SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_____ EXCHANGE ACT OF 1934 for the quarter ended April 30, 2003. OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_____ EXCHANGE ACT OF 1934 for the transition from ________ to _____________.
Commission file number: 1-9494
TIFFANY & CO.
(Exact name of registrant as specified in its charter)
Delaware 13-3228013
(State of incorporation) (I.R.S. Employer Identification No.)
727 Fifth Ave. New York, NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 755-8000
Former name, former address and former fiscal year, if changed since last report
_________.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock as of the latest practicable
date: Common Stock, $.01 par value, 145,183,359 shares outstanding at the close
of business on May 31, 2003.
TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED April 30, 2003
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets - April 30, 2003,
January 31, 2003 and April 30, 2002 (Unaudited) 3
Consolidated Statements of Earnings - for the
three months ended April 30, 2003 and 2002 (Unaudited) 4
Consolidated Statements of Cash Flows - for
the three months ended April 30, 2003
and 2002 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-21
Item 4. Controls and Procedures 22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
(a) Exhibits
(b) Reports on Form 8-K
- 2 -
PART I. Financial Information
Item 1. Financial Statements
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)
April 30, January 31, April 30,
2003 2003 2002
-------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 123,449 $ 156,197 $ 145,265
Accounts receivable, less allowances
of $8,147, $8,258 and $6,935 107,105 113,061 100,982
Inventories, net 765,780 732,088 653,082
Deferred income taxes 44,836 44,380 45,796
Prepaid expenses and other current assets 35,451 24,662 32,889
---------------- ---------------- ----------------
Total current assets 1,076,621 1,070,388 978,014
Property and equipment, net 688,092 677,630 540,384
Deferred income taxes 7,208 6,595 5,452
Other assets, net 172,045 168,973 147,815
---------------- ---------------- ----------------
$ 1,943,966 $ 1,923,586 $ 1,671,665
================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 57,346 $ 52,552 $ 41,975
Current portion of long-term debt - - 51,500
Accounts payable and accrued liabilities 156,829 163,338 142,831
Income taxes payable 27,639 41,297 27,743
Merchandise and other customer credits 42,939 42,720 38,184
---------------- ---------------- ----------------
Total current liabilities 284,753 299,907 302,233
Long-term debt 298,419 297,107 181,995
Postretirement/employment benefit obligations 34,345 33,117 31,333
Other long-term liabilities 89,211 85,406 73,616
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized 240,000 shares,
issued and outstanding 144,908, 144,865 and 145,719 1,449 1,449 1,457
Additional paid-in capital 355,786 351,398 344,828
Retained earnings 900,456 874,694 770,433
Accumulated other comprehensive(loss) gain:
Foreign currency translation adjustments (15,796) (14,561) (36,879)
Cash flow hedging instruments, net of tax (2,010) (2,284) 2,649
Minimum pension liability adjustment, net of tax (2,647) (2,647) -
---------------- ---------------- ----------------
Total stockholders' equity 1,237,238 1,208,049 1,082,488
---------------- ---------------- ----------------
$ 1,943,966 $ 1,923,586 $ 1,671,665
================ ================ ================
See notes to consolidated financial statements
- 3 -
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
April 30,
-----------------------------------
2003 2002
-------------- --------------
Net sales $ 395,839 $ 347,129
Cost of sales 166,195 140,714
-------------- --------------
Gross profit 229,644 206,415
Selling, general and administrative expenses 170,675 147,849
-------------- --------------
Earnings from operations 58,969 58,566
Other expenses, net 2,313 4,052
-------------- --------------
Earnings before income taxes 56,656 54,514
Provision for income taxes 20,793 21,805
-------------- --------------
Net earnings $ 35,863 $ 32,709
============== ==============
Net earnings per share:
Basic $ 0.25 $ 0.22
============== ==============
Diluted $ 0.24 $ 0.22
============== ==============
Weighted average number of common shares:
Basic 144,894 145,434
Diluted 147,438 150,181
See notes to consolidated financial statements.
- 4 -
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
April 30,
---------------------------------------
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 35,863 $ 32,709
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 21,367 18,047
Loss on equity investments 4 384
Provision for uncollectible accounts 273 368
Provision for inventories 1,966 2,475
Deferred income taxes (1,212) (3,203)
Provision for postretirement/employment benefits 1,228 1,333
Deferred hedging losses (gains) transferred to earnings 673 (2,908)
Changes in assets and liabilities, excluding effects
of acquisitions:
Accounts receivable 7,230 755
Inventories (35,853) (34,426)
Prepaid expenses and other current assets (11,249) (7,584)
Other assets, net (1,378) (55)
Accounts payable (172) 5,647
Accrued liabilities (6,321) 948
Income taxes payable (12,672) (15,045)
Merchandise and other customer credits 219 (607)
Other long-term liabilities 3,847 3,221
----------------- ----------------
Net cash provided by operating activities 3,813 2,059
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (33,248) (32,133)
Proceeds from lease incentives 1,436 2,570
----------------- ----------------
Net cash used in investing activities (31,812) (29,563)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) short-term borrowings, net 4,184 (6)
Repurchase of Common Stock (4,610) -
Proceeds from exercise of stock options 1,929 2,850
Cash dividends on Common Stock (5,793) (5,819)
----------------- ----------------
Net cash provided by financing activities (4,290) (2,975)
---------------- ----------------
Effect of exchange rate changes on
cash and cash equivalents (459) 2,069
---------------- ---------------
Net decrease in cash and cash equivalents (32,748) (28,410)
Cash and cash equivalents at beginning of year 156,197 173,675
---------------- ----------------
Cash and cash equivalents at end of three months $ 123,449 $ 145,265
================= ================
See notes to consolidated financial statements.
- 5 -
TIFFANY & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------
The accompanying consolidated financial statements include the
accounts of Tiffany & Co. and all majority-owned domestic and foreign
subsidiaries (the "Company"). Intercompany accounts, transactions and
profits have been eliminated in consolidation. The interim statements
are unaudited and, in the opinion of management, include all
adjustments (which include only normal recurring adjustments including
the adjustment necessary as a result of the use of the LIFO (last-in,
first-out) method of inventory valuation, which is based on
assumptions as to inflation rates and projected fiscal year-end
inventory levels) necessary to present fairly the Company's financial
position as of April 30, 2003 and the results of its operations and
cash flows for the interim periods presented. The consolidated balance
sheet data for January 31, 2003 are derived from the audited financial
statements which are included in the Company's report on Form 10-K,
which should be read in connection with these financial statements. In
accordance with the rules of the Securities and Exchange Commission,
these financial statements do not include all disclosures required by
generally accepted accounting principles.
Certain reclassifications were made to the prior year's financial
statement amounts and related note disclosures to conform with the
current year's presentation, and such reclassifications were
principally related to employee benefits, lease liabilities and
hedging instruments.
The Company's business is seasonal, with a higher proportion of sales
and earnings generated in the last quarter of the fiscal year and,
therefore, the results of its operations for the three months ended
April 30, 2003 and 2002 are not necessarily indicative of the results
of the entire fiscal year.
2. STOCK - BASED COMPENSATION
--------------------------
Employee stock options are accounted for using the intrinsic value
method in accordance with Accounting Principle Board Opinion No. 25
"Accounting for Stock Issued to Employees" and its related
interpretations. Compensation costs were not recorded in net income
for stock options, as all options granted had an exercise price equal
to the market value of the underlying common stock on the date of
grant.
- 6 -
STOCK - BASED COMPENSATION (continued)
--------------------------------------
As required by Statement of Financial Accounting Standards ("SFAS")
No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure", which amends SFAS No. 123, "Accounting for Stock-Based
Compensation", the following table estimates the pro forma effect on
net earnings and earnings per share had the Company applied the fair
value recognition provision of SFAS No. 123 to stock-based employee
compensation:
Three Months Ended
April 30,
---------------------------------
(in thousands, except per share amounts) 2003 2002
------------------------------------------------------------------------------------------
Net earnings as reported $35,863 $32,709
Less: Stock-based employee compensation expense
determined under the fair-value method for all
awards, net of tax (3,289) (3,116)
--------------- ---------------
Pro forma net earnings $32,574 $29,593
=============== ===============
Earnings per basic share:
As reported 0.25 0.22
Pro forma 0.22 0.20
Earnings per diluted share:
As reported 0.24 0.22
Pro forma 0.22 0.20
3. ACQUISITIONS
-------------
In May 2001, the Company purchased 45% of Little Switzerland Inc.'s
("Little Switzerland") outstanding shares of common stock by means of
a direct investment in newly-issued unregistered shares at a cost of
$9,546,000. The Company accounted for this investment under the equity
method based upon its ownership interest and its significant
influence. In 2001, the Company also provided Little Switzerland with
an interest bearing loan in the amount of $2,500,000. The Company's
equity share of Little Switzerland's results from operations has been
included in other expenses, net and amounted to a gain of $79,000 for
the three months ended April 30, 2002.
In August 2002, a wholly-owned subsidiary of the Company commenced a
cash tender offer to acquire the remaining balance of the outstanding
shares of Little Switzerland's common stock at $2.40 per share. In
October 2002, the Company purchased and paid $27,530,000 for the
shares acquired, which, with the shares previously owned, represented
98% of the outstanding shares of Little Switzerland. On November 20,
2002, the subsidiary merged with and into Little Switzerland. The
purchase price has been allocated to the assets acquired and
liabilities assumed according to estimated fair values. The Company
commenced the consolidation of Little Switzerland's operations
effective October 1, 2002, and the interest-bearing loan provided to
Little Switzerland in 2001 has been eliminated in consolidation.
The acquisition was accounted for in accordance with SFAS No. 141,
"Business Combinations."
- 7 -
4. INCOME TAXES
------------
The effective income tax rates for the three months ended April 30,
2003 and 2002 are 36.7% and 40.0%. The reduction in the tax rate from
the prior year is principally due to the recognition of tax benefits
provided by the Extraterritorial Income Exclusion Act of 2000 ("ETI")
and a favorable reserve adjustment related to the elimination of
certain tax exposures. Tax benefits related to ETI were not recognized
until the third quarter of 2002 when the Company determined the ETI
was applicable to its operations.
In November 2000, the United States Government repealed the tax
provisions associated with Foreign Sales Corporations ("FSC") and
enacted, in their place, the ETI, certain provisions of which differed
from those governed by the FSC regulations. The ETI provides for the
exclusion from United States income tax of certain extraterritorial
income earned from the sale of qualified United States origin goods.
Qualified United States origin goods are generally defined as those
wherein not more than 50% of the fair market value (including
intangible values) is attributable to foreign content or value added
outside the United States.
It is unknown if this benefit will continue to be available to the
Company in the future, as the World Trade Organization ("WTO") ruled
in January 2002 in favor of a complaint by the European Union, and
joined by Canada, Japan and India, that the ETI exclusion constitutes
a prohibited export subsidy under WTO regulations. The United States'
Government is currently reviewing its options in response to this
ruling.
5. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Three Months Ended
April 30,
---------------------------------------
Cash paid during the year for: 2003 2002
---------------- ---------------
(in thousands)
--------------
Interest $ 1,891 $ 1,767
================ ===============
Income taxes $33,687 $38,947
================ ===============
Supplemental Noncash Investing
and Financing Activities:
(in thousands)
______________
Issuance of Common Stock for the
Employee Profit Sharing and
Retirement Savings Plan $2,000 $ 1,000
================ ===============
- 8 -
6. INVENTORIES
------------
April 30, January 31, April 30,
(in thousands) 2003 2003 2002
-------------- --------------------- ------------------- -----------------------
Finished goods $626,313 $615,247 $539,423
Raw materials 107,091 91,505 86,755
Work-in-process 36,821 29,698 30,716
-------------------- ------------------ ---------------------
770,225 736,450 656,894
Reserves (4,445) (4,362) (3,812)
-------------------- ------------------ ---------------------
Inventories, net $765,780 $732,088 $653,082
==================== ================== =====================
LIFO-based inventories at April 30, 2003, January 31, 2003 and April
30, 2002 were $565,073,000, $532,160,000 and $514,523,000, with the
current cost exceeding the LIFO inventory value by approximately
$20,735,000, $20,135,000 and $19,471,000 at the end of each period.
The LIFO valuation method had no effect on net earnings per diluted
share for the three months ended April 30, 2003 and 2002.
7. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In September 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 143, "Accounting for Asset Retirement Obligations,"
which addresses the accounting and financial reporting for legal
obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company adopted
the provisions of SFAS No. 143, effective February 1, 2003, and its
impact was not significant on the Company's financial position,
earnings or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." In
general, SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated
after June 30, 2003. The Company does not currently expect the
adoption of SFAS No. 149 to have a significant impact on the Company's
financial position, earnings or cash flows.
8. EARNINGS PER SHARE
------------------
Basic earnings per share is computed as net earnings divided by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share includes the dilutive effect of the assumed
exercise of stock options.
- 9 -
EARNINGS PER SHARE (continued)
------------------------------
The following table summarizes the reconciliation of the numerators
and denominators for the basic and diluted earnings per share ("EPS")
computations:
Three Months Ended
April 30,
------------------------------
(in thousands) 2003 2002
-------------- -------------- --------------
Net earnings for basic
and diluted EPS $35,863 $32,709
=============== =============
Weighted average shares
for basic EPS 144,894 145,434
Incremental shares from
assumed exercise of
stock options 2,544 4,747
-------------- --------------
Weighted average shares
for diluted EPS 147,438 150,181
============== ==============
For the three months ended April 30, 2003 and 2002, there were
7,001,000 and 1,717,000 stock options excluded from the computations
of earnings per diluted share due to their antidilutive effect.
9. COMPREHENSIVE EARNINGS
----------------------
The components of comprehensive earnings were:
Three Months Ended
April 30,
-----------------------------
(in thousands) 2003 2002
-------------- ------------ -------------
Net earnings $35,863 $32,709
Other comprehensive
gain(loss):
Cash flow hedging
instruments, net of tax 274 (3,866)
Foreign currency
translation adjustments (1,235) 8,427
------------ -------------
Comprehensive earnings $34,902 $37,270
============ =============
Foreign currency translation adjustments are not adjusted for income
taxes since they relate to investments that are permanent in nature.
- 10 -
10. SEGMENT INFORMATION
-------------------
The Company's reportable segments are: U.S. Retail, International
Retail, Direct Marketing and Specialty Retail (see Management's
Discussion and Analysis of Financial Condition and Results of
Operations for an overview of the Company's business). Effective
October 1, 2002 the Company established the Specialty Retail segment
to include the consolidated results of Little Switzerland, Inc., as
well as the consolidated results from other ventures that are now or
will be operated under non-TIFFANY & CO. trademarks or trade names.
The Company's other reportable segments represent channels of
distribution that offer similar merchandise and service and have
similar marketing and distribution strategies. In deciding how to
allocate resources and assess performance, the Company's Executive
Officers regularly evaluate the performance of its reportable segments
on the basis of net sales and earnings from operations, after the
elimination of intersegment sales and transfers.
Certain information relating to the Company's reportable segments is
set forth below:
Three Months Ended
April 30,
----------------------------------
(in thousands) 2003 2002
-------------- ---------- ------------
Net sales:
U.S. Retail $ 173,586 $ 165,670
International Retail 165,524 147,638
Direct Marketing 37,283 33,821
Specialty Retail 19,446 -
--------------- ---------------
$ 395,839 $ 347,129
=============== ===============
Earnings(losses) from
operations*:
U.S. Retail $ 31,721 $ 33,733
International Retail 47,315 44,265
Direct Marketing 6,736 5,123
Specialty Retail (606) -
--------------- ---------------
$ 85,166 $ 83,121
=============== ===============
* Represents earnings from operations before unallocated corporate
expenses and interest and other expenses, net.
The following table sets forth a reconciliation of the reportable
segment's earnings from operations to the Company's consolidated
earnings before income taxes:
Three Months Ended
April 30,
---------------------------------
(in thousands) 2003 2002
-------------- ----------- -----------
Earnings from operations for
reportable segments $ 85,166 $ 83,121
Unallocated corporate expenses (26,197) (24,555)
Other expenses, net (2,313) (4,052)
-------------- ---------------
Earnings before income taxes $ 56,656 $ 54,514
============== ===============
- 11 -
11. SUBSEQUENT EVENTS
-----------------
In connection with the acquisition of Little Switzerland, the Company
assumed their outstanding debt. Little Switzerland had a senior
collateralized revolving and term loan credit facility ("LS
Facility"), which allowed Little Switzerland to borrow up to
$12,000,000, through March 21, 2005, of which up to $8,000,000 was a
revolving loan and $4,000,000 was a term loan. Subsequent to the
period ended April 30, 2003, the Company replaced the LS Facility with
an unsecured revolving credit facility ("LS Credit Facility"),
guaranteed by the Company, which allows Little Switzerland to borrow
up to $10,000,000 at an interest rate of 0.80% above LIBOR or a LIBOR
Market Index. The LS Credit Facility, which expires in November 2005,
contains covenants that require the Company to maintain certain
debt/equity and interest-coverage ratios, in addition to other
requirements customary to loan facilities of this nature. There was no
gain or loss associated with the replacement of the LS Facility.
On May 15, 2003, the Company's Board of Directors declared an increase
in the quarterly dividend rate by 25% from $0.04 per share to $0.05
per share. This dividend will be paid on July 10, 2003 to stockholders
of record on June 20, 2003.
- 12 -
PART I. Financial Information
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
- ---------------------
Overview
- --------
The Company operates four channels of distribution:
o U.S. Retail - sales in Company-operated TIFFANY & CO. stores in the U.S.;
o International Retail - sales in Company-operated TIFFANY & CO. stores and
department store boutiques outside the U.S., (also includes
business-to-business sales, Internet sales and wholesale sales of TIFFANY &
CO. products outside the U.S.);
o Direct Marketing - business-to-business, catalog and Internet sales of
TIFFANY & CO. products in the U.S.;
o Specialty Retail - worldwide sales made under non-TIFFANY & CO. trademarks
or trade names, including LITTLE SWITZERLAND.
All references to years relate to the fiscal year that ends on January 31 of the
following calendar year.
In the three months (first quarter) ended April 30, 2003, net sales increased
14% to $395,839,000. The Company's reported sales reflect either a
translation-related benefit from strengthening foreign currencies or a detriment
from a strengthening U.S. dollar. Therefore, on a constant-exchange-rate basis,
net sales rose 10% in the first quarter and worldwide comparable store sales
rose 0.4%. Net earnings increased 10% to $35,863,000 in the first quarter, or
$0.24 per diluted share versus $0.22 in the prior year.
Certain operating data as a percentage of net sales were as follows:
Three Months
Ended April 30,
-------------------
2003 2002
-------------------
Net sales 100.0% 100.0%
Cost of sales 42.0 40.5
-------------------
Gross profit 58.0 59.5
Selling, general
and administrative expenses 43.1 42.6
-------------------
Earnings from operations 14.9 16.9
Other expenses, net 0.6 1.2
-------------------
Earnings before income taxes 14.3 15.7
Provision for income taxes 5.2 6.3
-------------------
Net earnings 9.1% 9.4%
-------------------
- 13 -
Net Sales
- ---------
Net sales by channel of distribution were as follows:
Three Months
Ended April 30,
-------------------
(in thousands) 2003 2002
- -------------- -------------------
U.S. Retail $173,586 $165,670
International Retail 165,524 147,638
Direct Marketing 37,283 33,821
Specialty Retail 19,446 -
-------------------
$395,839 $347,129
===================
U.S. Retail sales increased 5% in the first quarter due to comparable store
sales growth of 2% and the opening of new stores. Comparable branch store sales
rose 3%, while sales in the New York flagship store declined 5%. The comparable
store sales increase resulted from an increase in the average transaction size.
Increased sales to tourists in many markets more than offset a decline in local
customer sales, especially in the New York market.
International Retail sales increased 12% in the first quarter and rose 3% on a
constant-exchange-rate basis.
In Japan, total retail sales in local currency increased 2% in the first
quarter, reflecting an increased average price per jewelry unit sold which more
than offset a decline in jewelry unit volume; comparable store sales in local
currency declined 3% in the quarter. Japan sales were affected by generally weak
economic conditions and increased competition. The Company is repositioning its
merchandising and marketing efforts in Japan to mitigate such lessened demand
for diamond engagement rings and silver jewelry.
In non-U.S. markets outside of Japan, comparable store sales on a
constant-exchange-rate basis in the first quarter declined 0.4% in the
Asia-Pacific region due to mixed results among various markets, and rose 7% in
Europe due to strength in London.
The Company expects to increase its worldwide retail gross square footage by
approximately 5% in 2003. Actual/expected 2003 store openings are as follows:
Location Actual Opening 2003 Expected Opening 2003
- -------- ------------------- ---------------------
Coral Cables, Florida First Quarter
Guam (conversion from wholesale) First Quarter
Walnut Creek, California Second Quarter
Palm Desert, California Third Quarter
Ikbekuro, Japan First Quarter
Sapporo,Japan First Quarter
Tokyo (relocation) First Quarter
Korea First Quarter
Hong Kong Fourth Quarter
Brazil Third Quarter
- 14 -
Direct Marketing sales rose 10% in the first quarter. Combined Internet/catalog
sales rose 22% due to strong growth in Internet sales that resulted from a
higher number of orders. The Business Sales division's sales declined 3%
reflecting a decline in average dollars per order shipped. In addition, as
announced in November 2002, the Business Sales division is no longer soliciting
employee service award programs and is phasing out of that portion of its
business as existing customer commitments are satisfied. Annual sales affected
by this action represented less than $30,000,000, or less than half of the
Business Sales division's sales in 2002. The Business Sales division will
continue to offer a range of business gifts, as well as event-related trophies
and other awards.
The Company established a new channel of distribution, "Specialty Retail," in
2002 to include the consolidated results of Little Switzerland, Inc., (effective
October 1, 2002) as well as the consolidated results from ventures controlled by
the Company, that are now or will be operated under non-TIFFANY & CO. trademarks
or trade names.
Gross Profit
- ------------
Gross profit as a percentage of net sales ("gross margin") in the first quarter
was lower than the prior year, largely due to the consolidation of Little
Switzerland, which achieves a gross margin below the Company's average, and, to
a lesser extent, changes in sales mix.
The Company's hedging program uses yen put options to stabilize product costs in
Japan over the short-term despite exchange rate fluctuations, and the Company
adjusts its retail prices in Japan from time to time to address longer-term
changes in the yen/dollar relationship and local competitive pricing.
Management's long-term strategy and objectives include achieving further product
manufacturing/sourcing efficiencies, leveraging its fixed costs and implementing
selective price adjustments in order to maintain the Company's gross margin at,
or above, prior year levels. However, management expects a less-than-1% decline
in gross margin in 2003 due to incremental infrastructure costs which include a
new Customer Fulfillment/Distribution Center ("CFC"), the effect of
consolidating the sales of Little Switzerland and costs related to building
rough diamond sourcing and processing organizations in Belgium and Canada, all
of which are expected to more than offset benefits from growth in internal
jewelry manufacturing and from the commenced sourcing of a portion of the
Company's diamond needs from a new mine in Canada.
Selling, General and Administrative Expenses ("SG&A")
- -----------------------------------------------------
SG&A rose 15% in the first quarter, due to incremental depreciation, staffing
and occupancy expenses related to the Company's overall worldwide expansion, as
well as higher marketing expenses which include increased advertising of its
timepieces category and the consolidation of Little Switzerland's SG&A. As a
percentage of net sales, SG&A rose due to insufficient comparable store sales
growth to absorb the rate of increase in fixed expenses. Management's
longer-term objective is to reduce this ratio by leveraging anticipated improved
rates of comparable store sales growth against the Company's fixed-expense base,
although management expects the ratio to increase modestly in 2003 due to a
continuation of mid-teens percentage SG&A growth for the remainder of the year.
- 15-
In 2001, the Company signed new distribution agreements with Mitsukoshi Ltd. of
Japan ("Mitsukoshi"), whereby TIFFANY & CO. boutiques will continue to operate
within Mitsukoshi's stores in Japan until at least January 31, 2007. Prior
agreements expired in 2001. The new agreements largely continue the principles
on which Mitsukoshi and the Company have been cooperating since 1993, when the
relationship was last renegotiated. The main agreement, which will expire on
January 31, 2007, covers the continued operation of TIFFANY & CO. boutiques.
Separate agreements cover the operation of a freestanding TIFFANY & CO. store on
Tokyo's Ginza. Under the new agreements, the Company is not restricted from
further expansion of its Tokyo operations. Under the main agreement, the Company
pays to Mitsukoshi a percentage of certain sales; this percentage is lower than
under the prior agreements. Certain fees were reduced in 2002. Beginning in
2003, there is a further reduction in fees paid to Mitsukoshi, and the Company
will employ increasing numbers of its own personnel in certain boutiques in the
future.
Other Expenses, Net
- -------------------
Other expenses, net in the first quarter were lower than the prior year due to
lower interest expense primarily resulting from the effect of the capitalization
of interest costs related to the Company's construction of its 266,000 square
foot CFC in Hanover Township, New Jersey and a reduction in the Company's
portion of losses in its equity investments.
Provision for Income Taxes
- --------------------------
The effective income tax rates for the three months ended April 30, 2003 and
2002 are 36.7% and 40.0%. The reduction in the tax rate from the prior year is
principally due to the recognition of tax benefits provided by the
Extraterritorial Income Exclusion Act of 2000 ("ETI") and a favorable reserve
adjustment related to the elimination of certain tax exposures. Tax benefits
related to ETI were not recognized until the third quarter of 2002 when the
Company determined the ETI was applicable to its operations.
In November 2000, the United States Government repealed the tax provisions
associated with Foreign Sales Corporations ("FSC") and enacted, in their place,
the ETI, certain provisions of which differed from those governed by the FSC
regulations. The ETI provides for the exclusion from United States income tax of
certain extraterritorial income from the sale of qualified United States origin
goods. Qualified United States origin goods are generally defined as those
wherein not more than 50% of the fair market value (including intangible values)
is attributable to foreign content or value added outside the United States. The
Company determined in the third quarter of 2002 that this tax benefit was
applicable to its operations and, therefore, is recognizing the related tax
benefit. It is unknown if this benefit will continue to be available to the
Company in the future, as the World Trade Organization ("WTO") ruled in January
2002 in favor of a complaint by the European Union, and joined by Canada, Japan
and India, that the ETI exclusion constitutes a prohibited export subsidy under
WTO regulations. The United States Government is currently reviewing its options
in response to this ruling.
New Accounting Standards
- ------------------------
In September 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations," which addresses the accounting and financial
reporting for legal obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company adopted
the provisions of SFAS No. 143, effective February 1, 2003, and its impact was
not significant on the Company's financial position, earnings or cash flows.
- 16 -
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." In general, SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The Company does not currently expect the
adoption of SFAS No. 149 to have a significant impact on the Company's financial
position, earnings or cash flows.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements and capital expenditure
needs, which have increased due to the Company's expansion.
The Company achieved a net cash inflow from operating activities of $3,813,000
in the three months ended April 30, 2003 compared with an inflow of $2,059,000
in the corresponding period in 2002.
Working capital (current assets less current liabilities) and the corresponding
current ratio (current assets divided by current liabilities) were $791,868,000
and 3.8:1 at April 30, 2003 compared with $770,481,000 and 3.6:1 at January 31,
2003 and $675,781,000 and 3.2:1 at April 30, 2002.
Accounts receivable, less allowances at April 30, 2003 were 5% below January 31,
2003 (which is typically a seasonal high point) and were 6% higher than April
30, 2002 largely due to sales growth.
Inventories, net at April 30, 2003 were 5% above January 31, 2003 and 17% above
April 30, 2002. Finished goods inventories increased versus April 30, 2002 due
to: (i) new store openings; (ii) expanded product offerings; (iii) the
acquisition of Little Switzerland and the resulting consolidation of its
inventories ($42,000,000); and (iv) the translation effect of a weakening U.S.
dollar ($23,000,000). Higher raw material and work-in-process inventories were
necessary to support the expansion of internal manufacturing activities.
Management expects that inventory levels at the end of 2003 will be higher than
at the end of 2002 to support anticipated comparable store sales growth, new
stores, product introductions and the Company's expansion of its diamond
sourcing operations. The Company's ongoing inventory objectives are to continue
to refine: worldwide replenishment systems; the specialized disciplines of
product development, category management and sales demand forecasting;
presentation and management of inventory assortments in each store; and
warehouse management and supply-chain logistics.
Capital expenditures were $33,248,000 in the three months ended April 30, 2003,
compared with $32,133,000 in the 2002 period. Expenditures for full year 2003
are expected to be approximately $150,000,000, due to costs related to the
opening, renovation and expansion of stores and distribution facilities, as well
as ongoing investments in new systems; however, this will represent a decline of
approximately 30% from 2002 due to the full or partial completion of certain
major projects. In addition, in the third quarter of 2002, the Company acquired
the property housing its store on Old Bond Street in London and an adjacent
building in order to proceed with a renovation and reconfiguration of the
interior retail selling space. The cost to purchase the London buildings was
approximately $43,000,000 and construction is expected to commence in the second
half of 2003 and be completed in the first half of 2005.
- 17 -
In 2001, the Company commenced construction of its CFC that will fulfill direct
shipments to customers. Upon completion of the CFC, the Company's Parsippany,
New Jersey customer service/distribution center ("CSC") will be used primarily
to replenish retail store inventories. The CFC is scheduled to open in fall-2003
and the Company estimates that the overall cost of that project will be
approximately $108,000,000, of which $88,300,000 has been incurred to date.
In 2000, the Company began a five-year project to renovate and reconfigure its
New York flagship store in order to increase the total sales area by
approximately 25%, and to provide additional space for customer service,
customer hospitality and special exhibitions. A new second floor opened in 2001
to provide an expanded presentation of engagement and other jewelry. A new sixth
floor that houses the customer service department opened in 2002. In addition,
in conjunction with the New York store project, the Company relocated its
after-sales service functions to a new location and relocated several of its
administrative functions. The Company has spent $59,300,000 to date for the New
York store and related projects. Based on current plans, the Company estimates
that the overall cost of these projects will be approximately $100,000,000.
In July 2002, the Company, in a private transaction with various institutional
lenders, issued, at par, $40,000,000 of 6.15% Series C Senior Notes Due July 18,
2009 and $60,000,000 of 6.56% Series D Senior Notes Due July 18, 2012 with
seven-year and 10-year lump sum repayments upon maturities. The proceeds of
these issues are being, and will be, used by the Company for general corporate
purposes, including seasonal working capital and were used to redeem the
Company's $51,500,000 principal amount 7.52% Senior Notes which came due in
January 2003. The Note Purchase Agreements require maintenance of specific
financial covenants and ratios and limit certain changes to indebtedness and the
general nature of the business, in addition to other requirements customary to
such borrowings. Concurrently, the Company entered into an interest-rate swap
agreement to hedge the change in fair value of its fixed-rate obligation. Under
the swap agreement, the Company pays variable rate interest and receives fixed
interest-rate payments periodically over the life of the instrument. The Company
accounts for its interest-rate swap as a fair value hedge and, therefore,
recognizes gains or losses on the derivative instrument and the hedged item
attributable to the hedged risk in earnings in the current period. The terms of
the swap agreement match the terms of the underlying debt, thereby resulting in
no ineffectiveness.
In May 2001, the Company purchased 45% of Little Switzerland's outstanding
shares of common stock by means of a direct investment in newly-issued
unregistered shares at a cost of $9,546,000. The Company accounted for this
investment under the equity method based upon its ownership interest and its
significant influence. In 2001, the Company also provided Little Switzerland
with an interest-bearing loan in the amount of $2,500,000. The Company's equity
share of Little Switzerland's results from operations has been included in other
expense (income), net and amounted to a gain of $79,000 for the three months
ended April 30, 2002. In August 2002, a wholly-owned subsidiary of the Company
commenced a cash tender offer to acquire the remaining balance of the
outstanding shares of Little Switzerland's common stock at $2.40 per share. In
October 2002, the Company purchased and paid $27,530,000 for the shares
acquired, which, together with shares previously owned, represented 98% of the
outstanding shares of Little Switzerland. On November 20, 2002, the subsidiary
merged with and into Little Switzerland. The Company commenced the consolidation
of Little Switzerland's operations effective October 1, 2002, and the
interest-bearing loan provided to Little Switzerland in 2001 has been eliminated
in consolidation. The acquisition was accounted for in accordance with SFAS No.
141, "Business Combinations."
- 18 -
In 1999, the Company made a strategic investment in Aber Diamond Corporation
("Aber") by purchasing eight million unregistered shares of its common stock,
which represents 14.7% of Aber's outstanding shares, at a cost of $70,636,000.
Aber holds a 40% interest in the Diavik Diamonds Project in Canada's Northwest
Territories, an operation developed to mine diamonds. Production commenced in
the first quarter of 2003. In addition, the Company entered into a diamond
purchase agreement with Aber whereby the Company has the obligation to purchase,
subject to the Company's quality standards, a minimum of $50,000,000 of diamonds
per year for 10 years. It is expected that this commercial relationship will
enable the Company to secure a considerable portion of its future diamond needs.
The Company has established a facility in Antwerp, Belgium to handle the receipt
and sorting of diamonds and is in the process of establishing a facility in
Yellowknife, Canada to handle a portion of the subsequent cutting and polishing
operations.
The Board of Directors has authorized the Company's stock repurchase program,
which expires in November 2003. The program was initially authorized in November
1997 for the repurchase of up to $100,000,000 of the Company's Common Stock in
the open market over a three-year period. That authorization was superseded in
September 2000 by a further authorization of repurchases of up to $100,000,000
of the Company's Common Stock in the open market. The timing and actual number
of shares repurchased depend on a variety of factors such as price and other
market conditions. In the three months ended April 30, 2003, the Company
repurchased and retired 200,000 shares of Common Stock at a cost of $4,610,000,
or an average cost of $23.05 per share. At April 30, 2003, $16,500,000 of
purchase authority remained available for future share repurchases.
The Company's sources of working capital are internally-generated cash flows and
borrowings available under a multicurrency revolving credit facility ("Credit
Facility") and Little Switzerland's revolving and term loan credit facility
guaranteed by the Company ("LS Facility"). In November 2001, the Company
increased the borrowing limit under the Credit Facility from $160,000,000 to
$200,000,000 and the number of banks from five to six. All borrowings are at
interest rates based on a prime rate or LIBOR and are affected by local
borrowing conditions. The Credit Facility expires in November 2006. The LS
Facility allows Little Switzerland to borrow up to $10,000,000 at an interest
rate of 0.80% above LIBOR or a LIBOR Market Index. Both the LS Facility, which
expires in November 2005, and the Credit Facility contain covenants that require
maintenance of certain debt/equity and interest-coverage ratios, in addition to
other requirements customary to loan facilities of this nature.
Net-debt (short-term borrowings plus the current portion of long-term debt plus
long-term debt less cash and cash equivalents) and the corresponding ratio of
net-debt as a percentage of total capital (net-debt plus stockholders' equity)
were $232,316,000 and 16% at April 30, 2003, compared with $193,462,000 and 14%
at January 31, 2003 and $130,205,000 and 11% at April 30, 2002.
Based on the Company's financial position at April 30, 2003, management
anticipates that internally-generated cash flows and funds available under the
Credit Facility will be sufficient to support the Company's planned worldwide
business expansion and seasonal working capital increases that are typically
required during the third and fourth quarters of the year.
The Company's contractual cash obligations and commercial commitments at April
30, 2003 and the effects such obligations and commitments are expected to have
on the Company's liquidity and cash flows in future periods have not
significantly changed since January 31, 2003.
- 19 -
Market Risk
- -----------
The Company is exposed to market risk from fluctuations in foreign currency
exchange rates and interest rates, which could affect its consolidated financial
position, results of operations and cash flows. The Company manages its exposure
to market risk through its regular operating and financing activities and, when
deemed appropriate, through the use of derivative financial instruments. The
Company uses derivative financial instruments as risk management tools and not
for trading or speculative purposes, and does not maintain such instruments that
may expose the Company to significant market risk.
The Company uses foreign currency-purchased put options, primarily yen, and, to
a lesser extent, foreign-exchange forward contracts, to minimize the impact of a
strengthening of the U.S. dollar on foreign currency-denominated transactions.
Gains or losses on these instruments substantially offset losses or gains on the
assets, liabilities and transactions being hedged. Management does not foresee
nor expect any significant changes in foreign currency exposure in the near
future.
The fair value of the Company's fixed-rate long-term debt is sensitive to
interest rate changes. Interest rate changes would result in gains (losses) in
the market value of this debt due to differences between market interest rates
and rates at the inception of the debt obligation. In order to manage the
exposure to interest rate changes, the Company entered into an interest-rate
swap to offset a portion of the outstanding fixed rate debt.
The Company also uses an interest rate swap to manage its yen-denominated
floating-rate long-term debt in order to reduce the impact of interest rate
changes on earnings and cash flows and to lower overall borrowing costs.
Management neither foresees nor expects significant changes in exposure to
interest rate fluctuations, nor in market risk-management practices.
Seasonality
- -----------
As a jeweler and specialty retailer, the Company's business is seasonal in
nature, with the fourth quarter typically representing a proportionally greater
percentage of annual sales, earnings from operations and cash flow. Management
expects such seasonality to continue.
- 20 -
Risk Factors
- ------------
This document contains certain "forward-looking statements" concerning the
Company's objectives and expectations with respect to store openings, retail
prices, gross profit, expenses, inventory performance, capital expenditures and
cash flow. In addition, management makes other forward-looking statements from
time to time concerning objectives and expectations. As a jeweler and specialty
retailer, the Company's success in achieving its objectives and expectations is
partially dependent upon economic conditions, competitive developments and
consumer attitudes. However, certain assumptions are specific to the Company
and/or the markets in which it operates. The following assumptions, among
others, are "risk factors" which could affect the likelihood that the Company
will achieve the objectives and expectations communicated by management: (i)
that low or negative growth in the economy or in the financial markets,
particularly in the U.S. and Japan, will not occur and reduce discretionary
spending on goods that are, or are perceived to be, "luxuries"; (ii) that
consumer spending does not decline substantially during the fourth quarter of
any year; (iii) that unsettled regional and/or global conflicts or crises do not
result in military, terrorist or other conditions creating long- or short-term
disruptions or disincentives to, or changes in the pattern, practice or
frequency of tourist travel to the various regions where the Company operates
retail stores nor to the Company's continuing ability to operate in those
regions; (iv) that sales in Japan will not decline substantially; (v) that there
will not be a substantial adverse change in the exchange relationship between
the Japanese yen and the U.S. dollar; (vi) that Mitsukoshi and other department
store operators in Japan, in the face of declining or stagnant department store
sales, will not close or consolidate stores in which TIFFANY & CO. retail
locations are located; (vii) that Mitsukoshi's ability to continue as a leading
department store operator in Japan will continue; (viii) that existing product
supply arrangements, including license arrangements with third-party designers
Elsa Peretti and Paloma Picasso, will continue; (ix) that the wholesale market
for high-quality cut diamonds will provide continuity of supply and pricing; (x)
that the investment in Aber achieves its financial and strategic objectives;
(xi) that new systems, particularly for inventory management, can be
successfully integrated into the Company's operations; (xii) that warehousing
and distribution productivity and capacity can be further improved to support
the Company's worldwide distribution requirements; (xiii) that new and existing
stores and other sales locations can be leased, re-leased or otherwise obtained
on suitable terms in desired markets and that construction can be completed on a
timely basis; (xiv) that the Company can successfully improve the results of
Little Switzerland and achieve satisfactory results from any future ventures
into which it enters that are operated under non-TIFFANY & CO. trademarks or
trade names; and (xv) that the Company's expansion plans for retail and direct
selling operations and merchandise development, production and management can
continue to be executed without meaningfully diminishing the distinctive appeal
of the TIFFANY & CO. brand.
- 21 -
Part I. Financial Information
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Within 90 days before filing this report, an evaluation of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures was carried out by the Company under the
supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the date of their evaluation, the Company's
disclosure controls and procedures have been designed and are being
operated in a manner that provides reasonable assurance that the
information required to be disclosed by the Company in reports filed under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
The Company believes that a controls system, no matter how well designed
and operated, cannot provide absolute assurance that the objectives of the
controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.
(b) Changes in Internal Controls
Subsequent to the date of the most recent evaluation of the Company's
internal controls, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect the
internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
- 22 -
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
On February 26, 2003, Registrant filed a Report on Form 8-K reporting
the issuance of a press release reporting increases in sales and
earnings in its fourth quarter and full year ended January 31, 2003.
On March 24, 2003, Registrant filed a Report on Form 8-K reporting the
issuance of a press release announcing the election of Jon M. King to
the post of senior vice president - merchandising.
- 23 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIFFANY & CO.
(Registrant)
Date: June 11, 2003 By: /s/ James N. Fernandez
________________________________
James N. Fernandez
Executive Vice President and
Chief Financial Officer
(principal financial officer)
CERTIFICATIONS
I, Michael J. Kowalski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tiffany & Co.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
June 11, 2003 /s/ Michael J. Kowalski
_____________________________________
Michael J. Kowalski
President and Chief Executive Officer
I, James N. Fernandez, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tiffany & Co.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
June 11, 2003 /s/ James N. Fernandez
__________________________________________________
James N. Fernandez
Executive Vice President - Chief Financial Officer