carryforward.
Tiffany & Co. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
(in millions)
| | | Column A | Column B | Column C | Column D | | Column E | Column B | Column C | Column D | | Column E |
| | | Additions | | | | | Additions | | | |
| Description | Balance at beginning of period |
| Charged to costs and expenses |
| Charged to other accounts |
| Deductions |
| | Balance at end of period |
| Balance at beginning of period |
| Charged to costs and expenses |
| Charged to other accounts |
| Deductions |
| | Balance at end of period |
|
| Year Ended January 31, 2014: | | | | |
| Year Ended January 31, 2017: | | | | |
| Reserves deducted from assets: | | | | | | |
| Accounts receivable allowances: | | | | | | |
| Doubtful accounts | $ | 2.1 |
| $ | 2.3 |
| $ | — |
| $ | 2.5 |
| a | $ | 1.9 |
| $ | 3.2 |
| $ | 3.8 |
| $ | — |
| $ | 5.1 |
| a | $ | 1.9 |
|
| Sales returns | 7.6 |
| 2.5 |
| — |
| 1.6 |
| b | 8.5 |
| 8.3 |
| 2.5 |
| — |
| 1.2 |
| b | 9.6 |
|
Allowance for inventory liquidation and obsolescence | 54.2 |
| 31.7 |
| — |
| 21.8 |
| c | 64.1 |
| 59.2 |
| 19.2 |
| — |
| 13.0 |
| c | 65.4 |
|
| Allowance for inventory shrinkage | 1.2 |
| 3.1 |
| — |
| 2.8 |
| d | 1.5 |
| 1.2 |
| 0.5 |
| — |
| 0.7 |
| d | 1.0 |
|
| Deferred tax valuation allowance | 14.2 |
| 5.6 |
| — |
| 2.1 |
| e | 17.7 |
| 19.5 |
| 5.0 |
| — |
| 0.4 |
| e | 24.1 |
|
a) Uncollectible accounts written off.
b) Adjustment related to sales returns previously provided for.
c) Liquidation of inventory previously written down to market.net realizable value.
d) Physical inventory losses.
e) Reversal of deferred tax valuation allowance and utilization of deferred tax loss carryforward.
