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<SEC-DOCUMENT>0000950123-03-003983.txt : 20030408
<SEC-HEADER>0000950123-03-003983.hdr.sgml : 20030408
<ACCEPTANCE-DATETIME>20030408140849
ACCESSION NUMBER: 0000950123-03-003983
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20030131
FILED AS OF DATE: 20030408
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TIFFANY & CO
CENTRAL INDEX KEY: 0000098246
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-JEWELRY STORES [5944]
IRS NUMBER: 133228013
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0131
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-09494
FILM NUMBER: 03642503
BUSINESS ADDRESS:
STREET 1: 727 FIFTH AVE
CITY: NEW YORK
STATE: NY
ZIP: 10022
BUSINESS PHONE: 2122305317
MAIL ADDRESS:
STREET 1: 727 FIFTH AVENUE
CITY: NEW YORK
STATE: NY
ZIP: 10022
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>y84931e10vk.txt
<DESCRIPTION>TIFFANY & CO.
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-K
---------
<Table>
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</Table>
COMMISSION FILE NO. 1-9494
TIFFANY & CO.
(Exact name of registrant as specified in its charter)
<Table>
<S> <C>
DELAWARE 13-3228013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
727 FIFTH AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip code)
</Table>
Registrant's telephone number, including area code: (212) 755-8000
---------
Securities registered pursuant to Section 12(b) of the Act:
<Table>
<Caption>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, $.01 par value per share New York Stock Exchange
Stock Purchase Rights New York Stock Exchange
</Table>
---------
Securities registered pursuant to Section 12(g) of the Act:
None
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 knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of July 31, 2002 the aggregate market value of the registrant's voting
and non-voting stock held by non-affiliates of the registrant was approximately
$3,546,038,810 using the closing sales price on this day of $24.64. See Item 5.
Market for Registrant's Common Equity and Related Stockholder Matters below.
As of March 25, 2003, the registrant had outstanding 144,832,574 shares of
its common stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE.
The following documents are incorporated by reference into this Annual
Report on Form 10-K: Registrant's Annual Report to Stockholders for the Fiscal
Year Ended January 31, 2003 (Parts I, II and IV) and Registrant's Proxy
Statement Dated April 8, 2003 (Part III).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, and the documents which are
incorporated by reference, contain certain "forward-looking statements"
concerning the Registrant's objectives and expectations regarding store
openings, retail prices, gross profit, expenses, inventory performance, capital
expenditures and cash flow. In addition, management makes other forward-looking
statements from time to time concerning objectives and expectations. As a
jeweler and specialty retailer, the Registrant's success in achieving its
objectives and expectations is partially dependent upon economic conditions,
competitive developments and consumer attitudes. However, certain assumptions
are specific to the Registrant and/or the markets in which it operates. The
following assumptions, among others, are "risk factors" which could affect the
likelihood that the Registrant will achieve the objectives and expectations
communicated by management: (i) that low or negative growth in the economy or in
the financial markets, particularly in the U.S. and Japan, will not occur and
reduce discretionary spending on goods that are, or are perceived to be,
"luxuries"; (ii) that consumer spending does not decline substantially during
the fourth quarter of any year; (iii) that unsettled regional and/or global
conflicts do not result in military and/or terrorist activities creating long-or
short-term disruptions to, or changes in the pattern, practice or frequency of
tourist travel to the various regions where the Registrant operates retail
stores nor to the Registrant's ability to operate in those regions; (iv) that
sales in Japan will not decline substantially; (v) that there will not be a
substantial adverse change in the exchange relationship between the Japanese yen
and the U.S. dollar; (vi) that Mitsukoshi Ltd. of Japan and other department
store operators in Japan, in the face of declining or stagnant department store
sales, will not close or consolidate stores in which TIFFANY & CO. retail
locations are located; (vii) that Mitsukoshi's ability to continue as a leading
department store operator in Japan will continue; (viii) that existing product
supply arrangements, including license arrangements with third-party designers
Elsa Peretti and Paloma Picasso, will continue; (ix) that the wholesale market
for high-quality cut diamonds will provide continuity of supply and pricing; (x)
that the investment in Aber Diamond Corporation achieves its financial and
strategic objectives; (xi) that new systems, particularly for inventory
management, can be successfully integrated into the Registrant's operations;
(xii) that warehousing and distribution productivity and capacity can be further
improved to support the Registrant's worldwide distribution requirements; (xiii)
that new stores and other sales locations can be leased or otherwise obtained on
suitable terms in desired markets and that construction can be completed on a
timely basis; (xiv) that the Registrant can successfully improve the results of
Little Switzerland, Inc. and achieve satisfactory results from any future
ventures into which it enters that are operated under non-TIFFANY & CO.
trademarks or trade names; and (xv) that the Registrant's expansion plans for
retail and direct selling operations and merchandise development, production and
management can continue to be executed without meaningfully diminishing the
distinctive appeal of the TIFFANY & CO. brand.
The Registrant disclaims any obligation to publicly update or revise
any of its forward-looking statements to reflect subsequent events or
circumstances.
- -PAGE 2- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
The Registrant maintains a website at www.tiffany.com where investors
and other interested parties may obtain financial and other important
information, including the Registrant's periodic reports to the SEC.
PART I
ITEM 1. BUSINESS
(a) General history of business.
Registrant (also referred to as the "Company") is the parent
corporation of Tiffany and Company ("Tiffany"). Charles Lewis Tiffany founded
Tiffany's business in 1837. He incorporated Tiffany in New York in 1868.
Registrant acquired Tiffany in 1984 and completed the initial public offering of
Registrant's Common Stock in 1987.
(b) Financial information about industry segments.
Registrant's segment information for the fiscal years ended January 31,
2003, 2002 and 2001 is incorporated by reference from Registrant's Annual Report
to Stockholders for the Fiscal Year ended January 31, 2003 (Note R. "Segment
Information"). Executive Officers of the Company evaluate the performance of the
Company's assets on a consolidated basis. Therefore, separate financial
information for the Company's assets on a segment basis is not available.
(c) Narrative description of business.
As used below, the terms "Fiscal 2000", "Fiscal 2001" and "Fiscal 2002"
refer to the fiscal years ended on January 31, 2001, 2002 and 2003,
respectively. Registrant is a holding company, and conducts all business through
its subsidiary corporations.
Products
Registrant's principal product categories are fine jewelry, timepieces,
sterling silver goods, china, crystal, stationery, fragrances and personal
accessories.
Registrant offers an extensive selection of TIFFANY & CO. brand jewelry
at a wide range of prices. In Fiscal 2000, 2001 and 2002, approximately 78%, 79%
and 80%, respectively, of Registrant's net sales were attributable to jewelry.
See Merchandise Purchasing, Manufacturing and Raw Materials below. Designs are
developed by employees, suppliers, independent designers and independent "name"
designers. See Designer Licenses below.
In addition to jewelry, the Company sells TIFFANY & CO. brand
merchandise in the following categories: timepieces and clocks; sterling silver
merchandise, including flatware, hollowware (tea and coffee services, bowls,
cups and trays), trophies, key holders, picture frames and desk accessories;
stainless steel flatware; crystal, glassware, china and other tableware; custom
- -PAGE 3- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
engraved stationery; writing instruments; and fashion accessories. Fragrance
products are sold under the trademarks TIFFANY, PURE TIFFANY and TIFFANY FOR
MEN. Tiffany also sells other brands of timepieces and tableware in its U.S.
stores.
Distribution and Marketing
Channels of Distribution
For financial reporting purposes, Registrant categorizes its sales as
follows:
U.S. Retail consists of retail sales transacted in
Tiffany-operated stores in the United States(1) (see U.S.
Retail below);
Direct Marketing consists of U.S. business-to-business, direct
mail catalog and Internet sales (see Direct Marketing below);
International Retail consists of both retail and wholesale
sales to customers located outside the United States, as well
as a limited amount of business-to-business sales and Internet
sales (see International Retail below); and
Specialty Retail consists of retail sales transacted in Little
Switzerland, Inc. stores and through other existing or future
ventures involving sales of merchandise under non-TIFFANY
trademarks and trade names.
U.S. Retail
Fifth Avenue Store
Tiffany's Fifth Avenue store in New York accounts for a significant
portion of the Company's sales and is the focal point for marketing and public
relations efforts. Approximately 12%, 11% and 10% of total Company net sales for
Fiscal 2000, 2001 and 2002, respectively, were attributable to the New York
store's retail sales. In Fiscal 2000, the Company commenced a multiyear
renovation and reconfiguration project to increase the store's selling space and
provide additional floor space for customer service and special exhibitions. An
additional selling floor was opened in November 2001 and, over the next three
years, renovations of other existing selling space will be completed.
- ----------
(1) By the first quarter of Fiscal 2000 the Company had discontinued its
wholesale sales of jewelry, tabletop product and fragrances to third party
retailers in the United States. This change has not had a significant impact on
sales or profits and has enabled the Company to better manage the TIFFANY & CO.
brand and to focus management efforts on Tiffany-operated stores in the U.S.
- -PAGE 4- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
U.S. Branch Stores
At January 31, 2003, in addition to its New York Fifth Avenue store,
Tiffany had 46 branch stores in the United States. The following table
identifies the location and year of opening of each U.S. branch store:
U.S. BRANCH STORE OPENINGS
<TABLE>
<CAPTION>
YEAR YEAR
STORE LOCATION OPENED STORE LOCATION OPENED
- -------------- ------ -------------- ------
<S> <C> <C> <C>
San Francisco, California 1963 Chestnut Hill, Massachusetts 1997
Houston, Texas 1963 Cincinnati, Ohio 1997
Beverly Hills, California 1964 Palo Alto, California 1997
Chicago, Illinois 1966 Denver, Colorado 1998
Atlanta, Georgia 1969 Las Vegas, Nevada 1998
Dallas, Texas 1982 Manhasset, New York 1998
Boston, Massachusetts 1984 Seattle, Washington 1998
Costa Mesa, California 1988 Scottsdale, Arizona 1998
Philadelphia, Pennsylvania 1990 Century City, California 1999
Vienna, Virginia 1990 Dallas (NorthPark), Texas 1999
Palm Beach, Florida 1991 Boca Raton, Florida 1999
Honolulu, Hawaii (Ala Moana) 1992 Tamuning, Guam + 1999
San Diego, California 1992 Old Orchard, (Skokie) Illinois 2000
Troy, Michigan 1992 Maui, Hawaii (Wailea) 2000
Bal Harbour, Florida 1993 Greenwich, Connecticut 2000
Maui, Hawaii 1994 Portland, Oregon 2000
Oak Brook, Illinois 1994 Tampa, Florida 2001
King of Prussia, Pennsylvania 1995 Santa Clara (San Jose), California 2001
Short Hills, New Jersey 1995 Honolulu, Hawaii (Waikiki)++ 2002
White Plains, New York 1995 Bellevue, Washington 2002
Hackensack, New Jersey 1996 East Hampton, New York 2002
Chevy Chase, Maryland 1996 St. Louis, Missouri 2002
Charlotte, North Carolina 1997 Orlando, Florida 2002
</TABLE>
+ Operated by Mitsukoshi (U.S.A.), Inc. until March 1999.
++ Replaced two previously existing Honolulu locations.
Most of Tiffany's U.S. branch stores display a representative selection
of merchandise, but none of them maintains the extensive selection carried by
the New York store. Management currently contemplates the opening of new TIFFANY
& CO. branch stores in the United States at the rate of approximately three to
five per year. Management regularly evaluates potential markets for new TIFFANY
& CO. stores with a view to the demographics of the area to be served, consumer
demand and the proximity of other luxury brands and existing TIFFANY & CO.
locations, recognizing that over saturation of that market could diminish the
distinctive appeal of the TIFFANY & CO. brand. However, management believes that
there are a significant number of
- -PAGE 5- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
locations remaining in the United States that meet the requirements of a TIFFANY
& CO. location, particularly given a new smaller store format. Tiffany has
entered into lease agreements to open additional branches in 2003 in Walnut
Creek, California, Coral Gables, Florida and Tamuning, Guam. See Item 2.
Properties below for further information concerning U.S. Retail store leases.
U.S. TIFFANY & CO. branch stores range in size from approximately 1,500 to
16,000 gross square feet and total approximately 370,000 gross square feet.
Prior to 1993, an average of approximately 45% of the floor space in each branch
store was devoted to retail selling. Newer stores generally range from
approximately 4,000 to 7,000 gross square feet and are designed to devote
approximately 60-70% of total floor space to retail selling. Branch stores
opened after 2001 feature a store design format of approximately 5,000 square
feet in size and display primarily fine jewelry, with a select assortment of
china and crystal giftware. The East Hampton location is approximately 3,000
square feet in size and represents the first "resort" store.
Direct Marketing
Business Sales Division
Business Sales Division sales executives call on business clients
throughout the United States, selling products drawn from the retail product
line and items specially developed or sourced for the business market, including
trophies and items designed for the particular customer. Price allowances are
given to business account holders for certain purchases. Business Sales Division
customers have typically purchased for business gift giving, employee service
and achievement recognition awards, customer incentives and other purposes.
During Fiscal 2002, the Company announced that it would discontinue its service
award programs once existing customer commitments are satisfied.(2) Products and
services are marketed through an organization of approximately 127 persons
through advertising in newspapers and business periodicals and through the
publication of special catalogs. Business account holders may also make gift
purchases through the Company's Web site at www.tiffany.com.
Catalogs
Tiffany also distributes catalogs of selected merchandise to its
proprietary list of retail mail and telephone customers and to mailing lists
rented from third parties. SELECTIONS(R) catalogs are published, supplemented by
COLLECTIONS and other catalogs.
Internet
The Company distributes a selection of more than 2,000 products through
its Web site at www.tiffany.com. The Company expects to continue its expansion
of merchandise selection and services on the site based on customer needs.
- ----------
(2) Service award programs represented approximately 14% of Direct Marketing
Sales in Fiscal 2002.
- -PAGE 6- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
The following table sets forth certain data with respect to mail,
telephone and Internet order operations for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
2000 2001 2002
---- ---- ----
<S> <C> <C> <C>
Number of names on catalog mailing and Internet lists at
year-end (consists of customers who purchased by mail,
telephone or Internet prior to the applicable date)*: 1,254,000 1,497,407 1,788,008
Total catalog mailings during fiscal year (in millions): 24.7 25.9 24.0
Total mail, telephone or Internet orders received during 406,680 492,538 614,610
fiscal year*:
</TABLE>
*Fiscal 2000 has been restated to include orders received from e-commerce
customers, which commenced in November 1999.
International Retail
Stores and boutiques included in the International Retail channel of
distribution are listed on the following page.
- -PAGE 7- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
International Locations
LOCATIONS OPERATED BY REGISTRANT'S SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
JAPAN ASIA-PACIFIC EXCLUDING JAPAN
* Operated by Registrant's Subsidiaries with
Mitsukoshi, Ltd.
- --------------------------------------------------------------------------------------------------------
<S> <C>
Abeno, Kintetsu Department Store Australia: Melbourne, Collins Street
Chiba, Mitsukoshi Department Store * Australia: Sydney, Chifley Plaza
Fukuoka, Mitsukoshi * China, Beijing, The Palace Hotel
Fukuoka, Mitsukoshi Department Store * Hong Kong: Causeway Bay, Lee Gardens
Ginza, Mitsukoshi Department Store * Hong Kong: Landmark Center
Hiroshima, Mitsukoshi Department Store * Hong Kong: Pacific Place
Ikebukuro, Mitsukoshi Department Store * Hong Kong: Peninsula Hotel
Ikebukuro, Tobu Department Store (Opened 3/03) Hong Kong: Sogo Department Store
Kagoshima, Mitsukoshi Department Store * Korea: Seoul, Galleria Department Store
Kanazawa, Mitsukoshi * Korea: Seoul, Hyundai Department Store
Kashiwa, Takashimaya Department Store Korea: Seoul, Hyundai Coex Department Store
Kawasaki, Saikaya Department Store Korea: Seoul, Lotte Downtown Department Store
Kobe, Daimaru Department Store Korea: Pusan, Paradise Hotel
Kobe, Mitsukoshi Department Store * Malaysia: Suria KLCC
Kochi, Daimaru Department Store Singapore: Ngee Ann City
Kokura, Izutsuya Department Store Singapore: Raffles Hotel
Koriyama, Usui Department Store Taiwan: Kaohsiung, Hanshin Department Store
Kumamoto, Tsuruya Department Store Taiwan: Taipei, Regent Hotel
Kurashiki, Mitsukoshi Department Store * Taiwan: Taipei, Sogo Department Store
Kyoto, Daimaru Department Store Taiwan: Taichung, Sogo Department Store
Kyoto, Takashimaya Department Store ----------------------------------------------
Matsuyama, Mitsukoshi Department Store * EUROPE
Nagano, Mitsukoshi * ----------------------------------------------
Nagoya Hoshigaoka, Mitsukoshi Dept. Store * England: London, Old Bond Street
Nagoya, Mitsukoshi *(Opened 2/03) England: London, The Royal Exchange
Nagoya Sakae, Mitsukoshi Dept. Store *(Closed 2/03) England: London, Harrod's Department Store
Nagoya, Takashimaya Department Store France: Paris
Nihonbashi, Mitsukoshi Department Store * France: Paris, LePrintemps Department Store
Niigata, Mitsukoshi Department Store * Germany: Frankfurt
Oita, Tokiwa Department Store Germany: Munich
Okayama, Tenmaya Department Store Italy: Florence
Okinawa, Mitsukoshi Department Store * Italy: Milan
Osaka, Mitsukoshi Department Store * Italy: Rome
Osaka, Takashimaya Department Store Switzerland: Zurich
Sagamihara, Isetan Department Store ----------------------------------------------
Sapporo, Mitsukoshi Department Store * CANADA AND CENTRAL/SOUTH AMERICA
Sapporo, Daimaru Dept. Store (Opened 3/03) ----------------------------------------------
Sendai, Mitsukoshi Department Store * Canada: Toronto
Shinjuku, Isetan Department Store Mexico: Mexico City, Palacio Store, Polanco
Shinjuku, Mitsukoshi Department Store * Mexico: Mexico City, Palacio Store, Perisur
Shinsaibashi, Daimaru Department Store Mexico: Mexico City, Masaryk
Shizuoka, Matsuzakaya Department Store Brazil: Sao Paulo, Iguatemi Shopping Center
Tachikawa, Isetan Department Store
Takamatsu, Mitsukoshi Department Store *
Tokyo Bay, Ikspiari *
Tokyo, Ginza Flagship Store *
Tottori, Daimaru Department Store
Umeda, Daimaru Department Store
Utsunomiya, Tobu Department Store
Yokohama, Landmark Plaza, Mitsukoshi *
Yokohama, Mitsukoshi Department Store *
- --------------------------------------------------------------------------------------------------------
</TABLE>
- -PAGE 8- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
Business with Mitsukoshi
On August 1, 2001, Registrant's wholly-owned subsidiary, Tiffany & Co.
Japan Inc. ("Tiffany-Japan") entered into agreements with Mitsukoshi Ltd. of
Japan ("Mitsukoshi"). These agreements continue long-standing commercial
relationships that Registrant and its affiliated companies have had with
Mitsukoshi.
In the fiscal years ended January 31, 2001, 2002 and 2003,
respectively, total Japan sales represented 28%, 28% and 26% of Registrant's net
sales. Sales made in TIFFANY & CO. boutiques located in Mitsukoshi's stores
constituted 16%, 15% and 13% of Registrant's net sales in those years.
(Historical Background)
On June 12, 1993, Registrant, through its affiliated companies, entered
into a distribution agreement (the "93 Agreement") with Mitsukoshi. The 93
Agreement significantly changed the way Registrant and Mitsukoshi had done
business in Japan, which, from 1972 until that time, had consisted of sales to
Mitsukoshi for resale. As a consequence of the 93 Agreement, Tiffany-Japan
commenced retail sales operations in Japan.
(The 93 Agreement and the 2001 Agreement)
On August 1, 2001, Tiffany-Japan and Mitsukoshi entered into an
agreement (the "2001 Agreement"). The 2001 Agreement replaced the 93 Agreement,
which remained in effect until November 1, 2001. The 2001 Agreement will expire
on January 31, 2007.
Under the 93 and 2001 Agreements Tiffany-Japan had and has
merchandising and marketing responsibilities in the operation of TIFFANY & CO.
boutiques in Mitsukoshi's stores and other locations throughout Japan.
Mitsukoshi acts for Tiffany-Japan in the sale of merchandise owned by
Tiffany-Japan and Registrant recognizes as revenues the retail price charged to
the ultimate consumer in Japan. Tiffany-Japan holds inventories for sale,
establishes retail prices, bears the risk of currency fluctuations, provides one
or more brand managers in each boutique, controls merchandising and displays
within the boutiques, manages inventory and controls and funds all advertising
and publicity programs with respect to TIFFANY & CO. merchandise. Mitsukoshi
provides and maintains boutique facilities and assumes retail credit and certain
other risks.
Mitsukoshi provides retail staff in "Standard Boutiques" and
Tiffany-Japan provides retail staff in "Concession Boutiques." At present, there
are 16 Standard Boutiques and 10 Concession Boutiques. Over the remaining term
of the 2001 Agreement, one existing boutique is to close and five will be
converted from Standard to Concession Boutiques. Risk of inventory loss varies
depending on whether the boutique is a Standard Boutique or a Concession
Boutique. Mitsukoshi bears responsibility for loss or damage to the merchandise
in Standard Boutiques and Tiffany-Japan bears the risk in Concession Boutiques.
Under the 93 Agreement, Mitsukoshi retained a portion (the "basic
portion") of the net retail sales made in TIFFANY & CO. Boutiques. The basic
portion varied depending on the type
- -PAGE 9- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
of Boutique and the retail price of the merchandise involved. Generally,
however, Mitsukoshi's basic portion was 27% in Standard Boutiques and 20% in
Concession Boutiques. These basic portions remained in effect under the 2001
Agreement through January 31, 2003.
From February 1, 2003 through the expiration of the 2001 Agreement,
Mitsukoshi's basic portion will be reduced by four percent in each category and
increased by a factor that varies between zero and three percent depending upon
the historic sales performance of the individual boutique in question. Thus,
Registrant expects that the highest basic portion available to Mitsukoshi in any
Standard Boutique during this time period will be 26% and for any Concession
Boutique, not less than 17%.
Under the 93 Agreement, Tiffany-Japan also paid Mitsukoshi an incentive
fee of five percent of the amount by which boutique sales increased
year-to-year, calculated on a per-boutique basis. Under the 2001 Agreement, the
five-percent incentive fee is calculated only upon the increase above "Target
Sales." Target Sales means a year-to-year increase that is greater than the
lesser of (i) 10% or (ii) a sales goal set by Tiffany-Japan.
Under the 93 Agreement, Mitsukoshi had the following exclusive rights
in Tokyo: TIFFANY & CO. boutiques could be established only in Mitsukoshi's
stores and TIFFANY & CO. brand jewelry could be sold only in such boutiques, or
in the "Flagship Store" (see below). Outside Tokyo, Registrant was not
restricted in its right to establish TIFFANY & CO. boutiques or sell TIFFANY &
CO. merchandise.
Under the 2001 Agreement, Registrant is free to establish TIFFANY & CO.
boutiques and sell TIFFANY & CO. merchandise throughout Japan, including in
Tokyo.
(The FSS Agreement and the 2001 FSS Agreement)
Mitsukoshi, Tiffany-Japan and Tiffany entered into an Agreement dated
February 23, 1996 (the "FSS Agreement") governing the operation of a 7,700
square foot TIFFANY & CO. store in premises (the "Premises") located in Tokyo's
Ginza shopping district (the "Flagship Store"). Tiffany-Japan completed, at its
cost, all necessary improvements to prepare the Premises and delivered the
Premises to Mitsukoshi in May 1996. In June 1999, by Supplemental Agreement to
the FSS Agreement, the parties expanded the Premises to approximately 12,000
square feet. The Premises are leased by a third party landlord to Tiffany-Japan
for a fixed annual rental. Tiffany-Japan has paid a lease deposit of
approximately $8 million to lease the Premises. That deposit is an unsecured
indebtedness owed to Tiffany-Japan.
On August 1, 2001, Mitsukoshi and Tiffany-Japan entered into the "2001
FSS Agreement" which replaced the FSS Agreement.
Under both the FSS Agreement and the 2001 FSS Agreement, the Premises
are subleased by Tiffany-Japan to Mitsukoshi on a percentage-of-sales basis (the
"Sublease"). Tiffany-Japan bears all costs of operating the Premises.
Tiffany-Japan selects and furnishes merchandise for display in the Flagship
Store, prices the merchandise for retail sale, bears all risk of loss until the
merchandise is sold to a customer and determines all issues of display,
packaging, signage and advertising. Mitsukoshi acts for Tiffany-Japan in the
sale of the merchandise, collects and holds the sales proceeds, makes credit
available to customers, bears all credit losses and provides its point-of-sale
transaction processing system (the "POS System"). Tiffany-Japan provides all
- -PAGE 10- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
necessary staff other than employees provided by Mitsukoshi in connection with
the POS System. Management of the Flagship Store, other than with respect to the
POS System, is the responsibility of Tiffany-Japan.
After compensating Tiffany-Japan on a percentage-of-sales basis for
Sublease rent and staffing, Mitsukoshi is allocated a percentage of net sales.
Under the FSS Agreement, Mitsukoshi's percentage allocation was 8.3%. Under the
2001 FSS Agreement, Mitsukoshi's percentage allocation is 3%.
The 2001 FSS Agreement is scheduled to expire on September 30, 2005,
but will be extended until September 30, 2007, subject to renewal of the lease
for the Premises by Tiffany-Japan and the landlord for the Premises.
(Other Transactions with Mitsukoshi)
On February 2, 1998, Tiffany purchased, as a going concern, the TIFFANY
& CO. business operated on the island of Oahu, Hawaii, by an affiliate of
Mitsukoshi under agreement with Tiffany. The transaction was structured as a
purchase of assets. Tiffany paid a cash price of $8.1 million and agreed to make
contingent payments equal to 3.75% of certain sales made by Tiffany on the
island of Oahu after the date of the purchase through January 31, 2003. On March
19, 1999, Tiffany purchased, as a going concern, the TIFFANY & CO. business
operated in Guam by an affiliate of Mitsukoshi under agreement with Tiffany. The
transaction was structured as a cash-for-stock purchase of the affiliate, under
which Tiffany assumed all of the assets and liabilities of the affiliate.
Tiffany paid a total cash price of $7.0 million.
From 1989 through January 1999, Mitsukoshi Limited of Japan and its
affiliated companies held a significant portion of the Registrant's Common
Stock. As of January 31, 1999, Mitsukoshi's holdings represented 12.3% of
Registrant's outstanding shares. In February 1999, Mitsukoshi sold all of its
holdings of Registrant's Common Stock through a public offering.
International Wholesale Distribution
Selected TIFFANY & CO. merchandise is sold to independent distributors
for resale in markets in Central/Latin/South American, Caribbean, Canadian,
Asia-Pacific, Russian and Middle Eastern regions. Such sales represented 1.6% of
total sales in Fiscal 2002.(3)
Management anticipates continued expansion of international wholesale
distribution in Central/Latin/South American, Caribbean and Asia-Pacific regions
as markets are developed.
- ----------
(3) In fiscal years 2000 and 2001 the Company discontinued wholesale sales
of jewelry and fragrance in Europe. This change has not had a significant impact
on sales or profits and has enabled the Company to better manage the TIFFANY &
CO. brand and to focus management efforts on Company-operated stores in Europe.
- -PAGE 11- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
Expansion of Worldwide Retail Operations
Registrant expects to continue to open stores in locations outside the
United States. However, the timing and success of this program will depend upon
many factors, including Registrant's ability to obtain suitable retail space on
satisfactory economic terms and the extent of consumer demand for TIFFANY & CO.
products in overseas markets. Such demand varies from market to market.
The Company's commercial relationship with Mitsukoshi and Mitsukoshi's
ability to continue as a leading department store operator have been and will
continue to be substantial factors in the Company's continued success in Japan.
Presently, TIFFANY & CO. boutiques are located in 26 Mitsukoshi department
stores and other retail locations operated with Mitsukoshi in Japan. The Company
also operates 24 boutiques primarily in department stores other than Mitsukoshi,
in locations within Japan but outside of Tokyo, and plans to open more.
In recent years, the Japanese department store industry has, in
general, suffered declining sales. There is a risk that such financial
difficulties will force consolidations or store closings. Should one or more
Japanese department store operators, such as Mitsukoshi, elect or be required to
close one or more stores now housing a TIFFANY & CO. boutique, the Company's
sales and earnings would be reduced while alternate premises are being obtained.
Tiffany began its ongoing program of international expansion through
proprietary retail stores in 1986 with the establishment of the London store.
Company-operated international TIFFANY & CO. stores and boutiques range in size
from approximately 400 to 14,000 gross square feet and total approximately
232,000 gross square feet devoted to retail purposes. The following chart
details the growth in the Company's stores and boutiques since Fiscal 1987 on a
worldwide basis:
- -PAGE 12- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
Worldwide TIFFANY & CO. Retail Locations Operated by Registrant's Subsidiary
Companies
<TABLE>
<CAPTION>
=======================================================================================================================
Americas and Europe Asia-Pacific
- -----------------------------------------------------------------------------------------------------------------------
Canada,
Central/Latin
End of /South
Fiscal: U.S. Americas Europe Japan Elsewhere Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1987 8 0 2 0 0 10
1988 9 0 3 0 1 13
1989 9 0 5 0 2 16
1990 12 0 5 0 3 20
1991 13 1 7 0 4 25
1992 16 1 7 7 4 35
1993 16 1 6 37** 5 65
1994 18 1 6 37 7 69
1995 21 1 6 38 9 75
1996 23 1 6 39 12 81
1997 28 2 7 42 17 96
1998 34 2 7 44 17 104
1999 38 3 8 44 17 110
2000 42 4 8 44 21 119
2001 44 5 10 47 20 126
2002 47 5 11 48 20 131
=======================================================================================================================
</TABLE>
**Prior to July 1993, many TIFFANY & CO. boutiques in Japan were operated by
Mitsukoshi (ranging from 21 in 1987 to 29 in 1993). See Business with Mitsukoshi
above.
Specialty Retail
In Fiscal 2002, the Company established this new channel of
distribution to include the consolidated results of retail sales transactions in
Little Switzerland, Inc. stores and the results of other existing or future
ventures involving sales of merchandise under non-TIFFANY trademarks and trade
names. Specialty retail sales accounted for 1.4 % of net sales in Fiscal 2002.
Little Switzerland, Inc.
In October 2002, the Company, through a subsidiary, completed the
acquisition of all the shares of Little Switzerland, Inc., a specialty retailer
of brand name watches, jewelry, china, crystal and giftware. Little Switzerland
stores are located on five Caribbean islands (St. Thomas (3); St. Maarten/St.
Martin (2); Aruba (6); Curacao (1); and Barbados (1)) and in Florida (Key West
(3))
- -PAGE 13- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
and Alaska (Skagway (2); Juneau (1); and Ketchikan (1)), and appeal primarily to
tourists from the United States. Little Switzerland sells primarily non-TIFFANY
brand products, but certain stores carry selected TIFFANY & CO. merchandise.
Advertising and Promotion
Tiffany regularly advertises primarily in newspapers and magazines and
periodically conducts product promotional events. In Fiscal 2000, 2001 and 2002,
Tiffany spent approximately $84.2 million, $86.4 million, and $101.9 million,
respectively, on worldwide advertising, which include media, production,
catalogs, promotional events and other related costs.
Public Relations (promotional) activity is also a significant aspect of
Registrant's business. Management believes that Tiffany's image is enhanced by a
program of charity sponsorships, grants and merchandise donations. Donations are
also made to The Tiffany & Co. Foundation, a private foundation organized to
support other 501(c)(3) charitable organizations with efforts concentrated in
the education and preservation of the arts and environmental conservation. The
Company also engages in a program of retail promotions and media activities to
maintain consumer awareness of the Company and its products. Each year, Tiffany
publishes its well-known Blue Book which showcases fine jewelry and other
merchandise. Tiffany's window displays are another important aspect of Tiffany's
promotional efforts. John Loring, Tiffany's Design Director, is the author of
numerous books featuring TIFFANY & CO. products. Registrant considers these and
other promotional efforts important in maintaining Tiffany's image as an arbiter
of taste and style.
Trademarks
The designations TIFFANY(R) and TIFFANY & CO.(R) are the principal
trademarks of Tiffany, as well as serving as trade names. Through its
subsidiaries, the Company has obtained and is the proprietor of trademark
registrations for TIFFANY and TIFFANY & CO., as well as the TIFFANY BLUE BOX(R)
and the color TIFFANY BLUE(R) for a variety of product categories in the United
States and in other countries. Over the years, Tiffany has maintained a program
to protect its trademarks and has instituted legal action where necessary to
prevent others either from registering or using marks which are considered to
create a likelihood of confusion with the Company or its products. Tiffany has
been generally successful in such actions and management considers that its
United States trademark rights in TIFFANY and TIFFANY & CO. are strong. However,
use of the designation TIFFANY by third parties (often small companies) on
unrelated goods or services, frequently transient in nature, may not come to the
attention of Tiffany or may not rise to a level of concern warranting legal
action. Despite the general fame of the TIFFANY and TIFFANY & CO. name and mark
for the Company's products and services, Tiffany is not the sole person entitled
to use the name TIFFANY in every category in every country of the world; third
parties have registered the name TIFFANY in the United States in the food
services category, and in a number of foreign countries in respect of certain
product categories (including, in a few countries, the categories of fragrance,
cosmetics, jewelry, eyeglass frames, clothing and tobacco products) under
circumstances where Tiffany's rights were not sufficiently clear under local
law, and/or where management concluded that Tiffany's foreseeable business
interests did not warrant the expense of litigation.
- -PAGE 14- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
Designer Licenses
Tiffany has been the sole licensee for jewelry designed by Elsa
Peretti, Paloma Picasso and the late Jean Schlumberger since 1974, 1980 and
1956, respectively. In 1992, Tiffany acquired trademark and other rights
necessary to sell the designs of the late Mr. Schlumberger under the
TIFFANY-SCHLUMBERGER trademark. Ms. Peretti and Ms. Picasso retain ownership of
copyrights for their designs and of their trademarks and exercise approval
rights with respect to important aspects of the promotion, display, manufacture
and merchandising of their designs. Tiffany is required by contract to devote a
portion of its advertising budget to the promotion of their respective products;
each is paid a royalty by Tiffany for jewelry and other items designed by them
and sold under their respective names. Written agreements exist between Ms.
Peretti and Tiffany and between Ms. Picasso and Tiffany but may be terminated by
either party following six months notice to the other party. Tiffany is the sole
retail source for merchandise designed by Ms. Peretti worldwide; however, she
has reserved by contract the right to appoint other distributors in markets
outside the United States, Canada, Japan, Singapore, Australia, Italy, the
United Kingdom, Switzerland and Germany.
The designs of Ms. Peretti accounted for 15% of the Company's net sales
in Fiscal 2000, 2001 and 2002. Merchandise designed by Ms. Picasso accounted for
3%, 3% and 4% of the Company's net sales in Fiscal 2000, 2001 and 2002.
Registrant's operating results could be adversely affected were it to
cease to be a licensee of either of these designers or should its degree of
exclusivity in respect of their designs be diminished.
Merchandise Purchasing, Manufacturing and Raw Materials
Merchandise offered for sale by the Company is supplied from Tiffany's
jewelry and silver goods manufacturing facility in Cumberland, Rhode Island and
Tiffany's workshops in New York City and Pelham, New York; Parsippany, New
Jersey; Salem, West Virginia; and Paris, France and through purchases and
consignments from others. It is Registrant's long-term objective to continue its
expansion of Tiffany's internal manufacturing operations. However, it is not
expected that Tiffany will ever manufacture all of its needs. Factors to be
considered in its decision to outsource manufacturing include product quality,
gross margin improvement, access to or mastery of various jewelry-making skills
and technology, support for alternative capacity and the cost of capital
investments. The following table shows Tiffany's sources of jewelry merchandise,
based on cost, for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years
Jewelry Merchandise 2000 2001 2002
-------- -------- --------
<S> <C> <C> <C>
Produced by Tiffany 52% 49% 52%
Purchased from others 48 51 48
-------- -------- --------
Total 100% 100% 100%
======== ======== ========
</TABLE>
A substantial majority of non-jewelry merchandise is purchased from
others.
- -PAGE 15- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
Gems and precious metals used in making Tiffany's jewelry may be
purchased from a variety of sources. For the most part, purchases of such
materials are from suppliers with which Tiffany enjoys long-standing
relationships.
Products containing one or more diamonds of varying sizes, including
diamonds used as accents, side-stones and center-stones, accounted for
approximately 40%, 38% and 36% of Tiffany's net sales in Fiscal 2000, 2001 and
2002, respectively. Products containing one or more diamonds of one carat or
larger accounted for less than 10% of net sales in each of those years. Tiffany
purchases cut diamonds principally from four key vendors. Were trade relations
between Tiffany and one or more of these vendors to be disrupted, the Company's
sales would be adversely affected in the short term until alternative supply
arrangements could be established. Diamonds of one carat or greater of the
quality the Company demands are, on a relative basis, more difficult to acquire
than smaller diamonds. Established sources for smaller stones would be more
easily replaced in the event of a disruption in supply than would established
sources for larger-sized stones.
Except as noted above, Tiffany believes that there are numerous
alternative sources for gems and precious metals and that the loss of any single
supplier would not have a material adverse effect on its operations.
In 1999, the Company made a 14.7% equity investment ($71 million) in
Aber Diamond Corporation ("Aber"), a publicly-traded company headquartered in
Canada, by purchasing 8 million unregistered shares of its common stock. Aber
holds a 40% interest in the Diavik Diamonds Project in Northwest Canada. Under
the Company's diamond purchase agreement with Aber, the Company is obligated to
purchase at least $50 million in diamonds annually (in assortments of diamonds
expected to cut/polish to the Company's quality standards) during the next 10
years. It is expected that Tiffany's alliance with Aber will enable the Company
to secure a significant portion of its future diamond needs and start-up is
expected in the first quarter of Fiscal 2003.
Presently, the supply and price of rough (uncut and unpolished)
diamonds in the principal world markets have been and continue to be
significantly influenced by a single entity, the Diamond Trading Corporation
(the "DTC") of De Beers Centenary AG, a Swiss corporation. The DTC continues to
supply a significant portion of the world market for rough, gem-quality
diamonds, notwithstanding that its historical ability to control supplies has
been somewhat diminished due to changing politics in diamond-producing countries
and revised contractual arrangements with independent mine operators. The DTC
continues to exert a significant influence on the demand for polished diamonds
through advertising and marketing efforts throughout the world and through the
requirements it imposes on those who purchase rough diamonds from the DTC
("sight-holders").
Historically, Tiffany has not purchased rough diamonds; in consequence,
Tiffany has not purchased directly from the DTC. Some, but not all, of Tiffany's
suppliers are DTC sight-holders, and it is estimated that 50% of the diamonds
that Tiffany has purchased have had their source with the DTC.
Tiffany expects to purchase rough diamonds from Aber and other sellers
through its affiliated companies beginning in Fiscal 2003. In preparation,
Tiffany has, through its affiliated companies, invested in building a diamond
sorting and processing facility in Antwerp, Belgium and a diamond
cutting/polishing facility in Yellowknife, The Northwest Territories of Canada.
Rough diamonds will be exported to Belgium, where they will be sorted and
evaluated for cutting. Some diamonds will be sent to Canada for
cutting/polishing in Tiffany's facility. Other diamonds will be
- -PAGE 16- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
provided to contractors for cutting and return. In conducting these activities,
it is Tiffany's intention to supply its own needs for cut/polished diamonds and
hopes to minimize the number of rough or cut stones that prove unsatisfactory
and must be sold to third parties. However, some such sales will be inevitable.
The availability and price of diamonds to the DTC and Tiffany's
suppliers may be, to some extent, dependent on the political situation in
diamond-producing countries, the opening of new mines and the continuance of the
prevailing supply and marketing arrangements for rough diamonds. Sustained
interruption in the supply of rough diamonds, an over-abundance of supply or a
substantial change in the marketing arrangements described above could adversely
affect Tiffany and the retail jewelry industry as a whole. Changes in the
marketing and advertising policies of DTC and its direct purchasers could affect
consumer demand for diamonds. Additionally, an affiliate of the DTC has formed a
joint venture with an affiliate of a major luxury goods retailer for the purpose
of retailing diamond jewelry. This joint venture has become a competitor of
Tiffany. Further, the DTC has encouraged its sight-holders to engage in diamond
brand development, which may also increase demand for diamonds and affect the
supply of diamonds in certain categories.
Increasing attention has been focused within the last few years on the
issue of "conflict" diamonds. Conflict diamonds are extracted from war-torn
regions and sold by rebel forces to fund insurrection. Allegations have been
made in the press that diamonds are used as a source to further terrorist
activities. Concerned participants in the diamond trade, including Tiffany and
non-government organizations, seek to exclude such diamonds, which represent a
small fraction of the world's supply, from legitimate trade through an
international system of certification and legislative initiatives. It is
expected that such efforts will not substantially affect the supply of diamonds.
However, in the near term, efforts by these non-governmental organizations to
increase consumer awareness of the issue and encourage legislative response
could affect consumer demand for diamonds.
Finished jewelry is purchased from approximately 85 manufacturers, most
of which have long-standing relationships with Tiffany. Tiffany believes that
there are alternative sources for most jewelry items; however, due to the
craftsmanship involved in certain designs, Tiffany would have difficulty in
finding readily available alternatives in the short term.
TIFFANY & CO. brand clocks and components for timepieces are
manufactured and assembled by third parties. Approximately 53% of net watch
sales during Fiscal 2002 were attributable to a single manufacturer. Nearly all
movements for Tiffany's new MARK line of watches are purchased from a single
manufacturer. The loss of this manufacturer could result in the unavailability
of timepieces during the period necessary for Tiffany to arrange for new
production.
- -PAGE 17- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
Competition
Registrant encounters significant competition in all of its product
lines from other third-party providers, some of which specialize in just one
area in which the Company is active. Many of the Company's competitors have
established reputations for style and expertise similar to that of the Company
and compete on the basis of value. Other jewelers and retailers compete
primarily through advertised price promotion. The Company competes on the basis
of reputation for high quality products, brand recognition, and distinctive
value-priced merchandise and does not engage in price promotional advertising.
See Merchandise Purchasing, Manufacturing and Raw Materials above.
Competition for engagement jewelry sales is particularly fierce and
becoming more so. The rise of the Internet and increased use of diamond
condition reports issued by independent gemological associations have given rise
to the mistaken impression amongst certain consumers that diamonds are commodity
items and that significant quality differences do not exist. Tiffany's price for
diamonds reflects the rarity of the stones it offers and the rigid parameters it
exercises with respect to the cut, clarity and other quality factors which
increase the beauty of Tiffany diamonds, but also increase Tiffany's cost.
Tiffany competes in this market by stressing quality, while some competitors
offer inferior diamonds claiming they are comparable, but at lesser prices.
The international marketplace for the Company's products is highly
competitive. Although the Company believes that the name TIFFANY & CO. is known
internationally, and although Tiffany did operate retail stores in London and
Paris prior to World War II, the Company did not have a retail presence in
Europe in the post-war era until 1986. Accordingly, consumer awareness of
Tiffany & Co. and its products is not as strong in Europe as in the U.S. or in
Japan, where Tiffany has distributed its products for many years. The Company
expects that its overseas stores will continue to experience intense competition
from established retailers in international cities where TIFFANY & CO. stores
are or may eventually be located.
Registrant also faces increasing competition in the area of direct
marketing. A growing number of direct sellers compete for access to the same
mailing lists of known purchasers of luxury goods. In marketing recognition
awards and business gifts to corporations and other organizations, the Company
faces numerous competitors who sell a wide variety of products at a greater
price range than the Company, which has chosen to offer a more limited selection
in order to adhere to its established quality standards. Tiffany currently
distributes selected merchandise through its Web site at www.tiffany.com and
anticipates continuing competition in this area as the technology evolves.
Tiffany does not currently offer diamond engagement jewelry through its Web
site, while certain of Tiffany's competitors do. Nonetheless, Tiffany will seek
to maintain and improve its position in the Internet marketplace by refining and
expanding its merchandise selection and services.
Seasonality
As a jeweler and specialty retailer, the Company's business is seasonal
in nature, with the fourth quarter typically representing a proportionally
greater percentage of annual sales, earnings from operations and cash flow.
Management expects such seasonality to continue.
- -PAGE 18- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
Employees
As of January 31, 2003, the Registrant's subsidiary corporations
employed an aggregate of approximately 6,431 full-time and part-time persons. Of
those employees, 4,870 are employed in the United States. Of Tiffany's total
employees, approximately 2,602 persons are salaried employees, 745 are engaged
in manufacturing and 3,449 are retail store personnel. None of the Company's
employees is represented by a union. Registrant believes that relations with its
employees are good.
ITEM 2. PROPERTIES
Registrant both owns and leases its principal operating facilities and
occupies its various store premises under lease arrangements that are generally
on a two to ten-year basis.
New York Store
In November 1999, Tiffany repurchased the land and building housing its
flagship store at 727 Fifth Avenue in New York City. Prior to its repurchase,
Tiffany had leased the building since 1984. Constructed for Tiffany in 1940, the
building was designed to be a retail store for the Company and is believed to be
well located for this function. Currently, approximately 40,000 gross square
feet of this 124,000 square foot building are devoted to retail sales, with the
balance devoted to administrative offices, certain product services, jewelry
manufacturing and storage. In Fiscal 2000, the Company commenced a multiyear
renovation and reconfiguration project to increase the store's selling space and
provide additional floor space for customer service and special exhibitions. An
additional selling floor was opened in November 2001 and, over the next three
years, renovations of other existing selling space will be completed.
London Flagship Store
In October 2002, Registrant purchased through a subsidiary the building
housing its flagship European store at 25/25A Old Bond Street in London and the
adjacent building at 15 Albermarle Street. The London store had been leased
since 1986 and was expanded to its current 15,200 square feet in 1991. A
renovation and reconfiguration of the store's interior selling space is
scheduled to commence in 2003 and will occur in several phases through the
second half of 2004.
Customer Service Center
In 1995, Tiffany entered into a lease of undeveloped property in
Parsippany, New Jersey, in order to construct and occupy a new distribution
facility. In April 1997, construction of the "Customer Service Center" ("CSC")
on that property was completed and Tiffany commenced operations. The CSC is a
combined warehouse, distribution, light manufacturing, computing and office
center. To meet increased demand, the computer and office center areas were
expanded during Fiscal 2001. In January 2001, Tiffany exercised its right under
the lease to purchase the CSC for a scheduled purchase price. This capital lease
buyout was completed on January 31, 2002. Registrant believes that the CSC has
been properly designed to handle worldwide
- -PAGE 19- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
distribution functions and that it is suitable for that purpose. The CSC
currently comprises approximately 370,000 square feet, of which approximately
186,000 square feet are devoted to office and computer operations use, with the
balance devoted to warehousing, shipping, receiving, light manufacturing,
merchandise processing and other distribution functions.
In anticipation of growth in sales volume and company-operated stores,
in Fiscal 2001 Tiffany entered into a ground lease of undeveloped property in
Hanover Township, New Jersey in order to construct and occupy an additional
facility to manage the warehousing and processing of direct-to-customer orders
and to perform other distribution functions. Construction of the facility is
near completion and occupancy is expected in the second half of Fiscal 2003,
assuming the landlord has completed certain corrective work to the site. In the
event of a delay in occupancy of the facility, management believes that its
current distribution facility, supplemented by outside distribution resources,
will be sufficient to handle distribution functions through Fiscal 2003. The
proposed facility will be approximately 266,000 square feet, of which
approximately 34,500 square feet will be devoted to office use, the balance to
warehousing, shipping, receiving, merchandise processing and other warehouse
functions. When the new facility becomes operational, the CSC will be devoted to
store replenishment and wholesale support activities.
Manufacturing Facility - Cumberland, Rhode Island
In January 2000 Tiffany entered into a purchase agreement for the
purchase of undeveloped property in Cumberland, Providence County, Rhode Island
in order to construct and occupy a 100,000 square foot jewelry and silver goods
manufacturing facility. In May 2001, construction of the facility was completed
and Tiffany commenced operations.
Manufacturing Facility - Cranston, Rhode Island
On January 31, 2003 Tiffany purchased a warehouse facility and land
located in Cranston, Rhode Island. During Fiscal 2003, the 75,000 square foot
building will be renovated to process metals for raw material use.
- -PAGE 20- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
'
Branch and Subsidiary Retail Store Leases
Set forth below is the expiration date for each of Tiffany's existing
branch and subsidiary retail store leases (and, where applicable, optional
renewal terms):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
U.S. BRANCH STORE LEASES
- --------------------------------------------------------------------------------------------------------------------------------
CITY STATE/TERR. LOCATION EXPIRATION DATE RENEWAL OPTIONS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlanta GA Phipps Plaza Shopping Center July 31, 2010
Bal Harbour FL Bal Harbour Shops May 31, 2003 In negotiation
Bellevue WA Bellevue Square May 31, 2017
Beverly Hills CA Two Rodeo Drive October 7, 2005 Two five-year terms
Boca Raton FL Town Center at Boca January 31, 2010 One five-year term
Boston MA Copley Place July 31, 2009 Two five-year terms
Century City CA Century City Shopping Center June 30, 2009
Charlotte NC SouthPark Mall December 31, 2007 One five-year term
Chestnut Hill MA The Atrium at Chestnut Hill January 31, 2008 One five-year term
Chevy Chase MD 5500 Wisconsin Avenue January 31, 2006
Chicago IL 730 North Michigan Avenue October 20, 2012 Two five-year terms
Cincinnati OH Fountain Place November 30, 2012 Two five-year terms
Costa Mesa CA South Coast Plaza January 31, 2019
Dallas TX The Galleria May 31, 2009
Dallas TX NorthPark Center May 31, 2009 One five-year term
Denver CO Cherry Creek Shopping Center January 31, 2008 One five-year term
East Hampton NY 53 Main Street February 29, 2012 Two five-year terms
Greenwich CT 140 Greenwich Avenue July 31, 2010 Two five-year terms
Hackensack NJ Riverside Square Mall September 30, 2006
Honolulu HI Ala Moana Center January 31, 2011
Honolulu HI 2100 Kalakaua Avenue October 31, 2017 Two five-year terms
Houston TX The Galleria September 30, 2006
King of Prussia PA The Plaza at King of Prussia November 30, 2005 One five-year term
Las Vegas NV Bellagio March 1, 2008 One ten-year term
Manhasset NY Americana Shopping Center June 9, 2008
Maui HI Whalers Village July 31, 2004
Maui HI The Shops at Wailea November 30, 2010 One five-year term
Oak Brook IL Oakbrook Center April 30, 2009 Two five-year terms
Old Orchard IL Old Orchard Shopping Center April 30, 2010 One five-year term
Orlando FL The Mall at Millenia December 31, 2012 One five-year term
Palm Beach FL 259 Worth Avenue May 31, 2007 Two five-year terms
Palo Alto CA Stanford Shopping Center May 31, 2007
Philadelphia PA The Bellevue June 30, 2010 One five-year term
Portland OR Pioneer Place December 31, 2010 One five-year term
San Diego CA Fashion Valley Shopping Center December 31, 2007 One five-year term
San Francisco CA Union Square November 1, 2010 One ten-year term
Santa Clara (San Jose) CA Westfield Shoppingtown Valley Fair January 31, 2012
Scottsdale AZ Scottsdale Fashion Square December 31, 2008 One five-year term
Seattle WA Pacific Place October 28, 2008 Two five-year terms
Short Hills NJ The Mall at Short Hills January 31, 2005 One five-year term
St. Louis MO Plaza Frontenac September 26, 2012 One five-year term
Tampa FL International Plaza January 31, 2011 One five-year term
Tamuning Guam Tumon Sands Plaza September 30, 2003
Troy MI The Somerset Collection September 30, 2007
Vienna VA Fairfax Square March 31, 2010 One five-year term
White Plains NY The Westchester March 31, 2005 One five-year term
- -PAGE 21- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL BRANCH STORE LEASES
- --------------------------------------------------------------------------------------------------------------------------------
COUNTRY CITY LOCATION EXPIRATION DATE RENEWAL OPTIONS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia Sydney Chifley Tower October 18, 2004 One five-year term
Australia Melbourne 267 Collins Street October 31, 2005 Three five-year terms
Brazil Sao Paulo Shopping Center Iguatemi January 1, 2006 Two five-year terms
Canada Toronto 85 Bloor Street West August 31, 2006 One seven-year term
England London The Royal Exchange August 31, 2016 Three five-year terms
France Paris 6 Rue de la Paix April 1, 2011
Germany Frankfurt 20 Goethestrasse January 31, 2011 One ten-year term
Germany Munich Residenzstrasse 11 January 31, 2004 One five-year term
Hong Kong Causeway Bay Lee Gardens June 30, 2003
Hong Kong The Landmark May 31, 2005
Hong Kong Kowloon The Peninsula February 29, 2004
Hong Kong Pacific Place October 31, 2003
Italy Florence Via Tornabuoni December 31, 2007 One six-year term
Italy Milan Via della Spiga October 31, 2005 One six-year term
Italy Rome Via Del Babuino December 31, 2007 One six-year term+
Japan Tokyo Ginza October 24, 2005 One three-year term
Korea Pusan Paradise Hotel September 20, 2003 One two-year option
Malaysia Kuala Lumpur Suria KL City Centre November 30, 2005 One three-year term
Mexico Mexico City Masaryk May 31, 2004 Two three-year terms
Singapore Raffles Hotel September 15, 2003
Singapore Ngee Ann City September 14, 2005 One one-year term
Switzerland Zurich Bahnhofstrasse 14 September 30, 2005
Taiwan Taipei Regent Hotel April 30, 2006
</TABLE>
+ Renewal subject to conditions imposed by Italian law, including right of
landlord to occupy premises for its own use.
New Store Leases
In addition to the U.S. leases described herein on page 21, Tiffany has
entered into the following new leases for domestic stores expected to open in
2003: a 10-year lease for a 6,800 square foot store at 1119 S. Main Street,
Walnut Creek, California, a 10-year lease for a 5,600 square foot store at the
Village of Merrick Park in Coral Gables, Florida, and a five-year lease for a
1,330 square foot boutique at 1296 Pale San Vitores Road (Tuman Bay Galleria),
Tamuning, Guam.
ITEM 3. LEGAL AND ENVIRONMENTAL PROCEEDINGS
Registrant and Tiffany are from time to time involved in routine
litigation incidental to the conduct of Tiffany's business, including
proceedings to protect its trademark rights, litigation with parties claiming
infringement of their intellectual property rights by Tiffany, litigation
instituted by persons alleged to have been injured upon premises within
Registrant's control and litigation with present and former employees. Although
litigation with present and former employees is routine and incidental to the
conduct of Tiffany's business, as well as for any business employing significant
numbers of U.S.-based employees, such litigation can result in large monetary
awards when a civil jury is allowed to determine compensatory and/or punitive
damages for actions claiming discrimination on the basis of age, gender, race,
religion, disability or other legally protected characteristic or for
termination of employment that is wrongful or in violation of implied contracts.
However, Registrant believes that no litigation currently pending to which it or
Tiffany is a party or to which its properties are subject will have a material
adverse effect on its financial position, earnings or cash flows.
- -PAGE 22- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended January 31, 2003.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Registrant are:
<TABLE>
<CAPTION>
NAME AGE POSITION YEAR JOINED TIFFANY
<S> <C> <C> <C>
Michael J. Kowalski 51 Chairman of the Board of Directors and 1983
Chief Executive Officer
James E. Quinn 51 President 1986
Beth O. Canavan 48 Executive Vice President 1987
James N. Fernandez 47 Executive Vice President and 1983
Chief Financial Officer
Victoria Berger-Gross 47 Senior Vice President - Human Resources 2001
Patrick B. Dorsey 52 Senior Vice President - General Counsel 1985
and Secretary
Fernanda M. Kellogg 56 Senior Vice President - Public Relations 1984
Jon M. King 46 Senior Vice President - Merchandising 1990
Caroline D. Naggiar 45 Senior Vice President - Marketing 1997
John S. Petterson 44 Senior Vice President - Operations 1988
</TABLE>
Michael J. Kowalski. Mr. Kowalski assumed the role of Chairman of the Board on
January 31, 2003, following the retirement of William R. Chaney. He has served
as the Registrant's Chief Executive Officer since February 1999 and on the
Registrant's Board of Directors since January 1995. Since joining Tiffany in
1983 as Director of Financial Planning, Mr. Kowalski held a variety of
merchandising management positions and served as Executive Vice President from
1992 to 1996 with overall responsibility in the areas of merchandising,
marketing, advertising, public relations and product design until his election
as President in 1997. Mr. Kowalski is awaiting confirmation of his appointment
to the Board of Directors of the Bank of New York.
James E. Quinn. Mr. Quinn was appointed President effective January 31, 2003. He
had served as Vice Chairman since 1998. After joining Tiffany in July 1986 as
Vice President of branch sales for the Company's business-to-business sales
operations, Mr. Quinn had various responsibilities for sales management and
operations. He was promoted to Executive Vice President on March 19,
- -PAGE 23- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
1992 and assumed responsibility for retail and corporate sales for the Americas
in 1994. In January 1995 he became a member of Registrant's Board of Directors.
He has responsibility for worldwide sales. Mr. Quinn is a member of the board of
directors of BNY Hamilton Funds, Inc. and Mutual of America Capital Management.
Beth O. Canavan. Ms. Canavan joined Tiffany in May 1987 as Director of New Store
Development. She later held the positions of Vice President, Retail Sales
Development in 1990, Vice President and General Manager of the New York Store in
1992 and Eastern Regional Vice President in 1994. In 1997, she assumed the
position of Senior Vice President for U.S. Retail. In January 2000, she was
promoted to Executive Vice President responsible for retail sales activities in
the U.S. and Canada and retail store expansion. In May 2001, Ms. Canavan also
assumed responsibility for direct sales and business sales activities in the
U.S. and Canada.
James N. Fernandez. Mr. Fernandez joined Tiffany in October 1983 and has held
various positions in financial planning and management prior to his appointment
as Senior Vice President-Chief Financial Officer in April 1989. In January 1998,
he was promoted to Executive Vice President-Chief Financial Officer. Presently,
he has responsibility for accounting, treasury, investor relations, information
technology, financial planning, business development and diamond operations, and
overall responsibility for distribution, manufacturing, customer service and
security. At the request of the Registrant, Mr. Fernandez serves on the board of
directors of Aber Diamond Corporation, a publicly-traded company in which the
Registrant holds a 14.7% equity interest. Aber is a 40% participant in the
Diavik Diamonds Project in Northwest Canada.
Victoria Berger-Gross. Dr. Berger-Gross joined Tiffany in February 2001 as
Senior Vice President - Human Resources. Prior to joining Tiffany, she served as
Senior Vice President & Director of Human Resources at Lehman Brothers from May
2000, Senior Director - Human Resources at Bertelsmann A.G.'s BMG Entertainment
from March 1998, and Vice President - Organizational Effectiveness at Personnel
Decisions International from January 1990.
Patrick B. Dorsey. Mr. Dorsey joined Tiffany in July 1985 as General Counsel and
Secretary.
Fernanda M. Kellogg. Ms. Kellogg joined Tiffany in October 1984 as Director of
Retail Marketing. She assumed her current responsibilities in January 1990.
Jon M. King. Mr. King joined Tiffany in 1990 as a jewelry buyer and has held
various positions in the Merchandising Division, assuming responsibility for
product development in 2002 as group vice president. He assumed his current
responsibilities on March 24, 2003.
Caroline D. Naggiar. Ms. Naggiar joined Tiffany in June 1997 as Vice
President-Marketing Communications. She assumed her current responsibilities in
February 1998.
John S. Petterson. Mr. Petterson joined Tiffany in 1988 as a management
associate. He was promoted to Senior Vice President - Corporate Sales in May
1995 and in February 2000 his responsibilities were expanded to include Direct
Mail and the E-Commerce business. In May 2001, Mr. Petterson assumed the new
role of Senior Vice President - Operations, with responsibility for worldwide
distribution, customer service and security activities. His responsibilities
were expanded in February 2003 to include manufacturing operations.
- -PAGE 24- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Registrant's Common Stock is traded on the New York Stock Exchange. In
consolidated trading, the high and low selling prices per share for shares of
such Common Stock for Fiscal 2001 were:
<TABLE>
<CAPTION>
Fiscal 2001 High Low
- ----------- ---- ---
<S> <C> <C>
First Fiscal Quarter $37.16 $25.12
Second Fiscal Quarter $38.25 $31.55
Third Fiscal Quarter $36.60 $19.90
Fourth Fiscal Quarter $36.59 $22.86
</TABLE>
In consolidated trading, the high and low selling prices per share for
shares of such Common Stock for Fiscal 2002 were:
<TABLE>
<CAPTION>
Fiscal 2002 High Low
- ----------- ---- ---
<S> <C> <C>
First Fiscal Quarter $41.00 $31.75
Second Fiscal Quarter $40.50 $21.07
Third Fiscal Quarter $28.00 $19.40
Fourth Fiscal Quarter $30.70 $22.55
</TABLE>
On March 25, 2003, the high and low selling prices quoted on such
exchange were $26.46 and $25.53, respectively. On March 25, 2003 there were
4,111 record holders of Registrant's Common Stock.
It is Registrant's policy to pay a quarterly dividend of $0.04 per
share of Common Stock, subject to declaration by Registrant's Board of
Directors. In Fiscal 2001, dividends of $0.04 per share of Common Stock were
paid on April 10, 2001, July 10, 2001, October 10, 2001 and January 10, 2002. In
Fiscal 2002, dividends of $0.04 per share of Common Stock were paid on April 10,
2002, July 10, 2002, October 10, 2002 and January 10, 2003.
In calculating the aggregate market value of the voting stock held by
non-affiliates of the Registrant shown on the cover page of this Report on Form
10-K, 1,524,976 shares of Registrant's Common Stock beneficially owned by the
executive officers and directors of the Registrant (exclusive of shares which
may be acquired on exercise of employee stock options) were excluded, on the
assumption that certain of those persons could be considered "affiliates" under
the provisions of Rule 405 promulgated under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from Registrant's Annual Report to Stockholders for
the Fiscal Year ended January 31, 2003, page 20.
- -PAGE 25- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated by reference from Registrant's Annual Report to Stockholders for
the Fiscal Year ended January 31, 2003, pages 21-32.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference from Registrant's Annual Report to Stockholders for
the Fiscal Year ended January 31, 2003, page 31.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from Registrant's Annual Report to Stockholders for
the Fiscal Year ended January 31, 2003, pages 33-58.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from Registrant's Proxy Statement dated April 8, 2003,
pages 5-8 and 27-30.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from Registrant's Proxy Statement dated April 8, 2003,
pages 13-25.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference from Registrant's Proxy Statement dated April 8, 2003,
pages 5-8.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Registrant's Proxy Statement dated April 8, 2003,
pages 19 and 27-30.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
of our disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days
of the filing date of this Annual Report on Form 10-K, our chief executive
officer and chief financial officer have concluded that our disclosure controls
and
- -PAGE 26- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
procedures are (i) designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms and (ii) operating in an effective manner.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their most recent evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents Filed As Part of This Report:
1. Financial Statements:
Data incorporated by reference from
the 2002 Annual Report to Stockholders
of Tiffany & Co. and Subsidiaries:
Report of Independent Accountants
(following this Form 10-K)
Consolidated Balance Sheets
as of January 31, 2003 and 2002
Consolidated Statements of Earnings
for the years ended January 31, 2003, 2002, and 2001
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings for
the years ended January 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows
for the years ended January 31, 2003, 2002 and 2001
Notes to consolidated financial statements
2. Financial Statement Schedules:
The following financial statement schedule should be read in
conjunction with the consolidated financial statements incorporated by reference
herein:
II. Valuation and qualifying accounts and reserves.
All other schedules have been omitted since they are neither applicable
nor required, or because the information required is included in the
consolidated financial statements and notes thereto.
- -PAGE 27- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
3. Exhibits:
The following exhibits have been filed with the Securities and Exchange
Commission but are not attached to copies of this Form 10-K other than complete
copies filed with said Commission and the New York Stock Exchange:
Exhibit Description
3.1 Restated Certificate of Incorporation of Registrant. Incorporated by
reference from Exhibit 3.1 to Registrant's Report on Form 8-K dated May
16, 1996.
3.1a Amendment to Certificate of Incorporation of Registrant. Incorporated
by reference from Exhibit 3.1 to Registrant's Report on Form 8-K dated
May 20, 1999.
3.1b Amendment to Certificate of Incorporation of Registrant dated May 18,
2000. Incorporated by reference from Exhibit 3.1b to Registrant's
Report on Form 10-K for the Fiscal Year ended January 31, 2001.
3.2 By-Laws of Registrant (as last amended July 19, 2001). Incorporated by
reference from Exhibit 3.2 to Registrant's Report on Form 10-K for the
Fiscal Year ended January 31, 2002.
4.1 Amended and Restated Rights Agreement dated as of September 22, 1998 by
and between Registrant and ChaseMellon Shareholder Services L.L.C., as
Rights Agent. Incorporated by reference from Exhibit 4.1 to
Registrant's Report on Form 8-A/A dated September 24, 1998.
10.5 Designer Agreement between Tiffany and Paloma Picasso dated April 4,
1985. Incorporated by reference from Exhibit 10.5 filed with
Registrant's Registration Statement on Form S-1, Registration No.
33-12818 (the "Registration Statement").
10.122 Agreement dated as of April 3, 1996 among American Family Life
Assurance Company of Columbus, Japan Branch, Tiffany & Co. Japan, Inc.,
Japan Branch, and Registrant, as Guarantor, for yen 5,000,000,000 Loan
Due 2011. Incorporated by reference from Exhibit 10.122 filed with
Registrant's Report on Form 10-Q for the Fiscal quarter ended April 30,
1996.
10.122a Amendment No. 1 to the Agreement referred to in Exhibit 10.122 above
dated November 18, 1998. Incorporated by reference from Exhibit 10.122a
filed with Registrant's Report on Form 10-K for the Fiscal Year ended
January 31, 1999.
10.122b Guarantee by Tiffany & Co. of the obligations under the Agreement
referred to in Exhibit 10.122 above dated April 3, 1996. Incorporated
by reference from Exhibit 10.122b filed with Registrant's Report on
Form 8-K dated August 2, 2002.
10.122c Amendment No. 2 to Guarantee referred to in Exhibit 10.122b above,
dated October 15, 1999. Incorporated by reference from Exhibit 10.122c
filed with Registrant's Report on Form 8-K dated August 2, 2002.
- -PAGE 28- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
10.122d Amendment No. 3 to Guarantee referred to in Exhibit 10.122b above,
dated July 16, 2002. Incorporated by reference from Exhibit 10.122d
filed with Registrant's Report on Form 8-K dated August 2, 2002.
10.123 Agreement made effective as of February 1, 1997 by and between Tiffany
and Elsa Peretti. Incorporated by reference from Exhibit 10.123 to
Registrant's Report on Form 10-K for the Fiscal Year ended January 31,
1997.
10.126 Form of Note Purchase Agreement between Registrant and various
institutional note purchasers with Schedules B, 5.14 and 5.15 and
Exhibits 1A, 1B, and 4.7 thereto, dated as of December 30, 1998 in
respect of Registrant's $60 million principal amount 6.90% Series A
Senior Notes due December 30, 2008 and $40 million principal amount
7.05% Series B Senior Notes due December 30, 2010. Incorporated by
reference from Exhibit 10.126 filed with Registrant's Report on Form
10-K for the Fiscal Year ended January 31, 1999.
10.126a First Amendment and Waiver Agreement to Form of Note Purchase Agreement
referred to in previously filed Exhibit 10.126, dated May 16, 2002.
Incorporated by reference from Exhibit 126a filed with Registrant's
Report on Form 8-K dated June 10, 2002.
10.128 Translation of Loan Agreement between Tiffany & Co. Japan Inc. and the
Fuji Bank, Ltd., Hong Kong Branch dated 22 October 1999, Guaranty
issued in connection therewith by the Registrant and Agreement on Bank
Transactions referenced in the aforesaid Loan Agreement; Schedule to
Master Agreement dated as of October 18, 1999 between The Chase
Manhattan Bank and Tiffany & Co. Japan Inc. (made with reference to
International Swap Dealers Association, Inc. Master Agreement form
copyrighted 1992), Guaranty dated October 18, 1999 issued in connection
with such Master Agreement by Tiffany and Company, Tiffany & Co.
International and Registrant in favor of The Chase Manhattan Bank and
Confirmation issued October 29, 1999 by The Chase Manhattan Bank.
Incorporated by reference from Exhibit 10.128 filed with Registrant's
Report on Form 10-Q for the Fiscal quarter ended October 31, 1999.
10.129 Agreement made the 1st day of August 2001 by and between Tiffany & Co.
Japan Inc. and Mitsukoshi Limited. Incorporated by reference from
Exhibit 10.128 filed with Registrant's Report on Form 8-K dated August
1, 2001.
10.130 Credit Agreement dated as of November 5, 2001, by and among Registrant,
Tiffany and Company, Tiffany & Co. International, each other Subsidiary
of Registrant that is a Borrower and is a signatory thereto and The
Bank of New York, as the Swing Line Lender, as the Issuing Bank, as a
Lender, and as Administrative Agent, ABN AMRO Bank N.V., The Chase
Manhattan Bank, The Dai-ichi Kangyo Bank Ltd., Firstar Bank, NA, and
Fleet National Bank, Fleet Precious Metals Inc. (collectively, as a
Lender). Incorporated by reference from Exhibit 10.130 filed with
Registrant's Report on Form 10-Q for the Fiscal quarter ended October
31, 2001.
- -PAGE 29- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
10.130a Amendment No. 1 to Credit Agreement referred to in previously filed
Exhibit 10.130, dated April 12, 2002. Incorporated by reference from
Exhibit 10.130a filed with Registrant's Report on Form 10-Q for the
Fiscal quarter ended April 30, 2002.
10.131 Guaranty Agreement dated as of November 5, 2001, with respect to the
Credit Agreement (see Exhibit 10.129 above) by and among Registrant,
Tiffany and Company, Tiffany & Co. International, and Tiffany & Co.
Japan Inc. and The Bank of New York, as Administrative Agent.
Incorporated by reference from Exhibit 10.131 filed with Registrant's
Report on Form 10-Q for the Fiscal quarter ended October 31, 2001.
10.132 Form of Note Purchase Agreement between Registrant and various
institutional note purchasers with Schedules B, 5.14 and 5.15 and
Exhibits 1A, 1B and 4.7 thereto, dated as of July 18, 2002 in respect
of Registrant's $40,000,000 principal amount 6.15% Series C Notes due
July 18, 2009 and $60,000,000 principal amount 6.56% Series D Notes due
July 18, 2012. Incorporated by reference from Exhibit 10.132 filed with
Registrant's Report on Form 8-K dated August 2, 2002.
10.133 Guaranty Agreement dated July 18, 2002 with respect to the Note
Purchase Agreements (see Exhibit 10.132 above) by Tiffany and Company,
Tiffany & Co. International and Tiffany & Co. Japan Inc. in favor of
each of the note purchasers. Incorporated by reference from Exhibit
10.133 filed with Registrant's Report on Form 8-K dated August 2, 2002.
13.1 Annual Report to Stockholders for Fiscal Year Ended January 31, 2003
(pages 20-58 of such Annual Report have been filed in electronic
format).
21.1 Subsidiaries of Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
99.1 Certification of Michael J. Kowalski Required by 18 U.S.C. Section
1350.
99.2 Certification of James N. Fernandez Required by 18 U.S.C. Section 1350.
Executive Compensation Plans and Arrangements
Exhibit Description
4.3 Registrant's Amended and Restated 1998 Employee Incentive Plan and
standard terms of stock option award (transferable and
non-transferable).
4.3a Standard terms of stock option award (transferable and
non-transferable) under Registrant's 1998 Employee Incentive Plan, as
revised January 21, 1999. Incorporated by reference from Exhibit 4.3a
filed with Registrant's Report on Form 10-K for the Fiscal Year ended
January 31, 1999.
- -PAGE 30- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
4.4 Registrant's 1998 Directors Option Plan. Incorporated by reference from
Exhibit 4.3 to Registrant's Registration Statement on Form S-8, file
number 333-67725, filed November 23, 1998.
4.4a Standard terms of stock option award (transferable non-qualified
option) under Registrant's 1998 Directors Option Plan, as revised
January 21, 1999. Incorporated by reference from Exhibit 4.4a filed
with Registrant's Report on Form 10-K for the Fiscal Year ended January
31, 1999.
10.3 Registrant's 1986 Stock Option Plan and terms of stock option
agreement, as last amended on July 16, 1998. Incorporated by reference
from Exhibit 10.3 filed with Registrant's Report on Form 10-K for the
Fiscal Year ended January 31, 1999.
10.25 Amended and Restated Deferred Compensation Agreement originally made
effective December 31, 1989 by and between William R. Chaney and
Tiffany and Company, and subsequently amended February 8, 1999.
Incorporated by reference from Exhibit 10.25 filed with Registrant's
Report on Form 10-K for the Fiscal Year ended January 31, 1999.
10.49 Form of Indemnity Agreement, approved by the Board of Directors on
March 19, 1987. Incorporated by reference from Exhibit 10.49 to the
Registration Statement.
10.60 Registrant's 1988 Director Stock Option Plan and form of Stock Option
agreement, as last amended on November 21, 1996. Incorporated by
reference from Exhibit 10.60 to Registrant's Report on Form 10-K for
the Fiscal Year ended January 31, 1997.
10.106 Amended and Restated Tiffany and Company Executive Deferral Plan
originally made effective October 1, 1989, as amended effective January
1, 2003. Incorporated by reference from Exhibit 10.106 filed with
Registrant's Report on Form 10-Q for the Fiscal Quarter ended October
31, 2002.
10.108 Registrant's Amended and Restated Retirement Plan for Non-Employee
Directors originally made effective January 1, 1989, as amended through
January 21, 1999. Incorporated by reference from Exhibit 10.108 filed
with Registrant's Report on Form 10-K for the Fiscal Year ended January
31, 1999.
10.109 Summary of informal incentive cash bonus plan for managerial employees.
Incorporated by reference from Exhibit 10.109 filed with Registrant's
Report on Form 10-K for the Fiscal Year ended January 31, 1993.
10.113 Tiffany and Company Pension Plan, as last amended effective December
21, 1998. Incorporated by reference from Exhibit 10.113 filed with
Registrant's Report on Form 10-K for the Fiscal Year ended January 31,
1999.
10.114 1994 Tiffany and Company Supplemental Retirement Income Plan.
Incorporated by reference from Exhibit 10.114 filed with Registrant's
Report on Form 10-K for the Fiscal Year ended January 31, 1994.
10.115 1994 Form of Split Dollar Life Insurance Agreement entered into by
Tiffany and Company and certain Executive Officers including form of
Assignment of Life
- -PAGE 31- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
Insurance Policy as Collateral and Rider No. 1 to 1994 Form of Split
Dollar Life Insurance Agreement entered into by Tiffany and Company and
certain Executive Officers. Incorporated by reference from Exhibit
10.115 filed with Registrant's Report on Form 10-K for the Fiscal Year
ended January 31, 1995.
10.115a Riders Nos. 2 and 3, dated October 18, 1998 and March 20, 1999,
respectively to Split Dollar Life Insurance Agreements between and
among William R. Chaney and Tiffany and Company, and respectively, the
1994 Chaney Family Trust u/a 2/23/94 and the Babette C. Chaney et al.
Trust u/a 2/23/94. Incorporated by reference from Exhibit 10.115a filed
with Registrant's Report on Form 10-K for the Fiscal Year ended January
31, 1999.
10.127 Retention Agreements dated March 30, 1999 between and among Registrant
and Tiffany and, respectively, each of the following executive
officers: Michael J. Kowalski, James E. Quinn, James N. Fernandez and
Patrick B. Dorsey and Appendices I to III to each of those Agreements.
Incorporated by reference from Exhibit 10.127 filed with Registrant's
Report on Form 10-K for the Fiscal Year ended January 31, 1999.
10.127a Retention Agreements dated March 13, 2001 between and among Registrant
and Tiffany and, respectively, each of the following executive
officers: Beth O. Canavan, Fernanda M. Kellogg, Caroline D. Naggiar,
John S. Petterson and Victoria Berger-Gross and Appendices I to III to
each of those Agreements. Incorporated by reference from Exhibit
10.127a filed with Registrant's Report on Form 10-K for the Fiscal Year
ended January 31, 2001.
10.127b Form of Retention Agreement between and among Registrant and Tiffany
and each of its executive officers and Appendices I to III to the
Agreement.
10.128 Group Long Term Disability Insurance Policy issued by UnumProvident.
Policy No. 533717 001.
REGISTRANT WILL FURNISH COPIES OF ANY OF THE FOREGOING EXHIBITS TO ANY
REGISTERED HOLDER OF THE REGISTRANT'S COMMON STOCK UPON PAYMENT OF A FEE OF $.15
PER PAGE FURNISHED, WHICH FEE REPRESENTS REGISTRANT'S EXPENSES IN FURNISHING
SUCH EXHIBIT.
- -PAGE 32- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
(b) Reports on Form 8-K.
On November 6, 2002, Registrant filed a Report on Form 8-K announcing
the resignation of the Company's Senior Vice President of Merchandising.
On November 13, 2002, Registrant filed a Report on Form 8-K reporting
sales and earnings for the three-month period ended October 31, 2002.
On December 12, 2002, Registrant filed a Report on Form 8-K furnishing
the written statements of executive officers pursuant to 18 U.S.C. Sec. 1350.
On January 7, 2003, Registrant filed a Report on Form 8-K reporting the
issuance of a press release announcing preliminary unaudited sales figures for
the two-month period ended December 31, 2002.
On January 16, 2003, Registrant filed a Report on Form 8-K announcing
the election of Michael J. Kowalski as Chairman of the Registrant's Board of
Directors upon the retirement of William R. Chaney.
- -PAGE 33- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TIFFANY & CO.
(Registrant)
Date: April 8, 2003 By: /s/ Michael J. Kowalski
----------------------------
Michael J. Kowalski
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
By: /s/ Michael J. Kowalski By: /s/ James N. Fernandez
------------------------------------ ----------------------
Michael J. Kowalski James N. Fernandez
Chairman and Chief Executive Officer Executive Vice President
(principal executive officer)(director) (principal financial officer)
By: /s/ James E. Quinn By: /s/ Warren S. Feld
------------------------------------ ----------------------
James E. Quinn Warren S. Feld
President Vice President
(director) (principal accounting officer)
By: /s/ William R. Chaney By: /s/ Rose Marie Bravo
------------------------------------ ----------------------
William R. Chaney Rose Marie Bravo
Director Director
By: /s/ Samuel L. Hayes III By: /s/ William A. Shutzer
------------------------------------ ----------------------
Samuel L. Hayes, III William A. Shutzer
Director Director
By: /s/ Charles K. Marquis By: /s/ Abby F. Kohnstamm
------------------------------------ ----------------------
Charles K. Marquis Abby F. Kohnstamm
Director Director
April 8, 2003
- -PAGE 34- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
CERTIFICATIONS
I, Michael J. Kowalski, certify that:
1. I have reviewed this annual report on Form 10-K of Tiffany & Co.;
2. Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 8, 2003
/s/ Michael J. Kowalski
________________________________________
Chairman and Chief Executive Officer
(principal executive officer)
- -PAGE 35- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
CERTIFICATIONS
I, James N. Fernandez, certify that:
1. I have reviewed this annual report on Form 10-K of Tiffany & Co.;
2. Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 8, 2003
/s/ James N. Fernandez
________________________________________________
Executive Vice President and Chief Financial
Officer (principal financial officer)
- -PAGE 36- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
PRICEWATERHOUSECOOPERS LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of Tiffany & Co.
Our audits of the consolidated financial statements referred to in our report
dated February 25, 2003 appearing in the fiscal 2002 Annual Report to
Shareholders of Tiffany & Co. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
15(a)(2) of this Form 10-K. In our opinion, the financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 25, 2003
- -PAGE 37- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
EXHIBIT INDEX
SEE PAGES 28 THROUGH 32 FOR A COMPLETE LIST OF EXHIBITS FILED, INCLUDING
EXHIBITS INCORPORATED BY REFERENCE FROM PREVIOUSLY FILED DOCUMENTS.
EXHIBIT DESCRIPTION
13.1 Annual Report to Stockholders for Fiscal Year Ended January 31, 2003
(pages 20-58 of such Annual Report have been filed in electronic
format).
21.1 Subsidiaries of Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
99.1 Certification of Michael J. Kowalski Required by 18 U.S.C. Section
1350.
99.2 Certification of James N. Fernandez Required by 18 U.S.C. Section 1350.
4.3 Registrant's Amended and Restated 1998 Employee Incentive Plan and
standard terms of stock option award (transferable and
non-transferable).
10.127b Form of Retention Agreement between and among Registrant and Tiffany
and each of its executive officers and Appendices I to III to the
Agreement.
10.128 Group Long Term Disability Insurance Policy issued by UnumProvident.
Policy No. 533717 001.
- -PAGE 38- TIFFANY & CO. REPORT ON FORM 10-K FY 2002
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 2003:
Reserves deducted from
assets:
Accounts receivable allowances:
Doubtful accounts $ 2,795,400 $ 828,794 $ 120,083(d) $1,614,625(a) $ 2,129,652
Sales returns 4,082,816 2,045,795 -- -- 6,128,611
Allowance for inventory
liquidation and
obsolescence 18,833,164 12,258,231 1,436,131(d) 9,498,072(b) 23,029,454
Allowance for inventory
shrinkage 3,518,845 1,555,388 70,676(d) 783,431(c) 4,361,478
LIFO reserve 18,970,581 1,164,862 -- -- 20,135,443
</TABLE>
- ------------------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
(d) Amounts established or assumed in connection with a business acquisition.
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 2002:
Reserves deducted from
assets:
Accounts receivable allowances:
Doubtful accounts $ 3,890,470 $ 1,694,924 -- $ 2,789,994(a) $ 2,795,400
Sales returns 4,082,816 -- -- -- 4,082,816
Allowance for inventory
liquidation and
obsolescence 18,394,815 10,084,907 -- 9,646,558(b) 18,833,164
Allowance for inventory
shrinkage 3,013,949 3,797,454 -- 3,292,558(c) 3,518,845
LIFO reserve 15,942,286 3,028,295 -- -- 18,970,581
</TABLE>
- -------------------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
<PAGE>
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 2001:
Reserves deducted from
assets:
Accounts receivable allowances:
Doubtful accounts $ 5,137,719 $ 1,210,547 -- $ 2,457,796(a) $ 3,890,470
Sales returns 4,578,657 -- -- 495,841 4,082,816
Allowance for inventory
liquidation and
obsolescence 14,160,281 17,665,831 -- 13,431,297(b) 18,394,815
Allowance for inventory
shrinkage 2,625,788 3,052,347 -- 2,664,186(c) 3,013,949
LIFO reserve 13,492,173 2,450,113 -- -- 15,942,286
</TABLE>
- --------------------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>3
<FILENAME>y84931exv4w3.txt
<DESCRIPTION>AMENDED AND RESTATED 1998 EMPLOYEE INCENTIVE PLAN
<TEXT>
<PAGE>
Exhibit 4.3
Tiffany & Co.
Report on Form 10-K
AMENDED AND RESTATED
TIFFANY & CO.
1998 EMPLOYEE INCENTIVE PLAN
SECTION 1
GENERAL
1.1 Purpose. The Tiffany & Co. Employee Incentive Plan (the "Plan") has
been established by Tiffany & Co., a Delaware corporation, (the "Company") to
(i) attract and retain employees; (ii) motivate Participants to achieve the
Company's operating and strategic goals by means of appropriate incentives;
(iii) provide incentive compensation opportunities that are competitive with
those of other companies competing with the Company and its Related Companies
for employees; and (iv) further link Participants' interests with those of the
Company's other stockholders through compensation that is based on the Company's
Common Stock, thereby promoting the long-term financial interests of the Company
and its Related Companies, including the growth in value of the Company's
stockholders' equity and the enhancement of long-term returns to the Company's
stockholders.
1.2 Participation. Subject to the terms and conditions of the Plan, the
Committee shall, from time to time, determine and designate from among Eligible
Individuals those persons who will be granted one or more Awards under the Plan.
Eligible Individuals who are granted Awards become "Participants" in the Plan.
In the discretion of the Committee, a Participant may be granted any Award
permitted under the provisions of the Plan, and more than one Award may be
granted to a Participant. Awards need not be identical but shall be subject to
the terms and conditions specified in the Plan. Subject to the last two
sentences of subsection 2.2 of the Plan, Awards may be granted as alternatives
to or in replacement for awards outstanding under the Plan, or any other plan or
arrangement of the Company or a Related Company (including a plan or arrangement
of a business or entity, all or a portion of which is acquired by the Company or
a Related Company).
1.3 Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 4 (relating to operation and
administration). Initially capitalized terms used in the Plan shall be defined
as set forth in the Plan (including in the definitional provisions of Section 7
of the Plan).
SECTION 2
OPTIONS AND SARS
2.1 Definitions.
Page 1
<PAGE>
(a) The grant of an "Option" entitles the Participant to purchase
Shares at an Exercise Price established by the Committee.
Options granted under this Section 2 may be either Incentive
Stock Options or Non-Qualified Stock Options, as determined in
the discretion of the Committee. An "Incentive Stock Option" is
an Option that is intended to satisfy the requirements applicable
to an "incentive stock option" described in section 422(b) of the
Code. A "Non-Qualified Option" is an Option that is not intended
to be an "incentive stock option" as that term is described in
section 422(b) of the Code.
(b) The grant of a stock appreciation right (an "SAR") entitles the
Participant to receive, in cash or Shares, value equal to all or a
portion of the excess of: (a) Fair Market Value of a specified
number of Shares at the time of exercise, over (b) an Exercise Price
established by the Committee.
2.2 Exercise Price. The per-Share "Exercise Price" of each Option and
SAR granted under this Section 2 shall be established by the Committee or shall
be determined by a formula established by the Committee at the time the Option
or SAR is granted; except that the Exercise Price shall not be less than 100% of
the Fair Market Value of a Share as of the Pricing Date. For purposes of the
preceding sentence, the "Pricing Date" shall be the date on which the Option or
SAR is granted unless the Option or SAR is granted on a date on which the
principal exchange on which the Shares are then listed or admitted to trading is
closed for trading, in which case the "Pricing Date" shall be the most recent
date on which such exchange was open for trading prior to such grant date;
except that the Committee may provide that: (i) the Pricing Date is the date on
which the recipient is hired or promoted (or similar event), if the grant of the
Option or SAR occurs not more than 90 days after the date of such hiring,
promotion or other event; and (ii) if an Option or SAR is granted in tandem
with, or in substitution for, an outstanding Award, the Pricing Date is the date
of grant of such outstanding Award. Except as provided in subsection 4.2(c), the
Exercise Price of any Option or SAR may not be decreased after the grant of the
Award. Neither an Option nor an SAR may be surrendered as consideration in
exchange for a new Award with a lower Exercise Price.
2.3 Exercise. Options and SARs shall be exercisable in accordance with
such terms and conditions and during such periods as may be established by the
Committee provided that no Option or SAR shall be exercisable after, and each
Option and SAR shall become void no later than, the tenth (10th) anniversary
date of the date of grant of such Option or SAR.
2.4 Payment of Option Exercise Price. The payment of the Exercise Price
of an Option granted under this Section 2 shall be subject to the following:
(a) The Exercise Price may be paid by ordinary check or such other form
of tender as the Committee may specify.
Page 2
<PAGE>
(b) If permitted by the Committee, the Exercise Price for Shares
purchased upon the exercise of an Option may be paid in part or in
full by tendering Shares (by either actual delivery of Shares or by
attestation, with such Shares valued at Fair Market Value as of the
date of exercise). The Committee may refuse to accept payment in
Shares if such payment would result in an accounting charge to the
Company.
(c) The Committee may permit a Participant to elect to pay the Exercise
Price upon the exercise of an Option by irrevocably authorizing a
third party to sell Shares acquired upon exercise of the Option (or
a sufficient portion of such Shares) and remit to the Company a
sufficient portion of the sale proceeds to pay the entire Exercise
Price and any tax withholding resulting from such exercise.
SECTION 3
OTHER STOCK AWARDS
3.1 Definition. A "Stock Award" is a grant of Shares or of a right to
receive Shares (or their cash equivalent or a combination of both).
3.2 Restrictions on Stock Awards. Each Stock Award shall be subject to
such conditions, restrictions and contingencies as the Committee shall
determine. These may include continuous service and/or the achievement of
Performance Goals.
SECTION 4
OPERATION AND ADMINISTRATION
4.1 Effective Date and Duration. Subject to approval of the stockholders
of the Company at the Company's 1998 annual meeting, the Plan shall be effective
as of May 1, 1998 (the "Effective Date") and shall remain in effect as long as
any Awards under the Plan are outstanding; provided, however, that, no Award may
be granted or otherwise made under the Plan on a date that is more than ten (10)
years from the date the Plan is adopted or, if earlier, the date the Plan is
approved by the Company's stockholders.
4.2 Shares Subject to Plan.
(a) (i) Subject to the following provisions of this subsection 4.2, the
maximum number of Shares that may be delivered to Participants and
their beneficiaries under the Plan shall be equal to the sum of: (I)
Eight Million (8,000,000) Shares; (II) any Shares available for
future awards under the Company's 1986 Stock Option Plan, as amended
(the "1986 Plan") as of May 1, 1998; (III) any Shares that are
represented by awards granted under the 1986 Plan which are
forfeited, expire or are canceled without delivery of Shares or
which result in the forfeiture of Shares back to the Company; and
(IV) up to One Million (1,000,000) Shares, to the
Page 3
<PAGE>
extent authorized by the Board, which are reacquired in the open
market or in a private transaction after the Effective Date,
provided, however that the aggregate number of shares available
under categories (II), (III), and (IV), shall not exceed Three
Million (3,000,000) Shares.
(ii) Any Shares granted under the Plan that are forfeited because of
the failure to meet an Award contingency or condition shall again be
available for delivery pursuant to new Awards granted under the
Plan. To the extent any Shares covered by an Award are not delivered
to a Participant or a Participant's beneficiary because the Award is
forfeited or canceled, or the Shares are not delivered because the
Award is settled in cash, such Shares shall not be deemed to have
been delivered for purposes of determining the maximum number of
Shares available for delivery under the Plan.
(iii) If the Exercise Price of any Option granted under the Plan or
the 1986 Plan is satisfied by tendering Shares to the Company (by
either actual delivery or attestation) or by the Company withholding
shares, only the number of Shares issued net of the Shares tendered
or withheld shall be deemed delivered for purposes of determining
the maximum number of Shares available for delivery under the Plan.
(iv) Shares delivered under the Plan in settlement, assumption or
substitution of outstanding awards (or obligations to grant future
awards) under the plans or arrangements of another entity shall not
reduce the maximum number of Shares available for delivery under the
Plan, to extent that such settlement, assumption or substitution
occurs as a result of the Company or a Related Company acquiring
another entity (or an interest in another entity).
(b) Subject to adjustment under paragraph 4.2(c), the following
additional maximum limitations are imposed under the Plan:
(i) The aggregate maximum number of Shares that may be issued under
Options intended to be Incentive Stock Options shall be One Million
(1,000,000) shares.
(ii) The aggregate maximum number of Shares that may be issued in
conjunction with Awards granted pursuant to Section 3 (relating to
Stock Awards) and Section 8 (relating to Other Incentive Awards to
the extent such Awards are settled with Shares) shall be One Million
(1,000,000) shares.
(iii) Unless the Committee determines that an Award to a Named
Executive Officer shall not be designed to comply with the
Performance-Based Exception, the following limitations shall apply:
Page 4
<PAGE>
(A) In any fiscal year of the Company, the aggregate number of
Shares that may be granted to any Participant pursuant to any
and all Awards (including Options, SARs and Stock Awards)
shall not exceed Four Hundred Thousand (400,000); and
(B) In any fiscal year of the Company, the maximum aggregate
cash payout with respect to Other Incentive Awards granted in
any fiscal year of the Company pursuant to Section 8 of the
Plan which may be made to any Named Executive Officer shall be
Two Million Dollars ($2,000,000).
(c) If the outstanding Shares are increased or decreased, or are changed
into or exchanged for cash, property or a different number or kind
of shares or securities, or if cash, property, Shares or other
securities are distributed in respect of such outstanding Shares, in
either case as a result of one or more mergers, reorganizations,
reclassifications, recapitalizations, stock splits, reverse stock
splits, stock dividends, dividends (other than regular, quarterly
dividends), or other distributions, spin-offs or the like, or if
substantially all of the property and assets of the Company are
sold, then, unless the terms of the transaction shall provide
otherwise, appropriate adjustments shall be made in the number
and/or type of Shares or securities for which Awards may thereafter
be granted under the Plan and for which Awards then outstanding
under the Plan may thereafter be exercised. Any such adjustments in
outstanding Awards shall be made without changing the aggregate
Exercise Price applicable to the unexercised portions of outstanding
Options or SARs. The Committee shall make such adjustments to
preserve the benefits or potential benefits of the Plan and the
Awards; such adjustments may include, but shall not be limited to,
adjustment of: (i) the number and kind of shares which may be
delivered under the Plan; (ii) the number and kind of shares subject
to outstanding Awards; (iii) the Exercise Price of outstanding
Options and SARs; (iv) the limits specified in subsections 4.2(a)(i)
and 4.2(b) above: and (v) any other adjustments that the Committee
determines to be equitable. No right to purchase or receive
fractional shares shall result from any adjustment in Options, SARs
or Stock Awards pursuant to this paragraph 4.2(c). In case of any
such adjustment, Shares subject to the Option, SAR or Stock Award
shall be rounded up to the nearest whole Share.
4.3 Limit on Distribution. Distribution of Shares or other amounts under
the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company
shall have no obligation to deliver any Shares under the Plan or
make any other distribution of benefits under the Plan unless
such delivery or distribution would comply with all applicable
laws (including, without limitation, the
Page 5
<PAGE>
requirements of the Securities Act of 1933) and the applicable
requirements of any securities exchange or similar entity, and the
Committee may impose such restrictions on any Shares acquired
pursuant to the Plan as the Committee may deem advisable, including,
without limitation, restrictions under applicable federal securities
laws, under the requirements of any Stock exchange or market upon
which such Shares are then listed and/or traded, and under any blue
sky or state securities laws applicable to such Shares. In the event
that the Committee determines in its discretion that the
registration, listing or qualification of the Shares issuable under
the Plan on any securities exchange or under any applicable law or
governmental regulation is necessary as a condition to the issuance
of such Shares under an Option or Stock Award, such Option or Stock
Award shall not be exercisable or exercised in whole or in part
unless such registration, listing and qualification, and any
necessary consents or approvals have been unconditionally obtained.
(b) Distribution of Shares under the Plan may be effected on a
non-certificated basis, to the extent not prohibited by applicable
law or the applicable rule of any stock exchange.
4.4 Tax Withholding. Before distribution of Shares under the Plan, the
Company may require the recipient to remit to the Company an amount sufficient
to satisfy any federal, state or local tax withholding requirements or, in the
discretion of the Committee, the Company may withhold from the Shares to be
delivered and/or otherwise issued Shares sufficient to satisfy all or a portion
of such tax withholding requirements. Whenever under the Plan payments are to be
made in cash, such payments may be net of an amount sufficient to satisfy any
federal, state or local tax withholding requirements. Neither the Company nor
any Related Company shall be liable to a Participant or any other person as to
any tax consequence expected, but not realized, by any Participant or other
person due to the receipt or exercise of any Award hereunder.
4.5 Payment for Shares. Subject to the limitations of subsection 4.2 on
the number of Shares that may be delivered under the Plan, the Committee may use
available Shares as the form of payment for compensation, grants or rights
earned or due under any other compensation plans or arrangements of the Company
or a Related Company, including the plans and arrangements of the Company or a
Related Company acquiring another entity (or an interest in another entity). The
Committee may provide in the Award Agreement that the Shares to be issued upon
exercise of an Option or an SAR or receipt of a Stock Award shall be subject to
such further conditions, restrictions or agreements as the Committee in its
discretion may specify, including without limitation, conditions on vesting or
transferability, and forfeiture and repurchase provisions.
4.6 Dividends and Dividend Equivalents. An Award may provide the
Participant with the right to receive dividends or dividend equivalent payments
with respect to Shares which may be either paid currently or credited to an
account for the Participant, and which may be settled in cash or Shares as
determined by the Committee.
Page 6
<PAGE>
Any such settlements, and any such crediting of dividends or dividend
equivalents or reinvestment in Shares may be subject to such conditions,
restrictions and contingencies as the Committee shall establish, including
reinvestment of such credited amounts in Share equivalents.
4.7 Settlements; Deferred Delivery. Awards may be settled through cash
payments, the delivery of Shares, the granting of replacement Awards, or
combinations thereof, all subject to such conditions, restrictions and
contingencies as the Committee shall determine. The Committee may establish
provisions for the deferred delivery of Shares upon the exercise of an Option or
SAR or receipt of a Stock Award with the deferral evidenced by use of "Stock
Units" equal in number to the number of Shares whose delivery is so deferred. A
"Stock Unit" is a bookkeeping entry representing an amount equivalent to the
Fair Market Value of one Share. Stock Units represent an unfunded and unsecured
obligation of the Company except as otherwise provided by the Committee.
Settlement of Stock Units upon expiration of the deferral period shall be made
in Shares or otherwise as determined by the Committee. The amount of Shares, or
other settlement medium, to be so distributed may be increased by an interest
factor or by dividend equivalents. Until a Stock Unit is settled, the number of
Shares represented by a Stock Unit shall be subject to adjustment pursuant to
paragraph 4.2(c). Unless otherwise specified by the Committee, any deferred
delivery of Shares pursuant to an Award shall be settled by the delivery of
Shares no later than the 60th day following the date the person to whom such
deferred delivery must be made ceases to be an employee of the Company or a
Related Company.
4.8 Transferability. Unless otherwise provided by the Committee, any
Option and SAR granted under the Plan, and, until vested, any Stock Award or
other Shares-based Award granted under the Plan, shall by its terms be
nontransferable by the Participant otherwise than by will, the laws of descent
and distribution or pursuant to a "domestic relations order", as defined in the
Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder, and shall be exercisable by, or become vested in, during the
Participant's lifetime, only the Participant.
4.9 Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the secretary of the Company
at such times, in such form, and subject to such restrictions and limitations,
not inconsistent with the terms of the Plan, as the Committee shall require.
4.10 Award Agreements with Company; Vesting and Acceleration of Vesting
of Awards. At the time of an Award to a participant under the Plan, the
Committee may require a Participant to enter into an agreement with the Company
(an "Award Agreement") in a form specified by the Committee, agreeing to the
terms and conditions of the Plan and to such additional terms and conditions,
not inconsistent with the Plan, as the Committee may, in its sole discretion,
prescribe, including, but not limited to, conditions to the vesting or
exercisability of an Award, such as continued service to the
Page 7
<PAGE>
Company or a Related Company for a specified period of time. The Committee may
waive such conditions to and/or accelerate exerciability or vesting of an
Option, SAR or Stock Award, either automatically upon the occurrence of
specified events (including in connection with a change of control of the
Company) or otherwise in its discretion.
4.11 Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of
the Plan or any Award Agreement, acquire any right in or title to
any assets, funds or property of the Company or any Related
Company whatsoever, including, without limitation, any specific
funds, assets, or other property which the Company or any Related
Company, in their sole discretion, may set aside in anticipation
of a liability under the Plan. A Participant shall have only a
contractual right to the Shares or amounts, if any, payable under
the Plan, unsecured by the assets of the Company or of any
Related Company. Nothing contained in the Plan or any Award
Agreement shall constitute a guarantee that the assets of such
companies shall be sufficient to pay any benefits to any person.
(b) Neither the Plan nor any Award Agreement shall constitute a
contract of employment, and selection as a Participant will not
give any employee the right to be retained in the employ of the
Company or any Related Company, nor any right or claim to any
benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan or an Award.
Except as otherwise provided in the Plan, no Award under the Plan
shall confer upon the holder thereof any right as a stockholder
of the Company prior to the date on which the individual
fulfills all conditions for receipt of such rights.
4.12 Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which an officer of the
Company acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.
4.13 Action by Company or Related Company. Any action required or
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of
such board (including a committee of such board) who are duly authorized to act
for such board, or (except to the extent prohibited by applicable law or
applicable rules of any Stock exchange) by a duly authorized officer of the
Company or such Related Company.
4.14 Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
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<PAGE>
4.15 Liability for Cash Payments. Each Related Company shall be liable
for payment of cash due under the Plan with respect to any Participant to the
extent that such benefits are attributable to the services rendered for that
Related Company by such Participant. Any disputes relating to liability of a
Related Company for cash payments shall be resolved by the Committee.
4.16 Non-exclusivity of the Plan. Neither the adoption of the Plan by the
Board of Directors of the Company nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations on the power of such Board of Directors or a committee of such Board
to adopt such other incentive arrangements as it or they may deem desirable,
including without limitation, the granting of restricted stock, stock options or
cash bonuses otherwise than under the Plan, and such arrangements may be
generally applicable or applicable only in specific cases.
SECTION 5
COMMITTEE
5.1 Administration. The authority to control and manage the operation
and administration of the Plan shall be vested in a committee (the "Committee")
in accordance with this Section 5.
5.2 Selection of Committee. The Committee shall be selected by the Board
and shall consist of two or more members of the Board.
5.3 Powers of Committee. The authority to manage and control the
operation and administration of the Plan shall be vested in the Committee,
subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have
the authority and discretion to select from amongst Eligible
Individuals those persons who shall receive Awards, to determine
who is an Eligible Individual, to determine the time or time of
receipt, to determine the types of Awards and the number of
Shares covered by the Awards, to establish the terms, conditions,
Performance Goals, restrictions, and other provisions of such
Awards and Award Agreements, and (subject to the restrictions
imposed by Section 6) to cancel, amend or suspend Awards. In
making such Award determinations, the Committee may take into
account the nature of services rendered by the Eligible
Individual, the Eligible Individual's present and potential
contribution to the Company's or a Related Company's success and
such other factors as the Committee deems relevant.
(b) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to determine the extent to which Awards
under the Plan will be structured to conform to the requirements of
the Performance-Based Exception and to take such action, establish
such procedures, and impose such restrictions at the time Awards are
granted as
Page 9
<PAGE>
the Committee determines to be necessary or appropriate to conform
to such requirements.
(c) The Committee will have the authority and discretion to establish
terms and conditions of Awards as the Committee determines to be
necessary or appropriate to conform to applicable requirements or
practices of jurisdictions outside the United States.
(d) The Committee will have the authority and discretion to interpret
the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, to determine the terms and provisions of any
Award Agreements, and to make all other determinations that may be
necessary or advisable for the administration of the Plan.
(e) Any interpretation of the Plan by the Committee and any decision
made by the Committee under the Plan is final and binding.
(f) In controlling and managing the operation and administration of the
Plan, the Committee shall act by a majority of its then members, by
meeting or by writing filed without a meeting. The Committee shall
maintain adequate records concerning the Plan and concerning its
proceedings and acts in such form and detail as the Committee may
decide.
5.4 Delegation by Committee. Except to the extent prohibited by
applicable law or the applicable rules of a Stock exchange, the Committee may
allocate all or any portion of its powers and responsibilities to any one or
more of its members and may delegate all or part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.
5.5 Information to be Furnished to Committee. The Company and Related
Companies shall furnish the Committee with such data and information as may be
requested by the Committee in order to discharge its duties. The records of the
Company and Related Companies as to an Eligible Individual's or a Participant's
employment, consulting services, termination of employment or services, leave of
absence, reemployment and compensation shall be conclusive on all persons unless
determined to be incorrect by the Committee. Participants and other persons
entitled to benefits under the Plan must furnish the Committee such evidence,
data or information as the Committee considers necessary or desirable to carry
out the terms of the Plan.
SECTION 6
AMENDMENT AND TERMINATION
6.1 Board's Right to Amend or Terminate. Subject to the limitations set
forth in this Section 6, the Board may, at any time, amend or terminate the
Plan.
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<PAGE>
6.2 Amendments Requiring Stockholder Approval. Other than as provided in
subsection 4.2 (c) (relating to certain adjustments to shares), the approval of
the Company's stockholders shall be required for any amendment which: (i)
materially increases the maximum number of Shares that may be delivered to
Participants under the Plan set forth in subsection 4.2(a); (ii) increases the
maximum limitations contained in Section 4.2(b); (iii) decreases the exercise
price of any Option or SAR below the minimum provided in subsection 2.2; (iv)
modifies or eliminates the provisions stated in the final two sentences of
subsection 2.2; or (v) increases the maximum term of any Option or SAR set forth
in Section 2.3. Whenever the approval of the Company's stockholders is required
pursuant to this subsection 6.2, such approval shall be sufficient if obtained
by a majority vote of those stockholders present or represented and actually
voting on the matter at a meeting of stockholders duly called, at which meeting
a majority of the outstanding shares actually vote on such matter.
SECTION 7
DEFINED TERMS
For the purposes of the Plan, the terms listed below shall be defined as
follows:
Award. The term "Award" shall mean, individually and collectively, any award or
benefit granted to any Participant under the Plan, including, without
limitation, the grant of Options, SARs, Stock Awards and Other Incentive Awards.
Award Agreement. The term "Award Agreement" is defined in subsection 4.10.
Board. The term "Board" shall mean the Board of Directors of the Company.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as amended.
A reference to any provision of the Code shall include reference to any
successor provision of the Code or of any law that is enacted to replace the
Code.
Eligible Individual. The term "Eligible Individual" shall mean any employee of
the Company or a Related Company. For purposes of the Plan, the status of the
Chairman of the Board of Directors as an employee shall be determined by the
Committee.
Fair Market Value. For purposes of determining the "Fair Market Value" of a
Share, the following rules shall apply:
(i) If the Shares are at the time listed or admitted to trading on any
stock exchange, then the Fair Market Value shall be the mean between the
lowest and the highest reported sales prices of the Shares on the date in
question on the principal exchange on which the Shares are then listed or
admitted to trading. If no reported sale of Shares take place on the date
in question on the principal exchange, then the reported closing asked
price of the Shares on such date on the principal exchange shall be
determinative of Fair Market Value.
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<PAGE>
(ii) If the Shares are not at the time listed or admitted to trading on a
stock exchange, the Fair Market Value shall be the mean between the lowest
reported bid price and the highest reported asked price of the Shares on
the date in question in the over-the-counter market, as such prices are
reported in a publication of general circulation selected by the Committee
and regularly reporting the market price of the Shares in such market.
(iii) If the Shares are not listed or admitted to trading on any stock
exchange or traded in the over-the-counter market, the Fair Market Value
shall be as determined by the Committee, acting in good faith.
Named Executive Employee. The term "Named Executive Employee" means a
Participant who, as of the date of vesting and/or payout of an Award, as
applicable, is one of the group of covered employees, as defined in the
regulations promulgated under Code section 162(m), or any successor statute.
Participant. The term "Participant" means an Eligible Individual who has been
granted an Award under the Plan. For purposes of the administration of Awards,
the term Participant shall also include a former employee or any person
(including an estate) who is a beneficiary of a former employee and any person
(including any estate) to whom an Award has been assigned or transferred as
permitted by the Committee.
Performance-Based Exception. The term "Performance-Based Exception" means the
performance-based exception from the tax deductibility limitations of Code
section 162(m).
Performance Goals. The term "Performance Goals" means one or more objective
targets measured by the Performance Measure, the attainment of which may
determine the degree of payout and/or vesting with respect to Awards.
Performance Period. The term "Performance Period" means the time period during
which Performance Goals must be achieved with respect to an Award, as determined
by the Committee, but which period shall not be shorter than one of the
Company's fiscal years.
Performance Measure. The term "Performance Measure" refers to the
performance measures discussed in Section 9 of the Plan.
Related Companies. The term "Related Company" means
(i) any corporation, partnership, joint venture or other entity during any
period in which such corporation, partnership, joint venture or other
entity owns, directly or indirectly, at least fifty percent (50%) of the
voting power of all classes of voting shares of the Company (or any
corporation, partnership, joint venture or other entity which is a
successor to the Company);
Page 12
<PAGE>
(ii) any corporation, partnership, joint venture or other entity during
any period in which the Company (or any corporation, partnership, joint
venture or other entity which is a successor to the Company or any entity
that is a Related Company by reason of clause (i) next above) owns,
directly or indirectly, at least a fifty percent (50%) voting or profits
interest; or
(iii) any business venture in which the Company has a significant
interest, as determined in the discretion of the Committee.
Shares. The term "Shares" shall mean shares of the Common Stock of the Company,
$.01 par value, as presently constituted, subject to adjustment as provided in
paragraph 4.2(c) above.
SECTION 8
OTHER INCENTIVE AWARDS
8.1 Grant of Other Incentive Awards. Subject to the terms and provisions
of the Plan, Other Incentive Awards may be granted Eligible Individuals, in such
amount, upon such terms, and at any time and from time to time as shall be
determined by the Committee.
8.2 Other Incentive Award Agreement. Each Other Incentive Award shall be
evidenced by an Award Agreement that shall specify the amount of the Other
Incentive Award or the means by which it will be calculated, the terms and
conditions applicable to such Award, the applicable Performance Period and
Performance Goals, if any, and such other provisions as the Committee shall
determine, in all cases subject to the terms and provisions of the Plan.
8.3 Nontransferability. Except as otherwise provided in the applicable
Award Agreement, Other Incentive Awards may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by will or the laws
of descent and distribution.
8.4 Form and Timing of Payment of Other Incentive Awards. Payment of
Other Incentive Awards shall be made in cash and at such times as established by
the Committee subject to the terms of the Plan.
SECTION 9
PERFORMANCE-BASED EXCEPTION
9.1 Performance Measures. Unless and until the Board proposes for
stockholder vote and the stockholders of the Company approve a change thereto,
the Performance Measures used to determine the attainment of Performance Goals
with respect to Other Incentive Awards and Stock Awards to Named Executive
Employees which are designed to qualify for the Performance-Based Exception
shall be any one or more of the following, as reported in the Company's Annual
Report to Stockholders
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<PAGE>
which is included in the Company's Annual Report on Form 10-K: the Company's
consolidated net earnings and the Company's consolidated earnings per share on a
diluted basis. The Committee may appropriately adjust any evaluation of
performance under a Performance Goal to exclude any of the following events that
occurs during a Performance Period: (i) asset write-downs, (ii) litigation or
claim judgment or settlements, (iii) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results, (iv) accruals for reorganization and restructuring programs, and (v)
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 and/or in management's discussion and analysis of financial
condition and results of operations appearing in said Annual Report for the
applicable year.
9.2 Discretion to Adjust Awards/Performance Goals. The Committee may
retain the discretion to adjust the determination of the degree of attainment of
the pre-established Performance Goals for Awards; provided, however, that Awards
which are designed to qualify for the Performance-Based Exception, and which are
held by Named Executive Officers, may not be subjected to an adjustment which
would yield an increased payout, although the Committee may retain the
discretion to make an adjustment which would yield a decreased payout. In the
event that applicable tax and/or securities laws change to permit the Committee
discretion to alter the governing Performance Measure for Awards designed to
quality for the Performance-Based Exception and held by Named Executive Officers
without obtaining stockholder approval of such change, the Committee shall have
sole discretion to make such change without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which will not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
SECTION 10
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards shall
be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation
or otherwise, of all or substantially all of the business and/or assets of the
Company.
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<PAGE>
TRANSFERABLE
OPTION
Terms
REV.III
TIFFANY & CO.
A Delaware Corporation
(the "Company")
TERMS OF STOCK OPTION AWARD
(Transferable Non-Qualified Option)
under the
1998 EMPLOYEE INCENTIVE PLAN
(the "Plan")
Terms Adopted May 21, 1998, Revised January 21, 1999 and November 15, 2001
1. Introduction and Terms of Option. Participant has been granted a
Non-Qualified Stock Option Award (the "Option") to purchase shares of the
Company's Common Stock under the Plan by the Stock Option Subcommittee of the
Company's Board of Directors (the "Committee"). The name of the "Participant",
the "Grant Date", the number of "Covered Shares" and the "Exercise Price" per
Share are stated in the attached "Notice of Grant". The other terms and
conditions of the Option are stated in this document and in the Plan. Certain
initially capitalized words and phrases used in this document are defined in
paragraph 10 below and elsewhere in this document.
2. Award and Exercise Price; Option Not An Incentive Stock Option. Subject to
the terms and conditions stated in this document, the Option gives Participant
the right to purchase the Covered Shares from the Company at the Exercise Price.
THE OPTION IS NOT INTENDED TO CONSTITUTE AN "INCENTIVE STOCK OPTION" AS THAT
TERM IS USED IN THE CODE.
3. Earliest Dates for Exercise - Cumulative Installments. Unless otherwise
provided in paragraphs 4, 5 or 6 below, the Option shall become exercisable
("mature") in cumulative installments according to the following schedule:
<TABLE>
<CAPTION>
THE OPTION SHALL MATURE WITH THE RESPECT TO THE FOLLOWING PERCENTAGE
AS OF THE FOLLOWING ANNIVERSARY OF THE GRANT DATE: ("INSTALLMENT") OF THE COVERED SHARES:
- -------------------------------------------------- --------------------------------------------------------------------
<S> <C>
One-year anniversary 25%
Two-year anniversary 25%
Three-year anniversary 25%
Four-year anniversary 25%
</TABLE>
Once an installment of the Option matures, as provided in the above schedule, it
shall continue to be exercisable with all prior installments on a cumulative
basis until the Option expires.
4. Effect of Termination of Employment. An installment of the Option shall not
mature if the Participant's Date of Termination occurs before the anniversary of
the Grant Date on which such installment was scheduled to mature, unless the
Participant's Date of Termination occurs by reason of death or Disability, in
which case all installments of the Option which have not previously matured
shall mature on said Date of Termination. Installments of the Option which
mature on or prior to Participant's Date of Termination will remain exercisable,
subject to expiration as provided in paragraph 6 below.
5. Effect of Change in Control. All installments of the Option shall mature upon
the date of a Change of Control unless the Participant's Date of Termination
occurs before the date of the Change of Control. The Committee reserves the
right to unilaterally amend the definition of a "Change of Control" so as to
specify additional circumstances which shall be deemed to constitute a Change of
Control.
<PAGE>
6. Expiration. The Option, including matured installments thereof, shall not be
exercisable in part or in whole on or after the Expiration Date. The "Expiration
Date" shall be the earliest to occur of:
a. the ten-year anniversary of the Grant Date;
b. if the Participant's Date of Termination occurs by reason of death,
Disability or Retirement, the two-year anniversary of such Date of
Termination;
c. if the Participant's Date of Termination occurs for reasons other than
death, Disability, Retirement or Termination for Cause, the three month
anniversary of such Date of Termination;
d. if the Participant's Date of Termination occurs by reason of Termination
for Cause, the Date of Termination.
7. Methods of Option Exercise. The Option may be exercised in whole or in part
as to any Shares that have matured by filing a written notice of exercise with
the Secretary of the Company at its corporate headquarters prior to the
Expiration Date. Such notice shall specify the number of Shares which the
Participant elects to purchase and shall be accompanied by either of the
following:
a. a bank-certified check payable to the Company (or other type of check or
draft payable to the Company and acceptable to the Secretary) in the
amount of the Exercise Price for the Shares being exercised plus any tax
withholding resulting from such exercise as computed by Tiffany and
Company's payroll department; or
b. a copy of directions to, or a written acknowledgment from, an Approved
Broker that the Approved Broker has been directed to sell, for the account
of the owner of the Option, Shares (or a sufficient portion of the Shares)
acquired upon exercise of the Option, together with an undertaking by the
Approved Broker to remit to the Company a sufficient portion of the sale
proceeds to pay the Exercise Price for the Shares exercised plus any tax
withholding resulting from such exercise as computed by Tiffany and
Company's payroll department.
In the case of exercise via method (a), the exercise shall be deemed complete on
the Company's receipt of such notice and said check or draft. In the case of
exercise via method (b), the exercise shall be deemed complete on the trade date
of the sale. The Committee may approve other methods of exercise, as provided
for in the Plan, before the Option is exercised.
8. Withholding. All distributions on the exercise of the Option are subject to
withholding of all applicable taxes. The method for withholding shall be as
provided in paragraph 7 above, unless the Committee approves other methods of
withholding, as provided for in the Plan, before the Option is exercised.
9. Transferability. The Option is not transferable otherwise than by will or the
laws of descent and distribution or pursuant to a "domestic relations order", as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder, and shall not be otherwise transferred, assigned, pledged,
hypothecated or otherwise disposed of in any way, whether by operation of law or
otherwise, nor shall it be subject to execution, attachment or similar process.
Notwithstanding the foregoing, the Option may be transferred by the Participant
to (i) the spouse, children or grandchildren of the Participant (each an
"Immediate Family Member"), (ii) a trust or trusts for the exclusive benefit of
any or all Immediate Family Members, or (iii) a partnership in which any or all
Immediate Family Members are the only partners, provided that (x) there may be
no consideration paid or otherwise given for any such transfer, and (y)
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<PAGE>
subsequent transfer of the Option is prohibited otherwise than by will, the laws
of descent and distribution or pursuant to a domestic relations order. Following
transfer, the Option shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer. The provisions of
paragraph 4 above shall continue to be applied with respect to the original
Participant following transfer and the Option shall be exercisable by the
transferee only to the extent, and for the periods specified, herein. Upon any
attempt to transfer the Option otherwise than as permitted herein or to assign,
pledge, hypothecate or otherwise dispose of the Option otherwise than as
permitted herein, or upon the levy of any execution, attachment or similar
process upon the Option, the Option shall immediately terminate and become null
and void.
10. Definitions. For the purposes of the Option, the words and phrases listed
below shall be defined as follows:
a. Approved Broker. Means one or more securities brokerage firms designated
by the Secretary of the Company from time to time.
b. Change of Control. A "Change of Control" shall be deemed to have occurred
if :
(i) any person (as used herein, the word "person" shall mean an
individual or an entity) or group of persons acting in concert has
acquired thirty-five percent (35%) in voting power or amount of the
equity securities of the Company (including the acquisition of any
right, option warrant or other right to obtain such voting power or
amount, whether or not presently exercisable) unless such
acquisition is authorized or approved of by the Board of Directors
of the Company,
(ii) individuals who constituted the Board of Directors of the Company on
May 1, 1998 (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board of Directors, provided
that any individual becoming a director subsequent to May 1, 1988
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which
such individual is named as a nominee for director) shall be, for
the purposes of this paragraph 10(a), considered as though such
individual were a member of the Incumbent Board; or
(iii) any other circumstance with respect to a change in control of the
Company occurs which the Committee deems to be a Change in Control
of the Company.
A Change of Control will also be deemed to have occurred as of fourteen
days prior to the date scheduled for a Terminating Transaction if
provisions shall not have been made in writing in connection with such
Terminating Transaction for the assumption of the Option or the
substitution for the Option of a new option covering the stock of a
successor employer corporation, or a parent or subsidiary thereof or of
the Company, with appropriate adjustments as to the number and kind of
shares and prices.
c. Code. The Internal Revenue Code of 1986, as amended.
d. Date of Termination. The Participant's "Date of Termination" shall be the
first day occurring on or after the Grant Date on which Participant's
employment with the Company and all Related Companies terminates for any
reason; provided that a termination of employment shall not be deemed to
occur by reason of a transfer of the Participant between the Company and a
Related Company or between two Related Companies; and further provided
that the Participant's employment shall not be considered terminated while
the Participant is on a leave of absence from
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<PAGE>
the Company or a Related Company approved by the Participant's employer or
required by applicable law. If, as a result of a sale or other
transaction, the Participant's employer ceases to be a Related Company
(and the Participant's employer is or becomes an entity that is separate
from the Company), the occurrence of such transaction shall be treated as
the Participant's Date of Termination caused by the Participant being
discharged by the employer.
e. Disability. Except as otherwise provided by the Committee, the Participant
shall be considered to have a "Disability" if he or she is unable to
engage in any substantial gainful activity by reason of a medically
determinable physical or mental impairment, which impairment, in the
opinion of a physician selected by the Secretary of the Company, is
expected to have a duration of not less than 120 days.
f. Plan Definitions. Except where the context clearly implies or indicates
the contrary, a word, term, or phrase used in the Plan shall have the same
meaning in this document.
g. Retirement. "Retirement" of the Participant shall mean the occurrence of
the Participant's Date of Termination after age 65 or the occurrence of
the Participant's Date of Termination after age 55 pursuant to the
retirement practices of the Participant's employer.
h. Terminating Transaction. As used herein, the phrase "Terminating
Transaction" shall mean any one of the following:
(i) the dissolution or liquidation of the Company;
(ii) a reorganization, merger or consolidation of the Company; or
(iii) a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company goes out of
existence or becomes a subsidiary of another corporation, or upon
the acquisition of substantially all of the property or more than
eighty percent (80%) of the then outstanding stock of the Company by
another corporation.
i. Termination for Cause. "Termination for Cause" means termination of
employment pursuant to the conduct-based provisions of the employer's
policy on involuntary termination of employment by reason of a
Participant's action or willful omission, including without limitation,
the commission of a crime, fraud, willful misconduct or the unauthorized
use or disclosure of confidential information which has resulted or is
likely to result in damage to the Company or any of its subsidiaries.
11. Heirs and Successors. The terms of the Option shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
Participant may designate a beneficiary of his/her rights under the Option by
filing written notice with the Secretary of the Company. In the event of the
Participant's death prior to the full exercise of the Option, the Option may be
exercised by such Beneficiary to the extent that it was exercisable on the
Participant's Termination Date and up until its Expiration Date. If the
Participant fails to designate a Beneficiary, or if the designated Beneficiary
dies before the Participant or before full exercise of the Option, the Option
may be exercised by Participant's estate to the extent that it was exercisable
on the Participant's Termination Date and up until its Expiration Date.
12. Administration. The authority to manage and control the operation and
administration of the Option shall be vested in the Committee, and the Committee
shall have all powers with respect to the Option as it has with
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<PAGE>
respect to the Plan. Any interpretation of the Option by the Committee and any
decision made by it with respect to the Option is final and binding.
13. Plan Governs. Notwithstanding anything in this Agreement to the contrary,
the terms of the Option shall be subject to the terms of the Plan, a copy of
which may be obtained by the Participant from the office of the Secretary of the
Company.
Page 5
<PAGE>
STANDARD
OPTION
Terms
Rev. III
TIFFANY & CO.
A Delaware Corporation
(the "Company")
TERMS OF STOCK OPTION AWARD
(Standard Non-Qualified Option)
under the
1998 EMPLOYEE INCENTIVE PLAN
(the "Plan")
Terms Adopted May 21, 1998, Revised January 21, 1999
1. Introduction and Terms of Option. Participant has been granted a
Non-Qualified Stock Option Award (the "Option") to purchase shares of the
Company's Common Stock under the Plan by the Stock Option Subcommittee of the
Company's Board of Directors (the "Committee"). The name of the "Participant",
the "Grant Date", the number of "Covered Shares" and the "Exercise Price" per
Share are stated in the attached "Notice of Grant". The other terms and
conditions of the Option are stated in this document and in the Plan. Certain
initially capitalized words and phrases used in this document are defined in
paragraph 10 below and elsewhere in this document.
2. Award and Exercise Price; Option Not An Incentive Stock Option. Subject to
the terms and conditions stated in this document, the Option gives Participant
the right to purchase the Covered Shares from the Company at the Exercise Price.
THE OPTION IS NOT INTENDED TO CONSTITUTE AN "INCENTIVE STOCK OPTION" AS THAT
TERM IS USED IN THE CODE.
3. Earliest Dates for Exercise - Cumulative Installments. Unless otherwise
provided in paragraphs 4, 5 or 6 below, the Option shall become exercisable
("mature") in cumulative installments according to the following schedule:
<TABLE>
<CAPTION>
THE OPTION SHALL MATURE WITH THE
AS OF THE FOLLOWING RESPECT TO THE FOLLOWING PERCENTAGE
ANNIVERSARY OF THE GRANT DATE: ("INSTALLMENT") OF THE COVERED SHARES:
- ------------------------------ --------------------------------------
<S> <C>
One-year anniversary 25%
Two-year anniversary 25%
Three-year anniversary 25%
Four-year anniversary 25%
</TABLE>
Once an installment of the Option matures, as provided in the above schedule, it
shall continue to be exercisable with all prior installments on a cumulative
basis until the Option expires.
4. Effect of Termination of Employment. An installment of the Option shall not
mature if the Participant's Date of Termination occurs before the anniversary of
the Grant Date on which such installment was scheduled to mature. Installments
of the Option which mature prior to Participant's Date of Termination will
remain exercisable, subject to expiration as provided in paragraph 6 below.
5. Effect of Change in Control. All installments of the Option shall mature upon
the date of a Change of Control unless the Participant's Date of Termination
occurs before the date of the Change of Control. The Committee reserves the
right to unilaterally amend the definition of
<PAGE>
"Change of Control" so as to specify additional circumstances which shall be
deemed to constitute a Change of Control.
6. Expiration. The Option, including matured installments thereof, shall not be
exercisable in part or in whole on or after the Expiration Date. The "Expiration
Date" shall be the earliest to occur of:
a. the ten-year anniversary of the Grant Date;
b. if the Participant's Date of Termination occurs by reason of death,
Disability or Retirement, the two-year anniversary of such Date of
Termination;
c. if the Participant's Date of Termination occurs for reasons other than
death, Disability, Retirement or Termination for Cause, the three month
anniversary of such Date of Termination;
d. if the Participant's Date of Termination occurs by reason of Termination
for Cause, the Date of Termination.
7. Methods of Option Exercise. The Option may be exercised in whole or in part
as to any Shares that have matured by filing a written notice of exercise with
the Secretary of the Company at its corporate headquarters prior to the
Expiration Date. Such notice shall specify the number of Shares which the
Participant elects to purchase and shall be accompanied by either of the
following:
a. a bank-certified check payable to the Company (or other type of check or
draft payable to the Company and acceptable to the Secretary) in the
amount of the Exercise Price for the Shares being exercised plus any tax
withholding resulting from such exercise as computed by Tiffany and
Company's payroll department; or
b. a copy of directions to, or a written acknowledgment from, an Approved
Broker that the Approved Broker has been directed to sell, for the account
of the owner of the Option, Shares (or a sufficient portion of the Shares)
acquired upon exercise of the Option, together with an undertaking by the
Approved Broker to remit to the Company a sufficient portion of the sale
proceeds to pay the Exercise Price for the Shares exercised plus any tax
withholding resulting from such exercise as computed by Tiffany and
Company's payroll department.
In the case of exercise via method (a), the exercise shall be deemed complete on
the Company's receipt of such notice and said check or draft. In the case of
exercise via method (b), the exercise shall be deemed complete on the trade date
of the sale. The Committee may approve other methods of exercise, as provided
for in the Plan, before the Option is exercised.
8. Withholding. All distributions on the exercise of the Option are subject to
withholding of all applicable taxes. The method for withholding shall be as
provided in paragraph 7 above, unless the Committee approves other methods of
withholding, as provided for in the Plan, before the Option is exercised.
9. Transferability. The Option is not transferable otherwise than by will or the
laws of descent and distribution or pursuant to a "domestic relations order", as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder, and shall not be otherwise
Page 2
<PAGE>
transferred, assigned, pledged, hypothecated or otherwise disposed of in any
way, whether by operation of law or otherwise, nor shall it be subject to
execution, attachment or similar process. Upon any attempt to transfer the
Option otherwise than as permitted herein or to assign, pledge, hypothecate or
otherwise dispose of the Option otherwise than as permitted herein, or upon the
levy of any execution, attachment or similar process upon the Option, the Option
shall immediately terminate and become null and void.
10. Definitions. For the purposes of the Option, the words and phrases listed
below shall be defined as follows:
a. Approved Broker. Means one or more securities brokerage firms
designated by the Secretary of the Company from time to time.
b. Change of Control. A "Change of Control" shall be deemed to have
occurred if :
(i) any person (as used herein, the word "person" shall mean an
individual or an entity) or group of persons acting in concert
has acquired thirty-five percent (35%) in voting power or
amount of the equity securities of the Company (including the
acquisition of any right, option warrant or other right to
obtain such voting power or amount, whether or not presently
exercisable) unless such acquisition is authorized or approved
of by the Board of Directors of the Company,
(ii) individuals who constituted the Board of Directors of the
Company on May 1, 1998 (the "Incumbent Board") cease for any
reason to constitute at least a majority of such Board of
Directors, provided that any individual becoming a director
subsequent to May 1, 1988 whose election, or nomination for
election by the Company's stockholders, was approved by a vote
of at least three-quarters of the directors comprising the
Incumbent Board (either by a specific vote or by approval of
the proxy statement of the Company in which such individual is
named as a nominee for director) shall be, for the purposes of
this paragraph 10(a), considered as though such individual
were a member of the Incumbent Board; or
(iii) any other circumstance with respect to a change in control of
the Company occurs which the Committee deems to be a Change in
Control of the Company.
A Change of Control will also be deemed to have occurred as of
fourteen days prior to the date scheduled for a Terminating
Transaction if provisions shall not have been made in writing in
connection with such Terminating Transaction for the assumption of
the Option or the substitution for the Option of a new option
covering the stock of a successor employer corporation, or a parent
or subsidiary thereof or of the Company, with appropriate
adjustments as to the number and kind of shares and prices.
c. Code. The Internal Revenue Code of 1986, as amended.
d. Date of Termination. The Participant's "Date of Termination" shall
be the first day occurring on or after the Grant Date on which
Participant's employment with the Company and all Related Companies
terminates for any reason; provided that a termination of employment
shall not be deemed to occur by reason of a transfer of the
Participant between the Company and a Related Company or between two
Related
Page 3
<PAGE>
Companies; and further provided that the Participant's
employment shall not be considered terminated while the
Participant is on a leave of absence from the Company or a
Related Company approved by the Participant's employer or
required by applicable law. If, as a result of a sale or other
transaction, the Participant's employer ceases to be a Related
Company (and the Participant's employer is or becomes an
entity that is separate from the Company), the occurrence of
such transaction shall be treated as the Participant's Date of
Termination caused by the Participant being discharged by the
employer.
e. Disability. Except as otherwise provided by the Committee, the
Participant shall be considered to have a "Disability" if he
or she is unable to engage in any substantial gainful activity
by reason of a medically determinable physical or mental
impairment, which impairment, in the opinion of a physician
selected by the Secretary of the Company, is expected to have
a duration of not less than 120 days.
f. Plan Definitions. Except where the context clearly implies or
indicates the contrary, a word, term, or phrase used in the
Plan shall have the same meaning in this document.
g. Retirement. "Retirement" of the Participant shall mean the
occurrence of the Participant's Date of Termination after age
65 (other than a Termination for Cause) or the occurrence of
the Participant's Date of Termination after age 55 pursuant to
the retirement practices of the Participant's employer.
h. Terminating Transaction. As used herein, the phrase
"Terminating Transaction" shall mean any one of the following:
(i) the dissolution or liquidation of the Company;
(ii) a reorganization, merger or consolidation of the
Company; or
(iii) a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the
Company goes out of existence or becomes a subsidiary of
another corporation, or upon the acquisition of
substantially all of the property or more than eighty
percent (80%) of the then outstanding stock of the
Company by another corporation.
i. Termination for Cause. "Termination for Cause" means
termination of employment pursuant to the conduct-based
provisions of the employer's policy on involuntary termination
of employment by reason of a Participant's action or willful
omission, including without limitation, the commission of a
crime, fraud, willful misconduct or the unauthorized use or
disclosure of confidential information which has resulted or
is likely to result in damage to the Company or any of its
subsidiaries.
11. Heirs and Successors. The terms of the Option shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
Participant may designate a beneficiary of his/her rights under the Option by
filing written notice with the Secretary of the Company. In the event of the
Participant's death prior to the full exercise of the Option, the Option may be
exercised by such Beneficiary to the extent that it was exercisable on the
Participant's Termination Date and up until its Expiration Date. If the
Participant fails to designate a Beneficiary, or if the designated Beneficiary
dies before the Participant or before
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<PAGE>
full exercise of the Option, the Option may be exercised by Participant's estate
to the extent that it was exercisable on the Participant's Termination Date and
up until its Expiration Date.
12. Administration. The authority to manage and control the operation and
administration of the Option shall be vested in the Committee, and the Committee
shall have all powers with respect to the Option as it has with respect to the
Plan. Any interpretation of the Option by the Committee and any decision made by
it with respect to the Option is final and binding.
13. Plan Governs. Notwithstanding anything in this Agreement to the contrary,
the terms of the Option shall be subject to the terms of the Plan, a copy of
which may be obtained by the Participant from the office of the Secretary of the
Company.
Page 5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.127.B
<SEQUENCE>4
<FILENAME>y84931exv10w127wb.txt
<DESCRIPTION>FORM OF RETENTION AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.127b
Tiffany & Co.
Report on Form 10-K
[Form of Retention Agreement]
[Name of Executive]
727 Fifth Avenue
New York, NY 10022
Re: RETENTION AGREEMENT
Dear [Executive]:
Tiffany and Company and Tiffany & Co. (respectively, "EMPLOYER" and
"PARENT,") wish to take steps to retain key management, it being recognized that
future discussions concerning a Change of Control or a decision to cooperate in
or effect a Change of Control could result in the departure or distraction of
key management at a time when Parent and Employer Board would require the clear
and focused attention of experienced management, unafflicted with concerns for
personal financial and job security. Accordingly, in order to induce you to
remain in the employ of the Employer, Parent and Employer have determined to
enter into this letter agreement (this "AGREEMENT") which addresses the terms
and conditions of your employment in the event of a Change of Control.
This Agreement will provide you with certain payments and benefits should
you incur an Involuntary Termination after a Change of Control Date.
An "Involuntary Termination" means (i) your termination of employment by
Employer during the Term without Cause or (ii) your resignation of employment
with the Employer during the Term for Good Reason. The terms "Change of Control
Date," "Term," "Cause," "Good Reason" and other initially capitalized words and
phrases used in this letter agreement shall have the meanings ascribed to them
in Appendix I attached. With respect to your specific situation, you would also
have "Good Reason" to resign from employment with Employer if any of the
following occurs after a Change of Control Date:
(A) at any time you are not the [insert basic description of
Executive's job] of the Successor Entity or the Controlling
Entity;
(B) any similar adverse change on or after the Change in Control
Date in your title, position or reporting responsibilities.
<PAGE>
1. Term of Employment Under This Agreement. The Term of your employment
under this Agreement shall not commence unless and until a Change in Control
Date occurs and shall continue thereafter until the (SECOND) (THIRD) anniversary
of the Change in Control Date.
2. Cash Payments in the Event of Involuntary Termination During the Term.
In the event of your Involuntary Termination during the Term you will be paid
the following amounts in cash by the Employer:
(a) your Earned Compensation previously unpaid;
(b) a severance payment equal to the sum of (i) (TWO) (THREE)
times your Reference Salary and (ii) (TWO) (THREE) times your
Reference Bonus; and
(c) a Supplementary Pension Payment designed to provide you with
the present cash value of the added benefits you would have
received under the Defined Benefit Plans had you continued in
your employment for a Measuring Period of (TWO) (THREE) years;
and
(d) a Gross-Up Payment to defray your Excise Tax liability if,
following a Change in Control Date, it is determined that any
Payment(s) made to you is (are) subject to the Excise Tax.
Payments under subsections (a) and (b) will be made within five (5) days of your
Date of Termination and payment under subsection (c) will be made within
forty-five (45) days of your date of termination. All calculations necessary to
compute the Supplementary Pension Benefit Payment shall be done by the
Accounting Firm at Employer's expense. Appendix II sets forth the applicable
procedures relating to the Gross-Up Payment.
2
<PAGE>
3. Benefit Continuation in the Event of Involuntary Termination During the
Term. In the event of your Involuntary Termination during the Term Employer
shall maintain all Benefit Plans in full force and effect, for the continued
benefit of you and your eligible dependents for a maximum Benefits Continuation
Period of (TWO) (THREE) years. Employer's obligation under this Section 3 is
subject to the following: (i) that your and your eligible dependent's continued
participation is possible under the general terms and provisions of such Benefit
Plans (and under the terms of any applicable funding media) and (ii) that you
continue to pay an amount equal to your regular contribution under such plans
for such participation. You and your eligible dependents continued participation
in such plans shall also be subject to the additional conditions stated in
Appendix III.
4. Notice of Termination. Any termination of your employment by Employer
or by you during the Term shall be communicated by a Notice of Termination to
the other parties hereto.
5. No Mitigation or Offset; Employer's Opportunity to Correct. You shall
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment or benefit provided for in this Agreement be reduced by any compensation
earned by you as the result of employment by another employer or by pension
benefits paid by Employer or Employer's plans after the Date of Termination or
otherwise, except as provided in the definition of "Benefit Continuation
Period." No event shall constitute Good Reason for your resignation unless your
claim to that effect is communicated by you to Employer in writing and is not
corrected by Employer or Parent in a manner which is reasonably satisfactory to
you (including full retroactive correction with respect to any monetary matter)
within ten (10) days of the Employer's receipt of such written notice from you.
6. Legal Fees and Expenses Necessary to Enforce Agreement. The Employer
shall pay or reimburse you on an after-tax basis for all costs and expenses
(including, without limitation, court costs and reasonable legal fees and
expenses which reflect common practice with respect to the matters involved)
incurred by you as a result of any claim, action or proceeding (i) contesting,
disputing or enforcing any right, benefits or obligations under this Agreement
or which you reasonably claim to have or to be owed to you by Employer or Parent
or (ii) arising out of or challenging the validity, advisability or
enforceability of this Agreement or any provision hereof; provided, however,
that the amount of the payments and reimbursements under this Section 5 shall
not exceed ($50,000) ($100,000).
7. Employment During the Term. During the Term you shall be employed by
Employer on the terms and conditions on which you were employed immediately
prior to the Change in Control Date without any Substantial Change.
3
<PAGE>
8. Successors; Binding Agreement; Respective Responsibilities of Parent
and Employer.
(a) Assumption by Successor. Parent and Employer will each require
their respective successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of either, to expressly assume and to agree to perform this Agreement for
your benefit in the same manner and to the same extent that the Parent or the
Employer, as the case may be, would be required to perform it if no such
succession had taken place; provided, however, that no such assumption shall
relieve either the Parent or the Employer of its obligations hereunder, and no
failure to expressly assume and agree to perform this Agreement shall relieve
any successor of its obligations under this Agreement by operation of law.
(b) Enforceability; Beneficiaries. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by you (and your personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees) and the Parent and Employer and any
Person(s) which succeeds to substantially all of the business or assets of the
Parent or Employer, whether by means of merger, consolidation, acquisition of
all or substantially all of the assets of the Parent or Employer or otherwise,
including, without limitation, as a result of a Change in Control or by
operation of law.
(c) Joint and Several Liability. Parent shall be jointly and
severally liable with Employer for all Employer's obligations hereunder and
Employer shall be jointly and severally liable with Parent for all Parent's
obligations hereunder.
9. Notices. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand-delivered or when mailed by United
States registered mail, return receipt requested, postage prepaid, addressed, if
to Parent or Employer, to the Boards of Directors, Tiffany & Co. and Tiffany and
Company, 727 Fifth Avenue, New York, NY 10022, Attn. Legal Department, or, if to
you, to you at the address set forth on the first page of this Agreement, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
10. Miscellaneous.
(a) Amendments, Waivers, Etc. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing, No waiver by either party hereto any time of any breach by
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provision or conditions at the same or at any later or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter here have been made by either party
which are not expressly set forth in this Agreement
4
<PAGE>
and this Agreement shall supersede all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
with respect to the subject matter hereof.
(b) Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(c) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(d) No Contract of Employment. Nothing in this Agreement shall be
construed as giving you any right to be retained in the employ of Employer or
Parent nor shall it affect the terms and conditions of your employment with
Employer prior to the commencement of the Term hereof. Failing the occurrence of
a Change in Control Date your employment shall continue to be "at will," meaning
that either you or Employer may terminate your employment with or without cause,
for any reason or no reason, with or without notice.
(e) Withholding. Amounts paid to you hereunder shall be subject to
all applicable federal, state and local withholding taxes.
(f) Source of Payments. All payments provided under this Agreement,
other than payments made pursuant to a Benefit Plan which provides otherwise,
shall be paid in cash from the general funds of Employer or Parent, and no
special or separate fund shall be established, and no other segregation of
assets made, to assure payment. You will have no right, title or interest
whatsoever in or to any investments which Employer or Parent may make to aid it
in meeting its obligations hereunder. To the extent that any person acquires a
right to receive payments from Employer or Parent hereunder, such right shall be
no greater than the right of an unsecured creditor of Parent or Employer, as the
case may be.
(g) Headings. The headings contained in this Agreement are intended
solely for convenience of reference and shall not affect the rights of the
parties to this Agreement.
(h) Governing Law. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of New
York applicable to contracts entered into and to be performed in this State.
5
<PAGE>
If this letter set forth our agreement on the subject matter hereof,
kindly sign and return to Employer the enclosed copy of this letter which will
then constitute the agreement among us on this subject.
Sincerely,
TIFFANY & CO. ("Parent")
By:___________________________________________________
Name: Michael J. Kowalski
Title: Chairman and Chief Executive Officer
TIFFANY AND COMPANY ("Employer")
By:___________________________________________________
Name: Michael J. Kowalski
Title: Chairman and Chief Executive Officer
Agreed to as of this _____ day of _______ 200__
______________________________________________________
[Name of Executive]
Attachment: Appendices I through III
6
<PAGE>
APPENDIX I -- DEFINITIONS
FOR PURPOSES OF THE AGREEMENT, THE FOLLOWING INITIALLY CAPITALIZED WORDS SHALL
HAVE THE MEANINGS SET FORTH BELOW:
"ACCOUNTING FIRM" shall mean PricewaterhouseCoopers LLP or, if such firm
is unable or unwilling to perform such calculations or provide such opinions as
are required under this Agreement, such other nationally recognized public
accounting firm as shall be designated by agreement of you and the Employer, or
failing such Agreement, as designated by PricewaterhouseCoopers LLP, provided,
however, that if PricewaterhouseCoopers LLP, or any firm designated by
PricewaterhouseCoopers LLP, is serving as accountant or auditor for the Person
or group effecting the Change of Control (other than for Parent or Employer),
you may appoint another nationally recognized public accounting firm as
Accounting Firm hereunder.
"AFFILIATE" shall mean any Person that controls, is controlled by or is
under common control with, any other Person, directly or indirectly.
"BENEFIT CONTINUATION PERIOD" means the period beginning on your Date of
Termination and ending following the period of years stated in Section 3,
provided that such period shall earlier terminate on the commencement date of
equivalent benefits from your new employer or your attainment of age sixty-five
(65), whichever first occurs.
"BENEFIT PLANS" mean all insured and self-insured employee welfare benefit
plans in which you were entitled to participate immediately prior to your Date
of Termination.
"CAUSE" shall mean a termination of your employment during the Term which
is the result of:
(i) your conviction or plea of nolo contendere to a felony
involving financial impropriety or a felony which would tend
to subject Employer or any of its Affiliates to public
criticism or materially interfere with your continued service
to Employer;
(ii) your willful disclosure of material trade secrets or other
material confidential information related to the business of
Employer or any of its Affiliates, which disclosure actually
results in substantive harm to such business or puts such
business at an actual competitive disadvantage;
(iii) your willful failure or refusal to perform substantially all
such proper and achievable directives issued by your superior
(other than any such failure resulting from your incapacity
due to physical or mental illness, any such actual or
anticipated failure resulting from a resignation by you for
Good Reason, or any such refusal made by you in good faith
because you believe such directives to be illegal, unethical
or immoral) after a written demand for substantial performance
is delivered to you on behalf of Employer, which demand
specifically identifies the manner in which you have not
substantially performed your duties, and which performance is
not substantially corrected by you within ten (10) days of
receipt of such demand;
(iv) your gross negligence in the performance of your duties and
responsibilities materially injurious to the Employer;
I-1
<PAGE>
(v) your willful breach of any material obligation that you have
to Parent or Employer under any written agreement that you
have with either Parent or Employer;
(vi) your fraud or dishonesty with regard to Employer or any of its
Affiliates;
(vii) your death; or
(viii) your Disability.
For purposes of the previous sentence, no act or failure to act on your part
shall be deemed "willful" unless done, or omitted to be done, by you in bad
faith toward, or without reasonable belief that your action or omission was in
the best interests of, Parent, Employer or an Affiliate of Parent or Employer.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause with respect to items (i) through (vi) or item (viii) unless and until
there shall have been delivered to you a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths (3/4th) of the entire
membership of the Employer Board at a meeting called and held for such purpose
(after reasonable notice to you and an opportunity for you, together with your
counsel, to be heard before such Board), finding that, in the good faith opinion
of such Board, Cause exists as set forth in items (i), (ii), (iii), (iv), (v),
(vi) or (viii) above.
"CHANGE IN CONTROL" shall mean a change in control of Parent of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Exchange Act, whether or not Parent is
then subject to such reporting requirement; provided, however, that, anything in
this Agreement to the contrary notwithstanding, a Change in Control shall be
deemed to have occurred if:
(i) any Person, or any syndicate or group deemed to be a person
under Section 14(d)(2) of the Exchange Act, excluding Parent
or any of its Affiliates, a trustee or any fiduciary holding
securities under an employee benefit plan of Parent or any of
its Affiliates, an underwriter temporarily holding securities
pursuant to an offering of such securities or a corporation
owned, directly or indirectly by stockholders of Parent in
substantially the same proportion as their ownership of
Parent, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 of the General Rules and Regulations under the
Exchange Act), directly or indirectly, of securities of Parent
representing Thirty-five percent (35%) or more of the combined
voting power of Parent's then outstanding securities entitled
to vote in the election of directors of Parent;
(ii) ten (10) days following the "Shares Acquisition Date" if any
Person has in fact become and then remains an "Acquiring
Person" under the Rights Plan;
(iii) if the Parent Board should resolve to redeem the "Rights"
under the Rights Plan in response to a proposal by any Person
to acquire, directly or indirectly, securities of Parent
representing Fifteen percent (15%) or more of the combined
voting power of Parent's then outstanding securities entitled
to vote in the election of directors of Parent;
(iv) if the Incumbent Directors cease to constitute a majority of
the Parent Board; provided, however, that no person shall be
deemed an Incumbent Director if he or she was appointed or
elected to the Parent Board after having been designated to
serve on the Parent Board by a Person who has entered into an
agreement with Parent to effect a transaction described in
clauses (i), (iii), (v), (vi), (vii), (viii) or (ix) of this
definition;
I-2
<PAGE>
(v) there occurs a reorganization, merger, consolidation or other
corporate transaction involving Parent, in each case with
respect to which the stockholders of Parent immediately prior
to such transaction do not, immediately after such
transaction, own more than Fifty percent (50%) of the combined
voting power of the Parent or other corporation resulting from
such transaction, as the case may be;
(vi) all or substantially all of the assets of Parent are sold,
liquidated or distributed, except to an Affiliate of Parent;
(vii) all or substantially all of the assets of Employer are sold,
liquidated or distributed, except to an Affiliate of Parent;
(viii) any Person, or any syndicate or group deemed to be a person
under Section 14(d)(2) of the Exchange Act, excluding Parent
or any of its Affiliates, a trustee or any fiduciary holding
securities under an employee benefit plan of Parent or any of
its Affiliates, an underwriter temporally holding securities
pursuant to an offering of such securities or a corporation
owned, directly or indirectly by stockholders of Parent in
substantially the same proportion as their ownership of
Parent, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 of the General Rules and Regulations under the
Exchange Act), directly or indirectly, of securities of
Employer representing Fifty percent (50%) or more of the
combined voting power of Employer's then outstanding
securities entitled to vote in the election of directors of
Employer; or
(ix) there is a "change of control" or a "change in the effective
control" of Parent within the meaning of Section 280G of the
Code and the Regulations.
"CHANGE IN CONTROL DATE" shall mean the earliest of:
(i) the date on which a Change of Control occurs;
(ii) the date on which Parent executes an agreement or its
stockholders adopt a resolution, the consummation of which
would result in the occurrence of a Change of Control;
(iii) the date the Parent Board approves a transaction or series of
transactions, the consummation of which would result in a
Change in Control; and
(iv) the date Parent or Employer fails to satisfy the obligation to
have this Agreement expressly assumed by their respective
successors in accordance with Section 8(a) of the Agreement;
provided that if your employment with Employer terminates prior to any of the
dates specified in items (i) through (iv) of this definition and it is
reasonably demonstrated that your termination of employment (a) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change in Control or (b) otherwise arose in connection with or in anticipation
of a Change in Control, then "Change in Control Date" shall mean the date
immediately prior to your Date of Termination.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and any
successor provisions thereto.
"COMMON STOCK" shall mean the common stock of Parent.
I-3
<PAGE>
"CONTROLLING ENTITY" shall mean the Controlling Person of the Successor
Entity if such a Controlling Person exists; otherwise "Controlling Entity" shall
mean the Successor Entity.
The "CONTROLLING PERSON" of any Person shall mean the Person which
ultimately controls such first Person and all other Affiliates of such first
Person, directly or indirectly, through ownership of voting stock or otherwise.
Your "DATE OF TERMINATION" shall mean:
(i) if your employment is terminated for Disability, thirty (30)
days after a Notice of Termination is given (provided that you
shall not have returned to the full-time performance of your
duties during such thirty (30) day period);
(ii) if your employment is terminated by Employer in an Involuntary
Termination, five (5) days after the date the Notice of
Termination is received by you;
(iii) if your employment is terminated by Employer for Cause (other
than Disability), the later of the date specified in the
Notice of Termination or ten (10) days following the date such
Notice is received by you;
(iv) if you resign and specify Good Reason, ten (10) days after the
date your Notice of Termination is received by Employer; and
(v) if you resign and decline to specify Good Reason, the date set
forth in your Notice of Termination, which shall be no earlier
than ten (10) days after the date such notice is received by
Employer.
"DEFINED BENEFIT PLANS" shall mean, collectively, the Tiffany and Company
Pension Plan and the 1994 Tiffany and Company Supplemental Retirement Income
Plan.
"DISABILITY" shall mean your incapacity due to physical or mental illness
which causes you to be absent from the full-time performance of your duties with
Employer for six (6) consecutive months provided, however, that you shall not be
determined to be subject to a Disability for purposes of this Agreement unless
you fail to return to full-time performance of your duties with Employer within
thirty (30) days after written Notice of Termination due to Disability is given
to you.
"EARNED COMPENSATION" shall mean:
(i) any earned but unpaid base salary through your Date of
Termination at the rate in effect at the time of the Notice of
Termination;
(ii) all unused vacation time which you may have accrued as of your
Date of Termination; and
(iii) a pro rata portion of your target bonus or incentive award for
the fiscal year in which your Involuntary Termination occurs,
calculated on the assumption that all performance targets
(including your individual performance targets and sales and
earnings targets applicable to the Employer and/or to the
Successor Entity) have been or will be achieved.
"EMPLOYER" shall mean Tiffany and Company, a New York corporation, and any
successor to its business and/or assets by operation of law or otherwise.
"EMPLOYER BOARD" shall mean the Board of Directors of Employer.
I-4
<PAGE>
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and any successor provisions thereto.
"EXCISE TAX" shall mean the excise tax imposed by Section 4999 of the Code
and interest or penalties with respect to such excise tax.
"GOOD REASON" means, in addition to those reasons stated in the body of
the Agreement, your resignation from employment with Employer during the Term as
a result of any of the following:
(i) A meaningful and detrimental alteration in your position, your
titles, or the nature or status of your responsibilities
(including your reporting responsibilities) from those in
effect immediately before the Change in Control Date.
(ii) A reduction by Employer in your annual base salary as in
effect immediately prior to the Change in Control Date or as
the same may be increased from time to time thereafter; a
failure by the Employer to increase your salary at a rate
commensurate with that of other key executives of Employer; or
a reduction in your target bonus or incentive award (expressed
as a percentage of base salary) below the target in effect for
you prior to the Change in Control Date;
(iii) The failure by Employer to pay you a bonus or incentive award
commensurate with the bonus paid other key executives of
Employer (expressed as a percentage of your target bonus)
unless such failure is justified by clear and objective
deficiencies of the business units for which you are
responsible;
(iv) the relocation of the office of Employer where you were
employed immediately prior to the Change in Control Date to a
location which is more than 50 miles away or should Employer
require you to be based more than 50 miles away from such
office (except for required travel on the Employer's business
to an extent substantially consistent with your customary
business travel obligations in the ordinary course of business
prior to the Change in Control Date);
(v) the failure by Employer or Parent to continue in effect any
compensation plan in which you participated prior to the
Change in Control Date or made available to you after the
Change in Control Date, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan in connection with the
Change in Control, or the failure by Employer or Parent to
continue your participation therein on at least as favorable a
basis, both in terms of the amount of benefits provided and
the level of your participation relative to other
participants, as existed on the Change in Control Date;
(vi) the failure by Employer or Parent to continue to provide you
with benefits at least as favorable in the aggregate to those
enjoyed by you under the Defined Benefit Plans, the Benefit
Plan or Employer's or Parent's savings, life insurance,
disability and fringe benefit plans and programs in which you
were participating or had a right to participate immediately
prior to the Change in Control Date; or the failure by the
Company to provide you with the number of paid vacation days
to which you were entitled on the basis of years of service
with Employer in accordance with Employer's normal vacation
policy in effect immediately prior to the Change in Control
Date;
(vii) the failure of Employer and Parent to obtain an express
agreement reasonably satisfactory to you from their
successors, if any, to assume and agree to perform this
Agreement, as contemplated in Section 8(a) of the Agreement;
I-5
<PAGE>
(viii) any termination of your employment with Employer which is not
effected pursuant to the terms of this Agreement; or
(ix) a material breach by Employer or Parent of the provisions of
this Agreement.
"GROSS-UP PAYMENT" means a payment to you by the Employer such that after
payment by you of all Taxes (including any Excise Tax and any state or federal
income taxes) imposed upon the Gross-Up Payment, you retain an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments which have triggered your right to a Gross-Up Payment and (y) the
product of any deductions disallowed you because of the inclusion of the
Gross-Up Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
Gross-Up Payment is to be made.
"INCUMBENT DIRECTORS" shall mean those individuals who were members of the
Board of Directors of Tiffany & Co., a Delaware corporation, as of the date of
this Agreement and those individuals whose later appointment to such Board, or
whose later nomination for election to such Board by the stockholders of Tiffany
& Co., was approved by a vote of at least a majority of those members of such
Board who either were members of such Board as of the date of this Agreement, or
whose election or nomination for election was previously so approved.'-+*
"MEASUREMENT PERIOD" means the period of years after your Date of
Termination specified in Section 3.
"NOTICE OF TERMINATION" shall mean a written notice indicating the
specific termination provision in this Agreement relied upon and setting forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
"PARENT" shall mean Tiffany & Co., a Delaware corporation, and any
successor to its business and/or assets by operation of law or otherwise.
"PARENT BOARD" shall mean the Board of Directors of Parent.
"PAYMENT" means (i) any amount due or paid to you under this Agreement,
(ii) any amount that is due or paid to you under any plan, program or
arrangement of Parent or Employer (including, without limitation the Parent's
stock option plans) and (iii) any amount or benefit that is due or payable to
you under this Agreement or under any plan, program or arrangement of Parent or
Employer not otherwise covered under clause (i) or (ii) hereof which must
reasonably be taken into account under Section 280G of the Code and the
Regulation in determining the amount of "parachute payments" received by you,
including, without limitation, any amounts which must be taken into account
under the Code and Regulations as a result of (A) the acceleration of the
vesting of any option, restricted stock or other equity award granted under the
Parent's employee stock option plans or otherwise, (B) the acceleration of the
time at which any payment or benefit is receivable by you or (C) any contingent
severance or other amounts that are payable to you.
"PERSON" shall mean any individual, firm, corporation, partnership,
limited partnership, limited liability partnership, business trust, limited
liability company, unincorporated association or other entity, and shall include
any successor (by merger or otherwise) of such entity.
"REFERENCE BONUS" shall mean the greater of (i) the target annual bonus
applicable to you for the year in which your Involuntary Termination occurs and
(ii) the highest annual bonus paid to you in any of the three years ended prior
to the Change in Control Date. For this purpose, the term "bonus" shall also
refer to a cash Incentive Award under the 1998 Employee Incentive Plan.
"REFERENCE SALARY" shall mean the greater of (i) the annual rate of your
base salary from Employer in effect immediately prior to the date of your
Involuntary Termination and (ii) the highest
I-6
<PAGE>
annual rate of your base salary from Employer in effect at any point during the
three-year period ended on the Change in Control Date.
"REGULATIONS" shall mean regulations under Section 280G of the Code,
including proposed and temporary regulations, and any successor provisions
thereto.
"RIGHTS PLAN" shall mean the Amended and Restated Rights Agreement Dated
as of September 22, 1998 by and between Parent and ChaseMellon Shareholder
Services L.L.C., as Rights Agent, as such Agreement may be further amended from
time to time.
"SUBSTANTIAL CHANGE" means any substantial change in the terms or
conditions of your employment following a Change of Control Date that is less
favorable to you than those in effect previous to the Change of Control Date.
"SUCCESSOR ENTITY" shall mean the Person who is in most immediate control,
whether through voting stock ownership of one or more subsidiaries or otherwise,
of the worldwide consolidated business of Parent's Affiliates, substantially as
such business existed immediately prior to the Change in Control Date whether or
not such Person is ultimately controlled by another Person.
"SUPPLEMENTARY PENSION PAYMENT" means the lump sum actuarial equivalent
(employing actuarial assumptions no less favorable to you than those in effect
under the Defined Benefit Plans prior to the Change in Control Date) of the
excess of the (i) aggregate benefits under the Defined Benefit Plans which you
would receive if your employment with Employer continued for the Measurement
Period over (ii) your vested accrued benefits payable under the Defined Benefit
Plans as of your Date of Termination. The following assumptions shall be used to
calculate such actuarial equivalent, that: (x) your accrued benefits under the
Defined Benefit Plans were fully vested, (y) in each of the years during the
Measurement Period your salary and bonus were equivalent to your Reference
Salary and Reference Bonus and (z) that you will begin to receive benefits under
Defined Benefit Plans at age 65, as calculated by the Accounting Firm with the
assistance of the actuaries for the Tiffany and Company Pension Plan.
"TAXES" shall mean the federal, state and local income taxes to which you
are subject at the time of determination, calculated on the basis of the highest
marginal rates then in effect, plus any additional payroll or withholding taxes
to which you are then subject.
"TERM" shall mean the term of your employment under this Agreement as
defined in Section 1.
I-7
<PAGE>
APPENDIX II - PROCEDURES RELATING TO GROSS UP PAYMENT
(A) Assumptions to be Used in Calculating the Gross-Up Payment. In determining
the amount of the Gross-Up Payment, you shall be deemed to:
(1) pay federal income taxes at the highest marginal rates of federal
income taxation for the calendar year in which the Gross-Up Payment is to
be made;
(2) pay applicable state and local income taxes at the highest marginal
rate of taxation for the calendar year in which the Gross-Up Payment is to
be made, net of the maximum reduction in federal income taxes which could
be obtained from deduction of state and local taxes; and
(3) have otherwise allowable deductions for federal income tax purposes at
least equal to those which could be disallowed because of the inclusion of
the Gross-Up Payment in your gross income.
(B) Calculation and Payment of Gross-Up Payment. Subject to the provisions set
out below, all determinations required under this Appendix, including whether a
Gross-Up Payment is required, the amount of the Payments constituting excess
parachute payments, and the amount of the Gross-Up Payment, shall be made by the
Accounting Firm. Any determination by the Accounting Firm shall be binding upon
you and the Employer. The Accounting Firm shall be instructed by the Employer to
provide detailed supporting calculations both to you and the Employer within
fifteen days of the Change of Control Date, your Date of Termination or any
other date reasonably requested by you or the Employer on which a determination
under this Appendix is necessary or advisable. The Employer shall pay to you the
initial amount of the Gross-Up Payment within five days of the receipt by you
and the Employer of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by you, the Employer shall cause the
Accounting Firm to provide you with an opinion that the Accounting Firm has
substantial authority under the Code and Regulations that you are not required
to report an Excise Tax on your federal income tax return. If the initial
Gross-Up Payment is insufficient to cover the amount of the Excise Tax that is
ultimately determined to be owing by you with respect to any Payment
(hereinafter an "UNDERPAYMENT"), the Employer, after exhausting its remedies
under (C) below, shall promptly pay to you an additional Gross-Up Payment in
respect of the Underpayment.
(C) Procedures Regarding Claims In Respect of Underpayments. If a claim is made
upon you by the Internal Revenue Service, that would, if successful, require the
Employer to make a Gross-Up Payment to you, you must notify the Employer as soon
as practicable after you know of the claim. Such notice must state the nature of
the claim and the date that payment is demanded. As a condition to your right to
a Gross-Up Payment in respect of such claim, you shall not pay such claim until
the expiration of a thirty (30) day period following the date on which you
notify the Employer of such claim, or such shorter period ending on the date the
Taxes in respect to such claim are due (the "NOTICE PERIOD"). If the Employer
notifies you in writing prior to the expiration of the Notice Period that it
desires to contest the claim, you shall:
(1) give the Employer any information reasonably requested by the Employer
relating to the claim;
(2) take such action in connection with the claim as the Employer may
reasonably request, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Employer and reasonably acceptable to you;
(3) cooperate with the Employer in good faith in contesting the claim; and
(4) permit the Employer to participate in any proceedings relating to the
claim.
You shall permit the Employer to control all proceedings related to the claim
and, at its option, permit the Employer to pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim.
II-1
<PAGE>
If requested to do so by the Employer, you agree either to pay the tax claimed
and sue for a refund or contest the claim in any permissible manner and to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts as the
Employer shall determine; provided, however, that, if the Employer directs you
pay such claim and pursue a refund, the Employer shall advance the amount of
such payment to you on an after-tax and interest-free basis (an "ADVANCE").
The Employer's control of the contest related to the claim shall be limited to
the issues related to the Gross-Up Payment and you shall be entitled to settle
or contest, as the case may be, any other issues raised by the Internal Revenue
Service or other taxing authority. If the Employer does not notify you in
writing prior to the end of the Notice Period of its desire to contest the
claim, the Employer shall pay to you an additional Gross-Up Payment in respect
of the excess parachute payments that are the subject of the claim, and you
agree to pay the amount of the Excise Tax that is the subject of the claim to
the applicable taxing authority in accordance with applicable law.
(D) Repayment of Advance. If, after receipt by you of an Advance, you become
entitled to a refund with respect to the claim to which such Advance relates,
you shall pay the Employer the amount of the refund (together with any interest
paid or credited thereon after Taxes applicable thereto). If, after receipt by
you of any Advance, a third-party determination is made that you are not
entitled to any refund with respect to the claim and the Employer does not
promptly notify you of its intent to contest the denial of refund, then the
amount thereof shall offset the amount of the additional Gross-Up Payment then
owing to you with respect to such claim.
(E) Indemnity and Costs Relating to Gross-Up Payments. The Employer shall
indemnify you and hold you harmless, on an after-tax basis, from any costs,
expenses, penalties, fines, interest or other liabilities ("Losses") incurred by
you with respect to the exercise by the Employer of any of its rights under this
Appendix II, including, without limitation, any Losses related to the Employer's
decision to contest a claim or any imputed income to you resulting from any
Advance or action taken on your behalf by the Employer hereunder. The Employer
shall pay all legal fees and expenses incurred by you under this Appendix II,
and shall promptly reimburse you for the reasonable expenses incurred by you in
connection with any actions taken by the Employer or required to be taken by you
hereunder. The Employer shall also pay all of the fees and expenses of the
Accounting firm, including, without limitation, the fees and expenses related to
the determination referred to in (B) above.
II-2
<PAGE>
APPENDIX III - BENEFIT CONTINUATION
(A) In the event that your participation in any Benefit Plan is barred, Employer
shall, at its sole cost and expense, arrange to have issued for the benefit of
you and your eligible dependents individual policies of insurance providing
benefits substantially similar (on an after-tax basis) to those which you
otherwise would have been entitled to receive under such Benefit Plan pursuant
to Section 3 for the Benefit Continuation Period.
(B) In lieu of the benefits provided in (A) above, if, in the reasonable opinion
of Employer, such insurance is not available at a reasonable cost to the
Employer, the Employer shall directly provide you and your eligible dependents
with equivalent benefits (on an after-tax basis).
(C) In either of the circumstances described in (A) or (B), you shall not be
required to pay any premiums or other charges in an amount greater than that
which you would have paid in order participate in such Benefit Plan had your
Involuntary Termination not occurred.
(D) If at the end of the Benefit Continuation Period you have not reached age
sixty-five and you have not previously received or are not then receiving
equivalent benefits from a new employer, Employer shall arrange to enable you to
convert your and your eligible dependents' coverage under the Benefit Plans to
individual policies or programs upon the same terms as employees of the Employer
may apply for such conversions. Employer shall bear the cost of making such
conversions available to you; you shall bear the cost of coverage under such
converted policies or programs.
(E) For the purposes of Section 3 and this Appendix, a dependent will be deemed
"eligible" if, at the time in question, you would, if an employee of Employer,
be entitled to cover such dependent under the plan in question.
III-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.128
<SEQUENCE>5
<FILENAME>y84931exv10w128.txt
<DESCRIPTION>GROUP LONG TERM DISABILITY INSURANCE POLICY
<TEXT>
<PAGE>
Exhibit 10.128
Tiffany & Co.
Report on Form 10-K
AMENDMENT NO.4
This amendment forms a part of Group Policy No. 533717 001 issued to the
Policyholder:
Tiffany & Co.
The entire policy is replaced by the policy attached to this amendment.
The effective date of these changes is August 1,2002. The changes only apply to
disabilities which start on or after the effective date.
The policy's terms and provisions will apply other than as stated in this
amendment.
Dated at New York, New York on January 7,2003.
First Unum Life Insurance Company
By /s/ Susan N. Roth
----------------------------
Secretary
If this amendment is unacceptable, please sign below and return this amendment
to First Unum Life Insurance Company at New York, New York within 90 days of
January 7, 2003.
YOUR FAILURE TO SIGN AND RETURN THIS AMENDMENT BY THAT DATE WILL CONSTITUTE
ACCEPTANCE OF THIS AMENDMENT.
Tiffany & Co.
By
----------------------------
Signature and Title of Officer
<PAGE>
- --------------------------------------------------------------------------------
UNUM PROVIDENT GROUP INSURANCE POLICY
NON-PARTICIPATING
- --------------------------------------------------------------------------------
POLICYHOLDER: Tiffany & Co.
POLICY NUMBER: 533717 001
POLICY EFFECTIVE DATE: October 15, 1998
POLICY ANNIVERSARY DATE: November 1
GOVERNING JURISDICTION: New York
First Unum Life Insurance Company (referred to as Unum) will provide benefits
under this policy. Unum makes this promise subject to all of this policy's
provisions.
The policyholder should read this policy carefully and contact Unum promptly
with any questions. This policy is delivered in and is governed by the laws of
the governing jurisdiction and to the extent applicable by the Employee
Retirement Income Security Act of 1974 (ERISA) and any amendments. This policy
consists of:
all policy provisions and any amendments and/or attachments issued;
employees' signed applications; and
the certificate of coverage.
This policy may be changed in whole or in part. Only an officer or a registrar
of Unum can approve a change. The approval must be in writing and endorsed on or
attached to this policy. No other person, including an agent, may change this
policy or waive any part of it.
Signed for Unum at New York, New York on the Policy Effective Date.
/s/ Harold Chandler /s/ Susan N. Roth
President Secretary
First Unum Life Insurance Company
99 Park Avenue
6th Floor
New York, New York 10016
Copyright 1993, First Unum Life Insurance Company
<PAGE>
TABLE OF CONTENTS
BENEFITS AT A GLANCE.................................. B@G-LTD-1
LONG TERM DISABILITY PLAN............................. B@G-LTD-1
CLAIM INFORMATION..................................... LTD-CLM-1
LONG TERM DISABILITY.................................. LTD-CLM-1
POLICYHOLDER PROVISIONS.............................. EMPLOYER-1
CERTIFICATE SECTION................................... CC.FP-1
GENERAL PROVISIONS.................................... EMPLOYEE-1
LONG TERM DISABILITY.................................. LTD-BEN-1
BENEFIT INFORMATION................................... LTD-BEN-1
OTHER BENEFIT FEATURES................................ LTD-OTR-1
OTHER SERVICES........................................ SERVICES-1
ERISA................................................. ERISA-1
GLOSSARY.............................................. GLOSSARY-1
<PAGE>
BENEFITS AT A GLANCE
SYNOPSIS
The insurance evidenced by this certificate provides disability income insurance
only. It does NOT provide basic hospital, basic medical or major medical
insurance as defined by the New York State Insurance Department.
EXCLUSIONS
What disabilities are not covered for a cost of living increase:
See page LTD-BEN-6
What disabilities are not covered under your plan:
See page LTD-BEN-12
Are increases in coverage subject to a pre-existing condition:
See Page LTD-BEN-12
What exclusions and limitations apply to Disability Plus:
See Page LTD-OTR-4 and LTD-OTR-5
LIMITATIONS
What disabilities have a limited pay period under your plan:
See page LTD-BEN-11
What exclusions and limitations apply to Disability Plus:
See Page LTD-OTR-4 and LTD-OTR-5
LONG TERM DISABILITY PLAN
This long term disability plan provides financial protection for you by paying a
portion of your income while you are disabled. The amount you receive is based
on the amount you earned before your disability began. In some cases, you can
receive disability payments even if you work while you are disabled.
EMPLOYER'S ORIGINAL PLAN
EFFECTIVE DATE: October 15,1998
POLICY NUMBER: 533717 001
ELIGIBLE GROUP(S):
Group 1
All full-time employees working a minimum of 35 hours per week,
part-time employees hired prior to January 1, 1994 working a minimum
of 20 hours per week and part-time employees who transferred from
full-time after satisfying the initial waiting period for
eligibility and work a minimum of 20 hours per week in active
employment
Group 2
Chairman, President, Executive Vice President, Senior Vice
Presidents, Group Vice Presidents and Vice Presidents who are
eligible for IDI Coverage in active employment
Group 3
Chairman, President, Executive Vice President, Senior Vice
Presidents, Group Vice Presidents and Vice Presidents who are
ineligible for IDI Coverage in active employment
<PAGE>
MINIMUM HOURS REQUIREMENT:
ALL FULL-TIME EMPLOYEES, CHAIRMAN, PRESIDENT, EXECUTIVE VICE
PRESIDENT, SENIOR VICE PRESIDENTS, GROUP VICE PRESIDENTS AND
VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI COVERAGE, CHAIRMAN,
PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
Employees must be working at least 35 hours per week.
All Part-Time Employees Hired Prior to January 1, 1994
Employees must be working at least 20 hours per week.
WAITING PERIOD:
For employees in an eligible group on or before October 15,
1998: 90 days of continuous active employment
For employees entering an eligible group after October 15,
1998: 90 days of continuous active employment
REHIRE:
If your employment ends and you are rehired within 12 months,
your previous work while in an eligible group will apply
toward the waiting period. All other policy provisions apply.
WAIVE THE WAITING PERIOD:
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
If you have been continuously employed by your Employer for a
period of time equal to your waiting period, Unum will waive
your waiting period when you enter an eligible group.
CREDIT PRIOR SERVICE:
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
Unum will apply any prior period of work with your Employer
toward the waiting period to determine your eligibility date.
WHO PAYS FOR THE COVERAGE:
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
You pay the cost of your coverage.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
Your Employer pays the cost of your coverage.
ELIMINATION PERIOD:
180 days
Benefits begin the day after the elimination period is completed.
<PAGE>
MONTHLY BENEFIT:
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1,1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
60% of monthly earnings to a maximum benefit of $10,000 per
month.
Your payment may be reduced by deductible sources of income
and disability earnings. Some disabilities may not be covered
or may have limited coverage under this plan.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE
The lesser of:
- 30% of monthly earnings less any deductible sources of
income (excluding Spouse and Children Social Security
Benefits) to a maximum monthly benefit of $15,000 per
month; or
- 70% of monthly earnings less any deductible sources of
income (including Spouse and Children Social Security
Benefits).
Your payment may also be reduced by disability earnings. Some
disabilities may not be covered or may have limited coverage
under this plan.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE FOR IDI
COVERAGE
The lesser of:
- 60% of monthly earnings less any deductible sources of
income (excluding Spouse and Children Social Security
Benefits) to a maximum monthly benefit of $18,000 per
month; or
- 70% of monthly earnings less any deductible sources of
income (including Spouse and Children Social Security
Benefits).
Your payment may also be reduced by disability earnings. Some
disabilities may not be covered or may have limited coverage
under this plan.
MAXIMUM PERIOD OF PAYMENT:
<TABLE>
<CAPTION>
Age at Disability Maximum Period of PaYment
----------------- -------------------------
<S> <C>
Less than age 60 To age 65, but not less than 5 years
Age 60 60 months
Age 61 48 months
Age 62 42 months
Age 63 36 months
Age 64 30 months
Age 65 24 months
Age 66 21 months
Age 67 18 months
Age 68 15 months
Age 69 and over 12 months
</TABLE>
No premium payments are required for your coverage while you are receiving
payments under this plan.
OTHER FEATURES:
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK,
PART-TIME EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM
OF 20 HOURS PER WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM
FULL-TIME AFTER SATISFYING THE INITIAL WAITING PERIOD FOR
ELIGIBILITY AND WORK A MINIMUM OF 20 HOURS PER WEEK
Continuity of Coverage
Disability Plus
Minimum Benefit
<PAGE>
Pre-Existing: 3/12
Survivor Benefit
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS, GROUP
VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI COVERAGE, CHAIRMAN,
PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS, GROUP VICE
PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE FOR IDI COVERAGE
Continuity of Coverage
Conversion
Cost of Living Adjustment
Disability Plus
Minimum Benefit
Pre-Existing: 3/12
Survivor Benefit
THE ABOVE ITEMS ARE ONLY HIGHLIGHTS OF THIS PLAN. FOR A FULL DESCRIPTION OF YOUR
COVERAGE, CONTINUE READING YOUR CERTIFICATE OF COVERAGE SECTION.
<PAGE>
CLAIM INFORMATION
LONG TERM DISABILITY
WHEN DO YOU NOTIFY UNUM OF A CLAIM?
We encourage you to notify us of your claim as soon as possible, so that a
claim decision can be made in a timely manner. Written notice of a claim
should be sent within 30 days after the date your disability begins.
However, you must send Unum written proof of your claim no later than 90
days after your elimination period. If it is not possible to give proof
within 90 days, it must be given as soon as is reasonably possible.
The claim form is available from your Employer, or you can request a claim
form from us. If you do not receive the form from Unum within 15 days of
your request, send Unum written proof of claim without waiting for the
form.
You must notify us immediately when you return to work in any capacity.
DO YOU FILE A CLAIM?
You and your Employer must fill out your own sections of the claim form
and then give it to your attending physician. Your physician should fill
out his or her section of the form and send it directly to Unum.
WHAT INFORMATION IS NEEDED AS PROOF OF YOUR CLAIM?
Your proof of claim, provided at your expense, must show:
- that you are under the regular care of a physician;
- the appropriate documentation of your monthly earnings;
- the date your disability began;
- the cause of your disability;
- the extent of your disability, including restrictions and
limitations preventing you from performing your regular occupation;
and
- the name and address of any HOSPITAL OR INSTITUTION where you
received treatment, including all attending physicians.
We may request that you send proof of continuing disability indicating
that you are under the regular care of a physician. This proof, provided
at your expense, must be received within 45 days of a request by us.
In some cases, you will be required to give Unum authorization to obtain
additional medical information and to provide non-medical information as
part of your proof of claim, or proof of continuing disability. Unum will
deny your claim, or stop sending you payments, if the appropriate
information is not submitted.
TO WHOM WILL UNUM MAKE PAYMENTS?
Unum will make payments to you.
<PAGE>
WHAT HAPPENS IF UNUM OVERPAYS YOUR CLAIM?
Unum has the right to recover any overpayments due to:
- fraud;
- any error Unum makes in processing a claim; and
- your receipt of deductible sources of income.
You must reimburse us in full. We will determine the method by which the
repayment is to be made.
Unum will not recover more money than the amount we paid you.
<PAGE>
POLICYHOLDER PROVISIONS
WHAT IS THE COST OF THIS INSURANCE?
LONG TERM DISABILITY
--------------------
The initial premium for each plan is based on the initial rate(s) shown in
the policy effective on the Employer's original plan effective date.
WAIVER OF PREMIUM
Unum does not require premium payments for an insured while he or she is
receiving Long Term Disability payments under this plan.
INITIAL RATE GUARANTEE
Refer to the policy effective on the Employer's original plan effective
date.
WHEN IS PREMIUM DUE FOR THIS POLICY?
Premium Due Dates: Premium due dates are based on the Premium Due Dates
shown in the policy effective on the Employer's
original plan effective date.
The POLICYHOLDER must send all premiums to Unum on or before their
respective due date. The premium must be paid in United States dollars.
WHEN ARE INCREASES OR DECREASES IN PREMIUM DUE?
Premium increases or decreases which take effect during a policy month are
adjusted and due on the next premium due date following the change.
Changes will not be pro-rated daily.
If premiums are paid on other than a monthly basis, premiums for increases
and decreases will result in a monthly pro-rated adjustment on the next
premium due date.
Unum will only adjust premium for the current policy year and the prior
policy year. In the case of fraud, premium adjustments will be made for
all policy years.
WHAT INFORMATION DOES UNUM REQUIRE FROM THE POLICYHOLDER?
The Policyholder must provide Unum with the following on a regular basis:
- information about employees:
- who are eligible to become insured;
- whose amounts of coverage change; and/or
- whose coverage ends;
- occupational information and any other information that may be
required to manage a claim; and
- any other information that may be reasonably required.
Policyholder records that, in Unum's opinion, have a bearing on this
policy will be available for review by Unum at any reasonable time.
<PAGE>
Clerical error or omission by Unum will not:
- prevent an employee from receiving coverage;
- affect the amount of an insured's coverage; or
- cause an employee's coverage to begin or continue when the coverage
would not otherwise be effective.
WHO CAN CANCEL THIS POLICY OR A PLAN UNDER THIS POLICY?
This policy or a plan under this policy can be cancelled:
- by Unum; or
- by the Policyholder.
Unum may cancel or offer to modify this policy or a plan if:
- there is less than 75% participation of those eligible employees who
pay all or part of their premium for a plan; or
- there is less than 100% participation of those eligible employees
for a Policyholder paid plan;
- the Policyholder does not promptly provide Unum with information
that is reasonably required;
- the Policyholder fails to perform any of its obligations that relate
to this policy;
- fewer than 10 employees are insured under a plan;
- the Policyholder fails to pay any premium within the 31 day GRACE
PERIOD.
If Unum cancels this policy or a plan for reasons other than the
Policyholder's failure to pay premium, a written notice will be delivered
to the Policyholder at least 31 days prior to the cancellation date.
If the premium is not paid during the grace period, the policy or plan
will terminate automatically at the end of the grace period. The
Policyholder is liable for premium for coverage during the grace period.
The Policyholder must pay Unum all premium due for the full period each
plan is in force.
The Policyholder may cancel this policy or a plan by written notice
delivered to Unum at least 31 days prior to the cancellation date. When
both the Policyholder and Unum agree, this policy or a plan can be
cancelled on an earlier date. If Unum or the Policyholder cancels this
policy or a plan, coverage will end at 12:OO midnight on the last day of
coverage.
If this policy or a plan is cancelled, the cancellation will not affect a
PAYABLE CLAIM
WHAT HAPPENS TO AN EMPLOYEE'S COVERAGE UNDER THIS POLICY WHILE HE OR SHE IS ON A
FAMILY AND MEDICAL LEAVE OF ABSENCE?
We will continue the employee's coverage in accordance with the
policyholder's Human Resource policy on family and medical leaves of
absence if premium payments continue and the policyholder approved the
employee's leave in writing.
Coverage will be continued until the end of the later of:
<PAGE>
1. the leave period required by the federal Family and Medical Leave of
Absence Act of 1993 and any amendments; or
2. the leave period required by applicable state law.
If the policyholder's Human Resource policy doesn't provide for
continuation of an employee's coverage during a family and medical leave
of absence, the employee's coverage will be reinstated when he or she
returns to active employment.
We will not:
- apply a new waiting period;
- apply a new pre-existing conditions exclusion; or
- require evidence of insurability.
DIVISIONS, SUBSIDIARIES OR AFFILIATED COMPANIES INCLUDE:
NAME/LOCATION (CITY AND STATE)
None
<PAGE>
CERTIFICATE SECTION
First Unum Life Insurance Company (referred to as Unum) welcomes you as a
client.
This is your certificate of coverage as long as you are eligible for coverage
and you become insured. You will want to read it carefully and keep it in a safe
place.
Unum has written your certificate of coverage in plain English. However, a few
terms and provisions are written as required by insurance law. If you have any
questions about any of the terms and provisions, please consult Unum's claims
paying office. Unum will assist you in any way to help you understand your
benefits.
If the terms and provisions of the certificate of coverage (issued to you) are
different from the policy (issued to the policyholder), the policy will govern.
Your coverage may be cancelled or changed in whole or in part under the terms
and provisions of the policy,
The policy is delivered in and is governed by the laws of the governing
jurisdiction and to the extent applicable by the Employee Retirement Income
Security Act of 1974 (ERISA) and any amendments. When making a benefit
determination under the policy, Unum has discretionary authority to determine
your eligibility for benefits and to interpret the terms and provisions of the
policy.
For purposes of effective dates and ending dates under the group policy, all
days begin at 12:Ol a.m. and end at 12:00 midnight at the Policyholder's
address.
First Unum Life Insurance Company
99 Park Avenue
6th Floor
New York, New York 10016
<PAGE>
GENERAL PROVISIONS
WHAT IS THE CERTIFICATE OF COVERAGE?
This certificate of coverage is a written statement prepared by Unum and
may include attachments, It tells you:
- the coverage for which you may be entitled;
- to whom Unum will make a payment; and
- the limitations, exclusions and requirements that apply within a
plan
WHEN ARE YOU ELIGIBLE FOR COVERAGE?
If you are working for your Employer in an eligible group, the date you
are eligible for coverage is the later of:
- the plan effective date; or
- the day after you complete your waiting period
WHEN DOES YOUR COVERAGE BEGIN?
When your Employer pays 100% of the cost of your coverage under a plan,
you will be covered at 12:01 a.m. on the date you are eligible for
coverage.
When you and your Employer share the cost of your coverage under a plan or
when you pay 100% of the cost yourself, you will be covered at 12:01 a.m.
on the latest of:
- the date you are eligible for coverage, if you apply for insurance
on or before that date;
- the date you apply for insurance, if you apply within 31 days after
your eligibility date; or
- the date Unum approves your application, if evidence of insurability
is required.
Evidence of insurability is required if you:
- are a late applicant, which means you apply for coverage more than
31 days after the date you are eligible for coverage; or
- voluntarily cancelled your coverage and are reapplying.
An evidence of insurability form can be obtained from your Employer.
WHAT IF YOU ARE ABSENT FROM WORK ON THE DATE YOUR COVERAGE
WOULD NORMALLY BEGIN?
If you are absent from work due to injury, sickness, temporary layoff or
leave of absence, your coverage will begin on the date you return to
active employment.
ONCE YOUR COVERAGE BEGINS, WHAT HAPPENS IF YOU ARE TEMPORARILY NOT WORKING?
If you are on a temporary layoff, and if premium is paid, you will be
covered through the end of the month that immediately follows the month in
which your temporary layoff begins.
<PAGE>
If you are on a leave of absence, and if premium is paid, you will be
covered through the end of the month that immediately follows the month in
which your leave of absence begins.
WHEN WILL CHANGES TO YOUR COVERAGE TAKE EFFECT?
Once your coverage begins, any increased or additional coverage will take
effect immediately if you are in active employment or if you are on a
covered layoff or leave of absence. If you are not in active employment
due to injury or sickness, any increased or additional coverage will begin
on the date you return to active employment.
Any decrease in coverage will take effect immediately but will not affect
a payable claim that occurs prior to the decrease.
WHEN DOES YOUR COVERAGE END?
Your coverage under the policy or a plan ends on the earliest of:
- the date the policy or a plan is cancelled;
- the date you no longer are in an eligible group;
- the date your eligible group is no longer covered;
- the last day of the period for which you made any required
contributions; or
- the last day you are in active employment except as provided under
the covered layoff or leave of absence provision.
Unum will provide coverage for a payable claim which occurs while you are
covered under the policy or plan.
WHAT ARE THE TIME LIMITS FOR LEGAL PROCEEDINGS?
You can start legal action regarding your claim 60 days after proof of
claim has been given and up to 3 years from the time proof of claim is
required, unless otherwise provided under federal law.
HOW CAN STATEMENTS MADE IN YOUR APPLICATION FOR THIS COVERAGE BE USED?
Unum considers any statements you or your Employer make in a signed
application for coverage a representation and not a warranty. If any of
the statements you or your Employer make are not complete and/or not true
at the time they are made, we can:
- reduce or deny any claim; or
- cancel your coverage from the original effective date.
We will use only statements made in a signed application as a basis for
doing this.
If the Employer gives us information about you that is incorrect, we will:
- use the facts to decide whether you have coverage under the plan and
in what amounts; and
- make a fair adjustment of the premium.
<PAGE>
HOW WILL UNUM HANDLE INSURANCE FRAUD?
Unum wants to ensure you and your Employer do not incur additional
insurance costs as a result of the undermining effects of insurance fraud.
Unum promises to focus on all means necessary to support fraud detection,
investigation, and prosecution.
It is a crime if you knowingly, and with intent to injure, defraud or
deceive Unum, or provide any information, including filing a claim, that
contains any false, incomplete or misleading information. These actions,
as well as submission of materially false information, will result in
denial of your claim, and are subject to prosecution and punishment to the
full extent under state and/or federal law. Unum will pursue all
appropriate legal remedies in the event of insurance fraud.
DOES THE POLICY REPLACE OR AFFECT ANY WORKERS' COMPENSATION OR STATE DISABILITY
INSURANCE?
The policy does not replace or affect the requirements for coverage by any
workers' compensation or state disability insurance.
DOES YOUR EMPLOYER ACT AS YOUR AGENT OR UNUM'S AGENT?
For purposes of the policy, your Employer acts on its own behalf or as
your agent. Under no circumstances will your Employer be deemed the agent
of Unum.
<PAGE>
LONG TERM DISABILITY
BENEFIT INFORMATION
HOW DOES UNUM DEFINE DISABILITY?
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
You are disabled when Unum determines that:
- you are LIMITED from performing the MATERIAL AND SUBSTANTIAL duties
of your REGULAR OCCUPATION due to your SICKNESS or INJURY; and
- you have a 20% or more loss in your INDEXED MONTHLY EARNINGS due to
the same sickness or injury; and
- during the elimination period, you are unable to perform any of the
material and substantial duties of your regular occupation.
After 24 months of payments, you are disabled when Unum determines that
due to the same sickness or injury, you are unable to perform the duties
of any GAINFUL OCCUPATION for which you are reasonably fitted by
education, training or experience,
We may require you to be examined by a physician, other medical
practitioner or vocational expert of our choice. Unum will pay for this
examination. We can require an examination as often as it is reasonable to
do so. We may also require you to be interviewed by an authorized Unum
Representative.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
You are disabled when Unum determines that:
- you are LIMITED from performing the MATERIAL AND SUBSTANTIAL duties
of your REGULAR OCCUPATION due to your SICKNESS or INJURY; and
- you have a 20% or more loss in your INDEXED MONTHLY EARNINGS due to
the same sickness or injury.
We may require you to be examined by a physician, other medical
practitioner or vocational expert of our choice. Unum will pay for this
examination. We can require an examination as often as it is reasonable to
do so. We may also require you to be interviewed by an authorized Unum
Representative.
HOW LONG MUST YOU BE DISABLED BEFORE YOU ARE ELIGIBLE TO RECEIVE BENEFITS?
You must be continuously disabled through your ELIMINATION PERIOD. Unum
will treat your disability as continuous if your disability stops for 30
days or less during the elimination period. The days that you are not
disabled will not count toward your elimination period.
<PAGE>
Your elimination period is 180 days,
CAN YOU SATISFY YOUR ELIMLNATION PERIOD IF YOU ARE WORKING?
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
Yes, provided you meet the definition of disability.
WHEN WILL YOU BEGIN TO RECEIVE PAYMENTS?
You will begin to receive payments when we approve your claim, providing
the elimination period has been met. We will send you a payment monthly
for any period for which Unum is liable.
HOW MUCH WILL UNUM PAY YOU IF YOU ARE DISABLED?
We will follow this process to figure your payment:
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
1. Multiply your monthly earnings by 60%.
2. The maximum MONTHLY BENEFIT is $10,000.
3. Compare the answer from Item 1 with the maximum monthly benefit. The
lesser of these two amounts is your GROSS DISABILITY PAYMENT.
4. Subtract from your gross disability payment any DEDUCTIBLE SOURCES
OF INCOME.
The amount figured in Item 4 is your MONTHLY PAYMENT.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE
1. Multiply your monthly earnings by 30%.
2. The maximum MONTHLY BENEFIT is $15,000.
3. Compare the answer from Item 1 with the maximum monthly benefit. The
lesser amount is your GROSS DISABILITY PAYMENT.
4. Subtract any DEDUCTIBLE SOURCES OF INCOME from Item 1. Do not
subtract any amount your spouse or children are eligible to receive
from Social Security.
5. Multiply your monthly earnings by 70% and subtract any deductible
sources of income, including any amount your spouse or children are
eligible to receive from Social Security.
6. Compare the answers from Item 4 and Item 5 with the maximum monthly
benefit.
The lesser amount figured in Item 6 is your MONTHLY PAYMENT.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE FOR IDI
COVERAGE
1. Multiply your monthly earnings by 60%.
2. The maximum MONTHLY BENEFIT is $18,000.
3. Compare the answer from Item 1 with the maximum monthly benefit. The
lesser amount is your GROSS DISABILITY PAYMENT.
<PAGE>
4. Subtract any DEDUCTIBLE SOURCES OF INCOME from Item 1. Do not
subtract any amount your spouse or children are eligible to receive
from Social Security.
5. Multiply your monthly earnings by 70% and subtract any deductible
sources of income, including any amount your spouse or children are
eligible to receive from Social Security.
6. Compare the answers from Item 4 and Item 5 with the maximum monthly
benefit.
The lesser amount figured in Item 6 is your MONTHLY PAYMENT.
WHAT ARE YOUR MONTHLY EARNINGS?
ALL MANAGERS AND DIRECTORS, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT,
SENIOR VICE PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE
ELIGIBLE FOR IDI COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT,
SENIOR VICE PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE
INELIGIBLE FOR IDI COVERAGE
"Monthly Earnings" means your gross monthly income from your Employer in
effect just prior to your date of disability. It includes your total
income before taxes. It is prior to any deductions made for pre-tax
contributions to a qualified deferred compensation plan, Section 125 plan,
or flexible spending account. It includes income actually received from
bonuses but does not include commissions, overtime pay or any other extra
compensation, or income received from sources other than your Employer.
Bonuses will be averaged for the lesser of:
a. the prior calendar year's 12 month period of your employment with
your Employer just prior to the date disability begins; or
b. the period of actual employment with your Employer.
ALL SALES EMPLOYEES
"Monthly Earnings" means your gross monthly income from your Employer in
effect just prior to your date of disability. It includes your total
income before taxes and any deductions made for pre-tax contributions to a
qualified deferred compensation plan, Section 125 plan or flexible
spending account. It includes income actually received from overtime and
commissions just prior to your disability, but does not include renewal
commissions, bonuses, or any other extra compensation, or income received
from sources other than your Employer.
Overtime pay is defined as earnings paid by your Employer for services
beyond the normal scheduled work hours. Overtime pay will be averaged for
the lesser of:
a. the 12 full calendar month period of your employment with your
Employer just prior to the date disability begins; or
b. the period of actual employment with your Employer.
Commissions will be averaged for the lesser of:
a. the 12 full calendar month period of your employment with your
Employer just prior to the date disability begins; or
b. the period of actual employment with your Employer.
<PAGE>
ALL OTHER EMPLOYEES
"Monthly Earnings" means your gross monthly income from your Employer in
effect just prior to your date of disability. It includes your total
income before taxes. It is prior to any deductions made for pre-tax
contributions to a qualified deferred compensation plan, Section 125 plan
or flexible spending account. It includes overtime pay but does not
include commissions, bonuses, any other extra compensation, or income
received from sources other than your Employer.
Overtime pay is defined as earnings paid by your Employer for services
beyond your normally scheduled work hours. Overtime pay will be averaged
for the lesser of:
a. the 12 full calendar month period of your employment with your
Employer just prior to the date disability begins; or
b. the period of actual employment with your Employer
WHAT WILL WE USE FOR MONTHLY EARNINGS IF YOU BECOME DISABLED DURING A COVERED
LAYOFF OR LEAVE OF ABSENCE?
If you become disabled while you are on a covered layoff or leave of
absence, we will use your monthly earnings from your Employer in effect
just prior to the date your absence begins.
HOW MUCH WILL UNUM PAY YOU IF YOU ARE DISABLED AND WORKING?
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
We will send you the monthly payment if you are disabled and your monthly
DISABILITY EARNINGS, if any, are less than 20% of your indexed monthly
earnings, due to the same sickness or injury.
If you are disabled and your monthly disability earnings are 20% or more
of your indexed monthly earnings, due to the same sickness or injury, Unum
will figure your payment as follows:
During the first 12 months of payments, while working, your monthly
payment will not be reduced as long as disability earnings plus the gross
disability payment does not exceed 100% of indexed monthly earnings.
1. Add your monthly disability earnings to your gross disability
payment.
2. Compare the answer in Item 1 to your indexed monthly earnings.
If the answer from Item 1 is less than or equal to 100% of your indexed
monthly earnings, Unum will not further reduce your monthly payment.
If the answer from Item 1 is more than 100% of your indexed monthly
earnings. Unum will subtract the amount over 100% from your monthly
payment.
After 12 months of payments, while working, you will receive payments
based on the percentage of income you are losing due to your disability.
<PAGE>
1. Subtract your disability earnings from your indexed monthly
earnings.
2. Divide the answer in Item 1 by your indexed monthly earnings. This
is your percentage of lost earnings.
3. Multiply your monthly payment by the answer in Item 2.
This is the amount Unum will pay you each month.
During the first 24 months of disability payments, if your monthly
disability earnings exceed 80% of your indexed monthly earnings, Unum will
stop sending you payments and your claim will end.
Beyond 24 months of disability payments, if your monthly disability
earnings exceed 60% of your indexed monthly earnings, Unum will stop
sending you payments and your claim will end.
Unum may require you to send proof of your monthly disability earnings at
least quarterly. We will adjust your payment based on your quarterly
disability earnings.
As part of your proof of disability earnings, we can require that you send
us appropriate financial records which we believe are necessary to
substantiate your income.
After the elimination period, if you are disabled for less than 1 month,
we will send you l/30 of your payment for each day of disability.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
We will send you the monthly payment if you are disabled and your monthly
DISABILITY EARNINGS, if any, are less than 20% of your indexed monthly
earnings, due to the same sickness or injury.
If you are disabled and your monthly disability earnings are from 20%
through 80% of your indexed monthly earnings, due to the same sickness or
injury, Unum will figure your payment as follows:
During the first 12 months of payments, while working, your monthly
payment will not be reduced as long as disability earnings plus the gross
disability payment does not exceed 100% of indexed monthly earnings.
1. Add your monthly disability earnings to your gross disability
payment.
2. Compare the answer in Item 1 to your indexed monthly earnings.
If the answer from Item 1 is less than or equal to 100% of your indexed
monthly earnings, Unum will not further reduce your monthly payment.
If the answer from Item 1 is more than 100% of your indexed monthly
earnings, Unum will subtract the amount over 100% from your monthly
payment.
After 12 months of payments, while working, you will receive payments
based on the percentage of income you are losing due to your disability.
<PAGE>
1. Subtract your disability earnings from your indexed monthly
earnings.
2. Divide the answer in Item 1 by your indexed monthly earnings. This
is your percentage of lost earnings.
3. Multiply your monthly payment by the answer in Item 2.
This is the amount Unum will pay you each month.
Unum may require you to send proof of your monthly disability earnings at
least quarterly. We will adjust your payment based on your quarterly
disability earnings.
As part of your proof of disability earnings, we can require that you send
us appropriate financial records which we believe are necessary to
substantiate your income.
After the elimination period, if you are disabled for less than 1 month,
we will send you l/30 of your payment for each day of disability.
WILL YOUR PAYMENT BE ADJUSTED BY A COST OF LIVING INCREASE?
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
Unum will make a cost of living adjustment (COLA) after you have received
1 full year of payments.
Beginning on the first anniversary of payments and each following
anniversary while you continue to receive payments for your disability,
your payment will increase by the lesser of:
- 4%; or
- l/2 of the annual percentage increase in the Consumer Price Index
for the calendar year just prior to the relevant anniversary.
Each month Unum will add the cost of living adjustment to your monthly
payment. When Unum adds the adjustment to your payment, the increase may
cause your payment to exceed the maximum monthly benefit.
The Consumer Price Index (CPI-W) is published by the U.S. Department of
Labor. Unum reserves the right to use some other similar measurement if
the Department of Labor changes or stops publishing the CPI-W.
WHAT DISABILITIES ARE NOT COVERED FOR A COST OF LIVING INCREASE?
If you are insured on January 1, 1999, your plan will not provide a cost
of living adjustment for any disability caused by, contributed to by, or
resulting from the following pre-existing condition.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
You have a pre-existing condition if:
<PAGE>
- you received medical treatment, consultation, care or services
including diagnostic measures, or took prescribed drugs or medicines
in the 3 months just prior to January 1, 1999; or you had symptoms
for which an ordinarily prudent person would have consulted a health
care provider in the 3 months just prior to January 1, 1999; and
- the disability begins in the first 12 months after January 1, 1999.
HOW CAN WE PROTECT YOU IF YOUR DISABILITY EARNINGS FLUCTUATE?
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
If your disability earnings routinely fluctuate widely from month to
month, Unum may average your disability earnings over the most recent 3
months to determine if your claim should continue.
If Unum averages your disability earnings, we will not terminate your
claim unless:
- During the first 24 months of disability payments, the average of
your disability earnings from the last 3 months exceeds 80% of
indexed monthly earnings; or
- Beyond 24 months of disability payments, the average of your
disability earnings from the last 3 months exceeds 60% of indexed
monthly earnings.
We will not pay you for any month during which disability earnings exceed
the amount allowable under the plan.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
If your disability earnings routinely fluctuate widely from month to
month, Unum may average your disability earnings over the most recent 3
months to determine if your claim should continue.
If Unum averages your disability earnings, we will not terminate your
claim unless the average of your disability earnings from the last 3
months exceeds 80% of indexed monthly earnings.
We will not pay you for any month during which disability earnings exceed
80% of indexed monthly earnings.
WHAT ARE DEDUCTIBLE SOURCES OF INCOME?
Unum will subtract from your gross disability payment the following
deductible sources of income:
1) The amount that you receive under:
- a workers' compensation law.
- an occupational disease law.
- any other ACT or LAW with similar intent.
<PAGE>
2) The amount that you receive as disability income payments under any:
- state compulsory benefit ACT or LAW.
- other group insurance plan.
- governmental retirement system as a result of your job with your
Employer.
3) The amount that you, your spouse and your children receive as
disability payments because of your disability under:
- the United States Social Security Act.
- the Canada Pension PLAN.
- the Quebec Pension Plan.
- any similar plan or act.
4) The amount that you receive as retirement payments or the amount
your spouse and children receive as retirement payments because you
are receiving retirement payments under:
- the United States Social Security Act.
- the Canada Pension Plan.
- the Quebec Pension Plan.
- any similar plan or act.
5) The amount that you:
- receive as disability payments under your Employer's RETIREMENT
PLAN.
- voluntarily elect to receive as retirement payments under your
Employer's retirement plan.
- receive as retirement payments when you reach the later of age 62 or
normal retirement age, as defined in your Employer's retirement
plan.
Disability payments under a retirement plan will be those benefits which
are paid due to disability and do not reduce the retirement benefit which
would have been paid if the disability had not occurred.
Retirement payments will be those benefits which are based on your
Employer's contribution to the retirement plan. Disability benefits which
reduce the retirement benefit under the plan will also be considered as a
retirement benefit.
Regardless of how the retirement funds from the retirement plan are
distributed, Unum will consider your and your Employer's contributions to
be distributed simultaneously throughout your lifetime.
Amounts received do not include amounts rolled over or transferred to any
eligible retirement plan. Unum will use the definition of eligible
retirement plan as defined in Section 402 of the Internal Revenue Code
including any future amendments which affect the definition.
6) The amount that you receive under Title 46, United States Code
Section 688 (The Jones Act).
With the exception of retirement payments, Unum will only subtract
deductible sources of income which are payable as a result of the same
disability.
<PAGE>
We will not reduce your payment by your Social Security retirement income
if your disability begins after age 65 and you were already receiving
Social Security retirement payments.
WHAT ARE NOT DEDUCTIBLE SOURCES OF INCOME?
Unum will not subtract from your gross disability payment income you
receive from, but not limited to, the following:
- 401(k) plans
- profit sharing plans
- thrift plans
- tax sheltered annuities
- stock ownership plans
- non-qualified plans of deferred compensation
- pension plans for partners
- military pension and disability income plans
- credit disability insurance
- franchise disability income plans
- a retirement plan from another Employer
- individual retirement accounts (IRA)
- individual disability income plans
- no fault motor vehicle plans
- SALARY CONTINUATION or ACCUMULATED SICK LEAVE plans
WHAT IF SUBTRACTING DEDUCTIBLE SOURCES OF INCOME RESULTS IN A ZERO BENEFIT?
(MINIMUM BENEFIT)
The minimum monthly payment is the greater of:
- $100; or
- 10% of your gross disability payment.
Unum may apply this amount toward an outstanding overpayment.
WHAT HAPPENS WHEN YOU RECEIVE A COST OF LIVING INCREASE FROM DEDUCTIBLE SOURCES
OF INCOME?
Once Unum has subtracted any deductible source of income from your gross
disability payment, Unum will not further reduce your payment due to a
cost of living increase from that source.
WHAT IF UNUM DETERMINES YOU MAY QUALIFY FOR DEDUCTIBLE INCOME BENEFITS?
When we determine that you may qualify for benefits under Item(s) l), 2)
and 3) in the deductible sources of income section, we will estimate your
entitlement to these benefits. We can reduce your payment by the estimated
amounts if such benefits:
- have not been awarded; and
- have not been denied; or
- have been denied and the denial is being appealed.
<PAGE>
Your Long Term Disability payment will NOT be reduced by the estimated
amount if you:
- apply for the disability payments under Item(s) l), 2) and 3) in the
deductible sources of income section and appeal your denial to all
administrative levels Unum feels are necessary; and
- sign Unum's payment option form. This form states that you promise
to pay us any overpayment caused by an award.
If your payment has been reduced by an estimated amount, your payment will
be adjusted when we receive proof:
- of the amount awarded; or
- that benefits have been denied and all appeals Unum feels are
necessary have been completed. In this case, a lump sum refund of
the estimated amount will be made to you.
If you receive a lump sum payment from any deductible sources of income,
the lump sum will be pro-rated on a monthly basis over the time period for
which the sum was given. If no time period is stated, we will use a
reasonable one.
HOW LONG WILL UNUM CONTINUE TO SEND YOU PAYMENTS?
Unum will send you a payment each month up to the MAXIMUM PERIOD OF
PAYMENT. Your maximum period of payment is based on your age at disability
as follows:
<TABLE>
<CAPTION>
Age at Disability Maximum Period of Payment
- ----------------- ------------------------------------
<S> <C>
Less than age 60 To age 65, but not less than 5 years
Age 60 60 months
Age 61 48 months
Age 62 42 months
Age 63 36 months
Age 64 30 months
Age 65 24 months
Age 66 21 months
Age 67 18 months
Age 68 15 months
Age 69 and over 12 months
</TABLE>
WHEN WILL PAYMENTS STOP?
We will stop sending you payments and your claim will end on the earliest
of the following:
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
- during the first 24 months of payments, when you are able to work in
your regular occupation on a PART-TIME BASIS but you choose not to;
- after 24 months of payments, when you are able to work in any
gainful occupation on a part-time basis but you choose not to;
<PAGE>
- the end of the maximum period of payment;
- the date you are no longer disabled under the terms of the plan;
- the date you fail to submit proof of continuing disability;
- the date your disability earnings exceed the amount allowable under
the plan;
- the date you die.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
- when you are able to work in your regular occupation on a PART-TIME
BASIS but you choose not to;
- the end of the maximum period of payment;
- the date you are no longer disabled under the terms of the plan;
- the date you fail to submit proof of continuing disability;
- the date your disability earnings exceed the amount allowable under
the plan;
- the date you die.
WHAT DISABILITIES HAVE A LIMITED PAY PERIOD UNDER YOUR PLAN?
Disabilities due to MENTAL ILLNESS have a limited pay period up to 24
months,
Unum will continue to send you payments beyond the 24 month period if you
meet one or both of these conditions:
1 If you are confined to a HOSPITAL OR INSTITUTION at the end of the
24 month period, Unum will continue to send you payments during your
confinement.
If you are still disabled when you are discharged, Unum will send
you payments for a recovery period of up to 90 days.
If you become reconfined at any time during the recovery period and
remain confined for at least 14 days in a row, Unum will send
payments during that additional confinement and for one additional
recovery period up to 90 more days.
2. In addition to Item 1, if, after the 24 month period for which you
have received payments, you continue to be disabled and subsequently
become confined to a hospital or institution for at least 14 days in
a row, Unum will send payments during the length of the
reconfinement.
Unum will not pay beyond the limited pay period as indicated above, or the
maximum period of payment, whichever occurs first.
Unum will not apply the mental illness limitation to dementia if it is a
result of:
- stroke;
- trauma;
- viral infection;
- Alzheimer's disease; or
- other conditions not listed which are not usually treated by a
mental health provider or other qualified provider using
psychotherapy, psychotropic drugs, or other similar methods of
treatment.
<PAGE>
WHAT DISABILITIES ARE NOT COVERED UNDER YOUR PLAN?
Your plan does not cover any disabilities caused by, contributed to by, or
resulting from your:
- intentionally self-inflicted injuries.
- active participation in a riot.
- participation in a felony.
- pre-existing condition.
Your plan will not cover a disability due to war, declared or undeclared,
or any act of war.
WHAT IS A PRE-EXISTING CONDITION?
You have a pre-existing condition if:
- you received medical treatment, consultation, care or services
including diagnostic measures, or took prescribed drugs or medicines
in the 3 months just prior to your effective date of coverage; or
you had symptoms for which an ordinarily prudent person would have
consulted a health care provider in the 3 months just prior to your
effective date of coverage; and
- the disability begins in the first 12 months after your effective
date of coverage.
We will credit the time you were covered under the Employer's prior policy
when determining if you have a pre-existing condition, providing:
- that the coverage was continuous and in effect at least 60 days
prior to the effective date of this plan; and
- the prior policy provided coverage substantially similar to this
plan.
ARE INCREASES IN COVERAGE SUBJECT TO A PRE-EXISTING CONDITION?
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER
SATISFYING THE INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM
OF 20 HOURS PER WEEK
Your plan will not provide a maximum monthly benefit in excess of $5,000
which becomes effective on August 1, 2002 for any disability caused by,
contributed to by, or resulting from the following pre-existing condition.
You have a pre-existing condition if
- you received medical treatment, consultation, care or services
including diagnostic measures, or took prescribed drugs or medicines
in the 3 months just prior to August 1, 2002; or you had symptoms
for which an ordinarily prudent person would have consulted a health
care provider in the 3 months just prior to August 1, 2002; and
- the disability begins in the first 12 months after August 1, 2002.
<PAGE>
WHAT HAPPENS IF YOU RETURN TO WORK FULL TIME AND YOUR DISABILITY OCCURS AGAIN?
If YOU have a RECURRENT DISABILITY, Unum will treat your disability as
part of your prior claim and you will not have to complete another
elimination period if:
- you were continuously insured under the plan for the period between
your prior claim and your recurrent disability; and
- your recurrent disability occurs within 6 months of the end of your
prior claim.
Your recurrent disability will be subject to the same terms of this plan
as your prior claim.
Any disability which occurs after 6 months from the date your prior claim
ended will be treated as a new claim. The new claim will be subject to all
of the policy provisions.
If you become entitled to payments under any other group long term
disability plan you will not be eligible for payments under the Unum plan.
<PAGE>
LONG TERM DISABILITY
OTHER BENEFIT FEATURES
WHAT BENEFITS WILL BE PROVIDED TO YOUR FAMILY IF YOU DIE? (SURVIVOR BENEFIT)
When Unum receives proof that you have died, we will pay your ELIGIBLE
SURVIVOR a lump sum benefit equal to 3 months of your gross disability
payment if, on the date of your death:
- your disability had continued for 180 or more consecutive days; and
- you were receiving or were entitled to receive payments under the
plan.
If you have no eligible survivors, payment will be made to your estate,
unless there is none. In this case, no payment will be made.
However, we will first apply the survivor benefit to any overpayment which
may exist on your claim.
WHAT IF YOU ARE NOT IN ACTIVE EMPLOYMENT WHEN YOUR EMPLOYER CHANGES INSURANCE
CARRIERS TO UNUM? (CONTINUITY OF COVERAGE)
When the plan becomes effective, Unum will provide coverage for you if:
- you are not in active employment because of a sickness or injury;
and
- you were covered by the prior policy.
Your coverage is subject to payment of premium.
Your payment will be limited to the amount that would have been paid by
the prior carrier. Unum will reduce your payment by any amount for which
your prior carrier is liable.
WHAT IF YOU HAVE A DISABILITY DUE TO A PRE-EXISTING CONDITION WHEN YOUR EMPLOYER
CHANGES INSURANCE CARRIERS TO UNUM? (CONTINUITY OF COVERAGE)
Unum may send a payment if your disability results from a pre-existing
condition if, you were:
- in active employment and insured under the plan on its effective
date; and
- insured by the prior policy when it terminated. The prior policy's
coverage must be substantially similar to this plan and have been in
effect within 60 days of this plan's effective date in order for
this provision to apply.
In order to receive a payment you must satisfy the pre-existing condition
provision under:
1. the Unum plan; or
2. the prior carrier's plan, if benefits would have been paid had that
policy remained in force.
If you do not satisfy Item 1 or 2 above, Unum will not make any payments.
<PAGE>
If you satisfy Item 1, we will determine your payments according to the
Unum plan provisions.
If you only satisfy Item 2, we will administer your claim according to the
Unum plan provisions. However, your payment will be the lesser of:
a. the monthly benefit that would have been payable under the terms of
the prior plan if it had remained in force; or
b. the monthly payment under the Unum plan.
Your benefits will end on the earlier of the following dates:
1. the end of the maximum benefit period under the plan; or
2. the date benefits would have ended under the prior plan if it had
remained in force.
WHAT INSURANCE IS AVAILABLE IF YOU END EMPLOYMENT? (CONVERSION)
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS,
GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI
COVERAGE, CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE
PRESIDENTS, GROUP VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE
FOR IDI COVERAGE
If you end employment with your Employer, your coverage under the plan
will end. You may be eligible to purchase insurance under Unum's group
conversion policy. To be eligible, you must have been insured under your
Employer's group plan for at least 12 consecutive months. We will consider
the amount of time you were insured under the Unum plan and the plan it
replaced, if any.
You must apply for insurance under the conversion policy and pay the first
quarterly premium within 31 days after the date your employment ends.
Unum will determine the coverage you will have under the conversion
policy. The conversion policy may not be the same coverage we offered you
under your Employer's group plan.
You are not eligible to apply for coverage under Unum's group conversion
policy if:
- you are or become insured under another group long term disability
plan within 31 days after your employment ends;
- you are disabled under the terms of the plan;
- you recover from a disability and do not return to work for your
Employer;
- you are on a leave of absence; or
- your coverage under the plan ends for any of the following reasons:
- the plan is cancelled;
- the plan is changed to exclude the group of employees to which
you belong;
- you are no longer in an eligible group;
- you end your working career or retire and receive payment from
any Employer's retirement plan; or
- you fail to pay the required premium under this plan.
<PAGE>
DISABILITY PLUS RIDER
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER WEEK
AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER SATISFYING THE
INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM OF 20 HOURS PER WEEK
WHO IS ELIGIBLE FOR DISABILITY PLUS COVERAGE?
You must be insured under the Unum Long Term Disability (LTD) plan to be
eligible for the additional disability coverage described in this Rider.
All of the policy definitions apply to the coverage as well as policy
provisions specified in this Rider.
WHEN WILL THIS COVERAGE BECOME EFFECTIVE?
You will become insured for Disability Plus coverage on the later of:
- the effective date of this Rider; or
- your effective date under the LTD plan.
Disability Plus coverage will continue as long as the Rider is in effect
and you are insured under the LTD plan.
WHO PAYS FOR THE DISABILITY PLUS COVERAGE?
You pay the cost of your coverage.
WHEN WILL YOU BE ELIGIBLE TO RECEIVE DISABILITY PLUS BENEFITS?
We will pay a monthly Disability Plus benefit to you when we receive proof
that you are disabled under this rider and are receiving monthly payments
under the LTD plan. Disability Plus benefits will begin at the end of the
elimination period shown in the LTD plan.
You are disabled under this rider when Unum determines that due to
sickness or injury:
- you lose the ability to safely and completely perform 2 activities
of daily living without another person's assistance or verbal
cueing; or
- you have a deterioration or loss in intellectual capacity and need
another person's assistance or verbal cueing for your protection or
for the protection of others.
HOW MUCH WILL UNUM PAY IF YOU ARE DISABLED?
The Disability Plus benefit is 20% of monthly earnings to a maximum
monthly benefit of the lesser of the LTD plan maximum monthly benefit or
$5,000.
This benefit is not subject to policy provisions which would otherwise
increase or reduce the benefit amount such as Deductible Sources of
Income.
<PAGE>
EXCLUSIONS AND LIMITATIONS
All of the policy provisions that exclude or limit coverage will apply to
this Disability Plus Rider.
THIS RIDER WILL NOT COVER A LOSS OF ACTIVITIES OF DAILY LIVING OR
COGNITIVE IMPAIRMENT THAT EXISTS ON YOUR EFFECTIVE DATE OF COVERAGE.
CLAIMS INFORMATION
The LTD claim information section under the policy applies to Disability
Plus coverage. We may ask you to be examined, at our expense, by a
physician or other medical practitioner of our choice. We may also require
an interview with you.
WHEN WILL DISABILITY PLUS BENEFIT PAYMENTS END?
Benefit payments will end on the earliest of the following dates:
- the date you are no longer disabled under the Rider;
- the date you become ineligible for monthly payments under the LTD
plan;
- the end of the maximum period of payment shown in the LTD plan; or
- the date you die.
No survivor benefits are payable for the Disability Plus coverage.
WAIVER OF PREMIUM
Premium for the Disability Plus coverage is not required while you are
receiving monthly payments under the LTD plan.
CONTINUITY OF COVERAGE
All of the policy continuity of coverage provisions will apply to this
Disability Plus Rider.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS, GROUP
VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI COVERAGE,
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS, GROUP
VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE FOR IDI COVERAGE
WHO IS ELIGIBLE FOR DISABILITY PLUS COVERAGE?
You must be insured under the Unum Long Term Disability (LTD) plan to be
eligible for the additional disability coverage described in this Rider.
All of the policy definitions apply to the coverage as well as policy
provisions specified in this Rider.
WHEN WILL THIS COVERAGE BECOME EFFECTIVE?
You will become insured for Disability Plus coverage on the later of:
- the effective date of this Rider; or
- your effective date under the LTD plan
<PAGE>
Disability Plus coverage will continue as long as the Rider is in effect
and you are insured under the LTD plan. There is no conversion privilege
feature for Disability Plus coverage.
WHO PAYS FOR THE DISABILITY PLUS COVERAGE?
Your Employer pays the cost of your coverage.
WHEN WILL YOU BE ELIGIBLE TO RECEIVE DISABILITY PLUS BENEFITS?
We will pay a monthly Disability Plus benefit to you when we receive proof
that you are disabled under this rider and are receiving monthly payments
under the LTD plan. Disability Plus benefits will begin at the end of the
elimination period shown in the LTD plan.
You are disabled under this rider when Unum determines that due to
sickness or injury:
- you lose the ability to safely and completely perform 2 activities
of daily living without another person's assistance or verbal
cueing; or
- you have a deterioration or loss in intellectual capacity and need
another person's assistance or verbal cueing for your protection or
for the protection of others.
HOW MUCH WILL UNUM PAY IF YOU ARE DISABLED?
The Disability Plus benefit is 20% of monthly earnings to a maximum
monthly benefit of the lesser of the LTD plan maximum monthly benefit or
$5,000.
This benefit is not subject to policy provisions which would otherwise
increase or reduce the benefit amount such as Deductible Sources of
Income.
EXCLUSIONS AND LIMITATIONS
All of the policy provisions that exclude or limit coverage will apply to
this Disability Plus Rider.
For Disability Plus coverage, you will be considered to have a
pre-existing condition if:
- you received medical treatment, consultation, care or services
including diagnostic measures, or took prescribed drugs or medicines
in the 3 months just prior to your effective date under this rider;
or you had symptoms for which an ordinarily prudent person would
have consulted a health care provider in the 3 months just prior to
your effective date under this rider; and
- the disability begins in the first 12 months after your effective
date under this rider.
THIS RIDER WILL NOT COVER A LOSS OF ACTIVITIES OF DAILY LIVING OR
COGNITIVE IMPAIRMENT THAT EXISTS ON YOUR EFFECTIVE DATE OF COVERAGE.
<PAGE>
CLAIMS INFORMATION
The LTD claim information section under the policy applies to Disability
Plus coverage. We may ask you to be examined, at our expense, by a
physician or other medical practitioner of our choice. We may also require
an interview with you.
WHEN WILL DISABILITY PLUS BENEFIT PAYMENTS END?
Benefit payments will end on the earliest of the following dates:
- the date you are no longer disabled under the Rider;
- the date you become ineligible for monthly payments under the LTD
plan;
- the end of the maximum period of payment shown in the LTD plan;
- or the date you die.
No survivor benefits are payable for the Disability Plus coverage.
WAIVER OF PREMIUM
Premium for the Disability Plus coverage is not required while you are
receiving monthly payments under the LTD plan.
CONTINUITY OF COVERAGE
All of the policy continuity of coverage provisions will apply to this
Disability Plus Rider.
<PAGE>
OTHER SERVICES
These services are also available from us as part of your Unum Long Term
Disability plan.
HOW CAN UNUM HELP YOUR EMPLOYER IDENTIFY AND PROVIDE WORKSITE MODIFICATION?
A worksite modification might be what is needed to allow you to perform
the material and substantial duties of your regular occupation with your
Employer. One of our designated professionals will assist you and your
Employer to identify a modification we agree is likely to help you remain
at work or return to work. This agreement will be in writing and must be
signed by you, your Employer and Unum.
When this occurs, Unum will reimburse your Employer for the cost of the
modification, up to the greater of:
- $1,000; or
- the equivalent of 2 months of your monthly benefit.
This benefit is available to you on a one time only basis.
HOW CAN UNUM'S REHABILITATION SERVICE HELP YOU RETURN TO WORK?
Unum has a vocational rehabilitation program available to assist you to
return to work. This program is offered as a service, and is voluntary on
your part and on Unum's part.
In addition to referrals made to the rehabilitation program by our claims
paying personnel, you may request to have your claim file reviewed by one
of Unum's rehabilitation professionals. As your file is reviewed, medical
and vocational information will be analyzed to determine if rehabilitation
services might help you return to gainful employment.
Once the initial review is completed, Unum may elect to offer you a
return-to-work program. The return-to-work program may include, but is not
limited to, the following services:
- coordination with your Employer to assist you to return to work;
- evaluation of adaptive equipment to allow you to return to work;
- vocational evaluation to determine how your disability may impact
your employment options;
- job placement services;
- resume preparation;
- job seeking skills training; or
- retraining for a new occupation.
HOW CAN UNUM'S SOCIAL SECURITY CLAIMANT ADVOCACY PROGRAM ASSIST YOU WITH
OBTAINING SOCIAL SECURITY DISABILITY BENEFITS?
In order to be eligible for assistance from Unum's Social Security
claimant advocacy program, you must be receiving monthly payments from us.
Unum can provide expert advice regarding your claim and assist you with
your application or appeal.
<PAGE>
Receiving Social Security benefits may enable:
- you to receive Medicare after 24 months of disability payments;
- you to protect your retirement benefits; and
- your family to be eligible for Social Security benefits.
We can assist you in obtaining Social Security disability benefits by:
- helping you find appropriate legal representation;
- obtaining medical and vocational evidence; and
- reimbursing pre-approved case management expenses.
<PAGE>
ERISA
ADDITIONAL SUMMARY PLAN DESCRIPTION INFORMATION
NAME OF PLAN:
Tiffany & Co
NAME AND ADDRESS OF EMPLOYER:
Tiffany & Co.
600 Madison Avenue, 15th Floor
New York, New York
10022-l615
PLAN IDENTIFICATION NUMBER:
a. Employer IRS Identification #: 13-1387680
b. Plan #: 505
TYPE OF WELFARE PLAN:
Disability
TYPE OF ADMINISTRATION:
The Plan is administered by the Plan Administrator. Benefits are
administered by the insurer and provided in accordance with the insurance
policy issued to the Plan.
ERISA PLAN YEAR ENDS:
October 15
PLAN ADMINISTRATOR, NAME,
ADDRESS, AND TELEPHONE NUMBER:
Tiffany & Co.
600 Madison Avenue, 15th Floor
New York, New York
10022-l615
(212) 575-8000
Tiffany & Co. is the Plan Administrator and named fiduciary of the Plan,
with authority to delegate its duties. The Plan Administrator may
designate Trustees of the Plan, in which case the Administrator will
advise you separately of the name, title and address of each Trustee.
AGENT FOR SERVICE OF
LEGAL PROCESS ON THE PLAN:
Tiffany & Co.
600 Madison Avenue, 15th Floor
New York, New York
10022-l615
Service of legal process may also be made upon the Plan Administrator, and
any Trustee of the Plan.
<PAGE>
FUNDING AND CONTRIBUTIONS:
The Plan is funded as an insured plan under policy number 533717
001, issued by First Unum Life Insurance Company, 99 Park Avenue,
6th Floor, New York, New York 10016. Contributions to the Plan are
made as stated under "WHO PAYS FOR THE COVERAGE" in the Certificate
of Coverage.
EMPLOYER'S RIGHT TO AMEND THE PLAN
The Employer reserves the right, in its sole and absolute discretion, to
amend, modify, or terminate, in whole or in part, any or all of the
provisions of this Plan (including any related documents and underlying
policies), at any time and for any reason or no reason. Any amendment,
modification, or termination must be in writing and endorsed on or
attached to the Plan.
EMPLOYER'S RIGHT TO REQUEST POLICY CHANGE
The Employer can request a policy change. Only an officer or registrar of
Unum can approve a change. The change must be in writing and endorsed on
or attached to the policy.
CANCELLING THE POLICY OR A PLAN UNDER THE POLICY
The policy or a plan under the policy can be cancelled:
- by Unum; or
- by the Policyholder.
Unum may cancel or offer to modify the policy or a plan if:
- there is less than 75% participation of those eligible employees who
pay all or part of their premium for a plan; or
- there is less than 100% participation of those eligible employees
for a Policyholder paid plan;
- the Policyholder does not promptly provide Unum with information
that is reasonably required;
- the Policyholder fails to perform any of its obligations that relate
to the policy;
- fewer than 10 employees are insured under a plan;
- the Policyholder fails to pay any premium within the 31 day grace
period.
If Unum cancels the policy or a plan for reasons other than the
Policyholder's failure to pay premium, a written notice will be delivered
to the Policyholder at least 31 days prior to the cancellation date.
If the premium is not paid during the grace period, the policy or plan
will terminate automatically at the end of the grace period. The
Policyholder is liable for premium for coverage during the grace period.
The Policyholder must pay Unum all premium due for the full period each
plan is in force.
The Policyholder may cancel the policy or a plan by written notice
delivered to Unum at least 31 days prior to the cancellation date. When
both the Policyholder and Unum agree, the policy or a plan can be
cancelled on an earlier date. If Unum or the Policyholder cancels the
policy or a plan, coverage will end at 12:00 midnight on the last day of
coverage.
<PAGE>
If the policy or a plan is cancelled, the cancellation will not affect a
payable claim,
HOW TO FILE A CLAIM
If you wish to file a claim for benefits, you should follow the claim
procedures described in your group insurance certificate. Unum must
receive a completed claim form. The form must be completed by you, your
authorized representative, your attending physician and your Employer. If
you or your authorized representative has any questions about what to do,
you or your authorized representative should contact Unum directly.
CLAIMS PROCEDURES
Unum will give you notice of the decision no later than 45 days after the
claim is filed. This time period may be extended twice by 30 days if Unum
both determines that such an extension is necessary due to matters beyond
the control of the Plan and notifies you of the circumstances requiring
the extension of time and the date by which Unum expects to render a
decision. If such an extension is necessary due to your failure to submit
the information necessary to decide the claim, the notice of extension
will specifically describe the required information, and you will be
afforded at least 45 days within which to provide the specified
information. If you deliver the requested information within the time
specified, any 30 day extension period will begin after you have provided
that information. If you fail to deliver the requested information within
the time specified, Unum may decide your claim without that information.
If your claim for benefits is wholly or partially denied, the notice of
adverse benefit determination under the Plan will:
- state the specific reason(s) for the determination;
- reference specific Plan provision(s) on which the determination is
based;
- describe additional material or information necessary to complete
the claim and why such information is necessary;
- describe Plan procedures and time limits for appealing the
determination, and your right to obtain information about those
procedures and the right to sue in federal court; and
- disclose any internal rule, guidelines, protocol or similar
criterion relied on in making the adverse determination (or state
that such information will be provided free of charge upon request).
Notice of the determination may be provided in written or electronic form.
Electronic notices will be provided in a form that complies with any
applicable legal requirements.
<PAGE>
APPEAL PROCEDURES
You have 180 days from the receipt of notice of an adverse benefit
determination to file an appeal. Requests for appeals should be sent to
the address specified in the claim denial. A decision on review will be
made not later than 45 days following receipt of the written request for
review. If Unum determines that special circumstances require an extension
of time for a decision on review, the review period may be extended by an
additional 45 days (90 days in total). Unum will notify you in writing if
an additional 45 day extension is needed.
If an extension is necessary due to your failure to submit the information
necessary to decide the appeal, the notice of extension will specifically
describe the required information, and you will be afforded at least 45
days to provide the specified information. If you deliver the requested
information within the time specified, the 45 day extension of the appeal
period will begin after you have provided that information. If you fail to
deliver the requested information within the time specified, Unum may
decide your appeal without that information.
You will have the opportunity to submit written comments, documents, or
other information in support of your appeal. You will have access to all
relevant documents as defined by applicable U.S. Department of Labor
regulations. The review of the adverse benefit determination will take
into account all new information, whether or not presented or available at
the initial determination. No deference will be afforded to the initial
determination.
The review will be conducted by Unum and will be made by a person
different from the person who made the initial determination and such
person will not be the original decision maker's subordinate. In the case
of a claim denied on the grounds of a medical judgment, Unum will consult
with a health professional with appropriate training and experience. The
health care professional who is consulted on appeal will not be the
individual who was consulted during the initial determination or a
subordinate. If the advice of a medical or vocational expert was obtained
by the Plan in connection with the denial of your claim, Unum will provide
you with the names of each such expert, regardless of whether the advice
was relied upon.
A notice that your request on appeal is denied will contain the following
information:
- the specific reason(s) for the determination;
- a reference to the specific Plan provision(s) on which the
determination is based;
- a statement disclosing any internal rule, guidelines, protocol or
similar criterion relied on in making the adverse determination (or
a statement that such information will be provided free of charge
upon request);
- a statement describing your right to bring a civil suit under
federal law:
- the statement that you are entitled to receive upon request, and
without charge reasonable access to or copies of all documents,
records or other information relevant to the determination; and
- the statement that "You or your plan may have other voluntary
alternative dispute resolution options, such as mediation. One way
to find out what may be available
<PAGE>
is to contact your local U.S. Department of Labor Office and your
State insurance regulatory agency".
Notice of the determination may be provided in written or electronic form.
Electronic notices will be provided in a form that complies with any
applicable legal requirements.
Unless there are special circumstances, this administrative appeal process
must be completed before you begin any legal action regarding your claim.
YOUR RIGHTS UNDER ERISA
As a participant in this Plan you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974
(ERISA). ERISA provides that all Plan participants shall be entitled to:
Receive Information About Your Plan and Benefits
Examine, without charge, at the Plan Administrator's office and at other
specified locations, all documents governing the Plan, including insurance
contracts, and a copy of the latest annual report (Form 5500 Series) filed
by the Plan with the U.S. Department of Labor and available at the Public
Disclosure Room of the Pension and Welfare Benefits Administration.
Obtain, upon written request to the Plan Administrator, copies of
documents governing the operation of the Plan, including insurance
contracts, and copies of the latest annual report (Form 5500 Series) and
updated summary plan description. The Plan Administrator may make a
reasonable charge for the copies.
Receive a summary of the Plan's annual financial report. The Plan
Administrator is required by law to furnish each participant with a copy
of this summary annual report.
Prudent Actions by Plan Fiduciaries
In addition to creating rights for plan participants, ERISA imposes duties
upon the people who are responsible for the operation of the employee
benefit plan. The people who operate your Plan, called "fiduciaries" of
the Plan, have a duty to do so prudently and in the interest of you and
other Plan participants and beneficiaries. No one, including your Employer
or any other person, may fire you or otherwise discriminate against you in
any way to prevent you from obtaining a benefit or exercising your rights
under ERISA.
Enforce Your Rights
If your claim for a benefit is denied or ignored, in whole or in part, you
have a right to know why this was done, to obtain copies of documents
relating to the decision without charge, and to appeal any denial, all
within certain time schedules.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request a copy of plan documents or the latest annual
report from the Plan and do not receive them within 30 days, you may file
suit in a federal court. In such a case, the court may require the Plan
Administrator to provide the materials
<PAGE>
and pay you up to $110 a day until you receive the materials, unless the
materials were not sent because of reasons beyond the control of the Plan
Administrator.
If you have a claim for benefits that is denied or ignored, in whole or in
part, you may file suit in a state or federal court. If it should happen
that Plan fiduciaries misuse the Plan's money, or if you are discriminated
against for asserting your rights, you may seek assistance from the U.S.
Department of Labor, or you may file suit in a federal court. The court
will decide who should pay court costs and legal fees. If you are
successful, the court may order the person you have sued to pay these
costs and fees. If you lose, the court may order you to pay these costs
and fees, if, for example, it finds your claim is frivolous.
Assistance with Your Questions
If you have any questions about your Plan, you should contact the Plan
Administrator. If you have any questions about this statement or about
your rights under ERISA, or if you need assistance in obtaining documents
from the Plan Administrator, you should contact the nearest office of the
Pension and Welfare Benefits Administration, U.S. Department of Labor,
listed in your telephone directory or the Division of Technical Assistance
and Inquiries, Pension and Welfare Benefits Administration, U.S.
Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210.
You may also obtain certain publications about your rights and
responsibilities under ERISA by calling the publications hotline of the
Pension and Welfare Benefits Administration.
DISCRETIONARY ACTS
In exercising its discretionary powers under the Plan, the Plan
Administrator, and any designee (which shall include Unum as a claims
fiduciary) will have the broadest discretion permissible under ERISA and
any other applicable laws, and its decisions will constitute final review
of your claim by the Plan. Benefits under this Plan will be paid only if
the Plan Administrator or its designee (including Unum), decides in its
discretion that the applicant is entitled to them.
<PAGE>
GLOSSARY
ACTIVE EMPLOYMENT means you are working for your Employer for earnings that are
paid regularly and that you are performing the material and substantial duties
of your regular occupation. You must be working at least the minimum number of
hours as described under Eligible Group(s) in each plan.
Your work site must be:
- - your Employer's usual place of business;
- - an alternative work site at the direction of your Employer, including your
home; or
- - a location to which your job requires you to travel.
Normal vacation is considered active employment. Temporary and seasonal workers
are excluded from coverage.
ACTIVITIES OF DAILY LIVING mean
- - Bathing - the ability to wash yourself either in the tub or shower or by
sponge bath with or without equipment or adaptive devices.
- - Dressing - the ability to put on and take off all garments and medically
necessary braces or artificial limbs usually worn.
- - Toileting - the ability to get to and from and on and off the toilet, to
maintain a reasonable level of personal hygiene, and to care for clothing.
- - Transferring - the ability to move in and out of a chair or bed with or
without equipment such as canes, quad canes, walkers, crutches or grab
bars or other support devices including mechanical or motorized devices.
- - Continence - the ability to either:
- voluntarily control bowel and bladder function; or
- if incontinent, be able to maintain a reasonable level of personal
hygiene.
- - Eating - the ability to get nourishment into the body.
DEDUCTIBLE SOURCES OF INCOME means income from deductible sources listed in the
plan which you receive while you are disabled. This income will be subtracted
from your gross disability payment.
DISABILITY EARNINGS means the earnings which you receive while you are disabled
and working, plus the earnings you could receive if you were working to your
MAXIMUM CAPACITY.
ELIMINATION PERIOD means a period of continuous disability which must be
satisfied before you are eligible to receive benefits from Unum.
EMPLOYEE means a citizen or permanent resident of the United States or Canada
who is in active employment in the United States with the Employer unless an
exception is applied for and approved in writing by Unum.
EMPLOYER means the Policyholder, and includes any division, subsidiary or
affiliated company named in the policy.
EVIDENCE OF INSURABILITY means a statement of your medical history which Unum
will use to determine if you are approved for coverage. Evidence of insurability
will be at Unum's expense.
<PAGE>
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS PER WEEK
AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER SATISFYING THE
INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM OF 20 HOURS PER WEEK
GAINFUL OCCUPATION means an occupation that is or can be expected to provide you
with an income at least equal to 60% of your indexed monthly earnings within 12
months of your return to work.
GRACE PERIOD means the period of time following the premium due date during
which premium payment may be made.
GROSS DISABILITY PAYMENT means the benefit amount before Unum subtracts
deductible sources of income and disability earnings.
HOSPITAL OR INSTITUTION means an accredited facility licensed to provide care
and treatment for the condition causing your disability.
INDEXED MONTHLY EARNINGS means your monthly earnings adjusted on each
anniversary of benefit payments by the lesser of 10% or the current annual
percentage increase in the Consumer Price Index. Your indexed monthly earnings
may increase or remain the same, but will never decrease.
The Consumer Price Index (CPI-W) is published by the U.S. Department of Labor.
Unum reserves the right to use some other similar measurement if the Department
of Labor changes or stops publishing the CPI-W.
Indexing is only used to determine your percentage of lost earnings while you
are disabled and working.
INJURY means a bodily injury that is the direct result of an accident and not
related to any other cause. Disability must begin while you are covered under
the plan.
INSURED means any person covered under a plan
LAW, PLAN OR ACT means the original enactments of the law, plan or act and all
amendments.
LAYOFF or LEAVE OF ABSENCE means you are temporarily absent from active
employment for a period of time that has been agreed to in advance in writing by
your Employer.
Your normal vacation time or any period of disability is not considered a
temporary layoff or leave of absence.
LIMITED means what you cannot or are unable to do.
MATERIAL AND SUBSTANTIAL DUTIES means duties that:
- - are normally required for the performance of your regular occupation; and
- - cannot be reasonably omitted or modified.
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1,1994 WORKING A MINIMUM OF 20 HOURS PER
<PAGE>
WEEK AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER SATISFYING THE
INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM OF 20 HOURS PER WEEK
MAXIMUM CAPACITY means, based on your restrictions and limitations:
- - during the first 24 months of disability, the greatest extent of work you
are able to do in your regular occupation, that is reasonably available.
- - beyond 24 months of disability, the greatest extent of work you are able
to do in any occupation, that is reasonably available, for which you are
reasonably fitted by education, training or experience.
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS, GROUP
VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI COVERAGE, CHAIRMAN,
PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS, GROUP VICE
PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE FOR IDI COVERAGE MAXIMUM
CAPACITY means, based on your restrictions and limitations, the greatest extent
of work you are able to do in your regular occupation, that is reasonably
available.
MAXIMUM PERIOD OF PAYMENT means the longest period of time Unum will make
payments to you for any one period of disability.
MENTAL ILLNESS means a psychiatric or psychological condition regardless of
cause such as schizophrenia, depression, manic depressive or bipolar illness,
anxiety, personality disorders and/or adjustment disorders or other conditions.
These conditions are usually treated by a mental health provider or other
qualified provider using psychotherapy, psychotropic drugs, or other similar
methods of treatment.
MONTHLY BENEFIT means the total benefit amount for which an employee is insured
under this plan subject to the maximum benefit.
MONTHLY EARNINGS means your gross monthly income from your Employer as defined
in the plan.
MONTHLY PAYMENT means your payment after any deductible sources of income have
been subtracted from your gross disability payment.
ALL FULL-TIME EMPLOYEES WORKING A MINIMUM OF 35 HOURS PER WEEK, PART-TIME
EMPLOYEES HIRED PRIOR TO JANUARY 1, 1994 WORKING A MINIMUM OF 20 HOURS per WEEK
AND PART-TIME EMPLOYEES WHO TRANSFERRED FROM FULL-TIME AFTER SATISFYING THE
INITIAL WAITING PERIOD FOR ELIGIBILITY AND WORK A MINIMUM OF 20 HOURS PER WEEK
PART-TIME BASIS means the ability to work and earn 20% or more of your indexed
monthly earnings..
CHAIRMAN, PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS, GROUP
VICE PRESIDENTS AND VICE PRESIDENTS WHO ARE ELIGIBLE FOR IDI COVERAGE, CHAIRMAN,
PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENTS, GROUP VICE
PRESIDENTS AND VICE PRESIDENTS WHO ARE INELIGIBLE FOR IDI COVERAGE
PART-TIME BASIS means the ability to work and earn between 20% and 80% of your
indexed monthly earnings.
PAYABLE CLAIM means a claim for which Unum is liable under the terms of the
policy.
<PAGE>
PHYSICIAN means:
- - a person performing tasks that are within the limits of his or her medical
license; and
- - a person who is licensed to practice medicine and prescribe and administer
drugs or to perform surgery; or
- - a person with a doctoral degree in Psychology (Ph.D. or Psy.D.)
practice is treating patients; or
- - a person who is a legally qualified medical practitioner according to the
laws and regulations of the governing jurisdiction.
Unum will not recognize you, or your spouse, children, parents or siblings as a
physician for a claim that you send to us.
PLAN means a line of coverage under the policy.
POLICYHOLDER means the Employer to whom the policy is issued.
PRE-EXISTING CONDITION means a condition for which you received medical
treatment, consultation, care or services including diagnostic measures, or took
prescribed drugs or medicines for your condition during the given period of time
as stated in the plan; or you had symptoms for which an ordinarily prudent
person would have consulted a health care provider during the given period of
time as stated in the plan.
RECURRENT DISABILITY means a disability which is:
caused by a worsening in your condition; and
due to the same cause(s) as your prior disability for which Unum made a
Long Term Disability payment.
REGULAR CARE means:
- - you personally visit a physician as frequently as is medically required,
according to generally accepted medical standards, to effectively manage
and treat your disabling condition(s); and
- - you are receiving the most appropriate treatment and care which conforms
with generally accepted medical standards, for your disabling condition(s)
by a physician whose specialty or experience is the most appropriate for
your disabling condition(s), according to generally accepted medical
standards.
REGULAR OCCUPATION means the occupation you are routinely performing when your
disability begins. Unum will look at your occupation as it is normally performed
in the national economy, instead of how the work tasks are performed for a
specific employer or at a specific location.
RETIREMENT PLAN means a defined contribution plan or defined benefit plan. These
are plans which provide retirement benefits to employees and are not funded
entirely by employee contributions. Retirement Plan includes but is not limited
to any plan which is part of any federal, state, county, municipal or
association retirement system.
SALARY CONTINUATION OR ACCUMULATED SICK LEAVE means continued payments to you by
your Employer of all or part of your monthly earnings, after you become disabled
as defined by the Policy. This continued payment must be part of an established
plan maintained by your Employer for the benefit of all employees covered
<PAGE>
under the Policy. Salary continuation or accumulated sick leave does not include
compensation paid to you by your Employer for work you actually perform after
your disability begins. Such compensation is considered disability earnings, and
would be taken into account in calculating your monthly payment.
SICKNESS means an illness or disease. Disability must begin while you are
covered under the plan.
SURVIVOR, ELIGIBLE means your spouse, if living; otherwise your children under
age 25 equally.
TOTAL COVERED PAYROLL means the total amount of monthly earnings for which
employees are insured under this plan.
WAITING PERIOD means the continuous period of time (shown in each plan) that you
must be in active employment in an eligible group before you are eligible for
coverage under a plan.
WE, US and OUR means First Unum Life Insurance Company.
YOU means an employee who is eligible for Unum coverage.
<PAGE>
UNUMPROVIDENT'S COMMITMENT TO PRIVACY
UnumProvident understands your privacy is important. We value our relationship
with you and are committed to protecting the confidentiality of nonpublic
personal information. This notice explains why we collect information about you,
what we do with the information and how we protect your privacy.
Collecting Information
The UnumProvident insuring companies offer products and services designed to
help people balance their work and personal lives, return to independence after
a disabling illness or injury, and protect their incomes and assets from the
financial effects of disability and death. To provide these benefits and to
service policies, we must collect nonpublic personal information about our
customers, such as telephone number, address, date of birth, occupation, income
information, physical condition and health history.
In addition to the information in applications and other forms, we may receive
information from medical service providers, other insurance companies, consumer
reporting agencies, employers, insurance support organizations and service
providers,
Sharing Information
We treat nonpublic personal information as confidential. We share the types of
information described above primarily with people who perform insurance,
business and professional services for us or when otherwise required or
permitted by law. When legally necessary, we ask your permission before sharing
information about you. Our information-sharing practices apply to our former,
current and future customers.
We understand you may be particularly concerned about the confidentiality of
your health information. Please be assured we do not share your nonpublic
personal health information to market any product or service. We also do not
share any information about you to market non-financial products and services.
For example, we do not sell your name to catalog companies.
We may, however, share non-health information to market financial products and
services. For example, we may share with companies that help us market our
insurance products and services or with other financial institutions to jointly
market financial products and services. When required by law, we ask your
permission before sharing information for marketing purposes.
When other companies help us conduct business, we expect them to maintain the
confidentiality of information about you and abide by all applicable privacy
laws. We do not authorize them to use or share the information except when
necessary to conduct the work they are performing for us or to meet insurance
regulatory or other governmental requirements.
UnumProvident companies, including insurers and insurance service providers, may
share information about you with each other. This information might not be
directly related to our transaction or experience with you. It may include
financial or other personal information such as employment history. Consistent
with the Fair Credit Reporting Act, we ask your permission before sharing this
information.
<PAGE>
Safeguarding Information
UnumProvident has physical, electronic and procedural safeguards in place to
protect the confidentiality and security of information about you. It is our
policy to give access only to those employees who need to know the information
to provide insurance products or services to you.
Accuracy of Information
We want to make sure the information we collect about you to provide you with
your policy is accurate. You may request access to that information, as well as
information related to recent disclosures. You may ask us to correct or delete
inaccuracies. If we agree, we will make the appropriate changes. If we disagree,
you may submit a statement of dispute, which we will include any time the
information is shared.
Contacting Us
To receive UnumProvident's complete privacy notice, including more about our
information-sharing, access and correction practices, write to: Privacy Officer,
UnumProvident Corporation, 2211 Congress Street, M347, Portland, Maine 04122.
For additional information about UnumProvident's commitment to privacy, visit
www.unumprovident.com/privacy.
UnumProvident Corporation is providing this notice to you on behalf of the
following insuring companies: Unum Life Insurance Company of America, First Unum
Life Insurance Company, Provident Life and Accident insurance Company, Provident
Life and Casualty Insurance Company, The Paul Revere Life Insurance Company and
The Paul Revere Variable Annuity Insurance Company.
UnumProvident is the marketing brand of, and refers specifically to,
UnumProvident Corporation's insuring subsidiaries. (c) 2002 UnumProvident
Corporation. The name and logo combination is a servicemark of UnumProvident
Corporation. All rights reserved.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>6
<FILENAME>y84931exv13w1.txt
<DESCRIPTION>ANNUAL REPORT TO STOCKHOLDERS
<TEXT>
<PAGE>
EXHIBIT 13.1
Tiffany & Co.
Report on Form 10-K
SELECTED FINANCIAL DATA
The following table sets forth selected financial data, certain of which have
been derived from the Company's audited financial statements for 1998-2002.
Certain reclassifications were made to prior years' financial data to conform
with the current year's presentation. All references to years relate to the
fiscal year that ends on January 31 of the following calendar year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts, percentages,
retail locations and employees) 2002 2001 2000 1999 1998
================================================================================================================================
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Net sales $ 1,706,602 $ 1,606,535 $ 1,668,056 $ 1,471,690 $ 1,177,929
Gross profit 1,011,448 943,477 948,414 821,680 625,599
Earnings from operations 319,197 309,897 327,396 256,883 161,122
Net earnings 189,894 173,587 190,584 145,679 90,062
Net earnings per diluted share 1.28 1.15 1.26 0.97 0.63
Weighted-average number of
diluted common shares 148,591 150,517 151,816 149,666 143,936
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET AND CASH FLOW DATA
Total assets $ 1,923,586 $ 1,631,074 $ 1,568,340 $ 1,343,562 $ 1,057,023
Cash and cash equivalents 156,197 173,675 195,613 216,936 188,593
Inventories, net 732,088 611,653 651,717 504,800 481,439
Working capital 770,481 638,709 695,548 633,022 538,483
Net cash provided by operations 221,441 241,506 110,696 230,351 80,178
Capital expenditures 219,717 170,806 108,382 171,237 62,821
Short-term borrowings and current
portion of long-term debt 52,552 91,902 28,778 20,646 97,370
Long-term debt 297,107 179,065 242,157 249,581 194,420
Stockholders' equity 1,208,049 1,036,945 925,483 757,076 516,453
Stockholders' equity per share 8.34 7.15 6.34 5.22 3.72
Cash dividends per share 0.160 0.160 0.150 0.113 0.085
- --------------------------------------------------------------------------------------------------------------------------------
RATIO ANALYSIS AND OTHER DATA
As a percentage of net sales:
Gross profit 59.3% 58.7% 56.9% 55.8% 53.1%
Earnings from operations 18.7% 19.3% 19.6% 17.5% 13.7%
Net earnings 11.1% 10.8% 11.4% 9.9% 7.6%
Current ratio 3.6:1 3.0:1 3.2:1 3.4:1 2.9:1
Return on average assets 10.7% 10.9% 13.1% 12.1% 9.6%
Return on average stockholders' equity 16.9% 17.7% 22.7% 22.9% 18.8%
Net-debt as a percentage of total capital 13.8% 8.6% 7.5% 6.6% 16.7%
Company-operated retail locations 131 126 119 110 104
Number of employees 6,431 5,938 5,960 5,368 4,845
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TIFFANY & CO. AND SUBSIDIARIES
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CHANNELS OF DISTRIBUTION
The Company operates four channels of distribution. U.S. Retail includes sales
in Company-operated TIFFANY & CO. stores. International Retail primarily
includes sales in Company-operated TIFFANY & CO. retail locations in markets
outside the U.S., as well as a limited amount of business-to-business sales,
Internet sales and wholesale sales of TIFFANY & CO. products to independent
retailers and distributors in certain of those markets. Direct Marketing
includes business-to-business, catalog and Internet sales in the U.S. of TIFFANY
& CO. products. Specialty Retail primarily includes the retail sales made by
Little Switzerland, Inc. ("Little Switzerland") in its jewelry, watches,
crystal, china and giftware stores, as well as consolidated results from other
ventures that are now or will be operated under non-TIFFANY & CO. trademarks or
trade names.
All references to years relate to the fiscal year that ends on January 31 of the
following calendar year.
In order to focus on operating its own TIFFANY & CO. stores and/or to eliminate
marginally profitable operations, the Company eliminated certain selling
operations in recent years. In 2002, the Company announced that it would no
longer solicit new employee service award programs through its Business Sales
division and would phase out of the service award business when existing
customer commitments were satisfied. Employers use service award programs to
commemorate employees' anniversaries with gifts. Sales affected by this action
represent less than $30,000,000 annually, or less than half of the Business
Sales division's sales. As a consequence of that decision, the Company recorded
a pre-tax charge of $1,400,000 in the fourth quarter of 2002 primarily related
to employee separation costs and the disposal of obsolete program-specific
inventory.
In January 2001, the Company discontinued wholesale sales of fragrance products
in the U.S. and in most international markets; in July 2000, the Company
discontinued wholesale sales of jewelry and non-jewelry items in Europe; and in
January 2000, the Company discontinued wholesale sales of jewelry and
non-jewelry items in the U.S. In connection with these decisions, the Company
established product return reserves, which had the cumulative effect of reducing
gross profit by $9,364,000, and recorded a charge of $3,146,000 to selling,
general and administrative expenses, primarily relating to the write-off of
unrecoverable store fixtures maintained by such customers. There were no product
return reserves remaining for these operations at January 31, 2002.
Management believes that these decisions, singularly and in the aggregate, did
not significantly affect the Company's financial position, earnings or cash
flows.
OVERVIEW
Net sales increased 6% in 2002 following a 4% decline in 2001. The Company's
reported sales reflect either a translation-related benefit from strengthening
foreign currencies or a detriment from a strengthening U.S. dollar. Therefore,
on a constant-exchange-rate basis, net sales increased 6% in 2002 and
fractionally in 2001, and worldwide comparable store sales declined 1% in 2002
and 4% in 2001. Net earnings rose 9% in 2002 following a 9% decline in 2001.
Certain operating data as a percentage of net sales were as follows:
<TABLE>
<CAPTION>
2002 2001 2000
- --------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 40.7 41.3 43.1
----------------------------
Gross profit 59.3 58.7 56.9
Selling, general
and administrative expenses 40.6 39.4 37.3
----------------------------
Earnings from operations 18.7 19.3 19.6
Other expenses, net 1.2 1.3 0.6
----------------------------
Earnings before income taxes 17.5 18.0 19.0
Provision for income taxes 6.4 7.2 7.6
----------------------------
Net earnings 11.1% 10.8% 11.4%
============================
</TABLE>
TIFFANY & CO. AND SUBSIDIARIES
21
<PAGE>
NET SALES
Net sales by channel of distribution were as follows:
<TABLE>
<CAPTION>
(in thousands) 2002 2001 2000
- ----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Retail $ 819,814 $ 786,792 $ 833,221
International Retail 683,489 659,028 679,274
Direct Marketing 179,175 160,715 155,561
Specialty Retail 24,124 - -
------------------------------------------
$ 1,706,602 $ 1,606,535 $ 1,668,056
==========================================
</TABLE>
U.S. Retail sales increased 4% in 2002 and comparable store sales increased 2%.
U.S. Retail sales declined 6% in 2001 and comparable store sales declined 8%.
Management attributes the increase in 2002 largely to a partial recovery from
the adverse effects of September 11, 2001, although continued challenging
economic and retail conditions affected overall results in both years. The
number of comparable store transactions increased in 2002 and 2001. However, the
average transaction size declined in both years. Sales in the New York flagship
store increased fractionally in 2002 and declined 15% in 2001, and represented
10%, 11% and 12% of net sales in 2002, 2001 and 2000. Comparable branch store
sales increased 2% in 2002 and declined 6% in 2001. Comparable store sales to
domestic customers, which account for the majority of U.S. sales, increased in
2002 and declined in 2001. Comparable store sales to foreign tourists decreased
in 2002 and 2001.
International Retail sales increased 4% in 2002 and decreased 3% in 2001. When
compared with the prior year, the weighted-average U.S. dollar exchange rate was
weaker in 2002 and stronger in 2001. Therefore, on a constant-exchange-rate
basis, International Retail sales increased 3% in 2002 and 7% in 2001.
Japan represented 26% of net sales in 2002, compared with 28% in 2001 and 2000.
Retail sales in Japan in local currency declined 1% in 2002 and rose 10% in
2001; comparable store sales declined 8% in 2002 and increased 3% in 2001. Unit
sales declined in 2002 and rose in 2001, while the average price per unit sold
increased in 2002 and declined in 2001. Management believes that results in 2002
and 2001 were affected by increasingly weak economic conditions in Japan and
increasing competition. In addition, in 2002 the Company began a process to
reposition its merchandising and marketing efforts to mitigate the effect of
declining solitaire diamond engagement ring sales, which have resulted from
lessened demand in the overall market for such products. In 2001, the Company
signed new distribution agreements with Mitsukoshi Ltd. of Japan ("Mitsukoshi"),
whereby TIFFANY & CO. boutiques will continue to operate within Mitsukoshi's
stores in Japan until at least January 31, 2007. The new agreements largely
continue the principles on which Mitsukoshi and the Company have been
cooperating since 1993, when the relationship was last renegotiated. The main
agreement, which will expire on January 31, 2007, covers the continued operation
of TIFFANY & CO. boutiques. Separate agreements cover the operation of a
freestanding TIFFANY & CO. store on Tokyo's Ginza. Under the new agreements, the
Company is not restricted from further expansion of its Tokyo operations. Under
the main agreement, the Company pays to Mitsukoshi a percentage of certain
sales; this percentage is lower than under the prior agreements. There will be a
further reduction in fees paid to Mitsukoshi starting in 2003, and the Company
will employ increasing numbers of its own personnel in certain boutiques in the
future.
In non-U.S. markets outside of Japan, the Asia-Pacific region represented 6%, 6%
and 7% of net sales in 2002, 2001 and 2000, and comparable store sales on a
constant-exchange-rate basis increased 5% in 2002 and declined fractionally in
2001. Europe represented 5% of net sales in 2002, compared with 4% in 2001 and
2000, and comparable store sales on a constant-exchange-rate basis increased 2%
in 2002 and 1% in 2001.
Worldwide gross square footage for Company-operated stores increased 5% in 2002
and 9% in 2001, which was consistent with the Company's strategy to increase
such square footage by at least 5% per year. In the U.S., the Company opened
five stores and closed two in 2002 and opened two stores in 2001.
Internationally, in 2002 the Company opened two locations and closed one in
Japan, opened retail locations in Korea, Taiwan and Paris and closed one
location in both Australia and Taiwan. In 2001,
TIFFANY & CO. AND SUBSIDIARIES
22
<PAGE>
the Company opened four retail locations and closed one in Japan, opened two
stores and closed three retail locations in the Asia-Pacific region, opened two
stores in Europe and opened a store in Brazil. Plans in the U.S. for 2003 are to
open three stores, including stores in Coral Gables, Florida, and Walnut Creek,
California, and to convert an independently-operated location in Guam to
Tiffany's control. International plans call for opening three retail locations
and closing one in Japan and opening several locations in other markets.
Direct Marketing sales increased 11% in 2002 and 3% in 2001. The Business Sales
division's sales declined 3% in 2002 and 13% in 2001 due to lower average
dollars per order. Combined Internet and catalog sales rose 24% in 2002 and 23%
in 2001, entirely due to Internet sales growth that resulted from a higher
number of orders. The Company currently offers more than 2,000 products online
and plans to further increase its offering in the future. The Company mailed 24
million catalogs in 2002, compared with 26 million in 2001 and 25 million in
2000, and plans to mail approximately 25 million catalogs in 2003.
Effective October 1, 2002, the Company established a new channel of
distribution, "Specialty Retail," to include the consolidated results of Little
Switzerland, as well as the consolidated results from any ventures controlled by
the Company which will operate under non-TIFFANY & CO. trademarks or trade
names.
GROSS PROFIT
Gross profit as a percentage of net sales ("gross margin") increased in 2002 and
2001. Management attributes the increases in both years to favorable shifts in
sales mix (sales of lower-priced silver items, which carry a gross margin higher
than the Company's average, increased at a faster rate), as well as to improved
efficiencies in product manufacturing and sourcing and selective price
increases.
The Company's hedging program (See Note K to the Consolidated Financial
Statements) uses yen put options to stabilize product costs in Japan over the
short term despite exchange-rate fluctuations, and the Company adjusts its
retail prices in Japan from time to time to address longer-term changes in the
yen/dollar relationship and local competitive pricing.
Management's long-term strategy and objectives include achieving further product
manufacturing/sourcing efficiencies, leveraging its fixed costs and implementing
selective price adjustments in order to maintain the Company's gross margin at,
or above, prior year levels. However, gross margin in 2003 is expected to be
modestly below 2002 due to the full-year effect of consolidating the sales of
Little Switzerland, which achieves a gross margin below the Company's average,
the effect of incremental costs related to the opening of its new Customer
Fulfillment/Distribution Center ("CFC"), and costs related to the building of a
diamond sourcing organization in Belgium and Canada. Gross margin in 2003 is
expected to include benefits from increasing amounts of internal jewelry
manufacturing and from the commenced sourcing of a portion of the Company's
diamond needs from a new mine in Canada.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
SG&A rose 9% in 2002 and 2% in 2001. The increases were largely due to
incremental depreciation, staffing and occupancy expenses related to the
Company's overall worldwide expansion, as well as higher marketing expenses in
2002 to support the launch of a new collection of watches. In addition to
management's actions to restrain growth in discretionary spending in both years,
the rate of SG&A growth was also moderated by lower sales-related variable
expenses. The translation effect of a weaker U.S. dollar increased SG&A growth
fractionally in 2002, while the effect of a stronger U.S. dollar reduced SG&A
growth by 3% in 2001. However, as a percentage of net sales, SG&A rose in both
years due to insufficient sales growth to absorb the rate of increase in fixed
expenses.
Management's longer-term objective is to reduce this ratio by leveraging
anticipated improved rates of sales growth against the Company's fixed-expense
base. However, SG&A is expected to increase by a mid-teens percentage in 2003,
reflecting ongoing store expansion and accelerating
TIFFANY & CO. AND SUBSIDIARIES
23
<PAGE>
business development spending as well as higher advertising spending,
depreciation and insurance costs.
EARNINGS FROM OPERATIONS
As a result of the above factors, earnings from operations increased 3% in 2002
and declined 5% in 2001. As a percentage of net sales, earnings from operations
declined in 2002 and 2001. On a reportable segment basis, the ratios of earnings
from operations (before the effect of unallocated corporate expenses and
interest and other expenses, net) to net sales in 2002, 2001 and 2000 were as
follows: U.S. Retail was 24%, 25% and 28%; International Retail was 30%, 30% and
28%; Direct Marketing was 23%, 17% and 14%; and Specialty Retail was (7)% in
2002. Sales levels, gross margins and the ability to leverage fixed expenses
affected changes in profitability in each segment.
INTEREST EXPENSE AND FINANCING COSTS
Interest expense declined in 2002 primarily due to the effect of the
capitalization of interest costs related to the Company's construction of its
266,000 square-foot CFC in Hanover Township, New Jersey, effective in the first
quarter of 2002, as well as the Company's decision to purchase its Parsippany,
New Jersey, Customer Service/ Distribution Center and office facility ("CSC").
Interest expense increased in 2001 primarily due to the Company's decision to
purchase the CSC, which resulted in the conversion of its operating lease into a
capital lease. Management expects interest expense and financing costs to
decline in 2003 due to lower average borrowing rates.
OTHER EXPENSE (INCOME), NET
Other expense (income), net includes interest income and realized and unrealized
gains (losses) on investment activities. Interest income earned on cash and cash
equivalents declined in 2002 and 2001. In 2001, the Company recorded a pre-tax
impairment charge of $7,800,000 representing the Company's total investment in a
third-party provider of online wedding gift registry services. In 2001, the
Company also recorded a pre-tax gain of $5,257,000, based on the Company's 14.7%
equity interest in Aber Diamond Corporation ("Aber"), a publicly-traded company
headquartered in Canada, which sold its interest in a mining project in February
2001. Management expects other expense (income), net in 2003 will benefit from
the Company's equity interest in Aber, resulting from Aber's earnings related to
the startup of production.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 36.6% in 2002, compared with 40.0% in 2001
and 2000. The lower rate in 2002 was primarily due to the effect of a
non-recurring tax benefit reflecting the recognition of the cumulative U.S. tax
benefits as provided by the Extraterritorial Income Exclusion Act ("ETI")
provision of the Internal Revenue code.
In November 2000, the United States Government repealed the tax provisions
associated with Foreign Sales Corporations ("FSC") and enacted, in their place,
the ETI, certain provisions of which differed from those governed by the FSC
regulations. The ETI provides for the exclusion from United States income tax of
certain extraterritorial income from the sale of qualified United States origin
goods. Qualified United States origin goods are generally defined as those
wherein not more than 50% of the fair market value (including intangible values)
is attributable to foreign content or value added outside the United States. The
Company determined in the third quarter of 2002 that this tax benefit was
applicable to its operations and, therefore, has recognized a tax benefit. It is
unknown if this benefit will continue to be available to the Company in the
future, as the World Trade Organization ("WTO") ruled in January 2002 in favor
of a complaint by the European Union, and joined by Canada, Japan and India,
that the ETI exclusion constitutes a prohibited export subsidy under WTO
regulations. The United States Government is currently reviewing its options in
response to this ruling.
NET EARNINGS
As a result of the above factors, net earnings rose 9% in 2002 and declined 9%
in 2001.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements have been prepared in accordance
with accounting principles
TIFFANY & CO. AND SUBSIDIARIES
24
<PAGE>
generally accepted in the United States of America. These principles require
management to make certain estimates and assumptions that affect amounts
reported and disclosed in the financial statements and related notes. Actual
results could differ from these estimates. Periodically, the Company reviews all
significant estimates and assumptions affecting the financial statements and
records the effect of any necessary adjustments.
The following critical accounting policies rely on assumptions and estimates
that were used in the preparation of the Company's consolidated financial
statements:
Sales returns: Sales are recognized at the "point of sale," which occurs when
merchandise is sold in an "over-the-counter" transaction or upon receipt by a
customer. The Company's customers have the right to return merchandise. Sales
are reported net of returns. The Company maintains a reserve for potential
product returns and records, as a reduction to sales, its provision for
estimated product returns, which is based on historical experience.
Credit losses: The Company maintains a reserve for potential credit losses based
on estimates of the credit-worthiness of its customers. If the financial
condition of its customers was to change, resulting in a change in their ability
to make payments, the Company might be required to increase or decrease its
reserve.
Inventory: The Company writes down its inventory for discontinued, slow-moving
and unmarketable products. This write-down is equal to the difference between
the cost of inventory and its estimated market value and is based on assumptions
about future demand and market conditions. If actual market conditions are less
favorable than those expected by management, additional inventory write-downs
might be required. The Company's domestic and foreign branch inventories are
valued using the last-in, first-out (LIFO) method, and inventories held by
foreign subsidiaries are valued using the first-in, first-out (FIFO) method.
Fluctuation in inventory levels, along with the costs of raw materials, could
impact the carrying value of the Company's inventory.
Long-lived assets: The Company's long-lived assets are primarily property, plant
and equipment. The Company reviews its long-lived assets for impairment when
events or changes in circumstances indicate, in management's judgment, that the
carrying value of such assets may not be recoverable. When such a determination
has been made, management compares the carrying value of the assets with their
estimated future undiscounted cash flows. If it is determined that an impairment
has occurred, the loss is calculated and recognized during that period.
Non-consolidated investments: Future adverse changes in market conditions or
poor operating results of underlying investments could result in losses or in an
inability to recover the carrying value of the investments. This may not be
reflected in an investment's current carrying value, thereby possibly requiring
an impairment charge in the future.
Income taxes: Income taxes are accounted for by using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized by
applying statutory tax rates in effect in the years in which the differences
between the financial reporting and tax filing bases of existing assets and
liabilities are expected to reverse. The Company believes that all net-deferred
tax assets shown on its balance sheet are more likely than not to be realized in
the future. While the Company has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for a
valuation allowance, in the event the Company were to determine that it would
not be able to realize all or part of its net-deferred tax assets in the future,
an adjustment to the deferred tax assets would be charged to earnings in the
period such determination was made.
Employee benefit plans: The Company maintains a noncontributory defined benefit
pension plan covering substantially all domestic salaried and full-time hourly
employees and it provides certain postretirement health-care and life insurance
benefits for retired employees. The Company makes certain assumptions that
affect the underlying estimates related to pension and other
TIFFANY & CO. AND SUBSIDIARIES
25
<PAGE>
postretirement costs. Significant declines in interest rates, declining
securities market values and changes to projected increases in health-care costs
would require the Company to revise key assumptions and could result in a charge
to earnings. The discount rate is subject to change each year, consistent with
changes in applicable high-quality, long-term corporate bonds. Based on the
expected duration of the benefit payments for the pension plan, the Company
refers to applicable indices such as the high-quality Merrill Lynch corporate
bond yields and the Moody's corporate bond yields to select a rate at which it
believes the pension benefits could be effectively settled. Based on the
published rates as of December 31, 2002 (the date at which plan assets and
obligations are measured), the Company used a discount rate of 6.50%,
representing a decline of 25 basis points from the 6.75% rate used in 2001. This
had the effect of increasing the accumulated pension benefit obligation by
approximately $3,600,000 for the year ended January 31, 2003, and increasing
estimated pension expense for 2003 by $100,000. The expected long-term rate of
return on pension plan assets is selected by taking into account the expected
duration of the projected benefit obligation for the plan, the rates of return
expected for the asset mix (including reinvestment asset return rates),
historical performance of plan assets and the fact that plan assets are actively
managed to mitigate downside risk. Based on these factors, the expected
long-term rate of return as of January 31, 2003 is 7.50%, compared with 9.00% in
the prior year. The 150 basis point change in the expected long-term rate of
return will result in approximately a $1,300,000 increase in the Company's
estimated 2003 pension expense.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Accounting for Goodwill and
Other Intangible Assets." SFAS No. 142 requires that goodwill and certain other
intangible assets no longer be amortized to earnings. In addition, the Company
is required to review goodwill and certain other intangible assets annually for
potential impairment. In 2002, the Company adopted this standard and completed
its impairment test for goodwill and other intangible assets and determined that
there was no significant impact on the Company's financial position, earnings or
cash flows.
In September 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the accounting and financial reporting
for legal obligations and costs associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The provisions of
SFAS No. 143 will be effective for the Company's financial statements for 2003.
The Company does not expect the adoption of this standard to have a significant
impact on its financial position, earnings or cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses the accounting for impairment or
disposal of long-lived assets and discontinued operations. On February 1, 2002,
the Company adopted this standard, and its application had no significant impact
on its financial position, earnings or cash flows.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which is effective for exit or disposal
activities initiated after December 31, 2002. This statement requires that
liabilities associated with exit or disposal activities initiated after adoption
be recognized and measured at fair value when incurred, as opposed to at the
date an entity commits to the exit or disposal plans. The adoption of this
standard did not have a significant impact on the Company's financial position,
earnings or cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which amends SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 148 provides alternate methods of
transition for a voluntary change to the fair-value-based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require more prominent and frequent
disclosures in financial
TIFFANY & CO. AND SUBSIDIARIES
26
<PAGE>
statements about the effects of stock-based compensation. The disclosure
requirements have been adopted for the Company's current year financial
statements.
EURO CONVERSION
On January 1, 2002, new euro-denominated bills and coins were issued by 11 of
the 15 member countries of the European Economic and Monetary Union. Existing
currencies were subsequently withdrawn from circulation. The Company's policy is
to maintain uniform pricing among the member countries and, as a result, the
conversion to the euro had no impact on the financial position, earnings or cash
flows of the Company's European businesses.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements and capital expenditure
needs, which have increased due to the Company's expansion.
The Company achieved a net cash inflow from operating activities of $221,441,000
in 2002, compared with $241,506,000 in 2001 and $110,696,000 in 2000. The inflow
in 2002 was less than 2001 primarily due to an increased use of working capital
(primarily inventory purchases of finished goods and raw materials), partly
offset by increased net earnings. The inflow in 2001 was greater than 2000
largely due to decreased raw material purchases.
Working capital (current assets less current liabilities) and the corresponding
current ratio (current assets divided by current liabilities) were $770,481,000
and 3.6:1 at January 31, 2003 compared with $638,709,000 and 3.0:1 at January
31, 2002.
Accounts receivable, less allowances at January 31, 2003, were 15% above January
31, 2002 primarily due to sales growth. On a 12-month rolling basis, accounts
receivable turnover was 16 times in 2002 and 15 times in 2001.
Inventories, net at January 31, 2003 were 20% above January 31, 2002. The
translation effect of a weakening U.S. dollar contributed to the growth of
inventory versus January 31, 2002 and, on a constant-exchange-rate basis,
inventories, net were 14% above January 31, 2002. In addition, 6% of the
increase was due to the consolidation of Little Switzerland's inventories.
Finished goods inventories increased 16% due to lower-than-expected sales, new
store openings and expanded product offerings (including a new collection of
watches). A 40% increase in raw material and work-in-process inventories was
necessary to support the expansion of internal manufacturing activities. The
Company's ongoing inventory objectives are to continue to refine: worldwide
replenishment systems; the specialized disciplines of product development,
category management and sales demand forecasting; presentation and management of
inventory assortments in each store; and warehouse management and supply-chain
logistics. Management expects that inventory levels will increase in 2003 to
support anticipated comparable store sales growth, new stores, product
introductions and the Company's expansion of its diamond-sourcing operations.
Capital expenditures were $219,717,000 in 2002, $210,291,000 including the
payment of a capital lease purchase obligation in 2001 and $108,382,000 in 2000.
In all three years, a portion of capital expenditures supported the opening,
renovation and expansion of stores, expansion of distribution and manufacturing
facilities and ongoing investments in new systems. In addition, capital
expenditures in 2002 included the Company's acquisition of the property housing
its store on Old Bond Street in London and an adjacent building in order to
proceed with a renovation and reconfiguration of the interior retail selling
space. The cost to purchase the London buildings was $43,000,000, and
construction is expected to commence in 2003 and be completed in the second half
of 2004. The increase in 2001 included costs related to the capital lease buyout
and expansion of the CSC. In 2001, the Company commenced construction of its CFC
that will fulfill direct shipments to customers. Upon completion of the CFC, the
Company's 370,000 square-foot Parsippany, New Jersey CSC will be used primarily
to replenish retail store inventories. The CFC is scheduled to open in
late-2003, and the Company estimates that the overall cost of that project will
be approximately $104,500,000, of which $76,500,000
TIFFANY & CO. AND SUBSIDIARIES
27
<PAGE>
has been incurred. In 2000, the Company began a four-year project to renovate
and reconfigure its New York flagship store in order to increase the total sales
area by approximately 25%, and to provide additional space for customer service,
customer hospitality and special exhibitions. A new second floor opened in 2001
and provides an expanded presentation of engagement and other jewelry. In
addition, in conjunction with the New York store project, the Company relocated
its after-sales service functions to a new location in New York and relocated
several of its administrative functions. The Company has spent $56,910,000 to
date for the New York store and related projects. The Company currently
estimates that the overall cost of these projects will be approximately
$95,000,000. Based on current plans, management estimates that capital
expenditures will be approximately $150,000,000 in 2003, due to costs related to
the opening, renovation and expansion of store and distribution facilities, as
well as ongoing investments in new systems. Management expects that capital
expenditures will approximate 7-8% of net sales in future years.
In July 2002, the Company, in a private transaction with various institutional
lenders, issued, at par, $40,000,000 of 6.15% Series C Senior Notes Due July 18,
2009 and $60,000,000 of 6.56% Series D Senior Notes Due July 18, 2012 with
seven-year and 10-year lump sum repayments upon maturities. The proceeds of
these issues are being and will be used by the Company for general corporate
purposes, including seasonal working capital, and were used to redeem the
Company's $51,500,000 principal amount 7.52% Senior Notes which came due in
January 2003. The Note Purchase Agreements require maintenance of specific
financial covenants and ratios and limit certain changes to indebtedness and the
general nature of the business, in addition to other requirements customary to
such borrowings. Concurrently, the Company entered into an interest-rate swap
agreement to hedge the change in fair value of its fixed-rate obligation. Under
the swap agreement, the Company pays variable-rate interest and receives fixed
interest-rate payments periodically over the life of the instrument. The Company
accounts for its interest-rate swap as a fair-value hedge and, therefore,
recognizes gains or losses on the derivative instrument and the hedged item
attributable to the hedged risk in earnings in the current period. The terms of
the swap agreement match the terms of the underlying debt, thereby resulting in
no ineffectiveness.
In May 2001, the Company purchased 45% of Little Switzerland's outstanding
shares of common stock by means of a direct investment in newly-issued
unregistered shares at a cost of $9,546,000. The Company accounted for this
investment under the equity method based upon its ownership interest and its
significant influence. In 2001, the Company also provided Little Switzerland
with an interest-bearing loan in the amount of $2,500,000. The Company's equity
share of Little Switzerland's results from operations has been included in other
expense (income), net and amounted to a loss of $1,482,000 in 2002 (through
September 30) and $2,483,000 in 2001. In August 2002, a wholly-owned subsidiary
of the Company commenced a cash tender offer to acquire the remaining balance of
the outstanding shares of Little Switzerland's common stock at $2.40 per share.
In October 2002, the Company purchased and paid for the shares acquired, which
represented 98% of the outstanding shares of Little Switzerland. On November 20,
2002, the subsidiary merged with and into Little Switzerland. Under the terms of
the merger, common stock of Little Switzerland not owned by the subsidiary has
been converted into the right to receive the same consideration paid in the
tender offer. The cost of acquiring all of the outstanding shares of Little
Switzerland, other than those already owned by the Company, including
professional fees and other related costs, was $27,530,000. The Company
commenced the consolidation of Little Switzerland's operations effective October
1, 2002, and the interest-bearing loan provided to Little Switzerland in 2001
has been eliminated in consolidation. The acquisition was accounted for in
accordance with SFAS No. 141, "Business Combinations."
TIFFANY & CO. AND SUBSIDIARIES
28
<PAGE>
In December 2002, a wholly-owned subsidiary of the Company made a $4,000,000
investment in a privately-held venture that designs and sells jewelry. The
subsidiary has an additional funding commitment of $9,000,000 and the option to
buy out and own 100% of the venture in future periods. This venture is being
consolidated in the Company's financial statements based on the percentage of
ownership and effective control over the direction of the operations of the
venture. The venture is not significant to the Company's financial position,
earnings or cash flows.
In February 2000, the Company acquired a 5.4% equity interest in Della.com
("Della"), a provider of online wedding gift registry services. In April 2000,
Della merged with and into WeddingChannel.com with the consequence that the
Company's equity interest in Della was converted to a 2.7% interest in
WeddingChannel.com, assuming the conversion of all outstanding preferred shares
to common. In 2001, the Company recorded a pre-tax impairment charge of
$7,800,000, representing the Company's total investment.
In July 1999, the Company made a strategic investment in Aber by purchasing
eight million unregistered shares of its common stock, which represents 14.7% of
Aber's outstanding shares, at a cost of $70,636,000. Aber holds a 40% interest
in the Diavik Diamonds Project in Canada's Northwest Territories, an operation
developed to mine diamonds. Startup is expected in the first quarter of 2003. In
addition, the Company entered into a diamond purchase agreement with Aber
whereby the Company has the obligation to purchase, subject to the Company's
quality standards, a minimum of $50,000,000 of diamonds per year for 10 years.
It is expected that this commercial relationship will enable the Company to
secure a considerable portion of its future diamond needs. The Company is
establishing the necessary facilities in Yellowknife, Canada, and Antwerp,
Belgium, to handle the receipt and sorting of diamonds and a portion of the
subsequent cutting and polishing operations.
Cash dividends paid were $23,256,000 in 2002, $23,315,000 in 2001 and
$21,820,000 in 2000. In May 2000, the Board of Directors declared a 33% increase
in the quarterly dividend rate on common shares, effective in July 2000. The
dividend payout ratio (dividends as a percentage of net earnings) was 12% in
2002, 13% in 2001 and 11% in 2000. The Company expects to continue to retain the
majority of its earnings to support its business activities and future
expansion.
The Board of Directors has authorized the Company's stock repurchase program,
which expires in November 2003. The program was initially authorized in November
1997 for the repurchase of up to $100,000,000 of the Company's Common Stock in
the open market over a three-year period. That authorization was superseded in
September 2000 by a further authorization of repurchases of up to $100,000,000
of the Company's Common Stock in the open market. The timing and actual number
of shares repurchased depend on a variety of factors such as price and other
market conditions. In 2002, the Company repurchased and retired 1,350,000 shares
of Common Stock at a cost of $37,526,000, or an average cost of $27.80 per
share. In 2001, the Company repurchased and retired 1,628,000 shares of Common
Stock at a cost of $39,265,000, or an average cost of $24.12 per share. In 2000,
the Company repurchased and retired 465,000 shares of Common Stock at a cost of
$13,319,000, or an average cost of $28.64 per share. At January 31, 2003,
$21,100,000 of purchase authority remained available for future share
repurchases.
The Company's sources of working capital are internally-generated cash flows,
borrowings available under a multicurrency revolving credit facility ("Credit
Facility") and Little Switzerland's senior collateralized revolving and term
loan credit facility ("LS Facility"). In November 2001, the Company entered into
a new Credit Facility to increase the borrowing limit from $160,000,000 to
$200,000,000 and the number of banks from five to six. All borrowings
TIFFANY & CO. AND SUBSIDIARIES
29
<PAGE>
are at interest rates based on a prime rate or LIBOR and are affected by local
borrowing conditions. The Credit Facility expires in November 2006. The LS
Facility allows Little Switzerland to borrow up to $12,000,000 through March 21,
2005, of which up to $8,000,000 is a revolving loan and $4,000,000 is a term
loan, at an interest rate of 2.75% above the Adjusted Eurodollar Rate or 0.75%
above the Prime Rate, plus customary servicing costs and unused facility fees.
Amounts advanced to Little Switzerland under the LS Facility are limited to a
stated borrowing base, which is calculated as a percentage of certain inventory
less specific reserves (as defined in the LS Facility agreement). The LS
Facility is collateralized by certain assets of Little Switzerland. The Company
has begun discussions to replace the LS Facility with an unsecured revolving
credit facility. The proposed terms of this unsecured revolving credit facility
should result in a reduction in interest expense, and contain certain financial
ratios and covenants that are consistent with those contained in the Company's
Credit Facility.
Net-debt (short-term borrowings plus the current portion of long-term debt plus
long-term debt less cash and cash equivalents) and the corresponding ratio of
net-debt as a percentage of total capital (net-debt plus stockholders' equity)
were $193,462,000 and 14% at January 31, 2003, compared with $97,292,000 and 9%
at January 31, 2002.
Based on the Company's financial condition at January 31, 2003, management
believes that internally-generated cash flows, funds available under the Credit
Facility and the proceeds from the Senior Notes offering will be sufficient to
support the Company's planned worldwide business expansion and seasonal
working capital increases that are typically required during the third and
fourth quarters of the year.
CONTRACTUAL CASH OBLIGATIONS AND
COMMERCIAL COMMITMENTS
The following summarizes the Company's contractual cash obligations at January
31, 2003:
<TABLE>
<CAPTION>
Due Due
Due 2004- There-
(in thousands) Total 2003 2006 after
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $ 297,107 $ - $ 50,167 $ 246,940
Operating leases 426,077 62,871 137,263 225,943
Inventory purchase
obligations 636,268 136,268 150,000 350,000
Construction-
in-progress 28,672 28,672 - -
Other contractual
obligations 16,825 6,575 7,250 3,000
----------------------------------------------
Total contractual
cash obligations $ 1,404,949 $234,386 $ 344,680 $ 825,883
==============================================
</TABLE>
The following summarizes the Company's commercial commitments at January 31,
2003:
<TABLE>
<CAPTION>
Amount of commitment
expiration per period
-----------------------------------
Total Less
Amounts Than 1-3
(in thousands) Committed 1 year years
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Lines of credit(1) $ 212,539 $ 4,539 $ 208,000
Letters of credit and
financial guarantees 13,683 13,502 181
-----------------------------------
Total commercial
commitments $ 226,222 $ 18,041 $ 208,181
===================================
</TABLE>
(1) At January 31, 2003, $52,552 was drawn against these facilities.
TIFFANY & CO. AND SUBSIDIARIES
30
<PAGE>
MARKET RISK
The Company is exposed to market risk from fluctuations in foreign currency
exchange rates and interest rates, which could affect its consolidated financial
position, results of operations and cash flows. The Company manages its exposure
to market risk through its regular operating and financing activities and,
when deemed appropriate, through the use of derivative financial instruments.
The Company uses derivative financial instruments as risk management tools and
not for trading or speculative purposes, and does not maintain such instruments
that may expose the Company to significant market risk.
The Company uses foreign currency-purchased put options, primarily yen, and, to
a lesser extent, foreign-exchange forward contracts, to minimize the impact of a
significant strengthening of the U.S. dollar on foreign currency-denominated
transactions. Gains or losses on these instruments substantially offset losses
or gains on the assets, liabilities and transactions being hedged. Management
does not foresee nor expect any significant changes in foreign currency exposure
in the near future.
The fair value of foreign currency-purchased put options is sensitive to changes
in foreign currency exchange rates. On the Company's purchased put options, an
unrealized net loss amounted to $6,756,000 at January 31, 2003 and an unrealized
net gain amounted to $8,109,000 at January 31, 2002. Unrealized gains and losses
from foreign currency exchange contracts are defined as the difference between
the contract rate at the inception date and the current market exchange rate. If
the market yen exchange rates are stronger than the contracted exchange rates,
the Company will allow the option to expire, limiting its loss to the cost of
the option contract. At January 31, 2003 and 2002, a 10% appreciation in yen
exchange rates from the prevailing market rates would have resulted in an
unrealized loss equal to the cost of the option contracts (which was $3,115,000
and $3,276,000). At January 31, 2003 and 2002, a 10% depreciation in yen
exchange rates from the prevailing market rates would have resulted in
additional unrealized gains of $13,569,000 and $12,389,000.
The fair value of the Company's fixed-rate long-term debt is sensitive to
interest-rate changes. Interest-rate changes would result in gains (losses) in
the market value of this debt due to differences between market interest rates
and rates at the inception of the debt obligation. In order to manage the
exposure to interest-rate changes, the Company has entered into an interest-rate
swap to offset a portion of the outstanding fixed-rate debt. Based on a
hypothetical immediate 100 basis point increase in interest rates at January 31,
2003 and 2002, the market value of the Company's fixed-rate long-term debt,
including the impact of the interest-rate swap, would have decreased by
$7,315,000 and $9,562,000. Based on a hypothetical immediate 100 basis point
decrease in interest rates at January 31, 2003 and 2002, the market value of the
Company's fixed-rate long-term debt, including the impact of the interest-rate
swap, would have increased by $10,481,000 and $10,321,000.
The Company also uses an interest-rate swap to manage its yen-denominated
floating-rate long-term debt in order to reduce the impact of interest-rate
changes on earnings and cash flows and to lower overall borrowing costs. The
Company monitors its interest-rate risk on the basis of changes in fair value.
If there had been a 10% decrease in interest rates at January 31, 2003 and 2002,
the loss for changes in market value of the interest-rate swap and the
underlying debt would have been $7,000 and $2,000.
Management neither foresees nor expects significant changes in exposure to
interest-rate fluctuations, nor in market risk-management practices.
TIFFANY & CO. AND SUBSIDIARIES
31
<PAGE>
SEASONALITY
As a jeweler and specialty retailer, the Company's business is seasonal in
nature, with the fourth quarter typically representing a proportionally greater
percentage of annual sales, earnings from operations and cash flow. Management
expects such seasonality to continue.
RISK FACTORS
This document contains certain "forward-looking statements" concerning the
Company's objectives and expectations with respect to store openings, retail
prices, gross profit, expenses, inventory performance, capital expenditures and
cash flow. In addition, management makes other forward-looking statements from
time to time concerning objectives and expectations. As a jeweler and specialty
retailer, the Company's success in achieving its objectives and expectations is
partially dependent upon economic conditions, competitive developments and
consumer attitudes. However, certain assumptions are specific to the Company
and/or the markets in which it operates. The following assumptions, among
others, are "risk factors" which could affect the likelihood that the Company
will achieve the objectives and expectations communicated by management: (i)
that low or negative growth in the economy or in the financial markets,
particularly in the U.S. and Japan, will not occur and reduce discretionary
spending on goods that are, or are perceived to be, "luxuries"; (ii) that
consumer spending does not decline substantially during the fourth quarter of
any year; (iii) that unsettled regional and/or global conflicts do not result in
military and/or terrorist activities creating long- or short-term disruptions
to, or changes in the pattern, practice or frequency of tourist travel to the
various regions where the Company operates retail stores nor to the Company's
ability to operate in those regions; (iv) that sales in Japan will not decline
substantially; (v) that there will not be a substantial adverse change in the
exchange relationship between the Japanese yen and the U.S. dollar; (vi) that
Mitsukoshi and other department store operators in Japan, in the face of
declining or stagnant department store sales, will not close or consolidate
stores in which TIFFANY & CO. retail locations are located; (vii) that
Mitsukoshi's ability to continue as a leading department store operator in Japan
will continue; (viii) that existing product supply arrangements, including
license arrangements with third-party designers Elsa Peretti and Paloma Picasso,
will continue; (ix) that the wholesale market for high-quality cut diamonds will
provide continuity of supply and pricing; (x) that the investment in Aber
achieves its financial and strategic objectives; (xi) that new systems,
particularly for inventory management, can be successfully integrated into the
Company's operations; (xii) that warehousing and distribution productivity and
capacity can be further improved to support the Company's worldwide distribution
requirements; (xiii) that new stores and other sales locations can be leased or
otherwise obtained on suitable terms in desired markets and that construction
can be completed on a timely basis; (xiv) that the Company can successfully
improve the results of Little Switzerland and achieve satisfactory results from
any future ventures into which it enters that are operated under non-TIFFANY &
CO. trademarks or trade names; and (xv) that the Company's expansion plans for
retail and direct selling operations and merchandise development, production and
management can continue to be executed without meaningfully diminishing the
distinctive appeal of the TIFFANY & CO. brand.
TIFFANY & CO. AND SUBSIDIARIES
32
<PAGE>
REPORT OF MANAGEMENT
The Company's consolidated financial statements were prepared by management, who
are responsible for their integrity and objectivity. The financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America and, as such, include amounts based on
management's best estimates and judgments.
Management is further responsible for maintaining a system of internal
accounting control designed to provide reasonable assurance that the Company's
assets are adequately safeguarded and that the accounting records reflect
transactions executed in accordance with management's authorization. The system
of internal control is continually reviewed and is augmented by written policies
and procedures, the careful selection and training of qualified personnel and a
program of internal audit.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, Independent Accountants. Their report is shown on
this page.
The Audit Committee of the Board of Directors, which is composed solely of
non-employee directors, meets regularly with financial management and the
independent accountants to discuss specific accounting, financial reporting and
internal control matters. Both the independent accountants and the internal
auditors have full and free access to the Audit Committee. Each year the Audit
Committee selects the firm that is to perform audit services for the Company.
/s/Michael J. Kowalski
Michael J. Kowalski
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
/s/James E. Quinn
James E. Quinn
PRESIDENT
/s/James N. Fernandez
James N. Fernandez
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Tiffany & Co.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, stockholders' equity and comprehensive
earnings and cash flows present fairly, in all material respects, the financial
position of Tiffany & Co. and Subsidiaries at January 31, 2003 and 2002 and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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 our opinion.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 25, 2003
TIFFANY & CO. AND SUBSIDIARIES
33
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
-----------------------------
(in thousands, except per share amount) 2003 2002
=====================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 156,197 $ 173,675
Accounts receivable, less allowances of $8,258 and $6,878 113,061 98,527
Inventories, net 732,088 611,653
Deferred income taxes 44,380 41,170
Prepaid expenses and other current assets 24,662 28,032
-----------------------------
Total current assets 1,070,388 953,057
Property, plant and equipment, net 677,630 525,585
Deferred income taxes 6,595 4,560
Other assets, net 168,973 147,872
-----------------------------
$ 1,923,586 $ 1,631,074
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 52,552 $ 40,402
Current portion of long-term debt - 51,500
Accounts payable and accrued liabilities 163,338 134,694
Income taxes payable 41,297 48,997
Merchandise and other customer credits 42,720 38,755
-----------------------------
Total current liabilities 299,907 314,348
Long-term debt 297,107 179,065
Postretirement/employment benefit obligations 33,117 29,999
Other long-term liabilities 85,406 70,717
Commitments and contingencies
Stockholders' equity:
Common Stock, $0.01 par value; authorized 240,000 shares,
issued and outstanding 144,865 and 145,001 1,449 1,450
Additional paid-in capital 351,398 330,743
Retained earnings 874,694 743,543
Accumulated other comprehensive (loss) gain:
Foreign currency translation adjustments (14,561) (45,306)
Deferred hedging (losses) gains, net of tax (2,284) 6,515
Minimum pension liability adjustment, net of tax (2,647) -
-----------------------------
Total stockholders' equity 1,208,049 1,036,945
-----------------------------
$ 1,923,586 $ 1,631,074
=============================
</TABLE>
See Notes to Consolidated Financial Statements.
TIFFANY & CO. AND SUBSIDIARIES
34
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------
(in thousands, except per share amounts) 2003 2002 2001
====================================================================================================
<S> <C> <C> <C>
Net sales $ 1,706,602 $ 1,606,535 $ 1,668,056
Cost of sales 695,154 663,058 719,642
----------------------------------------
Gross profit 1,011,448 943,477 948,414
Selling, general and administrative expenses 692,251 633,580 621,018
----------------------------------------
Earnings from operations 319,197 309,897 327,396
Interest expense and financing costs 15,129 19,834 16,207
Other expense (income), net 4,431 751 (6,452)
----------------------------------------
Earnings before income taxes 299,637 289,312 317,641
Provision for income taxes 109,743 115,725 127,057
----------------------------------------
Net earnings $ 189,894 $ 173,587 $ 190,584
========================================
Net earnings per share:
Basic $ 1.31 $ 1.19 $ 1.31
========================================
Diluted $ 1.28 $ 1.15 $ 1.26
========================================
Weighted-average number of common shares:
Basic 145,328 145,535 145,493
Diluted 148,591 150,517 151,816
</TABLE>
See Notes to Consolidated Financial Statements.
TIFFANY & CO. AND SUBSIDIARIES
35
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
Accumulated
Total Other Common Stock Additional
Stockholders' Retained Comprehensive ----------------- Paid-in
(in thousands) Equity Earnings (Loss) Gain Shares Amount Capital
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balances, January 31, 2000 $ 757,076 $ 473,819 $ (11,366) 144,952 $ 1,450 $ 293,173
Exercise of stock options 10,741 - - 1,307 13 10,728
Tax benefit from exercise of stock options 12,401 - - - - 12,401
Issuance of Common Stock
under the Employee Profit Sharing
and Retirement Savings Plan 3,300 - - 103 1 3,299
Purchase and retirement of Common Stock (13,319) (12,507) - (465) (5) (807)
Cash dividends on Common Stock (21,820) (21,820) - - - -
Foreign currency translation adjustments (13,480) - (13,480) - - -
Net earnings 190,584 190,584 - - - -
-------------------------------------------------------------------------------
Balances, January 31, 2001 925,483 630,076 (24,846) 145,897 1,459 318,794
Exercise of stock options 6,306 - - 643 7 6,299
Tax benefit from exercise of stock options 5,294 - - - - 5,294
Issuance of Common Stock
under the Employee Profit Sharing
and Retirement Savings Plan 2,800 - - 89 1 2,799
Purchase and retirement of Common Stock (39,265) (36,805) - (1,628) (17) (2,443)
Cash dividends on Common Stock (23,315) (23,315) - - - -
Deferred hedging gains, net of tax 6,515 - 6,515 - - -
Foreign currency translation adjustments (20,460) - (20,460) - - -
Net earnings 173,587 173,587 - - - -
-------------------------------------------------------------------------------
Balances, January 31, 2002 1,036,945 743,543 (38,791) 145,001 1,450 330,743
Exercise of stock options 10,654 - - 1,185 13 10,641
Tax benefit from exercise of stock options 11,039 - - - - 11,039
Issuance of Common Stock
under the Employee Profit Sharing
and Retirement Savings Plan 1,000 - - 29 - 1,000
Purchase and retirement of Common Stock (37,526) (35,487) - (1,350) (14) (2,025)
Cash dividends on Common Stock (23,256) (23,256) - - - -
Deferred hedging losses, net of tax (8,799) - (8,799) - - -
Foreign currency translation adjustments 30,745 - 30,745 - - -
Minimum pension liability adjustment,
net of tax (2,647) - (2,647) - - -
Net earnings 189,894 189,894 - - - -
-------------------------------------------------------------------------------
BALANCES, JANUARY 31, 2003 $ 1,208,049 $ 874,694 $ (19,492) 144,865 $ 1,449 $ 351,398
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
2003 2002 2001
----------------------------------
<S> <C> <C> <C>
Comprehensive earnings is as follows:
Net earnings $ 189,894 $ 173,587 $ 190,584
Deferred hedging (losses) gains,
net of tax of $1,230 and $3,508 (8,799) 6,515 -
Foreign currency translation adjustments 30,745 (20,460) (13,480)
Minimum pension liability adjustment,
net of tax of $1,863 (2,647) - -
----------------------------------
$ 209,193 $ 159,642 $ 177,104
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
TIFFANY & CO. AND SUBSIDIARIES
36
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------------
(in thousands) 2003 2002 2001
===========================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 189,894 $ 173,587 $ 190,584
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 78,008 65,159 47,508
Loss (gain) on equity investments 2,893 (2,633) 1,168
Provision for uncollectible accounts 829 1,702 1,277
Provision for inventories 12,258 10,085 17,666
Impairment of investment in third-party online provider - 7,800 -
Tax benefit from exercise of stock options 11,039 5,294 12,401
Deferred income taxes (1,315) (14,668) 782
Provision for postretirement/employment benefits 3,117 3,865 2,970
Deferred hedging gains transferred to earnings (6,762) (7,188) -
Changes in assets and liabilities, excluding effects of acquisitions:
Accounts receivable (7,987) 4,107 10,235
Inventories (64,460) 2,819 (182,041)
Prepaid expenses and other current assets 445 10,079 (3,913)
Other assets, net (130) (9,453) (4,219)
Accounts payable (3,527) (17,163) 11,044
Accrued liabilities 13,235 (6,197) 605
Income taxes payable (11,425) 8,564 (10,897)
Merchandise and other customer credits 3,786 2,755 5,875
Other long-term liabilities 1,543 2,992 9,651
------------------------------------
Net cash provided by operating activities 221,441 241,506 110,696
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (219,717) (170,806) (108,382)
Acquisitions, net of cash acquired (26,499) - -
Equity investments - (9,546) (7,903)
Proceeds from lease incentives 2,945 4,554 3,761
Investments in notes receivable - (2,500) (1,519)
------------------------------------
Net cash used in investing activities (243,271) (178,298) (114,043)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 100,000 - -
Repayment of current portion of long-term debt (51,500) - -
(Repayment of) proceeds from short-term borrowings (1,905) 13,852 9,840
Payment on capital lease obligation - (39,485) -
Repurchase of Common Stock (37,526) (39,265) (13,319)
Proceeds from exercise of stock options 10,654 6,306 10,741
Cash dividends on Common Stock (23,256) (23,315) (21,820)
------------------------------------
Net cash used in financing activities (3,533) (81,907) (14,558)
------------------------------------
Effect of exchange rate changes on cash and cash equivalents 7,885 (3,239) (3,418)
------------------------------------
Net decrease in cash and cash equivalents (17,478) (21,938) (21,323)
Cash and cash equivalents at beginning of year 173,675 195,613 216,936
------------------------------------
Cash and cash equivalents at end of year $ 156,197 $ 173,675 $ 195,613
====================================
</TABLE>
See Notes to Consolidated Financial Statements.
TIFFANY & CO. AND SUBSIDIARIES
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS
Tiffany & Co. retails and distributes fine jewelry, timepieces, sterling
silverware, china, crystal, stationery, fragrances and personal accessories. It
is also engaged in product design and manufacturing activities. Sales are made
through four segments of business. U.S. Retail includes sales in Company-
operated stores in the U.S.; International Retail primarily includes sales in
Company-operated retail locations in markets outside the U.S., as well as a
limited amount of business-to-business sales, Internet sales and wholesale sales
to independent retailers and distributors in certain of those markets; Direct
Marketing includes business-to-business, catalog and Internet sales in the U.S.;
and Specialty Retail includes sales of Little Switzerland, Inc. (which the
Company acquired in October 2002) and other ventures operated under non-TIFFANY
& CO. trademarks or trade names.
B. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on January 31 of the following calendar year. All
references to years relate to fiscal years rather than calendar years.
BASIS OF REPORTING
The consolidated financial statements include the accounts of Tiffany & Co. and
all majority-owned domestic and foreign subsidiaries ("Company"). Intercompany
accounts, transactions and profits have been eliminated in consolidation. The
equity method of accounting is used for investments in which the Company has
significant influence, but not a controlling interest. These statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America; these principles require management to make certain
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes. The most significant estimates include
valuation of inventories, provisions for income taxes and uncollectible accounts
and the recoverability of non-consolidated investments and long-lived assets.
Actual results could differ from these estimates. Periodically, the Company
reviews all significant estimates and assumptions affecting the financial
statements relative to current conditions and records the effect of any
necessary adjustments.
RECLASSIFICATIONS
Certain reclassifications were made to prior years' consolidated financial
statement amounts and related note disclosures to conform with the current
year's presentation, and such reclassifications were principally related to
employee benefits, lease liabilities and hedging instruments.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are stated at cost plus accrued interest, which
approximates fair value. Cash equivalents include highly liquid investments with
an original maturity of three months or less and consist of time deposits with a
number of U.S. and non-U.S. commercial banks with high credit ratings. The
Company's policy restricts the amounts invested in any one bank.
RECEIVABLES AND FINANCE CHARGES
The Company's domestic and international presence and its large, diversified
customer base serve to limit overall credit risk. The Company maintains reserves
for potential credit losses and, historically, such losses, in the aggregate,
have not exceeded expectations.
Finance charges on retail revolving charge accounts are not significant and are
accounted for as a reduction of selling, general and administrative expenses.
INVENTORIES
Inventories are valued at the lower of cost or market. Domestic and foreign
branch inventories are valued using the last-in, first-out (LIFO) method.
Inventories held by foreign subsidiaries are valued using the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the following estimated
useful lives: 39 years for buildings, 5-15 years for machinery and
TIFFANY & CO. AND SUBSIDIARIES
38
<PAGE>
equipment and 3-10 years for office equipment and store fixtures. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the related lease terms. Maintenance and repair costs are charged to earnings
while expenditures for major renewals and improvements are capitalized. Upon the
disposition of property, plant and equipment, the accumulated depreciation is
deducted from the original cost, and any gain or loss is reflected in current
earnings.
The Company capitalizes interest on borrowings during the active construction
period of major capital projects. Capitalized interest is added to the cost of
the underlying assets and is amortized over the useful lives of the assets. The
Company capitalized interest costs of $3,296,000 in 2002. No interest was
capitalized in 2001 and 2000.
GOODWILL
Goodwill represents the excess of cost over fair value of net assets acquired
and, until February 1, 2002, was being amortized over 20 years using the
straight-line method (see Note B - New Accounting Standards). At January 31,
2003 and 2002, unamortized goodwill of $22,445,000 and $10,393,000 was included
in other assets, net.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment when events or changes
in circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. When such a determination has been made,
management compares the carrying value of the assets with their estimated future
undiscounted cash flows. If it is determined that an impairment loss has
occurred, the loss is recognized during that period. The impairment loss is
calculated as the difference between asset carrying values and the present value
of estimated net cash flows or comparable market values, giving consideration to
recent operating performance and pricing trends. In 2002, 2001 and 2000, there
were no significant impairment losses related to long-lived assets.
HEDGING INSTRUMENTS
Effective February 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," and its related amendment, SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities." These
standards require that all derivative instruments be recorded on the
consolidated balance sheet at their fair value, as either assets or liabilities,
with an offset to current or comprehensive earnings, depending on whether a
derivative is designated as part of an effective hedge transaction and, if it
is, the type of hedge transaction. For fair-value hedge transactions, changes in
fair value of the derivative and changes in the fair value of the item being
hedged are recorded in current earnings. For cash-flow hedge transactions, the
effective portion of the changes in fair value of derivatives are reported as
other comprehensive earnings and are recognized in current earnings in the
period or periods during which the hedge transaction affects current earnings.
Amounts excluded from the effectiveness calculation and any ineffective portion
of the change in fair value of the derivative of a cash-flow hedge are
recognized in current earnings. At February 1, 2001, the adoption of these new
standards resulted in a cumulative effect of an accounting change of $1,653,000,
recorded in cost of sales, which reduced net earnings by $975,000, net of tax,
and increased accumulated comprehensive earnings by $3,773,000, net of tax of
$2,622,000.
The Company uses a limited number of derivative financial instruments to
mitigate its foreign currency and interest rate exposures. For a derivative to
qualify as a hedge at inception and throughout the hedged period, the Company
formally documents the nature and relationships between the hedging instruments
and hedged items, as well as its risk-management objectives, strategies for
undertaking the various hedge transactions and method of assessing hedge
effectiveness. Additionally, for hedges of forecasted transactions, the
significant characteristics and expected terms of a forecasted transaction must
be specifically identified, and it must be probable that each forecasted
transaction will occur. If it were deemed probable that the forecasted
transaction would not occur, the gain or loss would be recognized in current
earnings. Financial
TIFFANY & CO. AND SUBSIDIARIES
39
<PAGE>
instruments qualifying for hedge accounting must maintain a specified level of
effectiveness between the hedge instrument and the item being hedged, both at
inception and throughout the hedged period. The Company does not use derivative
financial instruments for trading or speculative purposes.
PREOPENING COSTS
Costs associated with the opening of new retail stores are expensed in the
period incurred.
ADVERTISING COSTS
Media and production costs for print advertising are expensed as incurred, while
catalog costs are expensed upon mailing. Media and production costs associated
with television advertising are expensed when the advertising first takes place.
Advertising costs, which include media, production, catalogs, promotion events
and other related costs totaled $101,867,000, $86,351,000 and $84,171,000 in
2002, 2001 and 2000.
INCOME TAXES
Income taxes are accounted for by using the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized by applying
statutory tax rates in effect in the years in which the differences between the
financial reporting and tax filing bases of existing assets and liabilities are
expected to reverse. The Company, its domestic subsidiaries and its foreign
branches of U.S. corporations file a consolidated Federal income tax return.
FOREIGN CURRENCY
The functional currency of the Company's foreign subsidiaries is the applicable
local currency. Assets and liabilities are translated into U.S. dollars using
the current exchange rates in effect at the balance sheet date, while revenues
and expenses are translated at the average exchange rates during the period. The
resulting translation adjustments are recorded as a component of other
comprehensive earnings within stockholders' equity. Gains and losses resulting
from foreign currency transactions have not been significant and are included in
other expense (income), net.
REVENUE RECOGNITION
Sales are recognized at the "point of sale," which occurs when merchandise is
sold in an "over-the-counter" transaction or upon receipt by a customer. Sales
are reported net of returns. Shipping and handling fees billed to customers are
included in net sales and the related costs are included in cost of sales.
Revenues for gift card and certificate sales and store credits are recognized
upon redemption. The Company maintains a reserve for potential product returns
and it records, as a reduction to sales, its provision for estimated product
returns, which is determined based on historical experience. In 2002, 2001 and
2000, the largest portion of the Company's sales was denominated in U.S.
dollars.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"),
which provides guidance in applying generally accepted accounting principles
with respect to revenue recognition. The Company adopted SAB 101 in the fourth
quarter of 2000 and its application, retroactive to the beginning of 2000, had
no significant impact on its financial position, earnings or cash flows.
EARNINGS PER SHARE
Basic earnings per share is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share includes the dilutive effect of the assumed exercise of stock
options.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Accounting for Goodwill and Other Intangible Assets." SFAS No. 142
requires that goodwill and certain other intangible assets no longer be
amortized to earnings. In addition, the Company is required to review goodwill
and certain other intangible assets annually for potential impairment. In 2002,
the Company adopted this standard and completed its impairment test for goodwill
and certain other intangible assets and determined that there was no significant
impact on the Company's financial position, earnings or cash flows.
TIFFANY & CO. AND SUBSIDIARIES
40
<PAGE>
In September 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the accounting and financial reporting
for legal obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The provisions of SFAS No. 143
will be effective for the Company's financial statements for the fiscal year
beginning February 1, 2003. The Company does not expect the adoption of this
standard to have a significant impact on its financial position, earnings or
cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses the accounting for impairment or
disposal of long-lived assets and discontinued operations. On February 1, 2002,
the Company adopted this standard and its application had no significant impact
on its financial position, earnings or cash flows.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which is effective for exit or disposal
activities initiated after December 31, 2002. This statement requires that
liabilities associated with exit or disposal activities initiated after adoption
be recognized and measured at fair value when incurred, as opposed to at the
date an entity commits to the exit or disposal plans. The adoption of this
standard did not have a significant impact on the Company's financial position,
earnings or cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which amends SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 148 provides alternate methods of
transition for a voluntary change to the fair-value-based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require more prominent and frequent
disclosures in financial statements about the effects of stock-based
compensation. The disclosure requirements have been adopted for the Company's
current year financial statements.
STOCK-BASED COMPENSATION
Employee stock options are accounted for under the intrinsic value method, which
measures compensation cost as the excess, if any, of the quoted market price of
the stock at grant date over the amount an employee must pay to acquire the
stock. Accordingly, compensation expense has not been recognized for stock
options granted at or above fair value. Had compensation expense been determined
and recorded based upon the fair-value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," net earnings and earnings per share
would have been reduced to pro forma amounts as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------
(in thousands, except
per share amounts) 2003 2002 2001
- --------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings as reported $ 189,894 $ 173,587 $ 190,584
Stock-based employee
compensation expense
determined under
fair-value-based method
for all awards, net of tax (12,803) (10,713) (9,111)
-----------------------------------
Pro forma net earnings $ 177,091 $ 162,874 $ 181,473
-----------------------------------
Earnings per basic share:
As reported $ 1.31 $ 1.19 $ 1.31
Pro forma 1.22 1.12 1.25
Earnings per diluted share:
As reported 1.28 1.15 1.26
Pro forma 1.19 1.08 1.20
</TABLE>
The weighted-average fair values of options granted for the years ended January
31, 2003, 2002 and 2001 were $9.40, $12.33 and $12.14. The fair value of each
option grant is estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
Years Ended January 31,
-------------------------------
2003 2002 2001
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 0.6% 0.7% 0.7%
Expected volatility 37.5% 36.5% 35.0%
Risk-free interest rate 2.9% 4.3% 4.9%
Expected life (years) 5 5 5
</TABLE>
TIFFANY & CO. AND SUBSIDIARIES
41
<PAGE>
C. ACQUISITIONS AND DISPOSITIONS
In May 2001, the Company purchased 45% of Little Switzerland, Inc.'s ("Little
Switzerland") outstanding shares of common stock by means of a direct investment
in newly-issued unregistered shares at a cost of $9,546,000. Little Switzerland
is a specialty retailer of jewelry, watches, crystal, china and giftware,
operating stores primarily on Caribbean islands, as well as in Florida and
Alaska. The Company accounted for this investment under the equity method based
upon its ownership interest and its significant influence. In 2001, the Company
also provided Little Switzerland with an interest-bearing loan in the amount of
$2,500,000. The Company's equity share of Little Switzerland's results from
operations has been included in other expense (income), net and amounted to a
loss of $1,482,000 in 2002 (through September 30) and $2,483,000 in 2001. In
August 2002, a wholly-owned subsidiary of the Company commenced a cash tender
offer to acquire the remaining balance of the outstanding shares of Little
Switzerland's common stock at $2.40 per share. In October 2002, the Company
purchased and paid for the shares acquired, which represented 98% of the
outstanding shares of Little Switzerland. On November 20, 2002, the subsidiary
merged with and into Little Switzerland. Under the terms of the merger, common
stock of Little Switzerland not owned by the subsidiary has been converted into
the right to receive the same consideration paid in the tender offer. The cost
of acquiring all of the outstanding shares of Little Switzerland, other than
those already owned by the Company, including professional fees and other
related costs, was $27,530,000. Pro forma financial data, assuming the
acquisition had been completed on February 1, 2001 and 2002, has not been
presented since the Little Switzerland acquisition is not significant to the
Company's financial condition or results of operations. The purchase price has
been allocated to the assets acquired and liabilities assumed according to
estimated fair values. The amount assigned to intangible assets is $10,615,000
and is being amortized over 20 years. The amount assigned to goodwill is
$9,536,000, none of which is expected to be deductible for tax purposes. The
Company commenced the consolidation of Little Switzerland's operations effective
October 1, 2002, and the interest-bearing loan provided to Little Switzerland in
2001 has been eliminated in consolidation. The acquisition was accounted for in
accordance with SFAS No. 141, "Business Combinations."
In November 2002, the Company made a decision to discontinue offering service
award programs which it operates through its Business Sales division. The
Company will fulfill its existing customer commitments, without soliciting new
employee service award programs. Sales affected by this action represent less
than $30,000,000 annually, or less than half of the Business Sales division's
sales. As a consequence of that decision, the Company recorded a pre-tax charge
of $1,400,000 in 2002, primarily related to employee separation costs and the
disposal of obsolete, program-specific inventory.
In January 2001, the Company discontinued wholesale sales of fragrance products
in the U.S. and in most international markets; in July 2000, the Company
discontinued wholesale sales of jewelry and non-jewelry items in Europe; and in
January 2000, the Company discontinued wholesale sales of jewelry and
non-jewelry items in the U.S. In connection with these decisions, the Company
established product return reserves, which had the cumulative effect of reducing
gross profit by $9,364,000, and recorded a charge of $3,146,000 to selling,
general and administrative expenses, primarily relating to the write-off of
unrecoverable store fixtures maintained by such customers. At January 31, 2002,
all costs relating to these discontinued operations had been incurred and there
was no product return reserve remaining.
D. INVESTMENTS
In December 2002, a wholly-owned subsidiary of the Company made a $4,000,000
investment in a privately-held venture that designs and sells jewelry. The
subsidiary has an additional funding commitment of $9,000,000 and the option to
buy out and own 100% of the venture in future periods. This venture is being
consolidated in the Company's financial statements based on the percentage of
TIFFANY & CO. AND SUBSIDIARIES
42
<PAGE>
ownership and effective control over the direction of the operations of the
venture. The venture is not significant to the Company's financial position,
earnings or cash flows.
In February 2000, the Company acquired a 5.4% equity interest in Della.com, Inc.
("Della"), a provider of online wedding gift registry services. In April 2000,
Della merged with and into WeddingChannel.com with the consequence that the
Company's equity interest in Della was converted to a 2.7% interest in
WeddingChannel.com, assuming the conversion of all outstanding preferred shares
to common. The Company accounted for this investment in accordance with the cost
method as provided in Accounting Principles Board Opinion No. 18, as amended. In
2001, the Company recorded in other expense (income), net a pre-tax impairment
charge of $7,800,000, representing the Company's total investment.
In July 1999, the Company made a strategic investment in Aber Diamond
Corporation ("Aber"), previously known as Aber Resources Ltd., a publicly-traded
company headquartered in Canada, by purchasing eight million unregistered shares
of its common stock, which represents 14.7% of Aber's outstanding shares, at a
cost of $70,636,000. Aber holds a 40% interest in the Diavik Diamonds Project in
Canada's Northwest Territories, an operation developed to mine diamonds. Startup
is expected in the first quarter of 2003. On January 31, 2003 and 2002, the
Company's investment had aggregate fair-market values of $153,280,000 and
$121,440,000, based upon the market price of Aber's common stock on those dates.
This investment is included in other assets, net and was allocated at the time
of investment between the Company's interest in the net book value of Aber and
the mineral rights obtained. At January 31, 2003 and 2002, the Company's
investment in Aber was $32,012,000 and $33,088,000, and the intangible mineral
rights balance was $41,243,000 in both years. The amount allocated to the
Company's interest in the net book value of Aber is being accounted for under
the equity method based upon the Company's significant influence, including
representation on Aber's Board of Directors. In February 2001, Aber completed
the sale of its interest in a mining project for $114,000,000. As a result of
this sale, the Company recorded in other expense (income), net a pre-tax gain
of $5,257,000, net of mineral rights costs related to this project. The
Company's equity share of Aber's results from operations (excluding the gain on
the sale of its interest in the mining project) has been included in other
expense (income), net and amounted to losses of $1,076,000, $125,000 and
$1,243,000 in 2002, 2001 and 2000. Depletion of the mineral rights will be
recorded as a charge to cost of sales based on the projected units of
production method and will commence once production has started. In addition,
the Company has entered into a diamond purchase agreement whereby the Company
has the obligation to purchase, subject to the Company's quality standards, a
minimum of $50,000,000 of diamonds per year for 10 years. It is expected that
this commercial relationship will enable the Company to secure a considerable
portion of its future diamond needs.
E. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------
(in thousands) 2003 2002 2001
- --------------------------------------------------------------------
<S> <C> <C> <C>
Interest, net of
interest capitalization $ 18,652 $ 19,525 $ 15,487
Income taxes $ 100,059 $ 112,158 $ 121,019
</TABLE>
Details of businesses acquired in purchase transactions:
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------------
(in thousands) 2003 2002 2001
- --------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets acquired $ 48,090 $ - $ -
Less: liabilities assumed 20,560 - -
------------------------------------
Cash paid for acquisitions 27,530 - -
Less: cash acquired 1,031 - -
------------------------------------
Net cash paid for acquisitions $ 26,499 $ - $ -
------------------------------------
</TABLE>
TIFFANY & CO. AND SUBSIDIARIES
43
<PAGE>
Supplemental noncash investing and financing activities:
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------------
(in thousands) 2003 2002 2001
- --------------------------------------------------------------------
<S> <C> <C> <C>
Issuance of Common Stock
under the Employee
Profit Sharing and
Retirement Savings Plan $ 1,000 $ 2,800 $ 3,300
Capital lease $ - $ - $ 40,747
</TABLE>
F. INVENTORIES
<TABLE>
<CAPTION>
January 31,
-----------------------
(in thousands) 2003 2002
- --------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 615,247 $ 528,671
Raw materials 91,505 67,779
Work-in-process 29,698 18,722
-----------------------
736,450 615,172
Reserves (4,362) (3,519)
-----------------------
$ 732,088 $ 611,653
=======================
</TABLE>
LIFO-based inventories at January 31, 2003 and 2002 were $532,160,000 and
$481,716,000 with the current cost exceeding the LIFO inventory value by
$20,135,000 and $18,971,000. The LIFO valuation method had no effect on earnings
per diluted share for the year ended January 31, 2003 and had the effect of
decreasing earnings per diluted share by $0.01 for the years ended January 31,
2002 and 2001.
G. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
January 31,
-----------------------
(in thousands) 2003 2002
- --------------------------------------------------------------------
<S> <C> <C>
Land $ 78,754 $ 55,498
Buildings 171,578 119,316
Leasehold improvements 302,159 255,233
Construction-in-progress 92,132 55,727
Office equipment 275,055 229,565
Machinery and equipment 61,726 49,398
-----------------------
981,404 764,737
Accumulated depreciation
and amortization (303,774) (239,152)
-----------------------
$ 677,630 $ 525,585
=======================
</TABLE>
The provision for depreciation and amortization for the years ended January 31,
2003, 2002 and 2001 was $79,682,000, $65,997,000 and $47,448,000. In 2002 and
2001, the Company accelerated the depreciation of certain leasehold improvements
and equipment as a result of the shortening of useful lives related to
renovations and/or expansions of retail stores and office facilities. The amount
of accelerated depreciation recognized was $5,304,000 and $6,516,000 for the
years ended January 31, 2003 and 2002.
H. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
January 31,
-----------------------
(in thousands) 2003 2002
- --------------------------------------------------------------------
<S> <C> <C>
Accounts payable -- trade $ 67,150 $ 56,291
Accrued compensation
and commissions 23,839 24,885
Accrued sales, withholding
and other taxes 37,468 25,573
Other 34,881 27,945
-----------------------
$ 163,338 $ 134,694
=======================
</TABLE>
I. EARNINGS PER SHARE
The following table summarizes the reconciliation of the numerators and
denominators for the basic and diluted earnings per share ("EPS") computations:
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------------
(in thousands) 2003 2002 2001
- --------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings for basic
and diluted EPS $ 189,894 $ 173,587 $ 190,584
------------------------------------
Weighted-average shares
for basic EPS 145,328 145,535 145,493
Incremental shares based
upon the assumed
exercise of stock options 3,263 4,982 6,323
------------------------------------
Weighted-average shares
for diluted EPS 148,591 150,517 151,816
====================================
</TABLE>
For the years ended January 31, 2003, 2002 and 2001, there were 4,991,000,
3,220,000 and 1,683,000 stock options excluded from the computations of earnings
per diluted share due to their antidilutive effect.
TIFFANY & CO. AND SUBSIDIARIES
44
<PAGE>
J. DEBT
<TABLE>
<CAPTION>
January 31,
------------------------------------------------
Carrying Amount Fair Value
------------------------------------------------
(in thousands) 2003 2002 2003 2002
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings:
Credit facility $ 49,194 $ 36,913 $ 49,194 $ 36,913
LS Facility
revolving loan 3,358 - 3,358 -
Other lines
of credit - 3,489 - 3,489
------------------------------------------------
52,552 40,402 52,552 40,402
================================================
Current portion
of long-term debt:
7.52% Senior Notes - 51,500 - 53,147
Long-term debt:
Senior Notes:
6.90% Series A 60,000 60,000 66,273 60,420
7.05% Series B 40,000 40,000 44,427 40,075
6.15% Series C 41,903 - 41,903 -
6.56% Series D 63,067 - 63,067 -
4.50% yen loan 41,970 37,650 52,572 45,541
Variable-rate
yen loan 46,167 41,415 46,167 41,415
LS Facility
term loan 4,000 - 4,000 -
------------------------------------------------
297,107 179,065 318,409 187,451
------------------------------------------------
$ 349,659 $ 270,967 $ 370,961 $ 281,000
================================================
</TABLE>
The fair values of short-term borrowings, the variable-rate yen loan and the LS
Facility term loan approximate carrying value due to their variable
interest-rate terms. The fair values of the Senior Notes were determined using
the quoted market prices of debt instruments with similar terms and maturities.
The fair value of the 4.50% yen loan is based upon discounted cash-flow analysis
for securities with similar characteristics.
In July 2002, the Company, in a private transaction with various institutional
lenders, issued, at par, $40,000,000 of 6.15% Series C Senior Notes Due 2009 and
$60,000,000 of 6.56% Series D Senior Notes Due 2012 with respective seven-year
and 10-year lump sum repayments upon maturities. The proceeds of these issues
are being and will be used by the Company for general corporate purposes,
including seasonal working capital, and was used to redeem the Company's
$51,500,000 principal amount 7.52% Senior Notes which came due in January 2003.
The Note Purchase Agreement requires maintenance of specific financial covenants
and ratios and limits certain changes to indebtedness and the general nature of
the business, in addition to other requirements customary to such borrowings.
Concurrently, the Company entered into an interest-rate swap agreement to hedge
the change in fair value of its fixed-rate obligation. Under the swap agreement,
the Company pays variable-rate interest and receives fixed interest-rate
payments periodically over the life of the instrument. The Company accounts for
the interest-rate swap agreement as a fair-value hedge of the debt (see Note K),
requiring the debt to be valued at fair value. As a result, the carrying value
of the Series C and Series D Senior Notes equals the fair value. For the year
ended January 31, 2003, the interest-rate agreement had the effect of decreasing
interest expense by $1,999,000.
In November 2001, the Company entered into a new multicurrency revolving credit
facility ("Credit Facility") to increase the borrowing limit from $160,000,000
to $200,000,000 and the number of participating banks from five to six. All
borrowings are at interest rates based on a prime rate or LIBOR and are affected
by local borrowing conditions. The Credit Facility expires in November 2006. The
Credit Facility requires the payment of an annual fee based on the total amount
of available credit and contains covenants that require maintenance of certain
debt/ equity and interest-coverage ratios, in addition to other requirements
customary to loan facilities of this nature. At January 31, 2003 and 2002, the
interest rates under the Credit Facility ranged from 0.41% to 11.20% and 0.22%
to 9.70%. The weighted-average interest rates for the Credit Facility were 3.95%
and 3.57% for the years ended January 31, 2003 and 2002.
The Company also has other lines of credit totaling $4,539,000.
In connection with the acquisition of the remaining outstanding shares of Little
Switzerland, the Company assumed their outstanding debt. Little Switzerland has
a senior collateralized revolving and term loan credit facility ("LS Facility"),
which allows them to borrow up to
TIFFANY & CO. AND SUBSIDIARIES
45
<PAGE>
$12,000,000 through March 21, 2005, of which up to $8,000,000 is a revolving
loan and $4,000,000 is a term loan, at an interest rate of 2.75% above the
Adjusted Eurodollar Rate or 0.75% above the Prime Rate, plus customary servicing
costs and unused facility fees. Amounts advanced to Little Switzerland under the
LS Facility are limited to a stated borrowing base, which is calculated as a
percentage of certain inventory less specific reserves (as defined in the LS
Facility agreement). The LS Facility is collateralized by certain assets of
Little Switzerland. The terms of the LS Facility require maintenance of specific
financial covenants and ratios and limit certain payments, investments and
indebtedness, in addition to other requirements customary to such borrowings.
The Company has begun discussions to replace the LS Facility with an unsecured
revolving credit facility. The proposed terms of this unsecured revolving credit
facility should result in a reduction in interest expense, and contain financial
ratios and covenants that are consistent with those contained in the Company's
credit facility. The interest rate for the LS Facility at January 31, 2003 was
4.21%.
In October 1999, the Company entered into a yen 5,500,000,000, five-year loan
agreement due 2004, bearing interest at a variable rate. The interest rate at
January 31, 2003 was 0.58% and is based upon the six-month Japanese LIBOR plus
50 basis points and is reset every six months ("floating rate"). The proceeds
from this loan were used to reduce short-term indebtedness in Japan.
Concurrently, the Company entered into a yen 5,500,000,000, five-year
interest-rate swap agreement whereby the Company pays a fixed rate of interest
of 1.815% and receives the floating rate on the yen 5,500,000,000 loan. The
interest-rate swap agreement had the effect of increasing interest expense by
$551,000, $508,000 and $538,000 for the years ended January 31, 2003, 2002 and
2001.
In December 1998, the Company, in private transactions with various
institutional lenders, issued, at par, $60,000,000 principal amount 6.90% Series
A Senior Notes Due 2008 and $40,000,000 principal amount 7.05% Series B Senior
Notes Due 2010. The proceeds of these issuances were used by the Company for
working capital and to refinance a portion of outstanding short-term
indebtedness. The Note Purchase Agreements require lump sum repayment upon
maturity, maintenance of specific financial covenants and ratios and limit
certain payments, investments and indebtedness, in addition to other
requirements customary to such borrowings.
The Company has a yen 5,000,000,000, 15-year term loan agreement due 2011,
bearing interest at a rate of 4.50%.
The Company had letters of credit and financial guarantees of $13,683,000 at
January 31, 2003.
K. HEDGING INSTRUMENTS
In the normal course of business, the Company uses financial hedging
instruments, including derivative financial instruments, for purposes other than
trading. These instruments include interest-rate swap agreements, foreign
currency-purchased put options and forward foreign-exchange contracts. The
Company does not use derivative financial instruments for speculative purposes.
The Company's foreign subsidiaries and branches satisfy all of their inventory
requirements by purchasing merchandise from the Company's New York subsidiary.
All inventory purchases are payable in U.S. dollars. Accordingly, the foreign
subsidiaries and branches have foreign-exchange risk that may be hedged. To
mitigate this risk, the Company manages a foreign currency hedging program
intended to reduce the Company's risk in foreign currency-denominated (primarily
yen) transactions.
To minimize the potentially negative impact of a significant strengthening of
the U.S. dollar against the yen, the Company purchases yen put options
("options") and enters into forward foreign-exchange contracts that are
designated as hedges of forecasted purchases of merchandise and to settle
liabilities in foreign currencies. The Company accounts for its option contracts
as cash-flow hedges. Effective November 1, 2001, the Company assesses hedge
effectiveness based on the total changes in the option's cash flows. The
effective portion of unrealized
TIFFANY & CO. AND SUBSIDIARIES
46
<PAGE>
gains and losses associated with the value of the option contracts is deferred
as a component of accumulated other comprehensive (loss) gain and is recognized
as a component of cost of sales on the Company's consolidated statement of
earnings when the related inventory is sold. Prior to November 1, 2001, the
Company excluded time value from the assessment of effectiveness, which amounted
to pre-tax hedging losses of $375,000, recorded in cost of sales. There was no
ineffectiveness related to the Company's option contracts in 2002 and 2001. The
fair value of the options was $1,512,000 and $8,562,000 at January 31, 2003 and
2002. The fair value of the options was determined using quoted market prices
for these instruments.
At January 31, 2003 and 2002, the Company also had $15,620,000 and $16,306,000
of outstanding forward foreign-exchange contracts, which subsequently matured on
February 26, 2003 and 2002, to primarily support the settlement of merchandise
liabilities for the Company's business in Japan. Due to the short-term nature of
the Company's forward foreign-exchange contracts, the book value of the
underlying assets and liabilities approximates fair value.
As discussed in Note J, the Company utilizes interest-rate swap agreements to
effectively convert its variable-rate yen obligation to a fixed-rate obligation
and its fixed-rate Senior Notes Series C and Series D obligation to a
floating-rate obligation. The Company accounts for its variable-rate yen
interest-rate swap as a cash-flow hedge and its fixed-rate Senior Notes Series C
and Series D interest-rate swap as a fair-value hedge. The terms of each swap
agreement match the terms of the underlying debt, resulting in no
ineffectiveness. The fair value of the interest-rate swap agreements was a net
gain of $4,013,000 at January 31, 2003 and a net loss of $1,298,000 at January
31, 2002 and was based upon the amounts the Company would expect to pay to
terminate the agreements.
Hedging activity affected accumulated other comprehensive (loss) gain, net of
tax, as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------
(in thousands) 2003 2002
- --------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 6,515 $ -
Impact of adoption - 3,773
Derivative gains
transferred to earnings (4,395) (4,672)
Change in fair value (4,404) 7,414
-----------------------
$ (2,284) $ 6,515
=======================
</TABLE>
The Company expects $1,662,000 of derivative losses included in accumulated
other comprehensive income to be reclassified into earnings within the next 12
months. This amount may vary due to fluctuations in the yen exchange rate. The
maximum term over which the Company is hedging its exposure to the variability
of future cash flows (for all forecasted transactions, excluding interest
payments on variable-rate debt) is 12 months.
L. COMMITMENTS AND CONTINGENCIES
The Company leases certain office, distribution, retail and manufacturing
facilities. Retail store leases may require the payment of minimum rentals and
contingent rent based upon a percentage of sales exceeding a stipulated amount.
The lease agreements, which expire at various dates through 2032, are subject,
in many cases, to renewal options and provide for the payment of taxes,
insurance and maintenance. Certain leases contain escalation clauses resulting
from the pass-through of increases in operating costs, property taxes and the
effect on costs from changes in consumer price indices.
In January 2001, the Company notified the lessor of its New Jersey Customer
Service/Distribution Center and office facility that it exercised its purchase
right included in the lease. The capital lease buyout was completed on January
31, 2002.
TIFFANY & CO. AND SUBSIDIARIES
47
<PAGE>
Rent-free periods and other incentives granted under certain leases and
scheduled rent increases are charged to rent expense on a straight-line basis
over the related terms of such leases. Rent expense for the Company's operating
leases, including escalations, consisted of the following:
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------------
(in thousands) 2003 2002 2001
- --------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rent for
retail locations $ 35,572 $ 32,044 $ 29,277
Contingent rent
based on sales 17,470 15,668 17,469
Office, distribution
and manufacturing
facilities rent 13,572 10,809 11,737
------------------------------------
$ 66,614 $ 58,521 $ 58,483
====================================
</TABLE>
Aggregate minimum annual rental payments under noncancelable operating leases
are as follows:
<TABLE>
<CAPTION>
Minimum Annual
Rental Payments
Years Ending January 31, (in thousands)
- --------------------------------------------
<S> <C>
2004 $ 62,871
2005 54,543
2006 45,463
2007 37,257
2008 33,380
Thereafter 192,563
</TABLE>
At January 31, 2003, the Company's contractual cash obligations and commercial
commitments were: inventory purchases of $636,268,000 including the obligation
under the agreement with Aber (see Note D), construction-in-progress of
$28,672,000 and other contractual obligations of $16,825,000 (which includes the
additional commitment of $9,000,000, see Note D).
In August 2001, the Company signed new agreements with Mitsukoshi whereby
TIFFANY & CO. boutiques will continue to operate within Mitsukoshi's stores in
Japan until at least January 31, 2007. The new agreements largely continue the
principles on which Mitsukoshi and the Company have been cooperating since 1993,
when the relationship was last renegotiated. The main agreement, which will
expire on January 31, 2007, covers the continued operation of TIFFANY & CO.
boutiques. A separate set of agreements covers the operation of a freestanding
TIFFANY & CO. store on Tokyo's Ginza. Under the new agreements, the Company
began to pay to Mitsukoshi a reduced percentage fee based on certain sales
beginning in 2002, to be followed by a greater reduction in fees beginning in
2003. The Company also operates boutiques in other Japanese department stores.
The Company pays the department stores a percentage fee based on sales generated
in these locations. Fees paid to Mitsukoshi and other Japanese department stores
totaled $84,494,000, $93,971,000 and $102,204,000 in 2002, 2001 and 2000.
The Company is, from time to time, involved in routine litigation incidental to
the conduct of its business, including proceedings to protect its trademark
rights, litigation instituted by persons injured upon premises within the
Company's control, litigation with present and former employees and litigation
claiming infringement of the copyrights and patents of others. Management
believes that such pending litigation will not have a significant impact on the
Company's financial position, earnings or cash flows.
M. RELATED PARTIES
A member of the Company's Board of Directors, who joined in July 2001, is an
officer of International Business Machines Corporation, which has had a
long-standing business relationship with the Company. Fees paid to that company
for equipment and services rendered amounted to $11,600,000, $4,700,000 and
$3,100,000 in 2002, 2001 and 2000.
A member of the Company's Board of Directors is an officer of Lehman Brothers,
which served as a placement agent for the 2002 debt issuance and as an advisor
for the purchase of the remaining shares of Little Switzerland and other
matters. Fees paid to that company for services rendered amounted to $956,000,
$35,000 and $4,000 in 2002, 2001 and 2000.
TIFFANY & CO. AND SUBSIDIARIES
48
<PAGE>
A member of the Company's Board of Directors is a member of the Board of
Directors of The Bank of New York, which serves as the Company's lead bank for
its Credit Facility, provides other general banking services and serves as the
plan administrator for the Company's pension plan. Fees paid to that company for
services rendered amounted to $842,000, $1,021,000 and $641,000 in 2002, 2001
and 2000.
N. STOCKHOLDERS' EQUITY
STOCK REPURCHASE PROGRAM
The Board of Directors has authorized the Company's stock repurchase program,
which expires in November 2003. The program was initially authorized in November
1997 for the repurchase of up to $100,000,000 of the Company's Common Stock in
the open market over a three-year period. That authorization was superseded in
September 2000 by a further authorization of repurchases of up to $100,000,000
of the Company's Common Stock in the open market. The timing and actual number
of shares repurchased depend on a variety of factors such as price and other
market conditions. The Company repurchased and retired 1,350,000 shares of
Common Stock in 2002 at an aggregate cost of $37,526,000, or an average cost of
$27.80 per share; repurchased and retired 1,628,000 shares of Common Stock in
2001 at an aggregate cost of $39,265,000, or an average cost of $24.12 per
share; and repurchased and retired 465,000 shares of Common Stock in 2000 at an
aggregate cost of $13,319,000, or an average cost of $28.64 per share.
STOCKHOLDER RIGHTS PLAN
In September 1998, the Board of Directors amended and restated the Company's
existing Stockholder Rights Plan ("Rights Plan") to extend its expiration date
from November 17, 1998 to September 17, 2008. Under the Rights Plan, as amended,
each outstanding share of the Company's Common Stock has a stock purchase right,
initially subject to redemption at $0.01 per right, which right first becomes
exercisable should certain takeover-related events occur. Following certain such
events, but before any person has acquired beneficial ownership of 15% of the
Company's common shares, each right may be used to purchase 0.0025 of a share of
Series A Junior Participating Cumulative Preferred Stock at an exercise price of
$165.00 (subject to adjustment); after such an acquisition, each right becomes
nonredeemable and may be used to purchase, for the exercise price, common shares
having a market value equal to two times the exercise price. If, after such an
acquisition, a merger of the Company occurs (or 50% of the Company's assets are
sold), each right may be exercised to purchase, for the exercise price, common
shares of the acquiring corporation having a market value equal to two times the
exercise price. Rights held by such a 15% owner may not be exercised.
PREFERRED STOCK
The Board of Directors is authorized to issue, without further action by the
stockholders, shares of Preferred Stock and to fix and alter the rights related
to such stock. In March 1987, the stockholders authorized 2,000,000 shares of
Preferred Stock, par value $0.01 per share. In November 1988, the Board of
Directors designated certain shares of such Preferred Stock as Series A Junior
Participating Cumulative Preferred Stock, par value $0.01 per share, to be
issued in connection with the exercise of certain stock purchase rights under
the Rights Plan. At January 31, 2003 and 2002, there were no shares of Preferred
Stock issued or outstanding.
CASH DIVIDENDS
The Board of Directors declared an increase of 33% in the quarterly dividend
rate on common shares in May 2000, increasing the quarterly rate to $0.04 per
share. On February 20, 2003, the Board of Directors declared a quarterly
dividend of $0.04 per common share. This dividend will be paid on April 10, 2003
to stockholders of record on March 20, 2003.
TIFFANY & CO. AND SUBSIDIARIES
49
<PAGE>
O. STOCK COMPENSATION PLANS
In May 1998, the stockholders approved both the Company's 1998 Employee
Incentive Plan and the Directors Option Plan. No award may be made under either
plan after March 19, 2008. Under the Employee Incentive Plan, the maximum number
of shares of Common Stock subject to issuance is 10,369,764 (subject to
adjustment); awards may be made to employees of the Company or its related
companies in the form of stock options, stock appreciation rights, shares of
stock and cash; awards made in the form of non-qualified stock options,
tax-qualified incentive stock options or stock appreciation rights may have a
maximum term of 10 years from the date of grant (vesting in increments of 25%
per year over a four-year period on the yearly anniversary date of the grant)
and may not be granted for an exercise price below fair-market value. With the
adoption of the Employee Incentive Plan, no further stock options may be granted
under the Company's 1986 Stock Option Plan; however, 3,461,719 shares remain
subject to issuance based on prior grants made under such plan.
Under the Directors Option Plan, the maximum number of shares of Common Stock
subject to issuance is 1,000,000 (subject to adjustment); awards may be made to
non-employee directors of the Company in the form of stock options or shares of
stock but may not exceed 20,000 (subject to adjustment) shares per non-employee
director in any fiscal year; awards made in the form of stock options may have a
maximum term of 10 years from the date of grant (vesting in increments of 50%
per year over a two-year period on the yearly anniversary date of the grant) and
may not be granted for an exercise price below fair-market value unless the
director has agreed to forego all or a portion of his or her annual cash
retainer or other fees for service as a director in exchange for below market
exercise price options. No further options may be granted under the 1988
Directors Option Plan, which has expired; all Director options awarded under the
1988 Plan were granted at 50% below the market value at the date of grant. The
Company recognized compensation expense relating to options granted at below
market value based on the difference between the option price and the
fair-market value at the date of grant.
A summary of activity for the Company's stock option plans is presented below:
<TABLE>
<CAPTION>
Weighted-
Number Average
of Exercise
Shares Price
- -------------------------------------------------------
<S> <C> <C>
Outstanding, January 31, 2000 11,285,624 $ 14.66
Granted 1,581,300 33.06
Exercised (1,307,545) 8.21
Forfeited (228,850) 20.71
-----------------------
Outstanding, January 31, 2001 11,330,529 17.85
Granted 2,067,250 33.80
Exercised (642,870) 9.58
Forfeited (246,949) 28.65
-----------------------
Outstanding, January 31, 2002 12,507,960 20.70
Granted 2,231,900 26.28
Exercised (1,184,732) 8.73
Forfeited (349,989) 33.33
-----------------------
OUTSTANDING, JANUARY 31, 2003 13,205,139 $ 22.38
=======================
</TABLE>
Options exercisable at January 31, 2003, 2002 and 2001 were 8,522,446, 7,805,486
and 6,438,929.
TIFFANY & CO. AND SUBSIDIARIES
50
<PAGE>
The following tables summarize information concerning options outstanding and
exercisable at January 31, 2003:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------
Weighted-
Average Weighted-
Remaining Average
Range of Number Contractual Exercise
Exercise Prices Outstanding Life (years) Price
- --------------------------------------------------------
<S> <C> <C> <C>
$ 1.81-$ 9.45 2,524,888 3.98 $ 6.25
$ 9.48-$14.98 3,542,785 5.94 13.01
$17.59-$25.85 2,217,800 9.79 25.53
$25.94-$34.02 3,168,816 8.51 33.12
$34.92-$39.97 323,750 8.04 37.23
$42.08-$42.08 1,427,100 6.97 42.08
-------------------------------------
13,205,139 6.99 $ 22.38
=====================================
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
-----------------------
Weighted-
Average
Range of Number Exercise
Exercise Prices Exercisable Price
- ------------------------------------------
<S> <C> <C>
$ 1.81-$ 9.45 2,524,888 $ 6.25
$ 9.48-$14.98 3,542,785 13.01
$17.59-$25.85 63,391 19.78
$25.94-$34.02 1,185,353 32.86
$34.92-$39.97 109,379 37.25
$42.08-$42.08 1,096,650 42.08
----------------------
8,522,446 $ 17.87
======================
</TABLE>
P. EMPLOYEE BENEFIT PLANS
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company maintains a noncontributory defined benefit pension plan ("Plan")
covering substantially all domestic salaried and full-time hourly employees. The
Company accounts for pension expense using the projected unit credit actuarial
method for financial reporting purposes. Plan benefits are based on the highest
five consecutive years of compensation or as a percentage of actual
compensation, as applicable in the circumstances, and the number of years of
service. The actuarial present value of the vested benefit obligation is
calculated based on the expected date of separation or retirement of the
Company's eligible employees. The Company funds the Plan's trust in accordance
with regulatory limits to provide for current service and for unfunded projected
benefit obligation over a reasonable period. Assets of the Plan consist
primarily of equity mutual funds, common stocks and U.S. Government, corporate
and mortgage obligations. The Plan's assets also include investments in the
Company's Common Stock representing 6% and 11% of Plan assets at January 31,
2003 and 2002.
The Company provides certain health-care and life insurance benefits for retired
employees and accrues the cost of providing these benefits throughout the
employees' active service periods until they attain full eligibility for those
benefits. Substantially all of the Company's U.S. employees may become eligible
for these benefits if they reach normal or early retirement age while working
for the Company. The Company's employee and retiree healthcare benefits are
administered by an insurance company, and premiums on life insurance are based
on prior years' claims experience.
TIFFANY & CO. AND SUBSIDIARIES
51
<PAGE>
The following tables provide a reconciliation of benefit obligations, plan
assets and funded status of the plans:
<TABLE>
<CAPTION>
January 31,
---------------------------------------------------
Other Postretirement
Pension Benefits Benefits
---------------------------------------------------
(in thousands) 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 106,373 $ 89,819 $ 38,787 $ 25,794
Service cost 7,094 6,040 2,415 2,769
Interest cost 7,072 6,297 2,042 2,064
Participants' contributions - - 35 33
Amendment - 1,132 - -
Actuarial loss (gain) 5,098 6,037 (4,017) 9,093
Benefits paid (3,024) (2,952) (1,231) (966)
---------------------------------------------------
Benefit obligation at end of year $ 122,613 $ 106,373 $ 38,031 $ 38,787
===================================================
Change in plan assets:
Fair value of plan assets at beginning of year $ 72,867 $ 79,281 $ - $ -
Actual return on plan assets (7,412) (3,462) - -
Employer contribution 16,937 - 1,196 933
Participants' contributions - - 35 33
Benefits paid (3,024) (2,952) (1,231) (966)
---------------------------------------------------
Fair value of plan assets at end of year $ 79,368 $ 72,867 $ - $ -
===================================================
Funded status $ (43,245) $ (33,506) $ (38,031) $ (38,787)
Unrecognized net actuarial loss 26,805 7,867 4,346 8,337
Unrecognized prior service cost 1,025 1,132 287 281
---------------------------------------------------
Accrued benefit cost $ (15,415) $ (24,507) $ (33,398) $ (30,169)
===================================================
</TABLE>
TIFFANY & CO. AND SUBSIDIARIES
52
<PAGE>
The following table provides the amounts recognized in the Consolidated Balance
Sheets:
<TABLE>
<CAPTION>
January 31,
------------------------------------------------------
Other Postretirement
Pension Benefits Benefits
------------------------------------------------------
(in thousands) 2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued benefit liability $ (20,950) $ (24,507) $ (33,398) $ (30,169)
Minimum pension liability adjustment:
Intangible asset 1,025 - - -
Accumulated other comprehensive income (pre-tax) 4,510 - - -
------------------------------------------------------
Net amount recognized $ (15,415) $ (24,507) $ (33,398) $ (30,169)
======================================================
</TABLE>
Net periodic pension and other postretirement benefit expense included the
following components:
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------------------------------------
Other Postretirement
Pension Benefits Benefits
-----------------------------------------------------------------
(in thousands) 2003 2002 2001 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned during period $ 7,094 $ 6,040 $ 4,632 $ 2,415 $ 2,769 $ 2,129
Interest cost on accumulated benefit obligation 7,072 6,297 5,487 2,042 2,064 1,642
Return on plan assets (6,428) (5,808) (5,166) - - -
Net amortization and deferrals 107 41 241 (32) 23 (5)
-----------------------------------------------------------------
Net expense $ 7,845 $ 6,570 $ 5,194 $ 4,425 $ 4,856 $ 3,766
=================================================================
</TABLE>
<TABLE>
<CAPTION>
January 31,
---------------------------------------------------
Other Postretirement
Pension Benefits Benefits
---------------------------------------------------
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate 6.50% 6.75% 6.50% 6.75%
Expected return on plan assets 7.50% 9.00% - -
Rate of increase in compensation 4.00% 4.00% - -
</TABLE>
TIFFANY & CO. AND SUBSIDIARIES
53
<PAGE>
For postretirement benefit measurement purposes, 11.00% (for pre-age 65
retirees) and 12.00% (for post-age 65 retirees) annual rates of increase in the
per capita cost of covered health care were assumed for 2002. The rate was
assumed to decrease gradually to 5.00% for both groups by 2017 and remain at
that level thereafter.
Assumed health-care cost trend rates have a significant effect on the amounts
reported for the Company's postretirement health-care benefits plan. A
one-percentage-point change in the assumed health-care cost trend rate would
increase the Company's accumulated postretirement benefit obligation by
$6,191,000 and the aggregate service and interest cost components of net
periodic postretirement benefits by $968,000 fo