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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended March 31, 1997.
[ ] 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 1-11226.
TOMMY HILFIGER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BRITISH VIRGIN ISLANDS NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
6/F, PRECIOUS INDUSTRIAL CENTRE
18 CHEUNG YUE STREET
CHEUNG SHA WAN
KOWLOON, HONG KONG NOT APPLICABLE
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 852-2745-7798
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
ORDINARY SHARES, $.01 PAR WHICH REGISTERED
VALUE PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(Title of class)
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowl-
edge, in definitive proxy or information statements incorpo-
rated by reference in Part III of this Form 10-K or any amend-
ment to this form 10-K. [X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant based upon the closing price on
June 2, 1997: Ordinary Shares, $.01 Par Value - $1,657,604,041
The number of shares outstanding of the registrant's stock as
of June 2, 1997: Ordinary Shares, $.01 Par Value - 37,249,529
shares.
TABLE OF CONTENTS
-----------------
ITEM PAGE
---------------------------------------------------------------
PART I
Item 1. Business.................................. 3
Item 2. Properties................................ 12
Item 3. Legal Proceedings......................... 12
Item 4. Submission of Matters to a Vote of
Security Holders........................ 13
PART II
Item 5. Market for Registrant's Common Equity
and Related Matters..................... 13
Item 6. Selected Financial Data................... 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 15
Item 8. Financial Statements and Supplementary
Data.................................... 20
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.............................. 21
PART III
Item 10. Directors and Executive Officers of
the Company............................. 21
Item 11. Executive Compensation.................... 24
Item 12. Security Ownership of Certain Beneficial
Owners and Management................... 30
Item 13. Certain Relationships and Related
Transactions............................ 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..................... 33
2
PART I
ITEM 1. BUSINESS
GENERAL
Tommy Hilfiger Corporation (the "Company"), through
its subsidiaries, designs, sources and markets designer men's
sportswear and boyswear, including woven shirts, knit shirts,
pants, swimwear, sweaters, outerwear and athletic wear. These
offerings are complemented by collections of men's tailored
clothing, dress shirts, denim products, neckwear, socks,
underwear, belts, small leather goods, sleepwear, robes,
golfwear, footwear, sunglasses, prescription eyewear, women's
casualwear and men's and women's fragrances, among others,
bearing the TOMMY HILFIGER [R] trademark, which are
produced and sold pursuant to certain licensing arrangements.
Tommy Hilfiger is the Company's principal designer and provides
leadership and direction for all aspects of the design process.
The Company's sportswear is designed to combine classic
American styling with unique details and fit to give time-
honored basics a fresh and updated look for customers who
desire high quality, designer clothes at competitive prices.
The Company was organized under the laws of the British Virgin
Islands in June 1992.
The Company's principal growth strategy has been to
expand its in-store shop program, whereby participating
retailers set aside floor space highlighted by distinctive
fixtures dedicated for the exclusive sale of the Company's
products by the retailer. The Company expects to continue to
pursue this strategy by increasing the number and size of its
in-store shops in the United States and internationally. In
the United States, the men's in-store shop program totaled
1,046 shops at March 31, 1997 compared with 866 shops at the
end of fiscal 1996. In addition, as of March 31, 1997 the
Company had established 1,069 fixtured areas in department
stores where its boyswear is sold compared with 872 at the end
of fiscal 1996. In addition, the Company continues its program
to expand certain existing shops.
In addition to continuing to expand the in-store shop
program, the Company plans to grow by broadening its range of
product offerings, both in-house and through licensing
arrangements, and by expanding its channels of distribution.
Through the expansion of its product lines, the Company
believes it will serve a wider variety of customer needs.
Since 1992, the Company has introduced several in-house
products, including boyswear, swimwear, athletic wear, caps and
bags. Additionally, the Company has introduced new products
through licensing agreements including, in fiscal 1997, a
women's fragrance pursuant to its license with Aramis, Inc., a
division of Estee Lauder Companies, prescription eyewear with
Liberty Optical, footwear with the Stride Rite Corporation and
women's casual wear marketed under a license with Pepe Jeans
London Corporation. See "Merchandising Strategies - Licensing
and Distributorships."
The Company is also pursuing several strategies to
expand its channels of distribution in the retail arena. As of
March 31, 1997, the Company operated 47 outlet stores and eight
specialty retail stores and currently plans to open
approximately eight additional outlet stores, as well as one
additional specialty retail store in London, England, by March
31, 1998. The Company also plans to open flagship stores in
Beverly Hills, California and London, England, by March 31,
1998 and March 31, 1999, respectively. See "Merchandising
Strategies - Retailing."
The Company is engaged in principally one industry
segment, the design, importation and distribution of men's
sportswear and childrenswear. Accordingly, no information is
being furnished herein or in the accompanying financial
statements relating to industry segments of the Company.
3
MERCHANDISING STRATEGIES
WHOLESALE
The Company's products, the majority of which are
manufactured of cotton and other natural fibers, are generally
pre-washed and generously sized to emphasize comfort and are
designed to allow consumers to blend items across its product
lines. The Company organizes its menswear and boyswear
collections into three primary product lines: Core, Core Plus
and Fashion. The boyswear line is available in boys' and young
men's sizes 4 through 20 and is being sold by the Company to
many of the same department and specialty store customers as
its menswear lines. In fiscal 1998, the Company plans to
introduce an infant and toddler line. This line is expected to
be available at retail for Holiday 1997.
Core
The Core line is comprised of the Company's
seasonless products or "basics", such as the pleated chino pant
and short, the solid knit polo shirt, the button-down oxford,
T-shirts and jackets, all in classic solid colors. Core items
are made available for sale by the Company throughout the year
and, therefore, generally are kept in stock by the Company.
Since Core items are seasonless, they do not have fixed selling
periods and, therefore, retailers' inventories of Core products
tend to be maintained throughout the year and reordered as
necessary. The Company receives orders from most of its larger
customers for Core products on an electronic data interchange
("EDI") system, which expedites reorders. See "Management
Information Systems."
Core Plus
The Core Plus line is comprised of a broad selection
of seasonal "basics" which are derived from Core but offer a
greater variety of fabrics, colors and patterns, such as
stripes and plaids. The Core Plus line also incorporates
certain Fashion products that had previously been successful at
retail. The Company sells four different seasonal groups of
Core Plus products each year. As compared to Fashion items,
Core Plus items provide the retailer with longer selling
periods at regular prices. Because Core Plus is a broader
product category than Fashion, with a longer regular-price
selling period, the Company's shipping deadlines are more
flexible and the Company may be able to place reorders when
demand is high.
Fashion
The Fashion line represents the most updated
component of the Company's product line. Fashion items consist
of a group of product classifications coordinated around a
seasonal theme selected by Tommy Hilfiger. The Company offers
Fashion products under at least three themes per season,
thereby creating a continual flow of new merchandise in the
marketplace.
LICENSING AND DISTRIBUTORSHIPS
In connection with the Company's business strategy of
expanding its market penetration through product line and
geographic expansion, the Company considers entering into
licensing and distribution agreements with respect to certain
products if the Company believes such arrangements provide more
effective manufacturing, distribution and marketing of such
products than could be achieved in-house. The Company
continually pursues new opportunities in product categories
which are believed to be complementary to its existing product
lines.
4
Product Licenses
Since Fall 1992, the Company has introduced several
product lines through license arrangements with companies which
are among industry leaders in their respective categories. In
addition to the women's fragrance, prescription eyewear,
footwear and women's casual wear, during 1997 the Company
signed a licensing agreement with Lantis Eyewear Corporation to
produce a complete line of men's sunglasses, which will be
introduced at retail during fiscal 1998.
The following table summarizes the Company's
significant product licensing and distributorship arrangements
in the United States as of March 31, 1997:
PRODUCTS PRODUCED UNDER THE
LICENSEE TOMMY HILFIGER [R] NAME
-------- ---------------------------
Mountain High Hosiery, Inc. Socks
Superba, Inc. Neckwear
Trafalgar, Inc. Belts and small
leather goods
Hart, Schaffner & Marx Men's suits, sport coats,
(a division of Hartmarx dress slacks, top coats,
Corporation) formal wear
Oxford Industries, Inc. Men's dress shirts
Jockey International, Inc. Men's underwear
Aramis, Inc. (a division of Fragrances
the Estee Lauder Companies.)
Russel-Newman, Inc. Robes, Sleepwear
Oxford Industries, Inc. Golfwear
Pepe Jeans London Corporation Men's, women's and girls'
jeanswear and jeans related
apparel (including women's
and girls' casual wear)
Liberty Optical Prescription eyewear
The Stride Rite Corporation Footwear
Lantis Eyewear Corporation Sunglasses
Subsequent to year-end, the Company signed a
licensing agreement with Revman Industries, Inc. to produce and
market a line of linens, bedding, bath products and related
accessories.
Each of the license arrangements described above is
an exclusive license, except for two such licenses which permit
the Company and/or certain of the Company's licensees and
certain distributors of the Company's products to continue
distributing certain products that overlap with products
covered by the licenses. The Company does not believe that
termination of any individual license arrangement would be
material to the Company.
5
Geographic Licenses and Distributorships
In July 1991, the Company granted an exclusive
license to an affiliate of a director of the Company and the
Chief Executive Officer of Tommy Hilfiger (HK) Limited
("THHK"), a subsidiary of the Company, to sell the Company's
products in Canada. The term of the agreement is 10 years and
is renewable at the option of the licensee subject to specified
volume limitations and other conditions. In addition, the
Company has granted an exclusive distributorship to an
unaffiliated Panamanian company to distribute the Company's
products in Central America, Venezuela, Columbia, Chile,
Ecuador and most of the nations of the Caribbean basin. The
Company also granted to an unaffiliated third party the right
to designate a licensee to sell the Company's products in
India.
In May 1995, the Company granted an exclusive
distributorship to an unaffiliated Mexican company to
distribute the Company's products in Mexico. The term of the
agreement is three years and is renewable at the option of the
licensee subject to certain limitations.
Effective July 1, 1996, the Company entered into an
exclusive license agreement for Japan with Novel-ITC Licensing
Limited, a related party. The term of this agreement is 4.5
years and is renewable at the option of the licensee subject to
certain conditions.
Effective February 1, 1997, the Company entered into
a licensing agreement with Pepe Jeans London Corporation to
distribute the Company's men's and boys' sportswear (excluding
jeanswear and jeans related apparel) throughout the European
market. The term of this agreement is five years and is
renewable at the option of the licensee subject to certain
conditions.
All of the Company's licensees and distributors are
required to contribute to the advertisement and promotion of
TOMMY HILFIGER [R] products a percentage of their net sales
of TOMMY HILFIGER [R] products or a percentage of their net
purchases of TOMMY HILFIGER [R] products (depending on the
terms of the license or distributorship agreement), subject to
minimum amounts.
RETAILING
The Company is pursuing several strategies to expand
its channels of distribution in the retail arena.
The Company believes its outlet strategy has
positioned it to take advantage of an expanding segment of the
retail apparel industry that appeals to customers' increasing
value orientation and provides the Company with an additional
channel of distribution and better control over the sale of its
inventory. The Company stocks its outlet stores with a mixture
of out-of-season products as well as first-quality products
manufactured specifically for its outlet stores' customers. As
of March 31, 1997 the Company operated 47 outlet stores and
currently plans to open approximately eight additional outlet
stores by March 31, 1998. The Company's outlet stores are
located primarily in major outlet centers in the United States.
The TOMMY HILFIGER [R] specialty retail stores
enable the Company to reach consumers who prefer the
environment of a specialty store. The Company believes that
these stores, which serve as a showcase for both the sportswear
and certain licensed product lines, will complement its
wholesale business by increasing brand awareness. As of March
31, 1997, the Company operated eight specialty retail stores.
In fiscal 1997, the Company signed a lease agreement for a
specialty store in London, England. This store is expected to
open in fiscal 1998. As a result of the shop expansion
program, the Company has refined its specialty retail strategy.
These shops are the Company's vision for specialty retailing in
malls, therefore, the Company does not plan to expand its
existing base of specialty retail stores. See "Properties".
6
During fiscal 1996, the Company signed a lease for
the first TOMMY HILFIGER [R] Flagship store, located on
Rodeo Drive in Beverly Hills, California. During fiscal 1997,
the Company signed an agreement for the lease of a TOMMY
HILFIGER [R] Flagship store in London, England. These
stores, which are expected to open in fiscal 1998 and fiscal
1999, respectively, will serve as showcases for all of the
Company's products as it seeks to propel the brand into the
elite circle of designers with international recognition. This
investment underlines the Company's strong belief in the role
of flagships as image builders. These stores are planned to be
followed by flagships in key markets such as New York City.
DESIGN
Tommy Hilfiger is the Company's principal designer
and provides leadership and direction for all aspects of the
design process. Tommy Hilfiger selects designers on the basis
of their understanding of the retail industry and their ability
to understand what consumers desire and which designs are most
likely to be commercially viable. Design teams, which are
typically comprised of a designer and assistant designer, are
responsible for separate product classifications. In addition,
the Company has a senior designer, whose responsibility is to
coordinate the design teams. Design teams utilize computer
aided designs, which provide timely translation of designs into
sample depictions varying in color, cut and style, the speed of
production and breadth of the resulting output assist the
Company in selecting desirable designs for the sourcing and
research and development staffs to assess.
RESEARCH AND DEVELOPMENT
The Company employs a senior production executive who
oversees a staff whose primary functions are to identify ways
to develop new designs and products more efficiently, and to
identify new and more cost-effective sourcing methods. This
group receives new product direction from Tommy Hilfiger and
then researches and develops the potential product. This
process is designed to avoid costly attempts to develop
products that require designs or production methods that are
not efficient. In addition, the staff researches and
identifies new sources for both fabrics and manufacturing
worldwide in order to control or reduce manufacturing costs
while maintaining the Company's quality standards.
SALES AND MARKETING
TOMMY HILFIGER [R] products are sold in over
2,000 department and specialty retail store locations. The
Company's department store customers include major United
States retailers such as Dillard Department Stores, Federated
Department Stores (including Macy's, Bloomingdale's, and
Burdines), The May Department Stores Company (including Lord &
Taylor and Foley's), Belk Stores and Dayton Hudson. The
Company believes that its relationships with major retailers,
including the active sales involvement of the Company's senior
management, are important elements of its marketing strategy.
The Company's strategy is to continue to grow by broadening its
United States in-store shop program, expanding its product
lines and marketing to new customers both in the United States
and internationally.
A significant aspect of the Company's ability to
increase the commitment of its existing customers and to
attract new customers is its in-store shop program, whereby
participating retailers set aside floor space highlighted by
distinctive fixtures dedicated for exclusive sale of the
Company's products by the retailer. This program enables the
retailer to create an environment consistent with the Company's
image and to display and stock a greater volume of the
Company's products per square foot of retail space. Such shops
encourage longer term commitment by the retailer to the
Company's products, including the retailer's provision of
upgraded staffing. These shops also increase consumer product
recognition and loyalty because of the retail customer's
familiarity with the location of the Company's products in the
store. A program of installing distinctive fixtures in certain
department stores which carry the boyswear line was implemented
in fiscal 1994. The continued expansion of the Company's in-
store shop
7
and fixturing programs is dependent on market conditions,
including continued demand for the Company's products.
The Company's sales and marketing departments have
individuals located in the Company's New York headquarters,
Atlanta and Dallas showrooms and Los Angeles, Chicago,
Philadelphia, San Francisco and Cincinnati regional sales
territories. The sales force sells only the TOMMY HILFIGER
[R] collection.
The Company employs a staff of approximately 120
merchandise coordinators located throughout the United States.
These merchandisers educate the retailers' salespeople about
the Company's current products, provide the Company with first-
hand consumer feedback concerning consumer reaction to the
Company's products and coordinate the in-store displays with
the department stores. In addition to the coordinator program,
the Company also conducts a training program for the department
stores' TOMMY HILFIGER [R] selling specialists. The program is
designed to educate specialists on the Company's image and
merchandising standards and to promote the development and
servicing of clientele. The program educates specialists in
customer assistance and advice, including merchandise selection
and the coordination of complete outfits of TOMMY HILFIGER [R]
products. Over 1,000 specialists have completed the program.
The Company sells substantially all its out-of-season
products, which are principally from the Fashion and Core Plus
product lines, to certain discount retailers and through its
Company owned outlet stores. The net revenues from such sales
represented less than 15% of the Company's net revenue for each
of the last three fiscal years.
ADVERTISING, PUBLIC RELATIONS AND PROMOTION
The Company believes that advertising to promote and
enhance the TOMMY HILFIGER [R] brand and the image of TOMMY
HILFIGER [R] products is important to its long- term growth
strategy. All of the Company's licensees and distributors are
required to contribute to the advertisement and promotion of
TOMMY HILFIGER [R] products a percentage of their net sales of
TOMMY HILFIGER [R] products or a percentage of their net
purchases of TOMMY HILFIGER [R] products (depending on the
terms of the license or distributorship agreement), subject to
minimum amounts. Advertising by the Company, its licensees
and most of its distributors is coordinated by the Company and
principally appears in magazines, newspapers, and outdoor
advertising media. In addition, selected personal appearances
by Tommy Hilfiger, corporate sponsorships and charitable
programs are utilized to further enhance awareness of the
Company's image and promote the Company's products. The
Company employs an advertising and public relations staff to
implement these efforts.
SOURCING
The Company's sourcing strategy is to contract for
the manufacture of its products. Outsourcing allows the
Company to maximize production flexibility while avoiding
significant capital expenditures, work-in-process inventory
buildups and the costs of managing a large production work
force. The Company inspects products manufactured by
contractors to determine whether they meet the Company's
standards. See "Quality Control."
The Company imports most of its finished goods
because it believes it can import higher quality products at
lower costs. Management maintains extensive and long-term
relationships with leading manufacturers in the Far East,
including manufacturers located in Indonesia, Thailand and
Taiwan, among other countries. The Company monitors duty,
tariff and quota-related developments and continually seeks to
minimize its potential exposure to duty, tariff and quota-
related risks through, among other measures, geographical
diversification of its manufacturing sources, the maintenance
of its buying offices in Hong Kong, Macau, Singapore and India,
allocation of production to
8
merchandise categories where more quota is available and shifts
of production among countries and manufacturers.
The Company's production and sourcing staff oversees
all aspects of apparel manufacturing and production, the
negotiation for raw materials and research and development of
new products and sources. The Company operates buying offices
based in Hong Kong, Macau, Singapore and India, as well as the
United States which perform product development, sourcing,
production scheduling and quality control. In addition, the
Company contracts with various buying subagents and perform
similar services for the Company's licensees and distributors
in Canada, Mexico, Japan and Panama, which services Central and
South America, for specified commissions.
The Company has its products manufactured according
to plans prepared each year which reflect prior years'
experience, current fashion trends, economic conditions and
management estimates of a line's performance. The Company
separately negotiates with suppliers for the sale of required
raw materials which are then purchased by its contractors in
accordance with the Company's specifications. The Company
limits its exposure to holding excess inventory by committing
to purchase a portion of total projected demand and the
Company, in its experience, has been able to satisfy its excess
demand through reorders. The Company believes that its policy
of limiting its commitments for purchases early in the season
reduces its exposure to excess inventory and obsolescence.
The Company does not have long-term formal
arrangements with any of its suppliers; however, the Company
has experienced only limited difficulty in satisfying its raw
material and finished goods requirements. Although the loss of
such suppliers could have a significant effect on the Company's
immediate operating results, the Company believes it could
replace such suppliers without a material adverse effect on the
Company.
The Company has its executive offices in Hong Kong
and its principal buying offices in Hong Kong and Macau. Hong
Kong is presently a British Crown Colony, but sovereignty over
Hong Kong will be transferred effective July 1, 1997 from the
United Kingdom to the People's Republic of China ("China").
Macau is presently a Portuguese colony, but sovereignty over
Macau will be transferred effective January 1, 1999 from the
Republic of Portugal to China. If Hong Kong or Macau were to
impose income or withholding taxes on the Company or in the
event of an adverse change in their business climate, the
Company believes it could relocate its executive and principal
buying offices without a material adverse effect on the
Company.
QUALITY CONTROL
The Company's quality control program is designed to
ensure that purchased goods meet the Company's standards. The
Company inspects prototypes of each product prior to cutting by
the contractors and performs two in-line inspections and a
final inspection prior to shipment. All finished goods are
shipped to the Company's New Jersey facilities for re-
inspection and distribution. While the Company's return policy
permits customers to return defective products for credit, less
than 1% of the Company's shipments in fiscal 1997 were returned
as defective under this policy.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that high levels of automation
and technology are essential to maintain its competitive
position and the Company continues to invest in computer
hardware, systems applications and networks to enhance and to
speed the apparel design process, to support the sale and
distribution of products to its customers and to improve the
integration and efficiency of its United States and Far East
operations. The Company utilizes computer-aided design
stations for use by Tommy Hilfiger and his design teams, which
provide timely translations of designs into sample depiction's
varying in color, cut and style. The Company also uses an EDI
system to receive on-line orders from its customers and to
accumulate sales information on its
9
products. The EDI technology enables the Company to provide
valuable sales information and inventory maintenance
information services to its customers who have adopted such
technology. Nine of the Company's 10 largest customers
communicate with the Company through EDI technology.
DISTRIBUTION
Wholesale distribution is centralized in a 360,000
square foot New Jersey facility to which all products are
shipped. The facility is operated and principally staffed by
an independent contractor who charges the Company on the basis
of the number of items processed, subject to a minimum annual
fee. The Company has the right, at any time during the
contract period, to terminate the distribution agreement by
making a specified payment. In addition, the Company leases a
200,000 square foot facility in New Jersey for retail
distribution. The Company maintains its distribution
management group and certain administrative functions at its
New Jersey facilities. The Company believes that these
distribution facilities are adequate for the Company's current
level of sales, and provide the Company with enough space and
flexibility to support the continued growth of the Company's
business.
CREDIT AND COLLECTION
The Company collects substantially all of its
receivables through a credit company pursuant to an agreement
whereby the credit company pays the Company after the credit
company receives payment from the Company's customer. If the
customer becomes bankrupt or insolvent or the receivable
becomes 120 days past due, the credit company pays the Company
50% of the outstanding receivable. The credit company
establishes maximum credit limits for each customer account.
Substantially all accounts receivable are pledged as collateral
under a bank financing agreement.
Despite the bankruptcy of several large retailers in
recent years, the Company has not experienced any increase in
its bad debts. Bad debts as a percentage of net sales were
less than 0.1% in fiscal 1997.
On April 8, 1997, the Company amended and extended
the terms of the agreement with the credit company. Under the
new terms, in exchange for a reduction of the fees charged by
the credit company, the term of the agreement was extended to
March 2001.
TRADEMARKS
The Company utilizes four principal registered
trademarks which it owns: the name TOMMY HILFIGER [R],
the Company's distinctive flag logo, the crest and the green
eyelet the Company uses on certain of its products. Tommy
Hilfiger Licensing, Inc. ("THLI"), a subsidiary of Tommy
Hilfiger U.S.A. Inc. ("TH USA") which is a subsidiary of the
Company, has registered these trademarks for use in the United
States and has registered or applied for registration of these
trademarks in numerous countries in North America, Europe,
Asia, South America and elsewhere. The Company regards its
trademarks and other proprietary rights as valuable assets in
the marketing of its products. THLI is a party to an agreement
with Mr. Hilfiger that restricts the sale, lease, license or
other conveyance of THLI's trademarks, the amendment of the
license agreement between THLI and TH USA or the creation of
any lien on THLI trademarks without Mr. Hilfiger's consent
until Mr. Hilfiger's death or his termination of employment
with TH USA without the consent of TH USA.
BACKLOG
The Company generally receives orders approximately
three to five months prior to the time the products are
delivered to stores. Thus, the Company's backlog of orders,
which the Company believes, based on industry practice and past
experience, will result
10
in sales, at March 31, 1997 represents a significant portion of
the Company's expected sales through September 30, 1997. At
March 31, 1997, the Company's backlog of orders was
approximately $283 million, compared to approximately $216
million at March 31, 1996. The Company's backlog depends upon
a number of factors, including the timing of "market weeks"
during which a significant percentage of the Company's orders
are received and the timing of shipments. Accordingly, a
comparison of backlog from period to period is not necessarily
meaningful and may not be indicative of eventual actual
shipments.
SEASONALITY; UNCERTAINTIES IN APPAREL RETAILING
The Company's business is impacted by the general
seasonal trends that are characteristic of many companies in
the apparel industry in which sales and profits are highest in
the fourth calendar quarter. However, due primarily to the
significant growth that the Company has experienced, quarterly
sales and profit trends and working capital requirements did
not reflect the normal apparel industry seasonality. In future
years, the Company expects its seasonal sales and profits will
more closely reflect typical apparel and retail industry trends
than they have in the past.
The apparel industry historically has been subject to
substantial cyclical variations. Although the Company's recent
results have not been substantially impacted by such
variations, a recession in the general economy or uncertainties
regarding future economic prospects that effect consumer
spending habits could have a material effect on the Company's
results of operations.
COMPETITION
The men's sportswear segment of the apparel industry
is highly competitive. Specifically, the Company encounters
substantial competition in the designer men's sportswear
business, including competition from Polo/Ralph Lauren,
Nautica, Perry Ellis, Calvin Klein and Claiborne, as well as
from certain non-designer lines. Some of the Company's
competitors are significantly larger and more diversified, and
have substantially greater resources, than the Company. The
Company competes primarily on the basis of fashion, price,
quality and service. The Company believes its competitive
position depends upon its ability to anticipate and respond
effectively to changing consumer demands and to offer fashion
conscious customers a wide variety of high quality apparel at
competitive prices.
The boyswear segment of the apparel industry is also
highly competitive. The Company's competition in this market
is primarily Polo/Ralph Lauren and certain non-designer lines.
Consistent with its menswear product lines, the Company
competes in the boyswear segment primarily on the basis of
fashion, price, quality and service and believes that its
competitive position depends upon its ability to anticipate and
respond effectively to changing consumer demands.
DEPENDENCE ON CUSTOMERS UNDER COMMON CONTROL
The Company's department store customers include
major United States retailers, certain of which are under
common ownership. When considered together as a group under
common ownership, sales to the department store customers which
were owned by Federated Department Stores, Dillard Department
Stores, and The May Department Stores Company accounted for
approximately 23%, 21%, and 16%, respectively, of fiscal 1997
net wholesale product sales. A decision by the controlling
owner of a group of department stores to decrease the amount
purchased from the Company or to cease carrying the Company's
products could adversely affect the Company.
11
EMPLOYEES
At March 31, 1997, the Company had approximately
1,130 full-time employees and 440 part-time employees.
Virtually all of the Company's part-time employees were
employed in the Company's specialty retail and outlet stores.
None of the Company's employees is a member of a union. The
Company considers its relations with its employees to be
excellent.
ITEM 2. PROPERTIES
The principal executive offices of the Company are
located at 6/F, Precious Industrial Centre, 18 Cheung Yue
Street, Cheung Sha Wan, Kowloon, Hong Kong. TH USA's principal
executive offices are located at 25 West 39th Street, New York,
New York 10018.
The general location, use and approximate size of the
principal properties which the Company currently occupies, all
of which were leased as of March 31, 1997, except for the Hong
Kong office space and a New York property which houses the
Company's executive offices and its primary sales, marketing
and licensing offices and its main sales and licensees'
showrooms, are set forth below:
Approximate
Area in Square
Location Use Feet
-------- --- ----------------
Hong Kong Executive offices and
principal buying office 20,000
New York, New York TH USA headquarters and
sales offices 186,000
Edison, New Jersey(1) Administrative offices 19,000
South Brunswick, Warehouse distribution and
New Jersey administrative offices 360,000
(1)The Company's warehouse space in Edison, New Jersey, which
is maintained, operated and principally staffed by an
independent contractor, is not included in the square footage
description.
The Company operates 47 outlet stores, each averaging
approximately 3,300 square feet, generally located in major
outlet centers in the U.S., and the Company operates eight
retail stores in metropolitan areas, each averaging
approximately 3,800 square feet. The Company has entered into
lease agreements for future stores of 20,000 square feet in
Beverly Hills, California and 18,000 and 2,600 square feet,
respectively, for two stores in London, England. In addition,
the Company has two regional showrooms outside of New York
City. All of such stores and showrooms are leased.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to
time involved in routine legal matters incidental to their
businesses. In the opinion of the Company's management, the
resolution of these matters will not have a material effect
on its financial position or its results of operations.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
MATTERS
The Company's Ordinary Shares, par value U.S. $0.01,
are listed and traded on the New York Stock Exchange under the
symbol "TOM." As of June 2, 1997, there were approximately 642
record holders of the outstanding Ordinary Shares.
The following table sets forth, for each of the
periods indicated, the high and low sales prices per Ordinary
Share as reported on the New York Stock Exchange Composite
Tape.
High Low
---- ---
Fiscal Year ended March 31, 1997
First Quarter.............................. 55 7/8 41 1/2
Second Quarter............................. 59 3/8 41 3/4
Third Quarter.............................. 61 1/8 44 1/8
Fourth Quarter............................. 59 1/8 42 1/2
Fiscal Year ended March 31, 1996
First Quarter.............................. 29 1/8 20 5/8
Second Quarter............................. 37 7/8 27 1/8
Third Quarter.............................. 45 3/4 29 5/8
Fourth Quarter............................. 48 32 5/8
In the past two fiscal years, the Company has not
paid any dividends. The Company anticipates that all of its
earnings in the foreseeable future will be retained for the
development and expansion of its business and, therefore, has
no current plans to pay cash dividends. Future dividend policy
will depend on the Company's earnings, capital requirements,
financial condition, restrictions imposed by the Company's
credit agreement, availability of dividends, receipt of funds
in connection with repayment of loans to subsidiaries or
advances from operating subsidiaries and other factors
considered relevant by the Board of Directors of the Company.
For certain restrictions on the Company's ability to pay
dividends, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources" in Item 7.
13
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data have been
derived from the Company's Consolidated Financial Statements.
The information should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto
that appear elsewhere in this Annual Report and Management's
Discussion and Analysis of Financial Condition and Results of
Operations set forth in Item 7.
Fiscal Year Ended March 31,
--------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statement of Operations Data:
----------------------------
Net revenue......................... $661,688 $478,131 $320,985 $227,201 $138,638
Cost of goods sold.................. 344,884 258,419 174,584 127,053 81,502
-------- -------- -------- -------- --------
Gross profit........................ 316,804 219,712 146,401 100,148 57,136
Selling, general and
administrative expenses........... 190,976 132,270 85,954 58,702 33,156
-------- -------- -------- -------- --------
Income from operations.............. 125,828 87,442 60,447 41,446 23,980
Interest expense.................... 761 754 207 317 1,348
Investment income................... (6,181) (5,712) (3,217) (637) (219)
-------- -------- -------- -------- --------
Income before income taxes and
minority interest................. 131,248 92,400 63,457 41,766 22,851
Provision for income taxes.......... 44,866 30,900 22,742 16,422 8,220
Minority interest in
subsidiary (1).................... -- -- -- -- 25
-------- -------- -------- -------- --------
Net income.......................... $86,382 $61,500 $40,715 $25,344 $14,606
======== ======== ======== ======== ========
Net income per share
and share equivalents............. $2.28 $1.65 $1.12 $.77 $.55
===== ===== ===== ===== =====
Weighted average shares and share
equivalents outstanding........... 37,885 37,241 36,346 32,836 26,394
======== ======= ======== ======== ========
As of March 31,
---------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
------------------
Cash, cash equivalents and
short-term investments........... $109,908 $127,743 $86,031 $50,867 $18,671
Working capital.................... 270,667 238,439 165,261 110,589 53,748
Total assets....................... 463,085 358,622 239,493 190,378 84,704
Short-term borrowings.............. 5,980 13,755 13,487 10,319 8,068
Long-term debt..................... 1,510 1,789 2,064 2,341 --
Shareholders' equity............... 397,464 301,338 209,024 161,715 68,700
(1)Amounts represent dividends declared on Tommy Hilfiger,
Inc.'s 10% cumulative preferred stock held by an affiliate of
the Company. No dividends have been declared on the Ordinary
Shares.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
All references to years relate to the fiscal year
ended March 31 of such year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods
indicated, the percentage relationship to net revenue of
certain items in the Company's consolidated statements of
operations:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Net revenue..................... 100.0% 100.0% 100.0%
Cost of goods sold.............. 52.1 54.0 54.4
----- ----- -----
Gross profit.................... 47.9 46.0 45.6
Selling, general and
administrative expenses....... 28.9 27.7 26.8
---- ---- ----
Income from operations.......... 19.0 18.3 18.8
Interest expense................ 0.1 0.2 --
Investment income............... 0.9 1.2 1.0
---- ---- ----
Income before income taxes...... 19.8 19.3 19.8
Provision for income taxes...... 6.7 6.4 7.1
---- ---- ----
Net income...................... 13.1% 12.9% 12.7%
==== ==== ====
Year Ended March 31, 1997 Compared to Year Ended March 31, 1996
The Company's net income increased to $86,382,000, or
$2.28 per share, in 1997 from $61,500,000, or $1.65 per share,
in 1996. This represents an improvement of $24,882,000 or
40.5%. As a percentage of net revenue, net income increased to
13.1% in 1997 from 12.9% in 1996.
Net revenue increased 38.4% to $661,688,000 in 1997
from $478,131,000 in 1996. This increase is a result of
improvements in each of the Company's wholesale, retail, and
licensing and buying agency divisions, as outlined below.
Wholesale net revenue increased to $479,307,000 in
1997 from $381,239,000 in 1996, an improvement of 25.7%. This
improvement includes a 23.9% increase in menswear wholesale
sales, to $405,319,000 in 1997 from $327,189,000 in 1996, and a
36.9% increase in boyswear wholesale sales, to $73,988,000 in
1997 from $54,050,000 in 1996. These increases were primarily
due to volume increases as a result of increased sales to
existing customers, opening new in-store shops and fixtured
areas, and the expansion of certain existing shops. The number
of men's in-store shops increased to 1,046 at March 31, 1997
from 866 at March 31, 1996 while the number of boyswear
fixtured areas increased to 1,069 at March 31, 1997 from 872 at
March 31, 1996. In addition to the volume increase, the change
in product mix of the Company's wholesale sales resulted in a
higher average unit selling price. Of the total wholesale
sales increase, approximately 67% was due to volume and
approximately 33% was due to the increased average unit selling
price.
Net revenue in the Company's retail division
increased 81.6% to $149,312,000 in 1997 from $82,212,000 in
1996. This improvement was due to an increase in the number of
stores open as well as increased sales at existing stores. Of
the total increase of $67,100,000, $31,503,000 was attributable
to new retail stores opened during 1997. The total number of
retail stores open as of March 31, 1997 and 1996 was 55 and 44,
respectively.
15
Net revenue from licensing royalties and buying
agency commissions increased 125.3% to $33,069,000 in 1997 from
$14,680,000 in 1996. This increase reflects the incremental
revenue associated with newly licensed products and a general
increase in sales from existing licensees and buying agency
services. Of this increase, approximately 35% was due to
products introduced under new licenses in 1997 while the
balance was due to licenses existing as of March 31, 1996.
Gross profit improved to 47.9% of net revenue in 1997
from 46.0% of net revenue in 1996. This increase was
attributable to the increases in retail operations and
royalties and buying agency commissions, each of which had
higher percentage revenue increases, and which produce higher
margins, than wholesale operations. In addition, wholesale
margins have increased due primarily to the change in mix of
products sold.
Selling, general and administrative expenses
increased as a percentage of net revenue to 28.9% in 1997 from
27.7% in 1996. The increased percentage was due to an increase
in marketing and advertising expense to promote and enhance the
brand name and the image of the Company's products. Selling,
general and administrative expenses increased to $190,976,000
in 1997 from $132,270,000 in 1996. This increase was
principally due to increased volume-related expenses to support
the higher revenue and the increased marketing and advertising
expenses mentioned above.
The provision for taxes increased to 34.2% of income
before taxes in 1997 from 33.4% in 1996. This increase was
primarily attributable to the relative level of earnings in the
various taxing jurisdictions to which the Company's earnings
are subject.
Year Ended March 31, 1996 Compared to Year Ended March 31, 1995
Net income for 1996 improved to $61,500,000, or $1.65
per share, from $40,715,000, or $1.12 per share, in 1995. This
represented an increase of $20,785,000 or 51.0%. In addition,
net income as a percentage of net revenue increased to 12.9% in
1996 from 12.7% in 1995.
The Company's net revenue for 1996 increased to
$478,131,000, compared to $320,985,000 in 1995. This
improvement of 49.0% reflects the increased demand for the
Company's products. Substantially all of the wholesale sales
increase was due to volume increases, which in turn were
primarily the result of the continuing expansion of the in-
store shop program. The number of men's in-store shops
increased to 866 at March 31, 1996 from 658 at March 31, 1995
and the number of boyswear fixtured areas increased to 872 at
March 31, 1996 from 486 at March 31, 1995. Increased sales to
existing and new customers and new store locations also
contributed to the wholesale sales increase. Menswear
wholesale sales improved $72,312,000 or 28.4% from $254,877,000
in 1995 to $327,189,000 in 1996 while boyswear wholesale sales
improved $21,815,000 or 67.7% from $32,235,000 in 1995 to
$54,050,000 in 1996.
The Company's retail division also contributed to the
increased revenue level. Retail revenue increased $54,666,000
or 198.5% from $27,546,000 in 1995 to $82,212,000 in 1996.
This increase was due to the addition of 18 new stores during
1996 as well as increased revenue in existing stores. Of the
total increase, $22,645,000 was attributable to new retail
stores opened in 1996. At March 31, 1996, a total of 44 stores
were open.
Net revenue from licensing royalties and buying
agency commissions increased 132.0% from $6,327,000 in 1995 to
$14,680,000 in 1996. This improvement principally resulted
from an increase in sales of existing licensed products as well
as the introduction of several new licensed products, including
a men's fragrance, robes and sleepwear, and golfwear. Of this
increase, approximately 37% was due to products introduced
under new licenses in 1996 while the balance was due to
licenses existing as of March 31, 1995.
Gross profit as a percentage of net revenue increased
from 45.6% in 1995 to 46.0% in 1996. This increase was
primarily attributable to the relative increase in retail
operations and royalties and buying agency commissions, all of
which produce higher margins than wholesale operations.
Offsetting this increase was a decrease in wholesale margins
which was principally the
16
result of an increase in the relative level of boyswear
products which generally produce lower margins than menswear,
the mix of products and an overall increase in product costs.
Selling, general and administrative expenses
increased to $132,270,000 in 1996 from $85,954,000 in 1995.
This increase was primarily attributable to increased volume
related expenses necessary to support the increase in revenue
of the Company's wholesale and retail operations. In addition,
depreciation and amortization increased due to the greater
number of in-store shops. As a percentage of net revenue,
selling, general and administrative expenses increased to 27.7%
from 26.8% due to the continued expansion of the Company's
retail division, which operates at a higher cost structure than
its wholesale operations, and a one time charge of $2,350,000
taken by the Company to reflect the current cost of a
consulting agreement with a former executive.
The provision for income taxes decreased to 33.4% of
income before taxes in 1996 from 35.8% in 1995. The decrease
was primarily attributable to the relative level of earnings in
various taxing jurisdictions to which the Company's earnings
are subject.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary funding requirements are to
finance working capital and the continued growth of the
business. This includes primarily the purchase of inventory in
anticipation of increased sales of the wholesale and retail
divisions as well as capital expenditures related to the
expansion of the menswear in-store shop and boyswear fixtured
area programs and additional retail stores. The Company's
sources of liquidity are cash on hand, cash from operations and
the Company's available credit.
The Company's cash and cash equivalents balance has
decreased from $127,743,000 at March 31, 1996 to $109,908,000
at March 31, 1997. The principal reason for this decrease is
capital expenditures, including the Company's purchase of the
property which houses its executive offices along with its
primary sales, marketing and licensing offices and its main
sales and licensees' showrooms for approximately $25,875,000,
offset in part, by cash provided by operations.
Net cash provided by operating activities in 1997 was
$64,435,000, an increase of $24,776,000 over the 1996 amount of
$39,659,000. The primary factor that contributed to this
increase was the increase in net income before depreciation and
amortization offset, in part, by an increase in working
capital. The increase in working capital was principally due
to a higher inventory level which is the result of a planned
build-up in anticipation of the summer and fall seasons of
fiscal 1998 and the increased retail division inventory due to
the greater number of stores, as well as an increase in Core
inventory to meet the demands of the Company's replenishment
business. Inventory increased from $81,428,000 at March 31,
1996 to $123,847,000 at March 31, 1997, an increase of
$42,419,000 or 52.1%.
Capital expenditures were $83,960,000 in 1997,
compared with $28,694,000 in 1996. The increase in capital
expenditures was primarily related to the purchase of the
property mentioned above as well as the expansion of the
Company's in-store shop and fixtured area programs. The
Company has continued to install new in-store shops and
fixtured areas, as well as expand several shops which were
previously open. The Company installed 377 menswear in-store
shops and boyswear fixtured areas during 1997 and 594 menswear
in-store shops and boyswear fixtured areas during 1996.
Additionally, the Company opened 11 outlet stores in 1997.
In July 1996, the Company entered into an amended and
restated revolving credit agreement (the "Credit Agreement")
effective April 1, 1996. The Credit Agreement, which expires
in June 1999, provides for direct borrowings, bankers
acceptances and letters of credit of amounts ranging from
$100,000,000 in fiscal 1997 to $150,000,000 in fiscal 1999.
Available borrowings are subject to the timed increase of
availability under the Credit Agreement and are based upon
eligible accounts receivable, inventory and open letters of
credit. As of March 31, 1997, $100,000,000 was available for
utilization under the Credit Agreement, of which
17
$66,822,000 had been used to open letters of credit.
Obligations under the Credit Agreement are collateralized by
substantially all the assets of the Company's U.S. operations.
Direct borrowings under the Credit Agreement, which are limited
to $60,000,000, accrue interest at varying interest rates.
At March 31, 1997, total short-term borrowings of
$5,980,000 consisted of open letters of credit for inventory
purchased of $5,705,000 and the current portion of mortgage
debt payable of $275,000. Additionally, at March 31, 1997, TH
USA was contingently liable for unexpired bank letters of
credit of $61,117,000 related to commitments of TH USA to
suppliers for the purchase of inventories and leases.
The Credit Agreement contains various covenants.
Among other matters, the Credit Agreement includes certain
restrictions upon capital expenditures, investments,
indebtedness, loans and advances and transactions with related
parties. In addition, the Credit Agreement prohibits certain
of the Company's operating subsidiaries, which are borrowers or
guarantors under the Credit Agreement, from paying dividends.
Because THC is a holding company, dividends or other advances
from its subsidiaries will be required to fund any cash
dividends to holders of Ordinary Shares. The Credit Agreement
also requires the maintenance of minimum tangible net worth and
interest coverage ratios. The Company was in compliance with
all covenants under the Credit Agreement as of, and for the
year ended, March 31, 1997.
Cash requirements in 1998 will primarily include
capital expenditures relating to the in-store shop and fixtured
area programs and the opening of approximately eight additional
outlet stores and one additional specialty retail store, as
well as the flagship stores in Beverly Hills, California and
London, England. The amount of total committed capital
expenditures at March 31, 1997, including expenditures relating
to these projects, was approximately $14,000,000. The Company
believes the amount of capital expenditures for 1998 will be
consistent with 1997 and intends to fund cash requirements in
1998 and future years from available cash balances, internally
generated funds and available credit. The Company believes
that these resources will be sufficient to fund its cash
requirements for such periods.
INFLATION
The Company does not believe that the relatively
moderate rates of inflation experienced over the last few years
in the United States, where it primarily competes, have had a
significant effect on its net revenue or profitability. Higher
rates of inflation have been experienced in a number of foreign
countries in which the Company's products are manufactured but
have not had a material effect on the Company's net revenue or
profitability. The Company has been able to partially offset
its cost increases by increasing prices or changing suppliers.
EXCHANGE RATES
The Company receives United States dollars for
substantially all of its product sales and its licensing
revenues. Inventory purchases from contract manufacturers
throughout the world are denominated in United States dollars;
however, purchase prices for the Company's products may be
impacted by fluctuations in the exchange rate between the
United States dollar and the local currencies of the contract
manufacturers, which may have the effect of increasing the
Company's cost of goods in the future. During the last three
fiscal years, exchange rate fluctuations have not had a
material impact on the Company's inventory costs; however, due
to the number of currencies involved and the fact that not all
foreign currencies react in the same manner against the United
States dollar, the Company cannot quantify in any meaningful
way the potential effect of such fluctuations on future income.
The Company does not engage in hedging activities with respect
to such exchange rate risk.
18
RECENTLY ISSUED ACCOUNTING STANDARDS
Earnings Per Share. In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement No. 128, Earnings per
Share, which specifies the computation, presentation and
disclosure requirements for earnings per share. Management of
the Company believes that adoption of Statement No. 128, which
is required for fiscal year 1998, will not have a material
impact on the Company's earnings per share calculation.
Disclosure of Information about Capital Structure. In February
1997, the FASB issued Statement No. 129, Disclosure of
Information about Capital Structure, which requires an entity
to explain the pertinent rights and privileges of its various
securities outstanding. Management of the Company believes
that adoption of Statement No. 129 will not have a significant
impact on the Company's present disclosure.
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995. In addition to the historical information
contained herein, there are matters discussed which are hereby
identified as "forward-looking statements" for purposes of the
Safe Harbor Statement. These forward-looking statements
involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services
and prices.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Statements of Operations for the years ended March
31, 1997, 1996, 1995
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended March
31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for
the years ended March 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants...................... F-2
Consolidated Statements of Operations
for the years ended March, 31, 1997, 1996 and 1995..... F-3
Consolidated Balance Sheets as of
March 31, 1997 and 1996................................ F-4
Consolidated Statements of Cash Flows
for the years ended March 31, 1997,
1996, and 1995......................................... F-5
Consolidated Statements of Changes
in Shareholders' Equity for the years
ended March 31, 1997, 1996, and 1995................... F-6
Notes to Consolidated Financial Statements............. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Tommy Hilfiger Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) and (2) of this Annual
Report on Form 10-K present fairly, in all material respects,
the financial position of Tommy Hilfiger Corporation and its
subsidiaries at March 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three
years in the period ended March 31, 1997, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
May 21, 1997
F-2
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For The Fiscal Year Ended March 31,
-----------------------------------
1997 1996 1995
---- ---- ----
Net revenue.................... $661,688 $478,131 $320,985
Cost of goods sold............. 344,884 258,419 174,584
-------- -------- --------
Gross profit................... 316,804 219,712 146,401
Selling, general and
administrative expenses...... 190,976 132,270 85,954
-------- -------- --------
Income from operations......... 125,828 87,442 60,447
Interest expense............... 761 754 207
Investment income.............. 6,181 5,712 3,217
----- ----- -----
Income before income taxes..... 131,248 92,400 63,457
Provision for income taxes..... 44,866 30,900 22,742
-------- -------- --------
Net income..................... $86,382 $61,500 $40,715
======== ======== ========
Earnings per share and
share equivalents............ $ 2.28 $ 1.65 $ 1.12
======== ======== ========
Weighted average shares and
share equivalents
outstanding.................. 37,885 37,241 36,346
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
F-3
TOMMY HILFIGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
As of March 31,
---------------
1997 1996
---- ----
ASSETS
Current assets
Cash and cash equivalents............ $109,908 $127,743
Accounts receivable.................. 79,984 68,402
Inventories.......................... 123,847 81,428
Other current assets................. 18,614 13,484
-------- -------
Total current assets............. 332,353 291,057
Property and equipment, at cost,
less accumulated depreciation
and amortization..................... 121,540 57,845
Other assets............................. 9,192 9,720
----- -----
Total Assets..................... $463,085 $358,622
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings................ $5,980 $13,755
Accounts payable..................... 5,996 9,454
Accrued expenses and other
current liabilities.............. 49,710 29,409
-------- --------
Total current liabilities........ 61,686 52,618
Other liabilities........................ 2,425 2,877
Long-term debt........................... 1,510 1,789
Shareholders' equity
Preference Shares, $0.01 par
value-shares authorized
5,000,000; none issued........... -- --
Ordinary Shares, $0.01 par value-shares
authorized 50,000,000; issued and
outstanding 37,249,529 and
36,879,924 respectively.......... 372 369
Capital in excess of par value....... 165,032 155,294
Retained earnings.................... 232,015 145,633
Cumulative translation adjustment.... 45 42
-------- --------
Total shareholders' equity....... 397,464 301,338
Commitments and contingencies -------- --------
Total Liabilities and Shareholders'
Equity........................... $463,085 $358,622
======== ========
See accompanying Notes to Consolidated Financial Statements.
F-4
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For The Fiscal Year Ended March 31,
-----------------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities
Net income.............................. $86,382 $61,500 $40,715
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization....... 20,842 13,439 9,308
Deferred income taxes............... (4,428) (6,287) (845)
Stock compensation expense.......... -- 60 140
Realized and unrealized
losses on investments............... -- -- 473
Equity in loss (gain) of
equity investee..................... -- 143 (61)
Changes in operating assets
and liabilities (Increase)
decrease in assets
Accounts receivable............... (11,582) (17,917) (4,413)
Inventories....................... (42,419) (29,419) (17,195)
Other assets...................... (751) (5,805) 814
Increase (decrease) in
liabilities
Accounts payable.................. (3,458) 7,356 2,870
Accrued expenses and other
liabilities...................... 19,849 16,589 (4,009)
------ ------ -----
Net cash provided by
operating activities................ 64,435 39,659 27,797
------ ------ ------
Cash flows from investing
activities
Purchases of property and
equipment............................. (83,960) (28,694) (20,042)
Purchases of investments................ -- (101,138) (134,360)
Maturities and sales of
investments........................... -- 151,352 114,876
Other .................................. -- -- 277
------- ------- -------
Net cash (used in) provided
by investing activities............. (83,960) 21,520 (39,249)
------- ------ -------
Cash flows from financing
activities
Proceeds from the exercise
of employee stock options............. 3,929 13,027 5,115
Tax benefit from exercise
of stock options...................... 5,812 17,715 3,577
Acquisition of treasury stock........... -- -- (2,441)
Short-term bank (repayments)
borrowings............................ (7,775) 268 3,168
Payments on long-term debt.............. (279) (275) (277)
Other .................................. 3 12 (18)
------- ------- ------
Net cash provided by
financing activities................ 1,690 30,747 9,124
Net (decrease) increase
in cash............................. (17,835) 91,926 (2,328)
Cash and cash equivalents,
beginning of year....................... 127,743 35,817 38,145
------- ------ ------
Cash and cash equivalents, end
of year................................. $109,908 $127,743 $35,817
======== ======== =======
See accompanying Notes to Consolidated Financial Statements.
F-5
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
Unearned Cumulative Total
Capital in stock trans- share-
Ordinary excess of Retained compen- adjust- Treasury holders'
Shares par value earnings sation ment stock equity
-------- ---------- -------- -------- ---------- -------- --------
BALANCE, MARCH 31, 1994.......... $346 $116,944 $44,900 ($490) $15 -- $161,715
Net income..................... 40,715 40,715
Ordinary shares
obtained for treasury,
118,576 shares............. ($2,441) (2,441)
Exercise of employee
stock options.................. 6 4,148 (1,482) 2,441 5,113
Tax benefit from exercise
of stock options............... 3,577 3,577
Increase in value of
proportionate interest
in subsidiary................ 190 190
Amortization of unearned stock
compensation................. 140 140
Translation adjustment......... 15 15
--- ------- ------ ---- ---- ---- -------
BALANCE, MARCH 31, 1995.......... 352 124,859 84,133 (350) 30 -- 209,024
Net income..................... 61,500 61,500
Exercise of employee
stock options................ 17 13,010 13,027
Tax benefit from
exercise of stock
options...................... 17,715 17,715
Amortization of
unearned stock
compensation................. (290) 350 60
Translation adjustment......... 12 12
--- ------- ------- ---- ---- ----- -------
BALANCE, MARCH 31, 1996.......... 369 155,294 145,633 -- 42 -- 301,338
Net income..................... 86,382 86,382
Exercise of employee
stock options................ 3 3,926 3,929
Tax benefit from exercise
of stock options............. 5,812 5,812
Translation adjustment......... 3 3
--- ------- ------- ---- ---- ---- --------
BALANCE, MARCH 31, 1997.......... $372 $165,032 $232,015 -- $ 45 -- $397,464
==== ======== ======== ==== ==== ==== ========
See accompanying Notes to Consolidated Financial Statements
F-6
TOMMY HILFIGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the
accounts of Tommy Hilfiger Corporation ("THC") and all
majority-owned subsidiaries, including Tommy Hilfiger U.S.A.,
Inc. ("TH USA"), Tommy Hilfiger Licensing, Inc. ("THLI"), Tommy
Hilfiger Retail, Inc. ("THR"), Tommy Hilfiger Flagship Stores,
Inc., Tommy Hilfiger (Eastern Hemisphere) Limited ("THEH"),
Tommy Hilfiger (HK) Limited ("THHK") and, through June 30,
1996, Tommy Hilfiger Nippon Co., Ltd. ("THN"), as well as THN's
49% interest in Tommy Hilfiger Japan Co., Ltd. ("TH Japan")
(collectively "the Company").
(b) Organization and Business
THC was incorporated as a British Virgin Islands
company in June 1992 and acts as a holding company for each of
the following operating subsidiaries.
TH USA designs and imports men's sportswear and
boyswear for wholesale distribution under the trademark license
agreement with THLI described below.
THLI licenses the use of the TOMMY HILFIGER
[R] trademarks to TH USA, THR and other affiliates and non
affiliates. These agreements grant the licensee exclusive rights
for use of the trademarks for specified products in specified
geographical areas.
THR commenced operations in April 1993 and as of
March 31, 1997 operated 55 retail stores.
THEH and THHK act as commissioned buying agents for
TH USA, THR and certain other of THLI's licensees.
THN was a 90% owned subsidiary and acted as a holding
company for the Company's interest in TH Japan, a joint venture
with Itochu, Ltd. TH Japan had licensed the rights to
manufacture and distribute the majority of the Company's
products in Japan from THLI and, in turn, sublicensed these
rights to various Japanese companies. The joint venture
terminated on June 30, 1996 and THN was dissolved in November
1996.
(c) Basis of Consolidation
All significant intercompany balances and
transactions have been eliminated. The Company accounted for
its interest in TH Japan on the equity basis.
(d) Cash, and Cash Equivalents and Investments
The Company considers all financial instruments
purchased with original maturities of three months or less to
be cash equivalents.
Short-term investments include investments with an
original maturity of greater than three months and a remaining
maturity of less than one year. These investments are carried
at market value and are classified as trading securities.
In determining realized gains and losses, the cost of
securities sold is based upon specific identification.
F-7
(e) Inventories
Inventories are valued at the lower of cost (weighted
average method) or market.
(f) Property and Equipment
Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets, ranging
from three to twenty-five years. Leasehold improvements are
amortized using the straight-line method over the lesser of the
terms of the leases or the estimated useful lives of the
assets. The Company's share of the cost of constructing in-
store shop displays is capitalized and amortized using the
straight-line method over their estimated useful lives. These
costs are included in "Furniture and fixtures". Major
additions and betterments are capitalized and repairs and
maintenance are charged to operations in the period incurred.
(g) Income Taxes
The Company has recorded its provision for income
taxes under the liability method. Under this method, deferred
tax assets and liabilities are recognized based on differences
between the financial statement and tax bases of assets and
liabilities using presently enacted tax rates.
(h) Earnings Per Share and Share Equivalents
During fiscal 1995, the Company announced that its
Board of Directors approved a two-for-one stock split, effected
in the form of a 100% stock dividend, payable to shareholders
of record at the close of business on December 27, 1994.
Earnings per share and share equivalents for all periods
presented reflect the stock split.
(i) Revenues
Net revenues from wholesale product sales are
recognized upon shipment of products to customers. Allowances
for estimated returns and discounts are provided when sales are
recorded. Retail store revenues are recognized at the time of
sale. Licensing royalties and buying agency fees are
recognized as earned.
Net wholesale sales to major customers, based upon
their ownership at March 31, 1997, as a percentage of total net
wholesale sales for the three-year period ended March 31, 1997
were as follows:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Customer A 23% 22% 22%
Customer B 21% 21% 23%
Customer C 16% 14% 14%
F-8
(j) Foreign Currency Translation
The consolidated financial statements of the Company
are prepared in United States dollars as this is the currency
of the primary economic environment in which the Company
operates, and substantially all of its revenues are received
and expenses are disbursed in United States dollars. The
financial statements of non-United States entities are
translated into United States dollars in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52.
Under this translation method, adjustments resulting from
translating the financial statements of the non-United States
entities are recorded in shareholders' equity.
(k) Segment Information
The Company is engaged in principally one industry
segment, the design, importation and distribution of men's
sportswear and childrenswear.
Substantially all of the Company's net revenue and
income from operations are derived from, and identifiable
assets (other than the collateralized time deposits mentioned
in Note 4 which are located in Hong Kong) are located in, the
United States and, therefore, constitute foreign operations in
that the Company is incorporated in the British Virgin Islands.
(l) Fair Value of Financial Instruments
The fair values of short-term borrowings and long-
term debt approximate their carrying values as these financial
instruments bear interest at variable market rates. The fair
value of the Company's other monetary assets and liabilities
approximate carrying value due to the relatively short-term
nature of these items.
(m) Advertising Costs
Advertising costs are charged to operations when
incurred and totaled $19,651,000, $7,929,000 and $7,358,000
during the years ended March 31, 1997, 1996 and 1995,
respectively.
(n) Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
NOTE 2 - ACCOUNTS RECEIVABLE
TH USA collects substantially all of its receivables
through a credit company pursuant to an agreement whereby the
credit company pays TH USA after the credit company receives
payment from the Company's customer. If the customer becomes
bankrupt or insolvent or the receivable becomes 120 days past
due, the credit company pays TH USA 50% of the outstanding
receivable. The credit company establishes maximum credit
limits for each customer account. Substantially all accounts
receivable are pledged as collateral under a bank financing
agreement.
F-9
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
March 31,
---------
1997 1996
---- ----
Finished goods................. $122,237,000 $80,210,000
Raw materials.................. 1,610,000 1,218,000
---------- ----------
$123,847,000 $81,428,000
============ ===========
NOTE 4 - CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents consist of collateralized time
deposits and have original maturities of less than three
months. As of March 31, 1997, cash equivalents in the
Consolidated Balance Sheet include $94,520,000 of time
deposits. At March 31, 1997, such investments are earning
interest at rates ranging from 5.16% to 5.31%.
Investment income is comprised of the following:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Interest income.......... $6,181,000 $5,712,000 $3,690,000
Net realized losses...... -- -- (473,000)
---------- ---------- ----------
Investment income........ $6,181,000 $5,712,000 $3,217,000
========== ========== ==========
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31,
---------
1997 1996
---- ----
Furniture and fixtures......... $88,507,000 $55,880,000
Leasehold improvements......... 27,924,000 19,239,000
Buildings and land............. 37,885,000 3,128,000
Machinery and equipment........ 16,263,000 8,372,000
------------ -----------
170,579,000 86,619,000
Less: accumulated depreciation
and amortization............. 49,039,000 28,774,000
------------ ------------
$121,540,000 $57,845,000
============ ============
NOTE 6 - SHORT-TERM BORROWINGS
In July 1996, the Company entered into an amended and
restated credit agreement (the "Credit Agreement") effective
April 1, 1996. The Credit Agreement, which expires in June
1999, provides for direct borrowings, bankers acceptances and
letters of credit of amounts ranging from $100,000,000 in
fiscal 1997 to $150,000,000 in fiscal 1999. Available
borrowings under the Credit Agreement are subject to the timed
increase of availability under the Credit Agreement and are
based upon eligible accounts receivable, inventory and open
letters of credit. As of March 31, 1997, $100,000,000 was
available for utilization under the Credit Agreement, of which
$66,822,000 had been used to open letters of credit.
Obligations under the Credit Agreement are
F-10
collateralized by substantially all the assets of the Company's
U.S. operations. Direct borrowings under the Credit Agreement,
which are limited to $60,000,000, accrue interest at varying
interest rates.
At March 31, 1997, total short-term borrowings of
$5,980,000 consisted of open letters of credit for inventory
purchased of $5,705,000 and the current portion of mortgage
debt payable of $275,000.
The Credit Agreement contains various covenants.
Among other matters, the Credit Agreement includes certain
restrictions upon capital expenditures, investments,
indebtedness, loans and advances and transactions with related
parties. In addition, the Credit Agreement prohibits certain
of the Company's operating subsidiaries, which are borrowers or
guarantors under the Credit Agreement, from paying dividends.
Because THC is a holding company, dividends or other advances
from its subsidiaries will be required to fund any cash
dividends to holders of Ordinary Shares. The Credit Agreement
also requires the maintenance of minimum tangible net worth and
interest coverage ratios.
The Company was in compliance with all covenants
under the Credit Agreement as of, and for the year ended, March
31, 1997.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are
comprised of the following:
March 31,
---------
1997 1996
---- ----
Accrued compensation........... $15,734,000 $12,393,000
Accrued marketing.............. 6,369,000 1,576,000
Other.......................... 27,607,000 15,440,000
---------- ----------
$49,710,000 $29,409,000
=========== ===========
NOTE 8 - LONG-TERM DEBT
In connection with the purchase of real estate, THEH
obtained a ten-year, $2,746,000 mortgage. The debt, payable in
equal quarterly installments through August 2003, is secured by
the property and accrues interest at the Hong Kong prime
lending rate, which was 8.5% at March 31, 1997.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases office, warehouse and showroom
space, retail stores and office equipment under operating
leases which expire not later than 2023. The Company
normalizes fixed escalations in rental expense under its
operating leases. Minimum annual rentals under non-cancelable
operating leases, excluding operating cost escalations and
contingent rental amounts based upon retail sales, are payable
as follows:
Fiscal Year Ending March 31,
----------------------------
1998...................... $8,753,000
1999...................... 10,635,000
2000...................... 10,440,000
2001...................... 8,402,000
2002...................... 7,169,000
Thereafter................ 50,687,000
F-11
Rent expense was $8,911,000, $5,768,000 and
$2,282,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
(b) Letters of credit
TH USA is contingently liable for unexpired bank
letters of credit at March 31, 1997 of $57,061,000 related to
commitments for the purchase of inventories and $4,056,000
related to leases.
(c) Commitments
At March 31, 1997, the Company had entered into
capital commitments primarily related to construction projects
of approximately $14,000,000.
(d) Legal matters
The Company is from time to time involved in routine
legal matters incidental to its business. In the opinion of
the Company, based on advice of counsel, the resolution of such
matters will not have a material effect on the financial
position or the results of operations of the Company.
NOTE 10 - INCOME TAXES
The components of the provision for income taxes are
as follows:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Current:
U.S. Federal.............. $39,276,000 $29,100,000 $18,516,000
State and Local........... 6,688,000 6,238,000 3,693,000
Non-U.S................... 3,330,000 1,849,000 1,378,000
----------- ----------- -----------
49,294,000 37,187,000 23,587,000
----------- ----------- -----------
Deferred:
U.S. Federal.............. (3,724,000) (4,940,000) (664,000)
State and Local........... (737,000) (1,347,000) (183,000)
Non-U.S................... 33,000 -- 2,000
----------- ----------- -----------
(44,428,000) (6,287,000) (845,000)
----------- ----------- -----------
Provision for income taxes... $44,866,000 $30,900,000 $22,742,000
=========== =========== ===========
Significant components of the Company's deferred tax
assets are summarized as follows:
March 31,
---------
1997 1996
---- ----
Deferred tax assets - current:
Inventory costs..................... $5,054,000 $3,457,000
Allowances for doubtful accounts
and sales discounts.............. 2,415,000 3,191,000
Accrued compensation............. 1,580,000 --
Other items, net.................... 3,070,000 1,464,000
----------- -----------
12,119,000 8,112,000
Deferred tax assets - non-current:
Depreciation and amortization....... 2,335,000 1,914,000
----------- -----------
2,335,000 1,914,000
----------- -----------
Total deferred tax assets.............. $14,454,000 $10,026,000
=========== ===========
F-12
The U.S. and non-U.S. components of income before
income taxes are as follows:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
U.S....................... $104,671,000 $71,606,000 $51,789,000
Non-U.S................... 26,577,000 20,794,000 11,668,000
------------ ----------- -----------
$131,248,000 $92,400,000 $63,457,000
============ =========== ===========
The provision for income taxes differs from the
amounts computed by applying the applicable U.S. federal
statutory rates to income before taxes as follows:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Provision for income taxes at the
U.S. federal statutory rate....... $45,937,000 $32,340,000 $22,210,000
State and local income taxes, net
of federal benefits............... 3,868,000 3,179,000 2,281,000
Non-U.S. income taxed at different
rates............................. (6,350,000) (5,612,000) (2,821,000)
Other................................ 1,411,000 993,000 1,072,000
.................................. ----------- ----------- -----------
Provision for income taxes.......... $44,866,000 $30,900,000 $22,742,000
=========== =========== ===========
THC is not taxed on income in the British Virgin
Islands ("BVI") where it is incorporated. THC's subsidiaries
are subject to taxation in the jurisdictions in which they
operate.
Provision has not been made for taxes on
undistributed non-BVI, non-U.S. earnings of $121,642,000 at
March 31, 1997, as those earnings will continue to be
reinvested. As a result of various tax planning strategies
available to the Company, it is not practical to estimate the
amount of tax, if any, that might be payable on the eventual
remittance of such earnings.
NOTE 11 - RELATED PARTIES
Effective February 1, 1997, the Company entered into
a licensing agreement with Pepe Jeans London Corporation
("Pepe") to distribute the Company's men's and boys sportswear
(excluding jeanswear and jeans related apparel) throughout the
European market. Under this agreement, the licensee pays THLI
a royalty based on a percentage of the value of licensed
products sold by Pepe. Except with the approval of THLI, all
products sold by or through Pepe must be purchased through THEH
or TH USA pursuant to buying agency agreements. Under these
agreements, THEH and TH USA are paid a buying agency commission
based on a percentage of the cost of products sourced through
them. The distribution of products under this arrangement is
expected to begin in Fall 1997.
Effective June 30, 1996, the Company's joint venture
arrangement with TH Japan covering the Company's Japanese
operations expired. Effective July 1, 1996, the Company
entered into an exclusive license agreement for Japan with
Novel-ITC Licensing Limited ("NIL"), a related party. Under
the license agreement, NIL pays THLI a royalty based on a
percentage of the value of licensed products sold by NIL's
sublicensee. Except with the approval of THLI, all products
sold by or through NIL or its sublicensee must be purchased
through THEH or TH USA pursuant to buying agency agreements.
Under these agreements, THEH and TH USA are paid a buying
agency commission based on a percentage of the cost of products
sourced through them.
F-13
Pursuant to this new arrangement, royalties and commissions
totaled $2,745,000 during fiscal 1997. Pursuant to the prior
arrangement, royalties and commissions totaled $488,000 in
fiscal 1997, $1,939,000 in fiscal 1996 and $1,222,000 in fiscal
1995.
Effective October 1, 1995, the Company entered into a
license agreement with a related party, AIHL Investment Group
Limited (formerly SEL International Investments Corp.)
("AIHL"), the parent of Pepe, for the manufacture, sale and
distribution of men's, women's and girls' jeanswear and jeans
related apparel (which includes women's and girls' casualwear)
bearing the TOMMY HILFIGER [R] registered trademarks. Other
assets in the Consolidated Balance Sheet include a non-interest
bearing note receivable from AIHL in connection with this
transaction. The note, which has a face value of $5,000,000,
and is due on September 30, 2000, is recorded at its present
value of $3,735,000 at March 31, 1997 and $2,874,000 at March 31,
1996. Under this license agreement, the Company receives
royalties from subsidiaries of Pepe based upon a percentage of
net sales of licensed products. The fiscal 1997 and 1996 results
of operations include $9,963,000 and $1,915,000 of such
royalties. Net sales included in the Consolidated Statements of
Operations for these licensed products prior to this agreement
were $12,370,000 in fiscal 1996 and $9,104,000 in fiscal 1995.
In addition, in connection with this license, a subsidiary of
Pepe leases certain space at the Company's U.S. headquarters,
for which rent of $214,000 was received by the Company in fiscal
1997.
In June 1994, the Company granted a director of the
Company an option to purchase a 10% equity interest in THR in
connection with entering into an employment agreement with THR.
In July 1994, this option was exercised at $193,000, an
exercise price equal to 10% of the fair market value of THR as
determined by an independent appraisal. As a result of this
transaction, the value of the Company's proportionate interest
in THR increased by $190,000. During March 1996, in connection
with the termination of the director's employment, the Company
repurchased this equity interest for its fair value of
$1,800,000.
TH USA purchases finished goods in the ordinary
course of business from affiliated companies. Such purchases
amounted to $9,852,000, $10,970,000 and $12,092,000 during the
fiscal years ended March 31, 1997, 1996 and 1995, respectively.
In addition, contractors of the Company purchased raw materials
in the ordinary course of business from affiliates of the
Company. Such purchases amounted to $5,811,000, $7,910,000 and
$2,977,000 during the fiscal years ended March 31, 1997, 1996
and 1995, respectively.
THEH has entered into a buying agency agreement with
a Canadian licensee, in which one of the Company's directors
has an indirect beneficial ownership interest. Under this
agreement, THEH receives commissions based on a percentage of
the cost of goods sourced on behalf of the licensee. THLI
receives a royalty from the licensee based upon a percentage of
net sales of licensed products. Results of operations include
$2,378,000, $1,667,000 and $861,000 for the years ended March
31, 1997, 1996 and 1995, respectively, for commissions and
royalties received from this licensee.
TH USA sells merchandise in the ordinary course of
business to a retail store that is owned by a relative of a
director of the Company. Sales to this customer amounted to
approximately $435,000, $397,000 and $405,000 during the years
ended March 31, 1997, 1996 and 1995, respectively.
THEH has two consulting agreements with affiliates.
THEH paid fees of $875,000 in fiscal 1997 and $375,000 in each
of fiscal 1996 and 1995 to such affiliates.
F-14
TH USA had a consulting agreement with an affiliate.
The fees and related expenses under this consulting agreement
totaled $619,000 and $637,000 during the years ended March 31,
1996 and 1995, respectively.
During the year ended March 31, 1995, TH USA incurred
expenses of $1,000,000 for the sponsorship of an auto racing
team, in which an affiliate of a director owned an indirect
minority interest. The Company did not renew this sponsorship
subsequent to fiscal 1995.
Under the terms of an agreement with an affiliate,
THHK reimburses the affiliate for certain general and
administrative expenses incurred by the affiliate on behalf of
THHK. Payments made to the affiliate for the years ended March
31, 1997, 1996 and 1995 were $58,000, $114,000 and $87,000,
respectively.
NOTE 12 - PROFIT SHARING PLAN
TH USA maintains employee savings plans for eligible
U.S. employees. TH USA's contributions to the plans are
discretionary with matching contributions of up to 50% of
employee contributions of up to 5% of employee compensation.
For the years ended March 31, 1997, 1996 and 1995, the Company
made plan contributions of $345,000, $271,000 and $181,000,
respectively.
NOTE 13 - UNEARNED STOCK COMPENSATION
Unearned stock compensation associated with a former
key employee of TH USA was eliminated in 1996 in connection
with the termination of such employment. The balance of the
unearned stock compensation was recorded as a reduction of
Capital In Excess of Par Value.
NOTE 14 - STOCK OPTION PLANS
In September 1992, the Company and its subsidiaries
adopted stock option plans (the "Plans") authorizing the
issuance of an aggregate of up to 1,450,000 Ordinary Shares to
directors, officers and employees of the Company, as well as
1,520,000 Ordinary Shares reserved for issuance in connection
with an option granted to a former officer of the Company
pursuant to his employment agreement. The remaining
unexercised options granted under the terms of the officer's
employment agreement were exercised during fiscal 1996. In
December 1993, July 1995 and November 1996, a total of
2,500,000 Ordinary Shares of THC were authorized and reserved
for issuance to directors, officers and employees of the
Company, under the Plans. In August 1994, the Board of
Directors and shareholders of the Company approved the Non-
Employee Directors Stock Option Plan (the "Directors Option
Plan"). Under the Directors Option Plan, directors who are not
officers or employees of the Company are eligible to receive
stock option grants. The total number of Ordinary Shares for
which options may be granted under the Directors Option Plan
may not exceed 200,000 Ordinary Shares in the aggregate,
subject to certain adjustments.
F-15
Transactions involving the Plans and the Directors
Option Plan are summarized as follows:
Weighted Average
Exercise
Option Shares Price Per Share
-------------- ------------------
Outstanding as of April 1, 1994 3,110,500 $8.31
Granted........................... 256,000 $18.79
Exercised......................... (663,776) $7.67
Canceled.......................... (154,700) $15.92
-----------
Outstanding as of March 31, 1995 2,548,024 $9.37
Granted........................... 793,400 $29.50
Exercised......................... (1,654,724) $7.86
Canceled.......................... (85,100) $18.09
-----------
Outstanding as of March 31, 1996 1,601,600 $20.10
Granted........................... 708,300 $48.20
Exercised......................... (369,605) $10.64
Canceled.......................... (51,725) $39.56
-----------
Outstanding as of March 31, 1997 1,888,570 $31.26
===========
The following table summarizes information concerning currently
outstanding and exercisable options:
Options Outstanding Options Exercisable
----------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
---------------------------------------------------------------------------
$7.50-$15.00 328,320 5.70 $8.97 115,820 $7.95
$17.63-$22.00 300,450 7.60 $20.03 22,900 $19.76
$26.75-$30.25 590,800 8.48 $30.22 151,800 $30.25
$44.25-$58.50 669,000 9.22 $48.23 -- --
--------- ---- ------ ------- ------
$7.50-$58.50 1,888,570 8.11 $31.26 290,520 $20.53
========= ==== ====== ======= ======
Options vest over periods ranging from 1-6 years.
The exercise price of all options granted under the Plans and
the Directors Option Plan is the market price on the dates of
grant.
F-16
The Company applies APB Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations in
accounting for its stock awards. Accordingly, no compensation
expense has been recognized for stock options. Had
compensation cost been recorded based upon the fair value at
the grant dates as an alternative provided by SFAS No. 123,
"Accounting for Stock Based Compensation", the Company's net
income and earnings per share would have been reduced by
approximately $2,998,000 and $.08, respectively, in 1997 and
$2,131,000 and $.06, respectively, in 1996. These amounts are
for disclosure purposes only and may not be representative of
future calculations since the estimated fair value of stock
options is amortized to expense over the vesting period, and
additional options may be granted in future years. The fair
values of options granted was estimated at $22.33 in 1997 and
$13.72 in 1996 on the dates of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: volatility of 40%
and 42%; risk free interest rate of 6.1% and 6.3%; expected
life of 5.7 years and 5.6 years; and no future dividends.
NOTE 15 - STATEMENTS OF CASH FLOWS
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Supplemental disclosure of cash
flow information:
Cash paid during the year:
Interest $ 930,000 $ 1,382,000 $ 515,000
=========== =========== ===========
Income taxes $34,559,000 $24,428,000 $21,665,000
=========== =========== ===========
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997
----
Net revenue.............. $124,129,000 $178,907,000 $188,199,000 $170,453,000
Gross profit............. 58,119,000 86,931,000 90,231,000 81,523,000
Net income............... 12,578,000 24,090,000 27,397,000 22,317,000
Earnings per share and
share equivalents........ .34 .63 .72 .59
F-17
1996
----
Net revenue.............. $89,522,000 $131,965,000 $130,501,000 $126,143,000
Gross profit............. 40,076,000 60,172,000 58,663,000 60,801,000
Net income............... 7,789,000 18,204,000 17,585,000 17,922,000
Earnings per share and
share equivalents....... .21 .49 .47 .48
The quarterly financial data for the years ended
March 31, 1997 and 1996 are unaudited; however, in the opinion
of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments necessary to
present such data fairly.
F-18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE PRESENT POSITION
---- --- ----------------
Silas K.F. Chou 50 Chairman of the Board
Thomas J. Hilfiger 46 Honorary Chairman of the
Board and Principal Designer
Joel J. Horowitz 47 Chief Executive Officer,
President and Director
Benjamin M.T. Ng 34 Executive Vice President-
Corporate Finance, Assistant
Secretary and Director
Lawrence S. Stroll 37 Chief Executive Officer of
THHK and Director
Ronald K.Y. Chao 58 Director
Lester M.Y. Ma 50 Treasurer and Director
Joseph M. Adamko 64 Director
Clinton V. Silver 67 Director
Simon Murray 57 Director
Joel H. Newman 56 Executive Vice President-
Operations and Treasury
Lawrence T.S. Lok 40 Secretary
Silas K.F. Chou has been Chairman of the Board of Directors of
the Company since 1992. Mr. Chou also has served for more than
the past five years as an Executive Director of Novel
Enterprises Limited ("Novel Enterprises"). Mr. Chou was
appointed as Managing Director of Novel Enterprises in 1996.
Since 1992, Mr. Chou has been the Chairman of the board of
directors of Pepe Jeans London Corporation and its predecessor
(collectively, "Pepe") and Chief Executive Officer of AIHL
Investment Group Limited and its predecessor (collectively,
"AIHL").
Thomas J. Hilfiger has been a Director since 1992 and Honorary
Chairman of the Board of Directors of the Company since 1994.
Prior thereto, Mr. Hilfiger was Vice Chairman of the Board of
the Company and its predecessors since 1989, and President of
Tommy Hilfiger, Inc. ("THI") from 1982 to 1989. Mr. Hilfiger
has been designing clothes under the TOMMY HILFIGER [R]
trademark since 1984.
Joel J. Horowitz is Chief Executive Officer and President of
the Company. Mr. Horowitz has served as Chief Executive
Officer since 1994 and as President since 1995. From 1989 to
1994, Mr. Horowitz served as President and Chief Operating
Officer of the Company and its predecessors. Mr. Horowitz has
been a Director of the Company since 1992.
21
Benjamin M.T. Ng has been a Director and Executive Vice
President-Corporate Finance and Assistant Secretary of the
Company since 1992. From 1988 to 1991, Mr. Ng was employed in
the mergers and acquisitions department at Goldman, Sachs & Co.
Mr. Ng devotes a significant portion of his time to matters
related to AIHL and its affiliates other than the Company.
Lawrence S. Stroll has been a Director of the Company since
1992 and has served as Chief Executive Officer of THHK since
1993. Prior to 1993, he was active in the senior management of
THI from 1989 to 1990 and has served as an advisor to the
Company and its predecessors since 1989 through a consulting
arrangement. Mr. Stroll has also been Group Chief Executive
Officer of Pepe since 1993 and Chairman of the Board of AIHL
since 1992. Mr. Stroll's legal name is Lawrence S.
Strulovitch.
Ronald K.Y. Chao has been a Director of the Company since 1992.
In 1996, Mr. Chao was appointed as Vice Chairman of Novel
Enterprises. For more than five years prior thereto, Mr. Chao
served as the Managing Director of Novel Enterprises.
Lester M.Y. Ma has been a Director of the Company since 1992
and its Treasurer since 1996. Mr. Ma has been an Executive
Director and Group Chief Accountant of Novel Enterprises for
more than the past five years. Mr. Ma's legal name is Mang Yin
Ma.
Joseph M. Adamko has been a Director of the Company since 1993.
Since 1992, Mr. Adamko has been a director of Sterling Bancorp
and Vice Chairman and a director of Sterling National Bank.
Prior thereto, Mr. Adamko was employed by Manufacturers Hanover
Trust Company of New York in a variety of positions for over 30
years, including most recently as a Managing Director.
Clinton V. Silver has been a Director of the Company since
1994. Mr. Silver currently serves as a consultant to, and from
1991 until his retirement in 1994, as Deputy Chairman of, Marks
& Spencer plc ("Marks & Spencer"), an international retailer
based in London. Mr. Silver served as a director of Marks &
Spencer from 1974 to 1994 and as Joint Managing Director since
1990. Mr. Silver has also served as a director of VeriFone,
Inc. since January 1997.
Simon Murray has been a Director of the Company since April
1997. Since 1994, Mr. Murray has been the Executive Chairman
of Deutsche Bank AG for the Asia/Pacific region. From 1984 to
1993, Mr. Murray was the Group Managing Director of the
Hutchison Whampoa Group, a major Hong Kong-based conglomerate,
where he continues to be a member of the board of directors.
In addition, Mr. Murray is currently the Deputy Chairman of
China North Industries Investment Limited and a director of a
number of public companies in the Far East, including Cheung
Kong Holdings.
Joel H. Newman has been Executive Vice President-Operations and
Treasury of the Company since April 1997. Since 1993, Mr.
Newman has also held various senior operations and financial
positions with TH USA and currently serves as its Chief
Operating Officer. Prior to joining the Company, Mr. Newman
held various senior operations and financial positions with
major companies in the apparel wholesale and retail industries.
Lawrence T.S. Lok has been Secretary of the Company and Novel
Enterprises since December 1994. Mr. Lok has also been Deputy
Group Chief Accountant of Novel Enterprises since October 1991.
Ronald K.Y. Chao and Silas K.F. Chou are brothers.
22
TERMS OF DIRECTORS
At the first annual meeting of the shareholders held
on December 10, 1993, the directors were classified into three
classes, with one class elected initially for a one-year term,
one class elected initially for a two-year term and one class
elected initially for a three-year term. At each succeeding
annual meeting, the successors of the class of directors whose
terms expire at such meeting are elected for three-year terms.
The terms of Messrs. Ng, Stroll, Ma and Silver expire in 1997;
the terms of Messrs. Horowitz, Chao and Murray expire in 1998;
and the terms of Messrs. Chou, Hilfiger and Adamko expire in
1999.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934,
as amended, requires the Company's officers and directors, and
persons who own more than ten percent of a registered class of
the Company's equity securities ("Reporting Persons") to file
reports of ownership and changes in ownership ("Section 16
Reports") with the Securities and Exchange Commission (the
"SEC") and the New York Stock Exchange. Reporting Persons are
required by the SEC to furnish the Company with copies of all
Section 16 Reports they file.
Based solely on its review of the copies of such
Section 16 Reports received by it, or written representations
received from Reporting Persons, all Section 16(a) filing
requirements applicable to the Company's Reporting Persons
during and with respect to the fiscal year ended March 31, 1997
have been complied with on a timely basis.
23
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid
and accrued by the Company and its subsidiaries for the fiscal
years ended March 31, 1997, 1996 and 1995 to the Company's
chief executive officer and the four other most highly
compensated executive officers (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- -------------
AWARDS
-------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) STOCK OPTIONS (#) COMPENSATION ($)
--------------------------- ------ ---------- --------- ----------------- ----------------
Joel J. Horowitz....................... 1997 473,000 7,174,000 -- 353(1)
Chief Executive Officer and 1996 430,000 5,016,000 -- 270
President 1995 400,000 3,312,000 -- 465
Thomas J. Hilfiger..................... 1997 8,498,223 4,500,000(2) -- 353(1)
Honorary Chairman and 1996 6,510,179 800,000 -- 270
Principal Designer 1995 4,699,414 -- -- 465
Silas K.F. Chou........................ 1997 750,000(3) 325,000 -- --
Chairman of the Board 1996 750,000(3) 325,000 -- --
1995 750,000(3) -- -- --
Lawrence S. Stroll..................... 1997 625,000(4) 325,000 -- --
Director; Chief Executive Officer 1996 625,000(4) 325,000 -- --
of THHK 1995 625,000(4) -- -- --
Benjamin M.T. Ng....................... 1997 250,000 211,375 5,000 4,044(5)
Director; Executive Vice 1996 150,000 288,625 150,000 4,093
President-Corporate Finance 1995 150,000 150,000 -- 2,789
________
(1) Amount represents premiums paid by the Company for group term life
insurance on behalf of the Named Executive Officer.
(2) Of this amount, $3,500,000 will be payable on a deferred basis.
See "Certain Employment Agreements."
(3) 1997 amount includes 50% of the fees paid pursuant to a consulting
agreement between Tommy Hilfiger (Eastern Hemisphere) Limited
("THEH") and Fasco International, Inc. ("Fasco International"), a
subsidiary of Sportswear Holdings Limited ("Sportswear Holdings").
1996 and 1995 amounts include 50% of the fees paid pursuant to a
consulting agreement between TH USA and Falcon International, Inc.
("Falcon International"), a subsidiary of Sportswear Holdings.
See "Certain Relationships and Related Transactions."
(4) Includes (i) for 1997, 50% of the fees paid pursuant to a
consulting agreement between THEH and Fasco International, and for
1996 and 1995, 50% of the fees paid pursuant to a consulting
agreement between TH USA and Falcon International; and (ii) all of
the fees paid pursuant to a consulting agreement between THEH and
an affiliate of Mr. Stroll. See "Certain Relationships and
Related Transactions."
(5) Amount represents employer matching contribution under the Tommy
Hilfiger U.S.A. 401(k) Profit Sharing Plan of $3,750 and premiums
paid by the Company for group term life insurance on behalf of Mr.
Ng of $294.
24
STOCK OPTION GRANTS
The following table sets forth information regarding
grants of stock options during fiscal year 1997 made to the
only Named Executive Officer who has received Company option
grants.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS GRANT DATE VALUE (1)
----------------------------------------------------------------------------------------------- ---------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL STOCK
UNDERLYING OPTIONS
STOCK GRANTED TO EXERCISE OF
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED (#) FISCAL YEAR(2) ($/SH) DATE PRESENT VALUE($)
---- ----------- -------------- ----------- ---------- ----------------
Benjamin M.T. Ng................ 5,000 0.71% 45.125 04/01/06 100,775
________
(1) The fair value of these options on the date of grant was estimated
using the Black-Scholes option-pricing model with the following
assumptions: volatility of 40%; risk-free interest rate of 6%;
expected life of 5 years; and no future dividends. The dollar
amount in this column is not intended to forecast potential future
appreciation, if any, of the Company's Ordinary Shares.
(2) This percentage is calculated with respect to stock options
granted under the Plans (as defined below) during the last fiscal
year. The stock options granted to Mr. Ng during the last fiscal
year were non-qualified options granted pursuant to the Plans.
Such options become exercisable in 20% increments each April 30,
commencing April 30, 1997. See "Stock Option Plans".
STOCK OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding
stock option exercises during fiscal year 1997 by the only
Named Executive Officer who has received Company option grants,
and the values of such officer's unexercised options as of
March 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
NUMBERS OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES STOCK OPTIONS AT MONEY STOCK OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR-END (#) FISCAL YEAR-END ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
Benjamin M.T. Ng...... 30,000 1,455,825 150,070/5,000 3,303,133/35,625
CERTAIN EMPLOYMENT AGREEMENTS
Subsidiaries of the Company had employment and
consulting agreements with Messrs. Hilfiger and Horowitz during
fiscal 1997.
The employment agreement with Tommy Hilfiger, the
Company's Honorary Chairman of the Board and Principal
Designer, provides for his employment as the designer of all
products carrying the TOMMY HILFIGER [R] trademark until his
death, disability or incompetence. Mr.
25
Hilfiger receives an annual base salary of $900,000, subject to
adjustments. If net sales of TH USA and its subsidiaries are
less than $48,333,333 in any year, Mr. Hilfiger's base salary
for such year is reduced by 1.5% of such shortfall, to not less
than $500,000. If net sales are greater than $48,333,333 in any
fiscal year, Mr. Hilfiger receives an additional payment equal
to 1.5% of such excess. If Mr. Hilfiger terminates his
employment without the consent of TH USA other than by reason
of his death, disability or incompetence, TH USA will have no
further obligations under the agreement. The employment
agreement provides that TH USA and its subsidiaries cannot
enter into any line of business without the consent of Mr.
Hilfiger if he shall reasonably determine that such line of
business would be detrimental to the TOMMY HILFIGER [R]
trademark.
The amended employment agreement with Mr. Horowitz
provides for his employment as Chief Executive Officer of the
Company and TH USA until March 14, 1999. The agreement
provided for an annual base salary in fiscal year 1997 of
$473,000. The base salary is subject to increase each year
thereafter by the average percentage increase for all employees
of TH USA. In addition, Mr. Horowitz is entitled to receive an
amount equal to 5 percent of the Company's earnings before
depreciation, interest on financing of fixed assets, non-
operating expenses and taxes ("operating earnings"), subject to
a minimum of $200,000 per year and a maximum of $777,000 per
year, which maximum has been reduced each year (from an
original level of $900,000) by the increase in his base salary;
provided, that if the Company's operating earnings are below $2
million in any year, TH USA is entitled to offset 10% of any
shortfall (up to $75,000) against such payments in future years
to the extent they would otherwise exceed $200,000.
Beginning in fiscal 1995, the Company became subject
to Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), under which public companies are not
permitted to deduct annual compensation paid to certain
executive officers in excess of $1,000,000 per executive,
unless such excess is paid pursuant to an arrangement based
upon performance and approved by shareholders and provided that
the other requirements set forth in Section 162(m) and related
regulations are met. Payments required to be made pursuant to
the Company's aforementioned employment agreements with Messrs.
Hilfiger and Horowitz, which were entered into prior to the
effective date of Section 162(m), are not subject to such
restrictions.
On May 22, 1995, the Compensation Committee approved
and the Board of Directors adopted, and on July 28, 1995, the
shareholders approved, the Tommy Hilfiger U.S.A., Inc.
Supplemental Executive Incentive Compensation Plan (the "SEIC
Plan"), effective as of April 1, 1995 for each of the four
fiscal years ending March 31, 1999. The purpose of the SEIC
Plan is to provide a significant and flexible economic
opportunity to Mr. Horowitz, Chief Executive Officer and
President of the Company and Chief Executive Officer of TH USA,
in an effort to reward his contribution to the Company and its
subsidiaries. The SEIC Plan replaced the performance-based
compensation arrangement for Mr. Horowitz that was in effect
for fiscal year 1995. The SEIC Plan is administered by the
Compensation Committee and provides for a cash award to Mr.
Horowitz equal to 5 percent of the operating earnings (as
defined above) of the Company. Awards under the plan are
calculated and paid quarterly based on 3.75 percent of
operating earnings for the first three fiscal quarters, with
the remaining amount of the bonus (based on the 5 percent rate)
payable at the end of the fiscal year. The amount of the award
is reduced by the amount of any other bonuses based on the
operating earnings of the Company or any of its subsidiaries
granted to Mr. Horowitz. The 5 percent operating earnings
bonus payable under Mr. Horowitz's employment agreement is
credited against bonuses payable under the SEIC Plan. The SEIC
Plan does not contain any cap on the maximum amount of the
bonus payable thereunder. The SEIC Plan bonus payable to Mr.
Horowitz in respect of fiscal year 1997, net of the $777,000
26
bonus payable under his employment agreement, was $6,397,000.
While the Company believes that compensation payable pursuant
to the SEIC Plan will be deductible for federal income tax
purposes pursuant to Section 162(m), there can be no assurance
in this regard.
The employment agreements with Messrs. Hilfiger and
Horowitz also provide that such executives are eligible to
receive additional annual bonuses at the discretion of TH USA's
Compensation Committee if the TH USA Compensation Committee
determines that certain performance levels established by the
Company's Compensation Committee have been satisfied. If,
however, compensation is awarded based on an arrangement that
has not been approved by the shareholders, the Company would
not be allowed to deduct for tax purposes any payments in
excess of the $1,000,000 limitation. The Compensation
Committee approved discretionary bonuses of $4,500,000, of
which $3,500,000 was granted by the Company on a deferred basis
as described below (the "Deferred Bonus"), and $800,000 for Mr.
Hilfiger in fiscal years 1997 and 1996, respectively.
The Deferred Bonus (and any interest accrued thereon)
will be paid in annual installments on the last day of each
fiscal year of the Company (commencing with the fiscal year
ending March 31, 1998) in the largest possible amounts that can
be paid, after taking into account any base salary and other
compensation in that fiscal year which would be counted for
purposes of Section 162(m), and still be fully deductible
under such regulations. The unpaid portion of the Deferred
Bonus will accrue interest at a rate equal to TH USA's bank
borrowing rate. While the Company believes that such Deferred
Bonus payments will be deductible for federal income tax
purposes pursuant to Section 162(m), there can be no assurance
in this regard.
STOCK OPTION PLANS
Tommy Hilfiger U.S.A., Inc. and Tommy Hilfiger (Eastern
Hemisphere) Limited 1992 Stock Incentive Plans
In September 1992, the Company and its subsidiaries
adopted stock option plans (collectively, the "Plans")
authorizing the issuance of an aggregate of up to 1,450,000
Ordinary Shares to directors, officers and employees of the
Company and its subsidiaries, as well as 1,520,000 Ordinary
Shares that were reserved for issuance in connection with an
option granted to a former director and executive officer of
the Company pursuant to his employment agreement. Messrs.
Hilfiger, Horowitz, Chou, Chao and Stroll are not eligible for
grants under the Plans. In December 1993, July 1995 and
November 1996, the Company's shareholders approved amendments
to the Plans to increase by 1,000,000, 1,000,000 and 500,000,
respectively, the number of Ordinary Shares reserved for
issuance under the Plans.
The Plan for employees of TH USA has been
administered by the Compensation Committee of the Board of
Directors of TH USA and the Plan for employees of the Company's
non-United States subsidiaries have been administered by the
Company's Compensation Committee (collectively, the
"Compensation Committees"). The Compensation Committees
determine the employees to whom awards are granted, the number
of awards granted and the specific terms and conditions of each
grant, subject to the provisions of the Plans.
Under the Plans, awards may include stock options,
stock appreciation rights and restricted stock. An option or
right granted under the Plans must have an exercise price of
not less than market value at the date of grant, provided that
options granted prior to the offering must
27
have an exercise price of not less than the initial public
offering price. Options may be exercisable at such times, in
such amounts, in accordance with such terms and conditions, and
subject to such restrictions as are set forth in the option
agreement evidencing the grant of such options.
Adjustments in the number and kind of shares subject
to options granted under the Plans are made by the Compensation
Committees in the event of a merger, consolidation,
recapitalization, reclassification, stock split, warrants or
rights issuance, stock dividend or combination of shares. In
addition, the grants may provide for acceleration or immediate
vesting in the event of a change of control of the Company or
its subsidiaries.
Non-Employee Directors Stock Option Plan
In August 1994, the Board of Directors and
shareholders of the Company approved the Non-Employee Directors
Stock Option Plan (the "Directors Option Plan"). Under the
Directors Option Plan, directors who are not officers or
employees of the Company or any subsidiary of the Company
("Non-Employee Directors") are eligible to receive stock
options.
The Directors Option Plan is administered by the
Company's Compensation Committee consisting of not less than
two members of the Board, each of whom is a "disinterested
person" as that term is used in Rule 16b-3 promulgated under
the Exchange Act ("Rule 16b-3"). Subject to certain specific
limitations and restrictions set forth in the Directors Option
Plan, the Company Compensation Committee has full and final
authority to interpret the Directors Option Plan, to prescribe,
amend and rescind rules and regulations, if any, relating to
the Directors Option Plan and to make all determinations
necessary or advisable for the administration of the Directors
Option Plan. However, grants of stock options to participants
under the Plan and the amount, nature and timing of the grants
are not subject to the determination of the Committee.
The total number of Ordinary Shares for which options
may be granted under the Directors Option Plan may not exceed
200,000 shares while the Directors Option Plan is in effect,
subject to certain adjustments described in the Directors
Option Plan. Each Non-Employee Director receives an initial
stock option to purchase 10,000 Ordinary Shares at a price
equal to the fair market value at the time of the grant of the
Ordinary Shares subject to such stock option.
Prior to termination of the Directors Option Plan, on
the first to occur of either the April 1 or October 1 following
the first anniversary of each Non-Employee Director's date of
initial grant (the "First Annual Grant Date"), and on each
anniversary of such Non-Employee Director's First Annual Grant
Date, such Non-Employee Director will receive an additional
stock option to purchase 1,000 Ordinary Shares at a price equal
to the fair market value of the Ordinary Shares at the time of
the grant, provided such individual continues to be a Non-
Employee Director.
The term of each stock option will be 10 years unless
earlier terminated by termination of the director status of a
Non-Employee Director. The stock options will be exercisable
in equal installments over five years from the date of grant.
The stock options granted under the Directors Option Plan may
not be assigned or transferred except by will, applicable laws
of descent and distribution or pursuant to a qualified domestic
relations order.
The Board may amend, alter or discontinue the
Directors Option Plan, but no amendment, alteration or
discontinuation will be made which would (i) impair the rights
of an optionee under a stock option without the optionee's
consent, except such an amendment as would cause the Directors
Option Plan to qualify for the exemption provided by Rule 16b-3
or (ii) disqualify the
28
Directors Option Plan from the exemption provided by Rule
16b-3. In addition, (i) no amendment will be made without the
approval of the Company's shareholders to the extent such
approval is required by law or agreement, and (ii) the
Directors Option Plan will not be amended more often than once
every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
All stock options granted by the Company are non-
qualified stock options for purposes of the Code. The grant of
non-qualified stock options does not result in any taxable
income to the participant. Upon the exercise of a non-
qualified stock option, the excess of the market value of the
shares acquired over their cost to the participant is taxable
to the participant as ordinary income. TH USA will generally
be entitled to a corresponding deduction at the time such
amounts are included in income by a TH USA Plan participant.
The participant's tax basis for the shares is their fair market
value at the time of exercise. Income realized on the exercise
of a non-qualified stock option is subject to federal and
(where applicable) state and local withholding taxes.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From August 1994 through the end of the Company's
last fiscal year, the Compensation Committee consisted of Mr.
Adamko, who is the Chairman, and Mr. Silver. In April 1997,
Mr. Murray was appointed as an additional member of the
Compensation Committee.
During the Company's last fiscal year, Sportswear
Holdings was 50% owned by Novel Enterprises, a Hong Kong
corporation privately owned by members of the Chao family
(including Messrs. Silas K.F. Chou and Ronald K.Y. Chao), and
50% owned by Gadwal Limited, a Hong Kong corporation in which
Mr. Stroll has a indirect beneficial ownership interest
("Gadwal"). In January 1997, Novel Enterprises transferred its
ownership interest in Sportswear Holdings to a Hong Kong
corporation under common control with Novel Enterprises . AIHL
is owned by Sportswear Holdings, Mr. Hilfiger and Mr. Horowitz.
AIHL owns, indirectly through a subsidiary, substantially all
of the outstanding shares of Pepe. Novel Enterprises and its
affiliates also hold other interests in the apparel industry.
Mr. Chou, the Chairman of the Board of Directors of
the Company, is Chairman of the Board of Directors of Pepe.
Mr. Stroll, a Director of the Company and Chief Executive
Officer of THHK, is Group Chief Executive Officer and a
director of Pepe. Mr. Ng, an executive officer and Director of
the Company, is also a director of Pepe. Mr. Ma, an executive
officer and Director of the Company, and Mr. Chao, a Director
of the Company, are directors of certain subsidiaries of Pepe.
Messrs. Chou, Hilfiger, Stroll and Horowitz,
executive officers and Directors of the Company, are executive
officers and directors of AIHL. Mr. Ng, an executive officer
and Director of the Company, is an executive officer, and until
May 1997 was a Director, of AIHL.
Messrs. Chou and Stroll, executive officers and
Directors of the Company, are executive officers and directors
of Sportswear Holdings. Mr. Chao, a Director of the Company,
is a director of Sportswear Holdings.
Messrs. Chou and Ma, executive officers and Directors
of the Company, and Mr. Chao, a Director of the Company, are
executive officers and directors of both Novel Enterprises and
the transferee of Novel Enterprises' ownership interest in
Sportswear Holdings.
29
DIRECTOR COMPENSATION
Directors who are employees of the Company or its
subsidiaries receive no additional compensation for their
service on the Board and its Committees. All other Directors
of the Company receive a retainer of $25,000 per annum. Each
member of a Committee of the Board of Directors receives a
retainer of $5,000 per annum, and each Chairman of a Committee
of the Board of Directors receives an additional retainer of
$3,000 per annum. These Directors also receive $2,000 for
attendance at each meeting of the Board or a Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth data as of June 2,
1997 concerning the beneficial ownership of Ordinary Shares by
(i) the persons known to the Company to beneficially own more
than five percent of the outstanding Ordinary Shares of the
Company, (ii) all directors and nominees and each Named
Executive Officer and (iii) all directors and executive
officers as a group as reported by each person.
AMOUNT
BENEFICIALLY PERCENT
OWNED OF CLASS(1)
------------ -----------
Provident Investment Counsel Inc.(2)
300 North Lake Avenue
Pasadena, CA 91101-4022.................. 3,948,582 10.5%
Pilgrim Baxter & Associates, Ltd.(3)
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1590..................... 2,510,200 6.7%
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Silas K.F. Chou.......................... --- ---
Thomas J. Hilfiger....................... 5,000 *
Joel J. Horowitz......................... 5,000 *
Benjamin M.T. Ng......................... 151,070(4) *
Lawrence S. Stroll....................... --- ---
Ronald K.Y. Chao......................... 2,200(5) *
Lester M.Y. Ma........................... 2,200(5) *
Joseph M. Adamko......................... 3,600(6) *
Clinton V. Silver........................ 4,200(5) *
Simon Murray............................. --- ---
All directors and executive officers as
a group (12 persons)..................... 174,270 *
________
* Less than 1%.
(1) Shares outstanding includes the right to acquire
beneficial ownership of 450,930 Ordinary Shares pursuant
to currently exercisable stock options under Company stock
option plans. For purposes of this table, "currently
exercisable" stock options include options becoming vested
and exercisable within 60 days from June 2, 1997.
(2) Information based on Amendment to Schedule 13G dated
February 10, 1997 filed with the Securities and Exchange
Commission (the "SEC") by Provident Investment Counsel
Inc. ("Provident"). According to the Schedule 13G,
30
Provident, an investment adviser, has sole dispositive
power with respect to all of the shares and sole voting
power over 3,166,730 of the shares. Provident has no
power to vote or direct the voting of 781,852 of the
shares.
(3) Information based on Amendment to Schedule 13G dated
February 14, 1997 filed with the SEC by Pilgrim Baxter &
Associates, Ltd. ("Pilgrim"). According to the Schedule
13G, Pilgrim, an investment adviser, has sole dispositive
power and shared voting power over all of the shares.
(4) Issuable upon the exercise of currently exercisable stock
options under the Plans.
(5) Issuable upon the exercise of currently exercisable stock
options under the Directors Option Plan.
(6) Includes 2,200 Ordinary Shares issuable upon the exercise
of currently exercisable stock options under the Directors
Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and transactions between the
Company and certain directors and officers of the Company and
certain of their affiliates are described below.
Effective February 1, 1997, the Company entered into
a licensing agreement with Pepe to distribute the Company's
men's and boys' sportswear (excluding jeanswear and jeans
related apparel) throughout the European market. Under this
agreement, the licensee pays THLI a royalty based on a
percentage of the value of licensed products sold by Pepe.
Except with the approval of THLI, all products sold by or
through Pepe must be purchased through THEH or TH USA pursuant
to buying agency agreements. Under these agreements, THEH and
TH USA are paid a buying agency commission based on a
percentage of the cost of products sourced through them. The
distribution of products under this arrangement is expected to
begin in Fall 1997.
Effective June 30, 1996, the Company's joint venture
arrangement with Tommy Hilfiger Japan Co., Ltd. ("TH Japan")
covering the Company's Japanese operations expired. Effective
July 1, 1996, the Company entered into an exclusive license
agreement for Japan with Novel-ITC Licensing Limited ("NIL"), a
company jointly controlled by Itochu Corporation, which was the
51% owner of TH Japan, and Novel Enterprises. Mr. Stroll
indirectly owns a 3.5% equity interest in NIL. Under the
license agreement, NIL pays THLI a royalty based on a
percentage of the value of licensed products sold by NIL's
sublicensee. Novel Enterprises and Messrs. Stroll, Hilfiger
and Horowitz indirectly own equity interests of 12.4%, 12.4%,
8.0% and 2.7%, respectively, in such sublicensee. Except with
the approval of THLI, all products sold by or through NIL or
its sublicensee must be purchased through THEH or TH USA
pursuant to buying agency agreements. Under these agreements,
THEH and TH USA are paid a buying agency commission based on a
percentage of the cost of products sourced through them.
Pursuant to this new arrangement, royalties and commissions
totaled $2,745,000 during fiscal year 1997. Pursuant to the
prior arrangement, royalties and commissions totaled $488,000
during fiscal year 1997, $1,939,000 during fiscal year 1996 and
$1,222,000 during fiscal year 1995.
Effective October 1, 1995, the Company entered into a
license agreement with a related party, AIHL (formerly SEL
International Investments Corp.), the parent of Pepe, for the
manufacture, sale and distribution of men's, women's and girl's
jeanswear and jeans related apparel (which includes women's and
girls' casual wear) bearing the TOMMY HILFIGER [R] registered
trademarks. The Company received a non-interest bearing note
receivable from AIHL in connection with this transaction. The
note which has a face value of $5,000,000, and is due on
September 30, 2000, is recorded at its present value of
$3,735,000. Under this license agreement, the Company receives
royalties from subsidiaries of Pepe based upon a percentage of
net sales of licensed products. The fiscal 1997 results of
operations include $9,963,000 of such royalties. Net sales
included in the Consolidated Statements of Operations for these
licensed products prior to this agreement were $12,370,000 in
fiscal 1996 and $9,104,000 in fiscal 1995. In addition, in
31
connection with this license, a subsidiary of Pepe leases
certain space at the Company's U.S. headquarters, for which
rent of $214,000 was received by the Company in fiscal 1997.
TH USA purchases finished goods in the ordinary
course of business from affiliates of Novel Enterprises. Such
purchases amounted to $9,852,000 during the fiscal year ended
March 31, 1997. In addition, contractors of the Company
purchase raw materials in the ordinary course of business from
affiliates of Novel Enterprises pursuant to the Company's
designation of such sources as acceptable suppliers. Such
purchases amounted to $5,811,000 during the fiscal year ended
March 31, 1997.
THEH has entered into a buying agency agreement with
Tommy Hilfiger Canada, Inc., a Canadian licensee, in which Mr.
Stroll, a Director of the Company and Chief Executive Officer
of THHK, has an indirect beneficial ownership interest. Under
this agreement, THEH receives commissions based on a percentage
of the cost of goods sourced on behalf of the licensee. THLI
receives a royalty from the licensee based upon a percentage of
net sales of licensed products. Results of operations include
$2,378,000 for the year ended March 31, 1997 for commissions
and royalties received from this licensee.
The Company sells merchandise in the ordinary course
of business to a retail store that is owned by Mr. Hilfiger's
sister. Sales to this customer amounted to approximately
$435,000 during the year ended March 31, 1997.
THEH has a consulting agreement with an affiliate,
Fasco International, pursuant to which THEH pays Fasco
International $500,000 per year, plus reimbursement of
expenses. The agreement has renewable one year terms. The
fees and related expenses under this consulting agreement
totaled $500,000 during the year ended March 31, 1997.
THEH has a consulting agreement with an affiliate of
Mr. Stroll. THEH paid fees of $375,000 in fiscal 1997 to such
affiliate.
Under the terms of an agreement with Novel
Enterprises, THHK reimburses Novel Enterprises for certain
general and administrative expenses incurred by it on behalf of
THHK. Payments made to Novel Enterprises for the year ended
March 31, 1997 were $58,000.
The law firm of Gursky & Associates, P.C., of which
Steven Gursky, Secretary of TH USA and Assistant Secretary of
the Company, is a member, provides legal services to the
Company and its subsidiaries. Payments to Gursky & Associates,
P.C., excluding reimbursement of expenses, were approximately
$1,301,000 in fiscal year 1997. Mr. Gursky is a cousin of Mr.
Horowitz, an executive officer and Director of the Company.
The Audit Committee of the Board of Directors
monitors and approves transactions between the Company and its
affiliates to seek to provide that such transactions are on
terms which are no less favorable as a whole to the Company
than could be obtained from unaffiliated parties. The Audit
Committee is composed of non-employee directors who are not
affiliated with Novel Enterprises, Gadwal, Sportswear Holdings,
AIHL or Pepe.
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Index to Financial Statements and Financial Statement
Schedules
(a) 1. Financial Statements
The following consolidated financial statements of
the Company are included in Item 8:
Consolidated Statements of Operations for the years
ended March 31, 1997, 1996 and 1995
Consolidated Balance Sheets as of March 31, 1997 and
1996
Consolidated Statements of Cash Flows for the years
ended March 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1997, 1996 and
1995
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Form 10-K
Page
----
Schedule I - Condensed Financial
Information of Registrant 39
All other schedules have been omitted because of the
absence of the conditions under which they are required or
because the required information is included in the
Consolidated Financial Statements or Notes thereto.
(a) 3. Exhibits
Exhibit
Number Description
------- -----------
3.1 -- Memorandum of Association and Articles of
Association of the Company (previously
filed as Exhibit 3 with Registration No.
33-48587 and incorporated herein by
reference)
3.2 -- Amendment to Articles of Association
(previously filed as Exhibit 3 with
Registration No. 33-48587 and incorporated
herein by reference)
33
3.3 -- Amendment to Memorandum and Articles of
Association (previously filed as Exhibit
3.3 with Registration No. 33-88906 and
incorporated herein by reference)
4. -- Specimen certificate of the Company's
Ordinary Shares, par value $0.01 per share
(previously filed as Exhibit 4 with
Registration No. 33-48587 and incorporated
herein by reference)
10.1 -- Amended and Restated Credit Agreement,
dated as of July 11, 1996 (the "Credit
Agreement"), among Tommy Hilfiger U.S.A.,
Inc. and Tommy Hilfiger Retail, Inc., as
Borrowers, Tommy Hilfiger Corporation,
Tommy Hilfiger (Eastern Hemisphere)
Limited, Tommy Hilfiger (HK) Limited, Tommy
Hilfiger Licensing, Inc. and Tommy Hilfiger
Flagship Stores, Inc., as Guarantors, The
Chase Manhattan Bank, as Administrative
Agent, and the Lenders named therein
(previously filed as Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30,
1996 and incorporated herein by reference)
10.2 -- First Amendment, dated as of October 18,
1996, to the Credit Agreement
10.3 -- Second Amendment, dated as of December 31,
1996, to the Credit Agreement
*10.4 -- Stock Option Plans of the Company and its
subsidiaries, as amended and restated
(previously filed as Exhibits 4.1 and 4.2
with Registration No. 333-20993)
*10.5 -- Tommy Hilfiger Corporation Non-Employee
Directors Stock Option Plan (previously
filed as Exhibit 10.3 with Registration No.
33-88906 and incorporated herein by
reference)
*10.6 -- Tommy Hilfiger U.S.A., Inc. Supplemental
Executive Incentive Compensation Plan
(previously filed as Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September
30, 1995 and incorporated herein by
reference)
*10.7 -- Amended and Restated Employment Agreement,
dated as of June 30, 1992, between Tommy
Hilfiger U.S.A., Inc. and Tommy Hilfiger
(previously filed as Exhibit 10.3 with
Registration No. 33-48587 and incorporated
herein by reference)
*10.8 -- Amended and Restated Employment Agreement,
dated as of June 30, 1992, between Tommy
Hilfiger U.S.A., Inc. and Joel Horowitz
(previously filed as Exhibit 10.4 with
Registration No. 33-48587 and incorporated
herein by reference)
*10.9 -- Amendment, dated as of March 8, 1994, to
Amended and Restated Employment Agreement,
dated as of June 30, 1992, by and between
Tommy Hilfiger U.S.A., Inc. and Joel
Horowitz (previously filed as Exhibit 7 to
the Registrant's Annual Report on Form 20-F
for the fiscal year ended March 31, 1994
and incorporated herein by reference)
34
*10.10 -- Consulting Agreement, dated as of June 1,
1995, by and between Tommy Hilfiger U.S.A.,
Inc. and Jay M. Margolis (previously filed
as Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1995 and incorporated
herein by reference)
*10.11 -- Termination Agreement, dated as of February
6, 1996, by and between Tommy Hilfiger
U.S.A., Inc. and Edwin H. Lewis (previously
filed as Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1996 and incorporated
herein by reference)
*10.12 -- Termination Agreement, dated as of March
31, 1996, by and among Tommy Hilfiger
Retail, Inc., Tommy Hilfiger Corporation
and Robert C. Grayson (previously filed as
Exhibit 10.10 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1996 and incorporated
herein by reference)
*10.13 -- Stock Repurchase Agreement, dated as of
March 31, 1996, by and among Tommy Hilfiger
Retail, Inc., Tommy Hilfiger U.S.A., Inc.
and Robert C. Grayson (previously filed as
Exhibit 10.11 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1996 and incorporated
herein by reference)
10.14 -- Amended and Restated Factoring Agreement,
dated September 16, 1994 (the "Factoring
Agreement"), between Tommy Hilfiger U.S.A.,
Inc. and Century Business Credit
Corporation (previously filed as Exhibit
10.11 with Registration No. 33-88906 and
incorporated herein by reference)
10.15 -- Letter of amendment, dated April 3, 1995,
to the Factoring Agreement (previously
filed as Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1995 and incorporated
herein by reference)
10.16 -- Letter of amendment, dated April 9, 1996,
to the Factoring Agreement (previously
filed as Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1996 and incorporated
herein by reference)
10.17 -- Letter of Amendment, dated April 8, 1997,
to the Factoring Agreement
10.18 -- Warehouse Agreement, dated as of April 1,
1997, between Ridge Services, Inc. and
Tommy Hilfiger U.S.A., Inc.
10.19 -- Warehouse Agreement, dated as of April 1,
1997, between Ridge Services, Inc. and
Tommy Hilfiger Retail, Inc.
10.20 -- Contract of Sale, dated March 6, 1996,
between 2539 Realty Associates, as seller,
and Tommy Hilfiger U.S.A., Inc., as
purchaser, for 25 West 39th Street
(previously filed as Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996 and
incorporated herein by reference)
10.21 -- Lease, dated April 24, 1995, between
Forsgate Industrial Complex L.P. and Tommy
Hilfiger U.S.A., Inc. (previously filed as
Exhibit 10.25 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1995 and incorporated
herein by reference)
*10.22 -- Consulting Agreement, dated April 1, 1991,
between Polostro Limited and Tommy Hilfiger
(Eastern Hemisphere) Limited (previously
filed as Exhibit 10.13 with Registration
No. 33-48587 and incorporated herein by
reference)
*10.23 -- Amendment, dated as of April 1, 1993, to
Consulting Agreement, dated April 1, 1991,
between Polostro Limited and Tommy Hilfiger
(Eastern
35
Hemisphere) Limited (previously
filed as Exhibit 18 to the Registrant's
Annual Report on Form 20-F for the fiscal
year ended March 31, 1994 and incorporated
herein by reference)
*10.24 -- Consulting Agreement, dated April 1, 1996,
between Fasco International, Inc. and Tommy
Hilfiger (Eastern Hemisphere) Limited
(previously filed as Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996 and
incorporated herein by reference)
10.25 -- Trademark Agreement, dated June 30, 1992,
between Tommy J. Hilfiger and Tommy
Hilfiger, Inc. (previously filed as Exhibit
10.15 with Registration No. 33-48587 and
incorporated herein by reference)
10.26 -- United States License Agreement, dated
August 28, 1995, between Tommy Hilfiger
Licensing, Inc. and AIHL Investment Group
Limited (formerly SEL International
Investments Corp.) (portions of this
exhibit, which have been filed separately
with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10(d) to the Registrant's
Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995
and incorporated herein by reference)
10.27 -- International License Agreement, dated
August 28, 1995, between Tommy Hilfiger
Licensing, Inc. and AIHL Investment Group
Limited (formerly SEL International
Investments Corp.) (portions of this
exhibit, which have been filed separately
with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10(e) to the Registrant's
Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995
and incorporated herein by reference)
10.28 -- First Amendment, dated June 3, 1996, to
United States License Agreement, dated
August 28, 1995, between Tommy Hilfiger
Licensing, Inc. and AIHL Investment Group
Limited (formerly SEL International
Investments Corp.) (portions of this
exhibit, which have been filed separately
with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10.29 to Registrant's Annual
Report on Form 10-K/A No. 1 for the fiscal
year ended March 31, 1996 and incorporated
herein by reference)
10.29 -- First Amendment, dated June 3, 1996, to
International License Agreement, dated
August 28, 1995, between Tommy Hilfiger
Licensing, Inc. and AIHL Investment Group
Limited (formerly SEL International
Investments Corp.) (portions of this
exhibit, which have been filed separately
with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10.30 to Registrant's Annual
Report on Form 10-K/A No. 1 for the fiscal
year ended March 31, 1996 and incorporated
herein by reference)
10.30 -- License Agreement, dated June 24, 1996,
between Tommy Hilfiger Licensing, Inc. and
Novel-ITC Licensing Limited (portions of
this exhibit, which have been filed
separately with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 and
incorporated herein by reference)
36
10.31 -- License Agreement, dated as of February 1,
1997, between Tommy Hilfiger Licensing,
Inc. and Pepe Jeans London Corporation
(portions of this exhibit, which have been
filed separately with the Securities and
Exchange Commission, have been omitted
and are the subject of a request made to
the Commission for confidential treatment)
11. -- Statement re: Computation of Per Share
Earnings
21. -- Subsidiaries of the Company
23. -- Consent of Price Waterhouse LLP
24. -- Powers of Attorney
27. -- Financial Data Schedule
________
* Management contract or compensatory plan or arrangement.
(b) 1. Reports on Form 8-K
The Company did not file any Current Reports on Form
8-K during the three months ended March 31, 1997.
37
SIGNATURE
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.
TOMMY HILFIGER CORPORATION
/s/ Benjamin M.T. Ng
Benjamin M.T. Ng
Executive Vice President-Corporate
Finance
June 27, 1997
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.
* Chairman of the Board June 27, 1997
(Silas K.F. Chou)
* Director and Honorary Chairman June 27, 1997
(Thomas J. Hilfiger)
*
(Joel J. Horowitz) Director, Chief Executive Officer June 27, 1997
and President (principal executive
officer)
* Director, Executive Vice President- June 27, 1997
(Benjamin M.T. Ng) Corporate Finance and Assistant
Secretary (principal financial
officer)
* Director June 27, 1997
(Lawrence S. Stroll)
* Director June 27, 1997
(Ronald K.Y. Chou)
* Director June 27, 1997
(Lester M.Y. Ma)
* Director June 27, 1997
(Joseph Adamko)
* Director June 27, 1997
(Clinton V. Silver)
Director June 27, 1997
(Simon Murray)
* Assistant Treasurer (principal June 27, 1997
(Steven A. Sorrillo) accounting officer)
*/s/ Benjamin M.T. Ng
Benjamin M.T. Ng
(Attorney-in-Fact)
38
SCHEDULE I
TOMMY HILFIGER CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
1997 1996 1995
---- ---- ----
Equity in income of subsidiaries...... $131,248 $92,400 $63,457
Income before income taxes............ 131,248 92,400 63,457
Provision for income taxes............ 44,866 30,900 22,742
-------- ------- -------
Net income............................ $86,382 $61,500 $40,715
======== ======= =======
NOTE 1
Registrant is a British Virgin Islands holding
company formed in June 1992 in connection with the Company's
reorganization. See Notes 1(a) and 1(b) to the Consolidated
Financial Statements.
NOTE 2
Certain provisions of Tommy Hilfiger U.S.A., Inc.'s
credit facility with its commercial banks restrict the
distribution of income and assets of the Company. See Note 6
to the Consolidated Financial Statements.
39
SCHEDULE I
(CONTINUED)
TOMMY HILFIGER CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
March 31,
---------
1997 1996
---- ----
Investment in subsidiaries..................... $397,464 $301,338
-------- --------
Total Assets............................... $397,464 $301,338
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity
Preference shares, $0.01 par value-shares authorized
5,000,000; none issued................................
Common shares, $0.01 par value-shares authorized
50,000,000; issued and outstanding
37,249,529 and 36,879,924, respectively............... $372 $369
Capital in excess of par value........................ 165,032 155,294
Retained earnings..................................... 232,015 145,633
Cumulative translation adjustment..................... 45 42
-------- --------
Total shareholders' equity........................ 397,464 301,338
-------- --------
Total Liabilities and Shareholders' Equity.... $397,464 $301,338
======== ========
40
SCHEDULE I
(continued)
TOMMY HILFIGER CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Years Ended March 31,
-----------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income.......................................... $131,248 $92,400 $63,457
Adjustments to reconcile net income cash from
operating activities:
Net equity in income of subsidiaries.......... (131,248) ($92,400) (63,457)
-------- -------- --------
Net cash provided by operating activities..... -- -- --
Cash flows from investing activities:
Investment in Tommy Hilfiger (Eastern Hemisphere)
Limited
Other .............................................. -- -- --
-------- -------- --------
Net cash used in investing activities............ -- -- --
-------- -------- --------
Cash flows from financing activities:
Net proceeds from public offering of ordinary shares... -- -- --
-------- -------- --------
Net cash provided by financing activities........ -- -- --
-------- -------- --------
Net increase in cash................................... -- -- --
Cash at beginning of year.............................. -- -- --
-------- -------- --------
Cash at end of year.................................... $ -- $ -- $ --
======== ======== ========
41
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 -- Memorandum of Association and Articles of
Association of the Company (previously
filed as Exhibit 3 with Registration No.
33-48587 and incorporated herein by
reference)
3.2 -- Amendment to Articles of Association
(previously filed as Exhibit 3 with
Registration No. 33-48587 and incorporated
herein by reference)
3.3 -- Amendment to Memorandum and Articles of
Association (previously filed as Exhibit
3.3 with Registration No. 33-88906 and
incorporated herein by reference)
4. -- Specimen certificate of the Company's
Ordinary Shares, par value $0.01 per share
(previously filed as Exhibit 4 with
Registration No. 33-48587 and incorporated
herein by reference)
10.1 -- Amended and Restated Credit Agreement,
dated as of July 11, 1996 (the "Credit
Agreement"), among Tommy Hilfiger U.S.A.,
Inc. and Tommy Hilfiger Retail, Inc., as
Borrowers, Tommy Hilfiger Corporation,
Tommy Hilfiger (Eastern Hemisphere)
Limited, Tommy Hilfiger (HK) Limited, Tommy
Hilfiger Licensing, Inc. and Tommy Hilfiger
Flagship Stores, Inc., as Guarantors, The
Chase Manhattan Bank, as Administrative
Agent, and the Lenders named therein
(previously filed as Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30,
1996 and incorporated herein by reference)
10.2 -- First Amendment, dated as of October 18,
1996, to the Credit Agreement
10.3 -- Second Amendment, dated as of December 31,
1996, to the Credit Agreement
*10.4 -- Stock Option Plans of the Company and its
subsidiaries, as amended and restated
(previously filed as Exhibits 4.1 and 4.2
with Registration No. 333-20993)
*10.5 -- Tommy Hilfiger Corporation Non-Employee
Directors Stock Option Plan (previously
filed as Exhibit 10.3 with Registration No.
33-88906 and incorporated herein by
reference)
*10.6 -- Tommy Hilfiger U.S.A., Inc. Supplemental
Executive Incentive Compensation Plan
(previously filed as Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September
30, 1995 and incorporated herein by
reference)
*10.7 -- Amended and Restated Employment Agreement,
dated as of June 30, 1992, between Tommy
Hilfiger U.S.A., Inc. and Tommy Hilfiger
(previously filed as Exhibit 10.3 with
Registration No. 33-48587 and incorporated
herein by reference)
*10.8 -- Amended and Restated Employment Agreement,
dated as of June 30, 1992, between Tommy
Hilfiger U.S.A., Inc. and Joel Horowitz
(previously filed as Exhibit 10.4 with
Registration No. 33-48587 and incorporated
herein by reference)
*10.9 -- Amendment, dated as of March 8, 1994, to
Amended and Restated Employment Agreement,
dated as of June 30, 1992, by and between
Tommy Hilfiger U.S.A., Inc. and Joel
Horowitz (previously filed as
42
Exhibit 7 to the Registrant's Annual Report
on Form 20-F for the fiscal year ended
March 31, 1994 and incorporated herein by
reference)
*10.10 -- Consulting Agreement, dated as of June 1,
1995, by and between Tommy Hilfiger U.S.A.,
Inc. and Jay M. Margolis (previously filed
as Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1995 and incorporated
herein by reference)
*10.11 -- Termination Agreement, dated as of February
6, 1996, by and between Tommy Hilfiger
U.S.A., Inc. and Edwin H. Lewis (previously
filed as Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1996 and incorporated
herein by reference)
*10.12 -- Termination Agreement, dated as of March
31, 1996, by and among Tommy Hilfiger
Retail, Inc., Tommy Hilfiger Corporation
and Robert C. Grayson (previously filed as
Exhibit 10.10 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1996 and incorporated
herein by reference)
*10.13 -- Stock Repurchase Agreement, dated as of
March 31, 1996, by and among Tommy Hilfiger
Retail, Inc., Tommy Hilfiger U.S.A., Inc.
and Robert C. Grayson (previously filed as
Exhibit 10.11 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1996 and incorporated
herein by reference)
10.14 -- Amended and Restated Factoring Agreement,
dated September 16, 1994 (the "Factoring
Agreement"), between Tommy Hilfiger U.S.A.,
Inc. and Century Business Credit
Corporation (previously filed as Exhibit
10.11 with Registration No. 33-88906 and
incorporated herein by reference)
10.15 -- Letter of amendment, dated April 3, 1995,
to the Factoring Agreement (previously
filed as Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1995 and incorporated
herein by reference)
10.16 -- Letter of amendment, dated April 9, 1996,
to the Factoring Agreement (previously
filed as Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1996 and incorporated
herein by reference)
10.17 -- Letter of Amendment, dated April 8, 1997,
to the Factoring Agreement
10.18 -- Warehouse Agreement, dated as of April 1,
1997, between Ridge Services, Inc. and
Tommy Hilfiger U.S.A., Inc.
10.19 -- Warehouse Agreement, dated as of April 1,
1997, between Ridge Services, Inc. and
Tommy Hilfiger Retail, Inc.
10.20 -- Contract of Sale, dated March 6, 1996,
between 2539 Realty Associates, as seller,
and Tommy Hilfiger U.S.A., Inc., as
purchaser, for 25 West 39th Street
(previously filed as Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996 and
incorporated herein by reference)
10.21 -- Lease, dated April 24, 1995, between
Forsgate Industrial Complex L.P. and Tommy
Hilfiger U.S.A., Inc. (previously filed as
Exhibit 10.25 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1995 and incorporated
herein by reference)
*10.22 -- Consulting Agreement, dated April 1, 1991,
between Polostro Limited and Tommy Hilfiger
(Eastern Hemisphere) Limited (previously
filed as Exhibit 10.13 with Registration
No. 33-48587 and incorporated herein by
reference)
*10.23 -- Amendment, dated as of April 1, 1993, to
Consulting Agreement, dated
43
April 1, 1991, between Polostro Limited and
Tommy Hilfiger (Eastern Hemisphere) Limited
(previously filed as Exhibit 18 to the
Registrant's Annual Report on Form 20-F for
the fiscal year ended March 31, 1994 and
incorporated herein by reference)
*10.24 -- Consulting Agreement, dated April 1, 1996,
between Fasco International, Inc. and Tommy
Hilfiger (Eastern Hemisphere) Limited
(previously filed as Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996 and
incorporated herein by reference)
10.25 -- Trademark Agreement, dated June 30, 1992,
between Tommy J. Hilfiger and Tommy
Hilfiger, Inc. (previously filed as Exhibit
10.15 with Registration No. 33-48587 and
incorporated herein by reference)
10.26 -- United States License Agreement, dated
August 28, 1995, between Tommy Hilfiger
Licensing, Inc. and AIHL Investment Group
Limited (formerly SEL International
Investments Corp.) (portions of this
exhibit, which have been filed separately
with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10(d) to the Registrant's
Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995
and incorporated herein by reference)
10.27 -- International License Agreement, dated
August 28, 1995, between Tommy Hilfiger
Licensing, Inc. and AIHL Investment Group
Limited (formerly SEL International
Investments Corp.) (portions of this
exhibit, which have been filed separately
with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10(e) to the Registrant's
Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995
and incorporated herein by reference)
10.28 -- First Amendment, dated June 3, 1996, to
United States License Agreement, dated
August 28, 1995, between Tommy Hilfiger
Licensing, Inc. and AIHL Investment Group
Limited (formerly SEL International
Investments Corp.) (portions of this
exhibit, which have been filed separately
with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10.29 to Registrant's Annual
Report on Form 10-K/A No. 1 for the fiscal
year ended March 31, 1996 and incorporated
herein by reference)
10.29 -- First Amendment, dated June 3, 1996, to
International License Agreement, dated
August 28, 1995, between Tommy Hilfiger
Licensing, Inc. and AIHL Investment Group
Limited (formerly SEL International
Investments Corp.) (portions of this
exhibit, which have been filed separately
with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10.30 to Registrant's Annual
Report on Form 10-K/A No. 1 for the fiscal
year ended March 31, 1996 and incorporated
herein by reference)
10.30 -- License Agreement, dated June 24, 1996,
between Tommy Hilfiger Licensing, Inc. and
Novel-ITC Licensing Limited (portions of
this exhibit, which have been filed
separately with the Securities and Exchange
Commission, have been omitted pursuant to
an order of the Commission granting
confidential treatment) (previously filed
as Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the
quarterly period
44
ended June 30, 1996 and
incorporated herein by reference)
10.31 -- License Agreement, dated as of February 1,
1997, between Tommy Hilfiger Licensing,
Inc. and Pepe Jeans London Corporation
(portions of this exhibit, which have been
filed separately with the Securities and
Exchange Commission, have been omitted
and are the subject of a request made to
the Commission for confidential treatment)
11. -- Statement re: Computation of Per Share
Earnings
21. -- Subsidiaries of the Company
23. -- Consent of Price Waterhouse LLP
24. -- Powers of Attorney
27. -- Financial Data Schedule
________
* Management contract or compensatory plan or arrangement.
45