UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended March 31, 2002.
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____ to _____.
Commission file number 1-11226.
TOMMY HILFIGER CORPORATION
(Exact name of registrant as specified in its charter)
British Virgin Islands 98-0372112
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11/F, Novel Industrial Building
850-870 Lai Chi Kok Road
Cheung Sha Wan, Kowloon
Hong Kong Not Applicable
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code 852-2216-0668
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------------
Ordinary Shares, $.01 par value per share New York Stock Exchange
Tommy Hilfiger U.S.A., Inc. 6.50% Notes due 2003 New York Stock Exchange
Tommy Hilfiger U.S.A., Inc. 6.85% Notes due 2008 New York Stock Exchange
Tommy Hilfiger U.S.A., Inc. 9.00% Senior Bonds due 2031 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's 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]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price on May 31, 2002: Ordinary Shares, $.01
---------------------
Par Value - $1,286,916,750
--------------------------
The number of shares outstanding of the registrant's stock as of May 31, 2002:
Ordinary Shares, $.01 Par Value - 90,061,174 shares.
---------------------------------------------------
TABLE OF CONTENTS
-----------------
Item Page
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PART I
Item 1. Business........................................................ 3
Item 2. Properties......................................................14
Item 3. Legal Proceedings...............................................14
Item 4. Submission of Matters to a Vote of
Security Holders..............................................15
PART II
Item 5. Market for Registrant's Common Equity
and Related Matters...........................................16
Item 6. Selected Financial Data.........................................18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................................19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......30
Item 8. Financial Statements and Supplementary
Data..........................................................31
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure....................................................32
PART III
Item 10. Directors and Executive Officers of
the Company...................................................32
Item 11. Executive Compensation..........................................35
Item 12. Security Ownership of Certain Beneficial
Owners and Management.........................................41
Item 13. Certain Relationships and Related
Transactions..................................................42
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...........................................45
2
PART I
ITEM 1. BUSINESS
General
Tommy Hilfiger Corporation ("THC" or the "Company"; unless the context
indicates otherwise, all references to the "Company" include THC and its
subsidiaries), through its subsidiaries, designs, sources and markets men's and
women's sportswear, jeanswear and childrenswear under the Tommy Hilfiger
trademarks. Through a range of strategic licensing agreements, the Company also
offers a broad array of related apparel, accessories, footwear, fragrance and
home furnishings. The Company's products can be found in leading department and
specialty stores throughout the United States, Canada, Europe, Mexico, Central
and South America, Japan, Hong Kong and other countries in the Far East, as well
as the Company's own network of specialty and outlet stores in the United
States, Canada and Europe. Tommy Hilfiger, the Company's Honorary Chairman and
Principal Designer, provides leadership and direction for the design process.
The Company's apparel is designed to combine classic American styling with
unique details and fit to give time-honored basics a fresh and updated look for
customers who desire high quality, designer clothes at competitive prices. THC
was incorporated as an International Business Company in the British Virgin
Islands (the "BVI") in 1992 and is also registered and licensed as an external
International Business Company in Barbados.
As of March 31, 2002, the Company was engaged in three reportable
segments: Wholesale, Retail and Licensing. The Wholesale segment consists of the
design and sourcing of men's sportswear and jeanswear, women's casualwear,
junior jeanswear and childrenswear for wholesale distribution. The Retail
segment reflects the operations of the Company's outlet, specialty and, through
February 2001, flagship stores. The Licensing segment consists of the operations
of licensing the Company's trademarks for specified products in specified
geographic areas.
In the Wholesale segment, products are principally merchandised through
the Company's in-store shop and fixtured area program, whereby participating
retailers set aside floor space highlighted by distinctive fixtures dedicated
for the exclusive sale of the Company's products by the retailer. In addition to
continuing the in-store shop and fixtured area program, the Company plans to
continue broadening its range of product offerings, both in-house and through
licensing arrangements, and expanding its channels of distribution. Since 1992,
the Company has introduced several in-house products, including childrenswear,
athleticwear and jeanswear. Additionally, the Company has introduced new
products through licensing agreements, including fragrances, robes and
sleepwear, footwear, home furnishings and other accessories. See "Merchandising
Strategies - Licensing and Distributorships."
As of March 31, 2002, the Company operated 110 outlet stores and 53
specialty retail stores, including 15 stores in Europe and 11 stores in Canada.
See "Merchandising Strategies - Retailing."
3
Acquisition of European Licensee
On July 5, 2001, the Company acquired all of the issued and outstanding
shares of capital stock of T.H. International N.V. ("THNV"), the owner of Tommy
Hilfiger Europe B.V. ("TH Europe"), the Company's European licensee, for a
purchase price of $200,000,000 (such transaction being referred to herein as the
"TH Europe Acquisition"). The TH Europe Acquisition was funded using available
cash.
For more information relating to the TH Europe Acquisition, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and Note 2 to the Consolidated Financial Statements in
Item 8.
Merchandising Strategies
The Company generally organizes its apparel collections, including
products produced under licensing arrangements, into three primary product
lines: Core, Core Plus and Fashion.
Wholesale
Core. The Core line is comprised of the Company's seasonless, or very
basic, products all in classic solid colors. Core items are made available for
sale by the Company throughout the year and, therefore, generally are kept in
stock by the Company. Since Core items are seasonless, they do not have fixed
selling periods and, therefore, retailers' inventories of Core products tend to
be maintained throughout the year and reordered as necessary. The Company
receives orders from its large customers for Core products on an electronic data
interchange ("EDI") system, which expedites reorders. See "Management
Information Systems."
Core Plus. The Core Plus line is comprised of a broad selection of
seasonal "basics" which are derived from Core but offer a greater variety of
fabrics, colors and patterns, such as stripes and plaids. The Core Plus line
also incorporates certain Fashion products that had previously been successful
at retail. The Company sells four different seasonal groups of Core Plus
products each year. As compared to Fashion items, Core Plus items provide the
retailer with longer selling periods at regular prices. Because Core Plus is a
broader product category than Fashion, with a longer regular-price selling
period, the Company's shipping deadlines are more flexible and the Company may
be able to place reorders when demand is high.
Fashion. The Fashion line represents the most updated component of the
Company's product line. Fashion items consist of a group of product
classifications coordinated around a seasonal theme. The Company offers Fashion
products under at least two themes per season, thereby creating a flow of new
merchandise in the marketplace.
Retailing
The Company believes its outlet store business has positioned it to
take advantage of an important segment of the retail apparel industry that
appeals to customers' value orientation and provides the Company with an
additional channel of distribution. The Company stocks its outlet stores with
first-quality products manufactured specifically for its outlet stores'
customers and, to a small degree, with out-of-season products. The Company's
outlet stores are located primarily in major outlet centers in the United
States, Canada and Europe.
4
The Company believes that specialty stores are complementary to its
department store distribution and will enable the Company to reach consumers who
prefer this shopping format and to penetrate selected markets that are currently
not served by department stores. Specialty retail store formats include
sportswear stores and jeanswear stores or a combination thereof, each with
appropriate licensed products.
The following is a summary of the Company's retail stores by type and
geographic location as of March 31, 2002:
Outlet Specialty Total
------ --------- -----
United States 98 39 137
Canada 4 7 11
Europe 8 7 15
--- -- ---
Total 110 53 163
=== == ===
The above table excludes Tommy Hilfiger stores operated by franchisees.
The Company currently plans to add approximately 6 outlet stores and 16
specialty stores, on a worldwide basis, by March 31, 2003. Planned store
openings in the U.S. consist of 5 outlet stores and 5 specialty stores, for
which the Company had signed leases during fiscal 2002. The remaining 1 outlet
and 11 specialty stores are planned to be opened in Europe and Canada.
Licensing and Distributorships
In connection with the Company's business strategy of expanding its
market penetration through product line and geographic expansion, the Company
considers entering into licensing and distribution agreements with respect to
certain products and geographic regions if the Company believes such
arrangements provide more effective manufacturing, distribution and marketing of
such products than could be achieved in-house. The Company continually pursues
new opportunities in product categories which are believed to be complementary
to its existing product lines, as well as opportunities for geographic expansion
through licenses and distributorships to enhance its international presence.
5
As shown in the table below, the Company offers numerous products
through license arrangements with companies which are among the industry leaders
in their respective categories and has several strategic geographic licenses and
distributorships:
Available
Product Category License at Retail
---------------- ------- ---------
Men's socks Mountain High Hosiery, Inc. Holiday 1992
Men's neckwear Superba, Inc. Father's Day 1993
Men's belts, small leather
goods and jewelry Swank, Inc. Fall 1993
Men's suits, sport coats,
dress slacks, top coats,
formal wear Hartmarx Corporation Fall 1994
Men's dress shirts Oxford Industries, Inc. Fall 1994
Men's underwear Jockey International, Inc. Fall 1994
Men's fragrance Aramis, Inc. (Estee Lauder) Father's Day 1995
Men's robes and sleepwear Russell-Newman, Inc. Holiday 1995
Men's golfwear Oxford Industries, Inc. Holiday 1995
Men's eyewear Lantis Eyewear Corporation Fall 1996
Women's fragrance Aramis, Inc. (Estee Lauder) Fall 1996
Men's footwear The Stride Rite Corporation Spring 1997
Children's socks Mountain High Hosiery, Inc. Spring 1997
Boy's blazers Alperin, Inc. Spring 1997
Men's sunglasses Lantis Eyewear Corporation Fall 1997
Children's footwear The Stride Rite Corporation Fall 1997
Boy's neckwear Superba, Inc. Holiday 1997
Athletics fragrance Aramis, Inc. (Estee Lauder) Spring 1998
Linens, bedding and bath products Revman Industries, Inc. Summer 1998
Women's footwear The Stride Rite Corporation Holiday 1998
Women's robes and sleepwear Russell-Newman, Inc. Holiday 1998
Women's sunglasses Lantis Eyewear Corporation Holiday 1998
Women's socks Mountain High Hosiery, Inc. Holiday 1998
Bath & body products Aramis, Inc. (Estee Lauder) Spring 1999
Women's handbags, belts and small
leather goods and sportbags Tommy Hilfiger Handbags &
Small Leather Goods, Inc. Fall 1999
Men's tailored clothing (Europe) Stellson AG Fall 1999
Cosmetics Aramis, Inc. (Estee Lauder) Fall 1999
Children's sunglasses Lantis Eyewear Corporation Fall 1999
Women's eyewear Lantis Eyewear Corporation Spring 2000
Children's eyewear Lantis Eyewear Corporation Spring 2000
Women's jewelry Victoria & Co. Ltd. (Jones
Apparel Group, Inc.) Spring 2000
Women's intimate apparel Bestform Inc. (VF Corporation) Fall 2000
Women's golfwear Oxford Industries, Inc. Holiday 2000
Dolls FAO Schwartz Holiday 2000
Men's and women's watches Movado Group, Inc. Spring 2001
Women's swimwear Jantzen, Inc. (Perry Ellis
International, Inc.) Spring 2001
Men's and Women's footwear (Europe) HP Schubbandels GmbH Spring 2002
Available
Geographic Territory Licensee/Distributor at Retail
-------------------- -------------------- ---------
Central and South America American Sportswear S.A. 1989
Japan Tommy Hilfiger Japan Corporation 1991
Mexico Baseco SA de CV 1995
Asia-Pacific KSDP International 1998
In addition to a royalty payment or license fee, all of the Company's
licensees and distributors are required to contribute to the advertisement and
promotion of Tommy Hilfiger products on the basis of a percentage of their net
sales of Tommy Hilfiger products or a percentage of their net purchases of Tommy
Hilfiger products through the Company's buying offices (depending on the terms
of the license or distributorship agreement), generally subject to minimum
amounts.
6
Design
Tommy Hilfiger, the Company's Honorary Chairman and Principal Designer,
provides leadership and direction for the design process. Designers are selected
on the basis of their understanding of the retail industry and their ability to
understand what consumers desire and which designs are most likely to be
commercially viable. Design teams are responsible for separate product
classifications. In addition, the Company has senior designers, whose
responsibility is to coordinate the design teams. Design teams utilize computer
aided design stations, which provide timely translation of designs into sample
depictions varying in color, cut and style. The speed of production and breadth
of the resulting output assist the Company in selecting desirable designs for
the sourcing and research and development staffs to assess.
Research and Development
The Company employs senior production executives who oversee a staff
whose primary functions are to identify ways to develop new designs and products
more efficiently, and to identify new and more cost-effective sourcing methods.
In addition, the staff researches and identifies new sources for both fabrics
and manufacturing worldwide in order to control or reduce manufacturing costs
while maintaining the Company's quality standards.
Wholesale Sales and Marketing
Tommy Hilfiger products are sold throughout the United States in major
department and specialty retail store locations. The Company's department store
customers include major United States retailers such as Dillard Department
Stores, Federated Department Stores (including Macy's, Rich's, Bloomingdale's
and Burdines), May Department Stores (including Lord & Taylor, Hecht's and
Foley's), Belk Stores, Saks, Inc. (including Carson Pirie Scott, Proffitt's and
Younkers) and Marshall Fields (Target Corporation). The Company believes that
its relationships with major retailers, including the active sales involvement
of the Company's senior management, are important elements of its marketing
strategy. The Company's strategy is to continue to maintain and, where demand
warrants, to selectively expand its United States in-store shop and fixtured
area program, expand its product lines and market to new customers worldwide.
In Europe and Canada, the Company's wholesale sales are more broadly
distributed, as the customer base is comprised principally of independent
specialty retail stores. Further, TH Europe utilizes third party distributors
for sales in select countries such as Italy, Portugal, Turkey, Greece, Norway
and Israel. In addition, TH Europe has arrangements with third parties that own
and operate franchise retail stores in select locations.
An important feature of the Company's sales and marketing strategy is
its in-store shop and fixtured area program, whereby participating retailers set
aside floor space highlighted by distinctive fixtures dedicated for exclusive
sale of the Company's products by the retailer. This program enables the
retailer to create an environment consistent with the Company's image and to
display and stock a greater volume of the Company's products per square foot of
retail space. Such shops and fixtured areas encourage longer-term commitment by
the retailer to the Company's products, including the retailer's provision of
upgraded staffing. These shops and fixtured areas are also believed to increase
consumer product recognition and loyalty because of the retail customer's
familiarity with the location of the Company's products in the store.
7
The Company's marketing campaigns are developed and directed
principally from its executive offices in New York and Amsterdam. Additionally,
the Company maintains regional showroom facilities and sales offices in major
cities throughout the U.S. and Europe.
The Company employs an extensive staff of merchandise coordinators
located throughout the United States. These merchandisers educate the retailers'
salespeople about the Company's current products, provide the Company with
first-hand consumer feedback concerning consumer reaction to the Company's
products and coordinate the in-store displays with the department stores. In
addition to the coordinator program, the Company also conducts a training
program for the department stores' Tommy Hilfiger selling specialists. The
program is designed to educate specialists on the Company's image and
merchandising standards and to promote the development and servicing of
clientele. The program also educates specialists in customer assistance and
advice, including merchandise selection and the coordination of complete outfits
of Tommy Hilfiger products.
The Company sells substantially all its out-of-season products, which
are principally from the Fashion and Core Plus product lines, to certain
discount retailers. The net revenue from such sales represented less than 15% of
the Company's total net revenue for each of the last three fiscal years.
Advertising, Public Relations and Promotion
The Company believes that advertising to promote and enhance the Tommy
Hilfiger brand and the image of Tommy Hilfiger products is important to its
long-term growth strategy. All of the Company's licensees and distributors are
required to contribute to the advertisement and promotion of Tommy Hilfiger
products a percentage of their net sales of Tommy Hilfiger products or a
percentage of their net purchases of Tommy Hilfiger products through the
Company's buying offices (depending on the terms of the license or
distributorship agreement), generally subject to minimum amounts. Advertising by
the Company, its licensees and most of its distributors is coordinated by the
Company and principally appears in magazines, newspapers, and outdoor
advertising media. In addition, selected personal appearances by Tommy Hilfiger,
corporate sponsorships and charitable programs are utilized to further enhance
awareness of the Company's image and promote the Company's products. The Company
employs an advertising and public relations staff to implement these efforts.
In December 1999, the Company's website, tommy.com, was launched as a
marketing vehicle to complement the ongoing development of the Tommy Hilfiger
lifestyle brand. It is designed to strengthen the Company's relationship with
customers, with the added benefit of driving traffic and sales in the Company's
existing retail venues.
Sourcing
The Company's sourcing strategy is to contract for the manufacture of
its products. Outsourcing allows the Company to maximize production flexibility
while avoiding significant capital expenditures, work-in-process inventory
buildups and the costs of managing a large production work force. The Company
inspects products manufactured by contractors to determine whether they meet the
Company's standards. See "Quality Control."
8
The Company imports most of its finished goods because it believes it
can import higher quality products at lower costs than could be achieved
domestically. Management maintains extensive and long-term relationships with
leading manufacturers principally located in the United States, Mexico and Asia.
Production in NAFTA countries (the U.S., Mexico and Canada) amounts to
approximately 27% of the cost of products purchased annually. Other than NAFTA
countries, no country from which the Company imports accounts for more than 10%
of the total cost of products purchased annually. The Company monitors duty,
tariff and quota-related developments and continually seeks to minimize its
potential exposure to duty, tariff and quota-related risks through, among other
measures, geographical diversification of its manufacturing sources, the
maintenance of its buying offices in Hong Kong, India and the United States,
allocation of production to merchandise categories where more quota is available
and shifts of production among countries and manufacturers. The Company has also
established a Code of Conduct for labor standards and factory conditions in its
contract manufacturing facilities. A program to monitor compliance with the Code
is administered by an independent law firm that engages a third-party, not for
profit organization to conduct audits of factory compliance with the Code on a
regular basis.
The Company's production and sourcing staff oversee all aspects of
apparel manufacturing and production, the negotiation for raw materials and
research and development of new products and sources. The Company's buying
offices perform product development, sourcing, production scheduling and quality
control functions. In addition, the Company contracts with various buying
subagents that perform similar services for the Company and its licensees and
geographic distributors, for specified commissions.
The Company has its products manufactured according to plans prepared
each year which reflect prior years' experience, current fashion trends,
economic conditions and management estimates of a line's performance. In certain
cases, the Company separately negotiates with suppliers for the purchase of
required raw materials by its contractors in accordance with the Company's
specifications. The Company limits its exposure to holding excess inventory by
committing to purchase a portion of total projected demand and the Company, in
its experience, has been able to satisfy its excess demand through reorders. The
Company believes that its policy of limiting its commitments for purchases early
in the season reduces its exposure to excess inventory.
Quality Control
The Company's quality control program is designed to ensure that
purchased goods meet the Company's standards. The Company inspects prototypes of
each product prior to cutting by the contractors and performs two in-line
inspections and a final inspection prior to shipment. All finished goods are
shipped to the Company's New Jersey facilities for re-inspection and
distribution. While the Company's return policy permits customers to return
defective products for credit, less than 1% of the Company's shipments in fiscal
2002 were returned as defective under this policy.
9
Management Information Systems
The Company believes that high levels of automation and technology are
essential to maintain its competitive position and the Company continues to
invest in computer hardware, systems applications and networks to enhance and to
speed the apparel design process, to support the sale and distribution of
products to its customers and to improve the integration and efficiency of its
operations. The Company utilizes computer-aided design stations for use by the
design teams, which provide timely translations of designs into sample
depictions varying in color, cut and style. The Company also uses an EDI system
to receive on-line orders from its customers and a related electronic method to
accumulate sales information on its products. This technology enables the
Company to provide valuable sales information and inventory maintenance
information services to its customers who have adopted such technology. The
Company's 10 largest customers communicate with the Company through EDI
technology.
Distribution
In the United States, wholesale and retail distribution currently
occurs at three major New Jersey facilities (located in Dayton, Cranbury and
Secaucus) which average approximately 375,000 square feet. Additionally, the
Company operates two other New Jersey facilities, which it expects to vacate
during fiscal 2003 as a result of the opening of the Cranbury facility in May
2002. The facilities are operated by the Company and principally staffed by an
independent contractor who charges the Company on the basis of the number of
items processed, subject to a minimum annual fee. The Company maintains its
distribution management group and certain administrative functions at its New
Jersey facilities.
The Company's Canadian distribution is processed through a 174,000
square foot facility located in Montreal, Quebec.
Effective June 1, 2002, TH Europe's main distribution facility is a
263,000 square foot facility in Tegelen, The Netherlands. In connection with the
opening of this facility, the Company intends to close several smaller
facilities. In addition, TH Europe will continue to operate 4 other facilities
totaling approximately 165,000 square feet.
Credit and Collection
The Company collects the majority of its receivables from U.S.
customers through a credit company subsidiary of a large financial institution
pursuant to an agreement whereby the credit company pays the Company after the
credit company receives payment from the Company's customer. The credit company
establishes maximum credit limits for each customer account. If the receivable
becomes 120 days past due, or the customer becomes bankrupt or insolvent, the
full amount of the receivable is reimbursable by the credit company.
The Company has a similar arrangement with another large financial institution
for credit services to its Canadian subsidiary. TH Europe has an agreement with
a European credit insurance company from whom it obtains credit insurance on an
individual customer basis. At March 31, 2002, approximately 75% of TH Europe's
total receivables were covered by credit insurance, bank guarantees or other
means. In all cases the Company believes that the credit risk associated with
such financial institutions is minimal.
The Company also grants credit directly to certain select customers in
the normal course of business without participation by a credit company. In such
cases the Company monitors its credit exposure limits to avoid any significant
concentration of risk.
10
Bad debts as a percentage of net sales were less than 0.1% in each of
the Company's last three fiscal years.
Trademarks
The Company owns and utilizes the following principal trademarks: TOMMY
HILFIGER(R), TOMMY JEANS(R), TOMMY(R), TOMMY GIRL(R), HILFIGER ATHLETICS(R),
TH(R), TOMMY SPORT(TM) and TOMMY.COM(R), the distinctive flag logo, crest design
and green eyelet device, and the signature tartan design and Ithaca striping.
Tommy Hilfiger Licensing, Inc., a subsidiary of THC ("THLI"), has registered or
applied for registration of these and other trademarks for use in the United
States and in numerous countries worldwide, including, inter alia, Canada and
various countries in Europe, Asia and South and Central America (collectively,
the "Trademarks"). The Company regards the Trademarks and its other proprietary
intellectual property rights as valuable assets in the marketing of its products
and of the brand. THLI is a party to an agreement with Mr. Hilfiger that
restricts (i) the sale, lease, license or other conveyance of the Trademarks,
(ii) the amendment of the license agreement between THLI and Tommy Hilfiger
U.S.A., Inc., a subsidiary of THC ("TH USA"), and (iii) the creation of any lien
on the Trademarks, without Mr. Hilfiger's consent, until Mr. Hilfiger's death or
until termination of Mr. Hilfiger's employment with TH USA without the consent
of TH USA.
Backlog
The Company generally receives orders approximately three to five
months prior to the time the products are delivered to stores. Thus, at March
31, 2002, the Company's backlog of orders represents a significant portion of
the Company's expected sales through September 30, 2002. At March 31, 2002, the
Company's backlog of orders, including orders of TH Europe, which was acquired
on July 5, 2001, was approximately $754 million, compared to approximately $671
million at March 31, 2001. The Company's backlog depends upon a number of
factors, including the timing of "market weeks" during which a significant
percentage of the Company's orders are received and the timing of shipments.
Accordingly, a comparison of backlog from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments or net revenue
realized from such shipments. The Company has provided its outlook for fiscal
2003 net revenue in "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Overview and Forward Outlook" in Item 7.
Employees
At March 31, 2002, the Company had approximately 3,000 full-time
employees and 1,900 part-time employees. Virtually all of the Company's
part-time employees were employed in the Company's retail stores. None of the
Company's employees is a member of a union. The Company considers its relations
with its employees to be excellent.
11
Risk Factors
Competition
The apparel industry is highly competitive. The Company competes with
numerous domestic and foreign designers, brands and manufacturers of apparel,
accessories and other products, some of which may be significantly larger and
have greater resources, than the Company. Management believes that the Company's
ability to compete effectively depends upon its continued flexibility in
responding to market demand and its ability to offer fashion conscious consumers
a wide variety of high quality apparel at competitive prices.
Changes in Fashion Trends
The Company believes that its success depends in substantial part on
its ability to anticipate, gauge and respond to changing consumer demand and
fashion trends in a timely manner. The Company attempts to minimize the risk of
changing fashion trends and product acceptance by closely monitoring retail
sales trends. However, if fashion trends shift away from the Company's products,
or if the Company otherwise misjudges the market for its product lines, it may
be faced with a significant amount of unsold finished goods inventory or other
conditions which could have a material adverse effect on the Company.
Uncertainties in Apparel Retailing
The apparel industry historically has been subject to substantial
cyclical variations, and a recession in the general economy or uncertainties
regarding future economic prospects that affect consumer spending habits could
have a material adverse effect on the Company's results of operations. While
various retailers, including some of the Company's customers, experienced
financial difficulties in the past three years which increased the risk of
extending credit to such retailers, the Company's bad debt experience has been
limited. Under the Company's current credit and collection arrangements, the
bankruptcy of a customer which continued to operate and carry the Company's
products should not have a material adverse effect on the Company. However,
financial problems of a retailer could cause the Company's credit company to
limit the amount of receivables of such retailer that the Company may assign to
the credit company, which may cause the Company to curtail business with such
retailer or require the Company to assume more credit risk relating to such
customer's receivables.
Dependence on Customers Under Common Control
The Company's department store customers include major United States
retailers, certain of which are under common ownership. When considered together
as a group under common ownership, sales to the department store customers which
were owned by Dillard Department Stores, Federated Department Stores and May
Department Stores accounted for approximately 15%, 12% and 11%, respectively, of
the Company's fiscal 2002 consolidated net revenue. A decision by the
controlling owner of a group of department stores to decrease the amount
purchased from the Company or to cease carrying the Company's products could
have a material adverse effect on the Company.
12
Sourcing
The Company does not own or operate any manufacturing facilities and is
therefore dependent upon third parties for the manufacture of all of its
products. The inability of a manufacturer to ship orders of the Company's
products in a timely manner, including as a result of local financial market
disruption which could impair the ability of such suppliers to finance their
operations, or to meet quality standards, could cause the Company to miss the
delivery date requirements of its customers for those items, which could result
in cancellation of orders, refusal to accept deliveries or a reduction in
purchase prices, any of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company has no
long-term formal arrangements with any of its suppliers and historically has
experienced only limited difficulty in satisfying its raw material and finished
goods requirements. Although the Company believes it could replace such
suppliers without a material adverse effect on the Company, there can be no
assurance that such suppliers could be replaced in a timely manner, and the loss
of such suppliers could have a material adverse effect on the Company's
short-term operating results.
Tax Matters
THC was incorporated in 1992 as an International Business Company in
the BVI and is also registered and licensed as an external International
Business Company in Barbados, where it has established residency for tax
purposes. In addition, certain of THC's non-United States subsidiaries are
incorporated in the BVI and other countries and are subject to taxation in those
or other countries where the applicable statutory tax rates are substantially
lower than those applicable to the Company's United States subsidiaries. As a
result, the Company's overall effective tax rate is materially affected by the
relative level of earnings in the various taxing jurisdictions to which the
Company's earnings are subject.
As a tax resident of Barbados, THC is entitled to the benefits of an
income tax treaty between Barbados and the United States. The Company has in the
past and continues to conduct its operations in a manner that it believes is in
full compliance with the requirements of the treaty, as well as other applicable
tax laws. Nevertheless, recent legislative proposals in the United States have
focused on the taxation of United States subsidiaries of non-United States
corporations. Changes in tax rules incorporated in treaties, the Internal
Revenue Code, regulations or other authorities may occur which could materially
increase the Company's tax payments and reduce its net income and cash flow.
The Company's effective tax rate, which was 13% for the fiscal year
ended March 31, 2002, has been and is expected to continue to be a major factor
in the determination of the Company's profitability and cash flow. As such, a
significant shift in the relative sources of the Company's earnings, or changes
in tax rules or interpretations, could have a material adverse effect on the
Company's results of operations and cash flow.
Impact of Potential Future Acquisitions
From time to time, the Company has pursued, and may continue to pursue,
acquisitions. For example, during the fiscal year ended March 31, 2002, the
Company completed the TH Europe Acquisition for a purchase price of $200
million, funded using available cash. If one or more acquisitions results in the
Company becoming substantially more leveraged on a consolidated basis, the
Company's flexibility in responding to adverse changes in economic, business or
market conditions may be adversely affected.
13
ITEM 2. PROPERTIES
The principal executive offices of THC are located at 11/F, Novel
Industrial Building, 850-870 Lai Chi Kok Road, Cheung Sha Wan, Kowloon, Hong
Kong. TH USA's principal executive offices are located at 25 West 39th Street,
New York, New York 10018.
The general location, use, ownership status and approximate size of the
principal properties which the Company currently occupies are set forth below:
Approximate
Ownership Area in Square
Location Use Status Feet
-------- --- --------- --------------
Hong Kong .................. Executive offices and principal buying office of THC Leased 54,000
New York, New York ......... USA Headquarters, sales offices and showrooms Owned 170,000
New York, New York ......... Design, production and administrative offices Owned 115,000
Dayton, New Jersey ......... Warehouse distribution and administrative offices Leased 360,000
Secaucus, New Jersey ....... Warehouse distribution and administrative offices Leased 324,000
Secaucus, New Jersey* ...... Warehouse distribution Leased 115,000
Kearny, New Jersey* ........ Warehouse distribution Leased 445,000
Cranbury, New Jersey ....... Warehouse distribution and administrative offices Leased 443,000
Montreal, Quebec ........... Warehouse distribution, sales and administrative
offices and showrooms Leased 174,000
Amsterdam, The Netherlands.. TH Europe headquarters Leased 39,000
Tegelen, The Netherlands ... Principal warehouse distribution Leased 263,000
* During fiscal 2003, the Company plans to transfer operations of these
facilities to the Company's Cranbury, NJ facility, which opened in May 2002.
A table summarizing the Company's retail stores, all of which are
leased, by type and geographic location as of March 31, 2002 is presented under
"Business - Merchandising Strategies - Retailing" in Item 1. The Company's
outlet and specialty stores average approximately 5,700 and 5,800 square feet,
respectively.
ITEM 3. LEGAL PROCEEDINGS
Saipan Litigation. On January 13, 1999, two actions were filed against
the Company and other garment manufacturers and retailers asserting claims that
garment factories located on the island of Saipan, which allegedly supply
product to the Company and other co-defendants, engage in unlawful practices
relating to the recruitment and employment of foreign workers. One action,
brought in San Francisco Superior Court (the "State Action"), was filed by a
union and three public interest groups alleging unfair competition and false
advertising by the Company and others. It seeks equitable relief, restitution
and disgorgement of profits relating to the allegedly wrongful conduct, as well
as interest and an award of fees to the plaintiffs' attorneys. The other, an
action seeking class action status filed in Federal Court for the Central
District of California and subsequently transferred to the Federal Court in
Saipan (the "Federal Action"), was brought on behalf of an alleged class
consisting of the Saipanese factory workers. The defendants include both
companies selling goods purchased from factories located on the island of Saipan
and the factories themselves. This complaint alleges claims under RICO, the
Alien Tort Claims Act, federal anti-peonage and indentured servitude statutes
and state and international law. It seeks equitable relief and damages,
including treble and punitive damages, interest and an award of fees to the
plaintiffs' attorneys.
14
In addition, the same law firm that filed the State Action and the
Federal Action has filed an action seeking class action status in the Federal
Court in Saipan. This action is brought on behalf of Saipanese garment factory
workers against the Saipanese factories and alleges violation of federal and
Saipanese wage and employment laws. The Company is not a defendant in this
action.
The Company has entered into settlement agreements with the plaintiffs
in the Federal Action and in the State Action. As part of these agreements, the
Company specifically denies any wrongdoing or any liability with regard to the
claims made in the Federal Action and the State Action. The settlement agreement
provides for a monetary payment, in an amount that is not material to the
Company's financial position, results of operations or cash flows, to a class of
plaintiffs in the Federal Action, as well as the creation of a monitoring
program for factories in Saipan. On May 10, 2002, the Federal Court issued an
order granting preliminary approval of the settlement.
The Company and its subsidiaries are from time to time involved in
routine legal matters incidental to their businesses.
In the opinion of the Company's management, based on advice of counsel,
the resolution of the foregoing matters will not have a material effect on its
financial position, its results of operations or its cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
THC's Ordinary Shares, par value $.01 per share (the "Ordinary
Shares"), are listed and traded on the New York Stock Exchange under the symbol
"TOM." As of May 31, 2002, there were approximately 1,400 record holders of the
outstanding Ordinary Shares.
The following table sets forth, for each of the periods indicated, the
high and low sales prices per Ordinary Share as reported on the New York Stock
Exchange Composite Tape.
High Low
---- ---
Fiscal Year ended March 31, 2002
Fourth Quarter ................................. $16.06 $11.20
Third Quarter .................................. 14.90 8.35
Second Quarter ................................. 14.60 8.46
First Quarter .................................. 15.65 10.05
Fiscal Year ended March 31, 2001
Fourth Quarter ................................. $17.25 $ 9.06
Third Quarter .................................. 13.81 8.38
Second Quarter ................................. 11.44 7.00
First Quarter .................................. 14.88 6.31
THC has not paid any cash dividends since its IPO in 1992, and has no
current plans to pay cash dividends. Future dividend policy will depend on the
Company's earnings, capital requirements, financial condition, restrictions
imposed by agreements governing indebtedness of THC and its subsidiaries,
availability of dividends from subsidiaries, receipt of funds in connection with
repayment of loans to subsidiaries or advances from operating subsidiaries and
other factors considered relevant by the Board of Directors of THC. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in Item 7 for a description of
certain restrictions on the ability of subsidiaries of THC to pay dividends.
16
Equity Compensation Plan Information
The following table sets forth information regarding the Company's
equity compensation plans as of March 31, 2002.
Number of Securities
Remaining Available for
Number of Securities to be Future Issuance Under Equity
Issued Upon Exercise of Weighted-Average Exercise Compensation Plans
Outstanding Options, Price of Outstanding (Excluding Securities
Plan Category(1) Warrants and Rights Options, Warrants and Rights Reflected in Column (a))
---------------- ------------------- ---------------------------- ------------------------
(a) (b) (c)
Equity Compensation Plans
Approved by Security Holders(2) 4,558,957 $14.52 3,646,000
Equity Compensation Plans Not
Approved by Security Holders(3) 3,584,116 $20.38 0
--------- ----------
Total 8,143,073 $17.10 3,646,000
========= =========
--------
(1) For descriptions of the Company's equity compensation plans, see Note 13 to
the Consolidated Financial Statements in Item 8 and "Executive Compensation
- Stock-Based Plans" in Item 11.
(2) Includes the 1992 Stock Incentive Plans (except as described in footnote
3), the 2001 Stock Incentive Plan and the Directors Option Plan (all as
defined under "Executive Compensation - Stock-Based Plans" in Item 11).
(3) Securities included in this category are attributable solely to certain
increases in the number of Ordinary Shares authorized and reserved for
issuance under the 1992 Stock Incentive Plans that were not approved by the
Company's shareholders.
17
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data
The following selected financial data have been derived from the
Company's Consolidated Financial Statements. The information should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
that appear elsewhere in this Annual Report and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7.
Fiscal Year Ended March 31,
-----------------------------------------------------------------------------
2002/(1)/ 2001 2000/(2)/ 1999/(2)/ 1998
------------- ------------- ------------- ------------- -------------
(in thousands, except per share amounts)
Statement of Operations Data:
-----------------------------
Net revenue ............................... $1,876,721 $1,880,935 $1,977,180 $ 1,637,073 $847,110
Cost of goods sold ........................ 1,073,089 1,116,321 1,103,582 872,607 447,524
------------- ------------- ------------- ------------- -------------
Gross profit .............................. 803,632 764,614 873,598 764,466 399,586
Total operating expenses .................. 617,903 567,194 618,099 484,185 236,571
------------- ------------- ------------- ------------- -------------
Income from operations .................... 185,729 197,420 255,499 280,281 163,015
Interest expense .......................... 41,177 41,412 41,024 39,525 1,258
Interest income ........................... 10,062 17,450 13,056 5,615 7,013
------------- ------------- ------------- ------------- -------------
Income before income taxes ................ 154,614 173,458 227,531 246,371 168,770
Provision for income taxes ................ 20,069 42,497 55,173 72,654 55,590
------------- ------------- ------------- ------------- -------------
Net income ................................ $ 134,545 $ 130,961 $ 172,358 $ 173,717 $113,180
============= ============= ============= ============= =============
Basic earnings per share .................. $ 1.50 $ 1.44 $ 1.82 $ 1.88 $ 1.51
============= ============= ============= ============= =============
Weighted average shares outstanding ....... 89,430 91,239 94,662 92,264 74,748
============= ============= ============= ============= =============
Diluted earnings per share ................ $ 1.49 $ 1.43 $ 1.80 $ 1.86 $ 1.49
============= ============= ============= ============= =============
Weighted average shares and share
equivalents outstanding ................. 90,000 91,534 95,632 93,376 75,772
============= ============= ============= ============= =============
/(1)/ Reflects the acquisition in July 2001 of the Company's European licensee,
TH Europe.
/(2)/ Reflects the acquisition in May 1998 of the Company's licensees, Pepe
Jeans USA, Inc. ("Pepe USA") and Tommy Hilfiger Canada Inc. Selling, general and
administrative expenses in fiscal 1999 included special acquisition-related
charges of $19,800 ($11,900 after-tax or $0.13 per diluted share). Fiscal 2000
results included special charges of $62,153 ($36,360 after tax or $0.39 per
diluted share), of which $11,700 was included in cost of goods sold.
As of March 31,
-----------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------- ------------- -------------- ------------- -------------
(in thousands)
Balance Sheet Data:
-------------------
Cash and cash equivalents ................. $ 387,247 $ 318,431 $ 309,397 $ 241,950 $157,051
Working capital ........................... 591,191 591,376 537,765 443,006 345,886
Total assets .............................. 2,594,451 2,342,556 2,381,521 2,206,620 618,010
Short-term borrowings, including current
portion of long-term debt ............... 63,447 50,000 50,523 41,234 -
Long-term debt ............................ 575,287 529,495 579,370 609,245 -
Shareholders' equity ...................... 1,497,462 1,348,593 1,277,714 1,092,249 519,062
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(dollar amounts in thousands)
All references to years relate to the fiscal year ended March 31 of
such year.
Results of Operations
The following table sets forth the Consolidated Statements of
Operations data as a percentage of net revenue.
Fiscal Year Ended March 31,
----------------------------
2002 2001 2000
----- ----- -----
Net revenue ................................ 100.0% 100.0% 100.0%
Cost of goods sold ......................... 57.2 59.3 55.8
----- ----- -----
Gross profit ............................... 42.8 40.7 44.2
Depreciation and amortization .............. 6.1 5.7 5.0
Other SG&A expenses ........................ 26.8 24.5 23.7
----- ----- -----
Operating expenses before special charges .. 32.9 30.2 28.7
Special charges ............................ -- -- 2.6
----- ----- -----
Total operating expenses ................... 32.9 30.2 31.3
----- ----- -----
Income from operations ..................... 9.9 10.5 12.9
Interest expense, net ...................... 1.7 1.3 1.4
----- ----- -----
Income before taxes ........................ 8.2 9.2 11.5
Provision for income taxes ................. 1.0 2.2 2.8
----- ----- -----
Net income ................................. 7.2 7.0 8.7
===== ===== =====
On July 5, 2001, the Company acquired TH Europe, its European licensee,
for a purchase price of $200,000, funded using available cash. The acquisition
has been accounted for using the purchase method of accounting and, accordingly,
the operating results of TH Europe are included in the consolidated results of
the Company from the date of the acquisition. The TH Europe Acquisition is
expected to create long-term value for the Company's shareholders through TH
Europe's expected contribution to revenue and net income beginning with the year
of acquisition. The acquisition is also expected to further the Company's
evolution as a premier global lifestyle brand and to provide the Company with
distribution channel as well as geographic diversification. The purchase price
paid reflected the current profitability and cash flow generation of TH Europe,
as well as the rapid rate of projected growth in revenue, net income and cash
flows.
The business of TH Europe includes both wholesale distribution as well
as the operation of retail stores. In addition, the TH Europe Acquisition
results in a reduction in the Company's Licensing segment revenue as the
Company's royalties from TH Europe are eliminated in consolidation subsequent to
the acquisition.
19
Because TH Europe was owned by an affiliate of the Company's two
Co-Chairmen, its Honorary Chairman and its Chief Executive Officer, a Special
Committee of Independent Directors, advised by independent legal and financial
advisors, was established to review and negotiate the transaction. The TH Europe
Acquisition was unanimously approved by the Special Committee and, upon its
recommendation, by the Company's full Board of Directors.
The Company has a number of other business relationships with related
parties. For more information with respect to these transactions, see Note 11 to
the Consolidated Financial Statements in Item 8 and Item 13, "Certain
Relationships and Related Transactions."
Overview and Forward Outlook
The Company reported net revenue of $1,876,721 in fiscal 2002, which
was slightly below fiscal 2001 net revenue of $1,880,935. Fiscal 2001, in turn,
had a decrease in net revenue of 4.9% from net revenue of $1,977,180 in fiscal
2000. The Company's revenue over the past two years was affected by the economic
weakness generally seen throughout the apparel industry, a competitive pricing
environment and the Company's objective to reduce its supply of inventory to the
marketplace in response to market conditions. The Company's net revenue in
fiscal 2002 benefited from the contribution of TH Europe which, as noted above,
the Company acquired on July 5, 2001. Net revenue by segment (after elimination
of intersegment revenue) was as follows:
Fiscal Year Ended March 31,
-------------------------------------
2002 2001 2000
---------- ---------- ----------
Wholesale ................. $1,440,888 $1,484,544 $1,635,242
Retail .................... 379,781 330,965 280,255
Licensing ................. 56,052 65,426 61,683
---------- ---------- ----------
Total ..................... $1,876,721 $1,880,935 $1,977,180
========== ========== ==========
Gross profit as a percentage of net revenue increased to 42.8% in
fiscal 2002 from 40.7% in fiscal 2001. The increase was mainly due to the
contribution of TH Europe, which operates at a higher gross margin than the
Company's overall margin, improved gross margins in the Company's U.S. wholesale
and retail businesses and an increase in the contribution to total revenue of
the Retail segment, which generates a higher gross margin than the Wholesale
segment. Gross margin decreased to 40.7% in fiscal 2001 from 44.8% (before
special charges) in fiscal 2000. The decrease was due to reduced gross margins
in the Company's Wholesale and Retail segments, partially offset by the higher
relative contribution in fiscal 2001 of Retail and Licensing segment revenue,
each of which produce higher gross margins than the Wholesale segment.
Operating expenses increased to $617,903, or 32.9% of net revenue, in
fiscal 2002 from $567,194, or 30.2% of net revenue, in fiscal 2001. This
increase was partially due to expenses of TH Europe since its acquisition. In
addition, the Company incurred increased expenses due to the growth in the
Retail segment, which opened or acquired 58 stores and expanded other stores
since March 31, 2001. Partially offsetting these increases were net savings due
to the Company's continuing efforts to reduce expenses. These efforts included
reductions in corporate expenses and Wholesale segment expenses, resulting from
divisional consolidations and other streamlining efforts. The Company expects
these savings to continue for the foreseeable future. Operating expenses (before
special charges) decreased slightly to $567,194, or 30.2% of net revenue, in
fiscal 2001 from $567,646, or 28.7% of net revenue, in fiscal 2000. This
decrease primarily resulted from savings realized by the Company's divisional
consolidations and other
20
streamlining efforts, partially offset by increased depreciation, amortization
and expenses associated with retail stores opened and expanded since the prior
year.
Gross interest expense decreased slightly from $41,412 in fiscal year
2001 to $41,177 in fiscal year 2002, after increasing slightly from $41,024 in
fiscal year 2000. The decrease from fiscal year 2001 was due to lower interest
rates on, and a lower average principal balance under, the Company's credit
facilities, partially offset by interest expense associated with the issuance of
$150,000 principal amount of 9% Senior Bonds due December 1, 2031 (the "2031
Bonds") and interest expense incurred by TH Europe since its acquisition. The
increase from 2000 to 2001 was due to higher interest rates on outstanding
borrowings.
Interest income decreased from $17,450 in fiscal year 2001 to $10,062
in fiscal year 2002, after increasing from $13,056 in fiscal year 2000. The
decrease from fiscal year 2001 was due to lower interest rates earned on
invested cash balances. The increase from 2000 to 2001 was due to higher average
interest rates on higher levels of invested cash balances.
The provision for income taxes decreased to 13.0% of income before
taxes from 24.5% last year and 24.2% in fiscal 2000. These changes were
primarily attributable to the relative level of earnings in the various taxing
jurisdictions to which the Company's earnings are subject.
For fiscal year 2003, the Company expects that net revenue will be
essentially unchanged from fiscal 2002. The Company believes that operating
income as a percentage of net revenue will increase by approximately 100 basis
points as compared to fiscal 2002. The projected improvement in operating income
is expected to result from an improvement in gross margin, partially offset by
an increase in operating expenses. The projected improvement in gross margin is
due to anticipated changes in the Company's revenue mix and the expected growth
in TH Europe. The projected increase in operating expenses is expected to result
from the operations of TH Europe and the Company's expanded Retail segment,
which operates at a higher cost structure than the Wholesale segment, offset
somewhat by the elimination of amortization of goodwill and other intangible
assets with indefinite lives of approximately $32,000. Net income is projected
to be approximately $148,000 using an effective tax rate consistent with that of
fiscal 2002. The Company's projections do not include the potential effect of
fully adopting SFAS 142 which requires the Company to evaluate its intangible
assets, including goodwill, for possible impairment, using newly defined
criteria. The potential impact of this adoption, which would be recorded as a
cumulative effect of a change in accounting principle and would be a non-cash
and non-operating charge, could result in a material decrease to the Company's
net income or result in a substantial net loss for fiscal year 2003.
Segment Operations
The Company has three reportable segments: Wholesale, Retail and
Licensing. The Company's reportable segments are business units that offer
different products and services or similar products through different
distribution channels. The Wholesale segment consists of the design and sourcing
of men's sportswear and jeanswear, women's casualwear and jeanswear and
childrenswear for wholesale distribution. The Retail segment is comprised of the
operations of the Company's outlet and specialty stores. The Licensing segment
consists of the operations of licensing the Company's trademarks for specified
products in specified geographic areas. The Company evaluates performance and
allocates resources based on segment profits. Segment profits are comprised of
segment net revenue less cost of goods sold and selling, general and
administrative expenses. Excluded from the calculation of segment profits,
however, are the vast majority of executive compensation, certain marketing
costs, brand image costs associated with its flagship stores (through February
2001), amortization of intangibles (including goodwill) and
21
interest costs. Financial information for the Company's reportable segments is
as follows (see Note 10 to the Consolidated Financial Statements in Item 8 for a
reconciliation of total segment revenue to consolidated net revenue):
Wholesale Retail Licensing Total
------------- ---------- ------------- --------------
Fiscal year ended March 31, 2002
--------------------------------
Total segment revenue $ 1,440,888 $ 379,781 $ 109,861 $ 1,930,530
Segment profits 155,951 54,429 65,878 276,258
Segment profit % 10.8% 14.3% 60.0% 14.3%
Fiscal year ended March 31, 2001
--------------------------------
Total segment revenue $ 1,484,544 $ 330,965 $ 119,405 $ 1,934,914
Segment profits 164,823 62,225 71,315 298,363
Segment profit % 11.1% 18.8% 59.7% 15.4%
Fiscal year ended March 31, 2000
--------------------------------
Total segment revenue $ 1,635,242 $ 280,255 $ 120,256 $ 2,035,753
Segment profits 269,472 73,548 77,190 420,210
Segment profit % 16.5% 26.2% 64.2% 20.6%
Wholesale Segment
Wholesale segment net revenue decreased by $43,656, or 2.9% from fiscal
2001 to fiscal 2002 and by $150,698, or 9.2%, from fiscal 2000 to fiscal 2001.
Within the Wholesale segment, net revenue by component was as follows:
Fiscal Year Ended March 31,
---------------------------------------------
2002 2001 2000
------------ ------------ -------------
Menswear $ 622,166 $ 666,722 $ 754,084
Womenswear 538,268 485,013 566,962
Childrenswear 280,454 332,809 314,196
------------ ------------ -------------
$1,440,888 $1,484,544 $ 1,635,242
============ ============ =============
The decline in Wholesale net revenue from fiscal 2001 to fiscal 2002
was due to an overall volume reduction in the United States, mainly reflecting
the Company's efforts to balance supply and demand. Within the menswear
component, a reduced level of consumer spending together with the loss of some
market share in men's jeans to a variety of new competitors offering fashion
forward "street" wear also contributed to the decrease in revenue. Similarly,
the childrenswear business has been negatively impacted by greatly reduced
discretionary spending on better childrenswear in department stores. Partially
offsetting these decreases was the performance of the womenswear component,
which achieved an improvement of approximately 11%. This component benefited
from the expansion of the Company's women's casual division through the
introduction of "plus sizes". Each of the Wholesale divisions benefited from the
addition of TH Europe in fiscal year 2002. The decrease in Wholesale net revenue
from fiscal 2000 to fiscal 2001 was due to price reductions caused by an
oversupply of product and the promotional environment of department stores where
the Company's products are sold offset, in part, by the liquidation of
substantially higher levels of prior season goods in fiscal year 2000.
The Company expects Wholesale segment revenue in fiscal year 2003 to be
level with to 5% below fiscal 2002 revenue, with decreases in menswear and
childrenswear, caused by lower levels of projected off-price sales and lower
receipt plans by major retail customers in the U.S., offset somewhat by
increases in the womenswear component and the European business.
22
Wholesale segment profits decreased by $8,872, or 5.4%, from fiscal
year 2001 to fiscal year 2002 and by $104,649, or 38.8%, from fiscal year 2000
to fiscal year 2001. As a percentage of segment revenue, segment profits were
10.8%, 11.1% and 16.5% for fiscal years 2002, 2001 and 2000, respectively. The
decrease in Wholesale segment profits from fiscal year 2001 to fiscal year 2002
was due to reduced volume in the Company's U.S. wholesale business. This
decrease was partially offset by slightly higher U.S. gross margins and a
reduction in U.S. SG&A expenses, as well as by the contribution in fiscal 2002
of TH Europe's wholesale operations, which operated at a higher segment profit
percentage than the Company's U.S. business. The decrease in Wholesale segment
profits from fiscal year 2000 to fiscal year 2001 was due to the decrease in
segment revenue, which in turn resulted from price reductions caused by an
oversupply of product and the promotional environment of department stores where
the Company's products are sold. In addition, gross profit as a percentage of
net revenue decreased from fiscal 2000 to fiscal 2001 due to the price
reductions as well as the liquidation of substantially higher levels of prior
season goods through the Company's normal off-price channels. These decreases
were partially offset by a reduction in operating expenses, which reflects
savings realized by the Company's divisional consolidations and other
streamlining efforts.
Retail Segment
Retail segment revenue increased $48,816, or 14.7%, from fiscal year
2001 to fiscal year 2002 and $50,710, or 18.1%, from fiscal year 2000 to fiscal
year 2001. The improvements in each year were due to increases in the number of
stores and the expansion of certain stores into larger formats offset, in part,
by decreases in sales at existing stores. Management believes that the decreases
at existing stores was due to reduced customer traffic and softer economic
conditions. The Company operated 163 (including 15 in Europe), 105 and 90 retail
stores as of March 31, 2002, 2001 and 2000, respectively. Retail stores opened
or acquired during fiscal years 2002 and 2001 contributed net revenue of $59,310
and $36,727, respectively, during those years.
Revenue in the Retail segment is expected to grow 10% to 15% in fiscal
year 2003, driven by sales at stores opened within the past year in both the
specialty and outlet divisions.
Retail segment profits decreased $7,796, or 12.5%, from fiscal year
2001 to fiscal year 2002 and $11,323, or 15.4%, from fiscal year 2000 to fiscal
year 2001. As a percentage of segment revenue, segment profits were 14.3%, 18.8%
and 26.2% for fiscal years 2002, 2001 and 2000, respectively. Segment profit and
segment profit as a percentage of segment revenue decreased from fiscal year
2001 to fiscal year 2002 due to operating losses in the Company's U.S. specialty
retail division. During fiscal year 2002, the Company opened 28 specialty stores
in the U.S. This expansion coincided with a downturn in mall traffic, an
intensely promotional climate throughout apparel retailing and a lackluster Fall
and Holiday season for menswear. Partially offsetting this decrease was an
improvement in gross margins of the Company's outlet division due to lower
levels of markdowns as the division operated with much leaner inventories.
Segment profit and segment profit as a percentage of net revenue decreased from
fiscal year 2000 to fiscal year 2001 due to the promotional environment in
department stores and reduced customer traffic, reflecting softer economic
conditions and higher energy prices, all of which had the effect of reducing
retail prices and, therefore, gross margins.
23
Licensing Segment
Licensing segment revenue decreased by $9,544, or 8.0%, from fiscal
year 2001 to fiscal year 2002 after remaining essentially unchanged from fiscal
year 2000 to fiscal year 2001. Segment revenue decreased in fiscal 2002 due
principally to the elimination in consolidation of royalties from TH Europe
since the date of the TH Europe Acquisition. New products introduced under
licenses entered into during fiscal years 2002 and 2001 contributed a de minimus
amount of revenue during those respective years.
The Company expects Licensing segment revenue in fiscal year 2003 to be
level with to 5% below fiscal 2002 revenue.
Licensing segment profits decreased by $5,437, or 7.6%, from fiscal
year 2001 to fiscal year 2002 due to the reduction in licensing royalties from
TH Europe mentioned above. Segment profit decreased $5,875, or 7.6%, from fiscal
year 2000 to fiscal year 2001 due to the inclusion in fiscal year 2000 of a
legal settlement received from Wal-Mart Stores, Inc. of $6,400.
Liquidity and Capital Resources
Cash provided by operations continues to be the Company's primary
source of funds to finance operating needs, capital expenditures and debt
service. Capital expenditures primarily relate to construction of additional
retail stores as well as maintenance or selective expansion of the Company's
in-store shop and fixtured area program. The Company's sources of liquidity are
cash on hand, cash from operations and the Company's available credit.
The Company's cash and cash equivalents balance increased from $318,431
at March 31, 2001 to $387,247 at March 31, 2002. This represented an overall
increase of $68,816 due primarily to cash provided by operating activities and
the issuance of the 2031 Bonds. In fiscal 2002, the Company generated net cash
from operating activities of $353,300 consisting of $245,100 of net income
adjusted for non-cash items and $108,200 of cash provided by changes in working
capital, primarily reductions of $51,016 and $29,963 in inventory and accounts
receivable, respectively. Partially offsetting this increase was cash used in
investing activities. Cash used in investing activities included the $200,000
cash purchase price for the TH Europe Acquisition and $5,061 of related
transaction expenses (net of cash acquired), as well as capital expenditures of
$96,923. Capital expenditures were made principally in support of the Company's
retail store openings and expansions as well as facilities and selected in-store
shops and fixtured areas. Cash provided by financing activities included
$144,921 of net proceeds (after underwriting discounts and transaction expenses)
from the issuance of the 2031 Bonds, short-term borrowings under TH Europe's
credit facility and the proceeds from the issuance of Ordinary Shares under the
Company's employee stock option program, partially offset by scheduled debt
repayments of $50,000, the early retirement of $85,000 principal amount of
outstanding bank term and public debt and the pay-down of the $20,000 principal
amount of outstanding direct borrowings under TH USA's revolving credit line
(all as described below). A more detailed analysis of the changes in cash
equivalents is presented in the Consolidated Statements of Cash Flows.
At March 31, 2002, accrued expenses and other current liabilities
included $38,029 of open letters of credit for inventory purchased.
Additionally, at March 31, 2002, TH USA was contingently liable for unexpired
bank letters of credit of $66,658 related to commitments of TH USA to suppliers
for the purchase of inventories.
24
As of March 31, 2002, the Company's principal debt facilities
consisted of $225,000 of 6.50% notes maturing on June 1, 2003 (the "2003
Notes"), $200,000 of 6.85% notes maturing on June 1, 2008 (the "2008 Notes"),
the 2031 Bonds and a $250,000 revolving credit facility (the "Credit Facility").
The 2003 Notes, 2008 Notes and the 2031 Bonds (collectively, the "Notes") were
issued by TH USA and are fully and unconditionally guaranteed by THC. The
indenture under which the Notes were issued contains covenants that, among other
things, restrict the ability of subsidiaries of THC to incur additional
indebtedness, restrict the ability of THC and its subsidiaries to incur
indebtedness secured by liens or enter into sale and leaseback transactions and
restrict the ability of THC and TH USA to engage in mergers or consolidations.
During fiscal 2002, the Company repurchased $25,000 principal amount of
the 2003 Notes in open market transactions.
The Credit Facility, which is guaranteed by THC, consists of an
unsecured $250,000 TH USA revolving credit line, expiring on March 31, 2003, of
which up to $150,000 may be used for direct borrowings. The Credit Facility is
available for letters of credit, working capital and other general corporate
purposes. As of March 31, 2002, there were no direct borrowings outstanding
under the Credit Facility and $104,687 of the available borrowings under the
Credit Facility had been used to open the letters of credit described above. The
weighted average annual interest rate for borrowings under the Credit Facility
for the fiscal years ended March 31, 2002 and 2001 was 4.50% and 7.04%,
respectively.
During fiscal 2002, in addition to making $50,000 in scheduled
amortization payments under its $200,000 five-year term loan facility, the
Company prepaid the remaining principal balance of $60,000. The Company also
paid down $20,000 principal amount of outstanding direct borrowings under the
Credit Facility.
The Credit Facility contains a number of covenants that, among other
things, restrict the ability of subsidiaries of THC to dispose of assets, incur
additional indebtedness, create liens on assets, pay dividends or make other
payments in respect of capital stock, make investments, loans and advances,
engage in transactions with affiliates, enter into certain sale and leaseback
transactions, engage in mergers or consolidations or change the businesses
conducted by them. The Credit Facility also restricts the ability of THC to
create liens on assets or enter into sale and leaseback transactions. Under the
Credit Facility, subsidiaries of THC may not pay dividends or make other
payments in respect of capital stock to THC that in the aggregate exceed 33% of
the Company's cumulative consolidated net income, commencing with the fiscal
year ended March 31, 1998, less certain deductions. In addition, under the
Credit Facility, THC and TH USA are required to comply with and maintain
specified financial ratios and tests (based on the Company's consolidated
financial results), including, without limitation, an interest expense coverage
ratio, a maximum leverage ratio and a minimum consolidated net worth test.
The Company was in compliance with all covenants in respect of the
Notes and the Credit Facility as of March 31, 2002.
Certain of the Company's non-U.S. subsidiaries have separate credit
facilities for working capital or trade financing purposes. In addition to
short-term borrowings of $62,749, as of March 31, 2002 these subsidiaries were
contingently liable for unexpired bank letters of credit of $10,325 related to
commitments of these subsidiaries to suppliers for the purchase of inventory and
bank guarantees of $913. Borrowings under these credit facilities bear interest
at variable rates which, on a weighted average annual basis, amounted to 4.86%
and 5.27% as of, and for the fiscal year ended, March 31, 2002, respectively.
25
The Company attempts to mitigate the risks associated with adverse
movements in interest rates by establishing and maintaining a favorable balance
of fixed and floating rate debt and cash on hand. Management also believes that
significant flexibility remains available in the form of additional borrowing
capacity and the ability to prepay long-term debt, if so desired, in response to
changing conditions in the debt markets. Because such flexibility exists, the
Company does not normally enter into specific hedging transactions to further
mitigate interest rate risks, except in the case of specific, material borrowing
transactions. No interest rate hedging contracts were in place as of March 31,
2002.
The Company intends to fund its cash requirements for fiscal 2003 and
future years from available cash balances, internally generated funds and
borrowings available under the Credit Facility or similar replacement
facilities. The Company believes that these resources will be sufficient to fund
its cash requirements for such periods. The Company also believes that it will
be able to renew its revolving credit line on terms similar to those of the
Credit Facility, which expires on March 31, 2003.
As of March 31, 2002, the Company's contractual cash obligations by
future period are as follows:
Payments Due
--------------------------------------------
Less Than After
1 Year 1-3 Years 4-5 Years 5 Years
--------- --------- --------- --------
Operating leases $ 43,396 $ 77,616 $ 54,922 $123,213
Debt repayments 63,447 225,667 -- 350,000
--------- --------- --------- --------
Total $ 106,843 $ 303,283 $ 54,922 $473,213
========= ========= ========= ========
There were no significant committed capital expenditures at March 31,
2002. The Company expects fiscal 2003 capital expenditures to approximate
$75,000 to $85,000. Existing cash may also be used to conduct the Company's debt
repurchase program, announced April 19, 2002, which authorizes the repurchase of
up to $100,000 principal amount of the 2003 Notes (as defined below). As of June
21, 2002, $31,000 principal amount of the 2003 Notes were repurchased under this
program.
Application of Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and revenue and
expenses during the period. Significant accounting policies employed by the
Company, including the use of estimates, are presented in Note 1 to the
Consolidated Financial Statements in Item 8.
Critical accounting estimates are those that require management to make
assumptions that are highly uncertain at the time and where different estimates
that management reasonably could have used, or changes in the accounting
estimates that are reasonably likely to occur from period to period, would have
a material impact on the Company's financial position, results of operations, or
cash flows. The Company's most critical accounting estimates relate to the
following: adjustments to revenue, accounts receivable, inventories, and
deferred tax assets and are discussed below. Because of the uncertainty inherent
in these critical estimates, actual results could differ from such estimates and
such differences could be material.
26
Adjustments to Revenue
Net revenue from wholesale product sales is recognized upon the
transfer of title and risk of ownership to customers. Wholesale revenue is
recorded net of discounts, as well as provisions for estimated returns,
allowances and doubtful accounts. On a seasonal basis, the Company negotiates
price adjustments with retailers as sales incentives or to partially reimburse
them for the cost of certain promotions. The Company estimates the cost of such
adjustments on an ongoing basis considering historical trends, projected
seasonal results and an evaluation of current economic conditions. These costs
are recorded as a reduction to net revenue. The Company's estimates of these
costs have historically been reasonably accurate.
Accounts Receivable
In the normal course of business, the Company grants credit directly to
certain retail store customers. Accounts receivable are recorded net of an
allowance for doubtful accounts. The Company estimates the allowance for
doubtful accounts based upon an analysis of the aging of accounts receivable at
the date of the financial statements, assessments of collectibility based on
historic trends and an evaluation of economic conditions.
Inventories
Inventories are valued at the lower of cost (weighted average method)
or market. Substantially all inventories are comprised of finished goods. The
Company continually evaluates its inventories by assessing slow moving current
product as well as prior seasons' inventory. Market value of non-current
inventory is estimated based on historical sales trends for this category of
inventory of the Company's individual product lines, the impact of market
trends, an evaluation of economic conditions and the value of current orders
relating to the future sales of this type of inventory.
Deferred Tax Assets
The Company evaluates the probability of realizing its deferred tax
assets on an ongoing basis. This evaluation includes estimating the Company's
future taxable income in each of the taxing jurisdictions in which the Company
operates as well as the feasibility of tax planning strategies. The Company is
required to provide a valuation allowance if it is determined to be more likely
than not that the Company will not be able to realize certain of its deferred
tax assets. For certain of the Company's deferred tax assets, the Company had
previously determined that it was not more likely than not that these assets
will be realized and recorded the appropriate valuation allowance. Should the
Company determine that it is more likely than not that it will realize certain
of its deferred tax assets in the future, an adjustment would be required to
reduce the existing valuation allowance and increase income. Conversely, if the
Company should determine that an adjustment to increase the valuation allowance
is required, such an adjustment would be charged to the results of operations in
the period such conclusion was reached.
27
Seasonality
The Company's business is impacted by the general seasonal trends
characteristic of the apparel and retail industries. The Company's Wholesale
revenue, particularly those from its European operations, is generally highest
during the second and fourth fiscal quarters, while the Company's Retail segment
generally contributes its highest levels of revenue during the third fiscal
quarter. As the timing of Wholesale product shipments and other events affecting
the retail business may vary, results for any particular quarter might not be
indicative of results for the full year.
Inflation
The Company believes that inflation has not had a material effect on
its net revenue or profitability in recent years.
Exchange Rates
The Company receives United States dollars for substantially all of its
product sales. Substantially all inventory purchases from contract manufacturers
throughout the world are also denominated in United States dollars; however,
purchase prices for the Company's products may be impacted by fluctuations in
the exchange rate between the United States dollar and the local currencies of
the contract manufacturers, which may have the effect of increasing the
Company's cost of goods in the future. During the last three fiscal years,
exchange rate fluctuations have not had a material impact on the Company's
inventory costs; however, due to the number of currencies involved and the fact
that not all foreign currencies react in the same manner against the United
States dollar, the Company cannot quantify in any meaningful way the potential
effect of such fluctuations on future income. The Company does not engage in
hedging activities with respect to such exchange rate risk.
The Company does, however, seek to protect against adverse movements in
foreign currency which might affect certain firm commitments or transactions.
These include the purchase of inventory, capital expenditures and the collection
of foreign royalty payments. The Company enters into forward contracts with
maturities generally up to fifteen months to sell or purchase foreign currency
in order to hedge against such risks. The Company does not use financial
instruments for speculative or trading purposes. At March 31, 2002, the Company
had contracts to exchange foreign currencies, principally, the Japanese yen, the
Euro and the Canadian dollar, having a total notional amount of $44,219. No
significant gain or loss was inherent in such contracts at March 31, 2002. While
a hypothetical 10% adverse change in all of the relevant exchange rates would
potentially cause a decrease in the fair value of the contracts of approximately
$4,536, the Company would experience an offsetting benefit in the spot rate or
would otherwise achieve its desired exchange rate for the underlying
transactions.
Recently Issued Accounting Standards
In July 2001, the FASB released SFAS No. 141, "Business Combinations"
("SFAS 141"). This statement is effective for all business combinations
completed after June 30, 2001. SFAS 141 prohibits the pooling-of-interests
method of accounting for business combinations and prescribes criteria for the
initial recognition and measurement of goodwill and other intangible assets,
accounting for negative goodwill and the required disclosures in respect of
business combinations.
28
The Company has applied the provisions of SFAS 141 to the TH Europe
Acquisition, since it was completed after June 30, 2001. Approximately, $156,706
of goodwill and $60,514 of indefinite lived intangibles, consisting of the
acquired trademark rights, will continue to be evaluated for impairment under
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", or APB 17, "Intangible Assets", until the
date that SFAS 142 is fully adopted.
In July 2001, the FASB also released SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). The Company adopted SFAS 142 on April 1, 2002,
as required. SFAS 142 requires that goodwill, including previously existing
goodwill, and intangible assets with indefinite useful lives not be amortized
but that they be tested for impairment at least annually. The Company has
applied certain provisions of SFAS 142 to the TH Europe Acquisition since it was
completed after June 30, 2001. Accordingly, the goodwill and indefinite lived
intangible assets associated with the TH Europe Acquisition are not amortized.
The Company continued to amortize goodwill and intangible assets that existed
prior to June 30, 2001 through March 31, 2002.
SFAS 142 provides new criteria for performing impairment tests on
goodwill and intangible assets with indefinite useful lives. The impairment test
for indefinite lived intangibles must be performed by the Company not later than
June 30, 2002. The impairment test for goodwill is a two-step process. SFAS 142
introduces the concept of assessing goodwill impairment at the reporting unit
level. By September 30, 2002, the Company must complete the first step of the
transitional impairment test, which consists of comparing the carrying amount of
the net assets of a reporting unit to its fair value. If the carrying amount
exceeds the fair value, the second step of the goodwill impairment test must be
completed as soon as possible, but no later than March 31, 2003. The second step
of the impairment test consists of the comparison of the implied fair value of
the reporting unit's goodwill to the carrying amount of such goodwill.
With respect to the Company's acquisition of its womenswear, jeanswear
and Canadian licensees on May 8, 1998, the Company has unamortized goodwill and
other intangibles of approximately $611,290 and $561,582, respectively, and
deferred tax liabilities of $230,522, as of March 31, 2002. Amortization expense
related to goodwill and other intangibles was $16,974 and $17,558, respectively,
for the fiscal year ended March 31, 2002. Effective April 1, 2002, the Company
no longer amortizes existing goodwill or trademark rights, which are classified
as indefinite life assets, or the related deferred tax liabilities. The combined
effect of these adjustments is expected to be a reduction in operating expenses
of approximately $32,000 per year and an increase in income tax expense of
approximately $6,000 per year. Any impairment loss recognized as a result of
adopting this standard would be recorded as a cumulative effect of a change in
accounting principle in the Company's statements of operations for the fiscal
year ending March 31, 2003 and would be a non-cash and non-operating charge. The
Company has not completed its estimate of the impact of adopting SFAS 142 on the
Company's financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized. However, any
such loss could materially decrease the Company's reported results of net income
and earnings per share or result in a substantial net loss for fiscal year 2003.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 also extends the reporting requirements to report separately as
discontinued operations, components of an entity that have either been disposed
of or classified as held-for-sale. The Company adopted the
29
provisions of SFAS 144 effective April 1, 2002, and such adoption did not have a
significant effect on the Company's results of operations or financial position.
In November 2001, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 01-09 (formerly EITF Issue 00-25), "Accounting for
Consideration Given to a Customer or a Reseller of the Vendor's Products." This
consensus addresses the recognition, measurement and income statement
classification of consideration from a vendor to a customer in connection with a
customer's purchase or promotion of the vendor's products. Beginning January 1,
2002, the Company adopted the required accounting, which had no impact on the
recognition, measurement or classification of revenue and expense in the
Company's Consolidated Statement of Operations.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
statements are indicated by words or phrases such as "anticipate," "estimate,"
"project," "expect," "believe" and similar words or phrases. Such statements are
based on current expectations and are subject to certain risks and
uncertainties, including, but not limited to, the overall level of consumer
spending on apparel, the financial strength of the retail industry generally and
the Company's customers, distributors and franchisees in particular, changes in
trends in the market segments and geographic areas in which the Company
competes, the level of demand for the Company's products, actions by our major
customers or existing or new competitors, changes in currency and interest
rates, changes in applicable tax laws, regulations and treaties and changes in
economic or political conditions or trade regulations in the markets where the
Company sells or sources its products, as well as other risks and uncertainties
set forth in the Company's publicly-filed documents, including this Annual
Report on Form 10-K . Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. The Company
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the sections entitled "Liquidity and Capital Resources" and
"Exchange Rates" in Item 7, which sections are incorporated herein by reference.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Statements of Operations for the years ended March 31, 2002, 2001
and 2000
Consolidated Balance Sheets as of March 31, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2001
and 2000
Consolidated Statements of Changes in Shareholders' Equity for the years ended
March 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
31
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants ........................................ F-2
Consolidated Statements of Operations for the
years ended March 31, 2002, 2001 and 2000 ................................ F-3
Consolidated Balance Sheets as of March 31, 2002
and 2001 ................................................................. F-4
Consolidated Statements of Cash Flows for the
years ended March 31, 2002, 2001 and 2000 ................................ F-5
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
March 31, 2002, 2001 and 2000 ............................................ F-6
Notes to Consolidated Financial Statements ............................... F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
Tommy Hilfiger Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Tommy
Hilfiger Corporation and its subsidiaries (the "Company") at March 31, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 2002 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
New York, New York
May 17, 2002
F-2
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Fiscal Year Ended
March 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Net revenue .................................................. $1,876,721 $1,880,935 $1,977,180
Cost of goods sold ........................................... 1,073,089 1,116,321 1,103,582
---------- ---------- ----------
Gross profit ................................................. 803,632 764,614 873,598
---------- ---------- ----------
Depreciation and amortization ................................ 114,129 106,640 98,141
Other selling, general and administrative expenses ........... 503,774 460,554 469,505
Special charges .............................................. -- -- 50,453
---------- ---------- ----------
Total operating expenses ..................................... 617,903 567,194 618,099
---------- ---------- ----------
Income from operations ....................................... 185,729 197,420 255,499
Interest expense ............................................. 41,177 41,412 41,024
Interest income .............................................. 10,062 17,450 13,056
---------- ---------- ----------
Income before income taxes ................................... 154,614 173,458 227,531
Provision for income taxes ................................... 20,069 42,497 55,173
---------- ---------- ----------
Net income ................................................... $ 134,545 $ 130,961 $ 172,358
========== ========== ==========
Earnings per share:
Basic earnings per share ..................................... $ 1.50 $ 1.44 $ 1.82
========== ========== ==========
Weighted average shares outstanding .......................... 89,430 91,239 94,662
========== ========== ==========
Diluted earnings per share ................................... $ 1.49 $ 1.43 $ 1.80
========== ========== ==========
Weighted average shares and share equivalents outstanding .... 90,000 91,534 95,632
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
F-3
TOMMY HILFIGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31,
-----------------------
2002 2001
----------- ----------
Assets
Current assets
Cash and cash equivalents ........................ $ 387,247 $ 318,431
Accounts receivable .............................. 224,395 237,414
Inventories ...................................... 184,972 205,446
Deferred tax and other current assets ............ 97,274 90,353
----------- ---------
Total current assets ........................ 893,888 851,644
Property and equipment, at cost, net of accumulated
depreciation and amortization ......................... 302,937 281,682
Intangible assets, net of accumulated amortization
of $135,794 and $101,262 respectively ................. 1,390,092 1,206,358
Other assets ............................................. 7,534 2,872
---------- ----------
Total Assets ................................ $2,594,451 $2,342,556
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings ............................ $ 62,749 $ --
Current portion of long-term debt ................ 698 50,000
Accounts payable ................................. 28,980 38,628
Accrued expenses and other current liabilities ... 210,270 171,640
----------- ----------
Total current liabilities ................... 302,697 260,268
Long-term debt ........................................... 575,287 529,495
Deferred tax liability ................................... 214,964 202,123
Other liabilities ........................................ 4,041 2,077
Commitments and contingencies
Shareholders' equity
Preference Shares, $.01 par value-shares
authorized 5,000,000; none issued .............. -- --
Ordinary Shares, $.01 par value-shares
authorized 150,000,000; issued 96,031,167
and 95,169,402 respectively .................... 960 952
Capital in excess of par value ................... 598,527 589,184
Retained earnings ................................ 956,776 822,231
Accumulated other comprehensive income (loss) .... 2,430 (2,543)
Treasury shares, at cost: 6,192,600 Ordinary
Shares ......................................... (61,231) (61,231)
----------- ----------
Total shareholders' equity .................. 1,497,462 1,348,593
----------- ----------
Total Liabilities and Shareholders' Equity .. $2,594,451 $2,342,556
=========== ==========
See Accompanying Notes to Consolidated Financial Statements.
F-4
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Fiscal Year Ended
March 31,
----------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
Cash flows from operating activities
Net income ....................................................... $ 134,545 $ 130,961 $ 172,358
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization ............................... 117,326 108,235 99,396
Deferred taxes .............................................. (6,771) 9,083 (79,788)
Provision for special charges ............................... -- -- 62,153
Changes in operating assets and liabilities
Decrease (increase) in assets
Accounts receivable ................................... 29,963 (16,304) (34,470)
Inventories ........................................... 51,016 13,347 (2,549)
Other assets .......................................... (4,138) (150) (13,056)
Increase (decrease) in liabilities
Accounts payable ...................................... (15,613) 7,339 3,978
Accrued expenses and other liabilities ................ 46,972 (61,543) 23,187
-------------- -------------- --------------
Net cash provided by operating activities ................... 353,300 190,968 231,209
-------------- -------------- --------------
Cash flows from investing activities
Purchases of property and equipment .............................. (96,923) (73,890) (151,984)
Acquisition of businesses, net of cash acquired .................. (205,061) -- --
-------------- -------------- --------------
Net cash used in investing activities ....................... (301,984) (73,890) (151,984)
-------------- -------------- --------------
Cash flows from financing activities
Proceeds of long-term debt ....................................... 144,921 -- 20,000
Payments on long-term debt ....................................... (155,538) (50,000) (40,000)
Proceeds from the exercise of stock options ...................... 7,997 3,710 8,933
Purchase of treasury shares ...................................... - (61,231) --
Short-term bank borrowings (repayments), net ..................... 20,120 (523) (711)
-------------- -------------- --------------
Net cash provided by (used in) financing activities ......... 17,500 (108,044) (11,778)
-------------- -------------- --------------
Net increase in cash ........................................ 68,816 9,034 67,447
Cash and cash equivalents, beginning of period ..................... 318,431 309,397 241,950
-------------- -------------- --------------
Cash and cash equivalents, end of period ........................... $ 387,247 $ 318,431 $ 309,397
============== ============== ==============
See Accompanying Notes to Consolidated Financial Statements.
F-5
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollar amounts in thousands)
Capital in Accumulated
Ordinary Shares excess other Total
----------------------- of par Retained comprehensive Treasury shareholders'
Outstanding Amount value earnings income (loss) shares equity
----------- ------ ---------- -------- ------------- -------- -------------
Balance, March 31, 1999 .......... 94,324,088 $943 $572,809 $518,912 $ (415) $ -- $1,092,249
Net income ..................... -- -- -- 172,358 -- -- 172,358
Foreign currency translation ... -- -- -- -- 991 -- 991
Exercise of stock options ...... 506,550 5 8,928 -- -- -- 8,933
Tax benefits from exercise
of stock options ............. -- -- 3,183 -- -- -- 3,183
----------- ------ ---------- -------- ------- -------- ----------
Balance, March 31, 2000 ......... 94,830,638 948 584,920 691,270 576 -- 1,277,714
Net income ..................... -- -- -- 130,961 -- -- 130,961
Foreign currency translation ... -- -- -- -- (3,119) -- (3,119)
Exercise of stock options ...... 338,764 4 3,706 -- -- -- 3,710
Tax benefits from exercise
of stock options ............. -- -- 558 -- -- -- 558
Purchase of treasury shares .... (6,192,600) -- -- -- -- (61,231) (61,231)
----------- ------ ---------- -------- ------- -------- ----------
Balance, March 31, 2001 .......... 88,976,802 952 589,184 822,231 (2,543) (61,231) 1,348,593
Net income ..................... -- -- -- 134,545 -- -- 134,545
Foreign currency translation ... -- -- -- -- 4,901 -- 4,901
Change in fair value of
hedging instruments .......... -- -- -- -- 72 -- 72
Exercise of stock options ...... 861,765 8 7,989 -- -- -- 7,997
Tax benefits from exercise
of stock options ............. -- -- 1,354 -- -- -- 1,354
----------- ------ ---------- -------- ------- -------- ----------
Balance, March 31, 2002 .......... 89,838,567 $960 $598,527 $956,776 $ 2,430 $(61,231) $1,497,462
=========== ====== ========== ======== ======= ========= ==========
Comprehensive income consists of net income, foreign currency
translation and unrealized gains and losses on hedging instruments and totaled
$139,518, $127,842 and $173,349 in fiscal 2002, 2001 and 2000, respectively.
See Accompanying Notes to Consolidated Financial Statements.
F-6
TOMMY HILFIGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies
(a) Basis of Consolidation
The consolidated financial statements include the accounts of Tommy
Hilfiger Corporation ("THC" or the "Company"; unless the context indicates
otherwise, all references to the "Company" include THC and its subsidiaries) and
all majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
(b) Organization and Business
THC, through its subsidiaries, designs, sources and markets men's and
women's sportswear, jeanswear and childrenswear under the Tommy Hilfiger
trademarks. Through a range of strategic licensing agreements, the Company also
offers a broad array of related apparel, accessories, footwear, fragrance and
home furnishings. The Company's products can be found in leading department and
specialty stores throughout the United States, Canada, Europe, Mexico, Central
and South America, Japan, Hong Kong and other countries in the Far East, as well
as the Company's own network of specialty and outlet stores in the United
States, Canada and Europe. THC was incorporated as an International Business
Company in the British Virgin Islands (the "BVI") in 1992 and is also registered
and licensed as an external International Business Company in Barbados.
(c) Cash and Cash Equivalents
The Company considers all financial instruments purchased with original
maturities of three months or less to be cash equivalents.
(d) Inventories
Inventories are valued at the lower of cost (weighted average method)
or market. Substantially all inventories are comprised of finished goods.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the following estimated useful lives of the
assets: furniture and fixtures - three to five years; buildings - twenty-five
years; machinery and equipment - three to five years. Leasehold improvements are
amortized using the straight-line method over the lesser of the terms of the
leases or the estimated useful lives of the assets. Major additions and
betterments are capitalized and repairs and maintenance are charged to
operations in the period incurred. The Company's share of the cost of
constructing in-store shop displays, which is principally paid directly to third
party suppliers, is capitalized and included in furniture and fixtures and
amortized in other selling, general and administrative expenses using the
straight-line method over their estimated useful lives.
F-7
(f) Intangible Assets
Intangible assets are comprised principally of goodwill and other
intangibles, including those acquired during fiscal 2002 in connection with the
TH Europe Acquisition (as defined in Note 2), of $767,996 and $622,096
respectively. The principal intangible assets acquired were trademark rights
associated with the licenses between the acquired companies and the Company.
(g) Long Lived Assets
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of long-lived assets
may warrant revision or that the remaining balance may not be recoverable. When
factors indicate that an asset should be evaluated for possible impairment, the
Company reviews long lived assets to assess recoverability from future
operations using undiscounted cash flows. Impairments would be recognized in
earnings to the extent that carrying value exceeds fair value.
(h) Income Taxes
The Company has recorded its provision for income taxes under the asset
and liability method. Under this method, deferred tax assets and liabilities are
recognized based on differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates that will be in effect at the
time such differences are expected to reverse. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
(i) Earnings Per Share and Authorized Shares
Basic earnings per share were computed by dividing net income by the
average number of common shares outstanding during the respective period.
Diluted earnings per share reflect the potentially dilutive effect of common
stock issuable under the Company's stock option plans. Diluted earnings per
share have been computed by dividing net income by the average number of common
shares outstanding plus the incremental shares that would have been outstanding
assuming the exercise of stock options.
A reconciliation of shares used for basic earnings per share and those
used for diluted earnings per share is as follows:
Fiscal Year Ended March 31,
--------------------------------------
2002 2001 2000
---------- ---------- ----------
Weighted average shares outstanding ... 89,430,000 91,239,000 94,662,000
Net effect of dilutive stock options
based on the treasury stock method
usind average market price .......... 570,000 295,000 970,000
---------- ---------- ----------
Weighted average shares and share
equivalents outstanding ............. 90,000,000 91,534,000 95,632,000
========== ========== ==========
F-8
Options to purchase 3,640,340, 7,368,940 and 1,566,910 shares at March
31, 2002, 2001 and 2000, respectively, were not included in the computation of
diluted earnings per share because the exercise prices of the options were
greater than the average market price of the Company's Ordinary Shares, par
value $.01 per share (the "Ordinary Shares").
(j) Revenue Recognition
Net revenue from wholesale product sales is recognized upon the
transfer of title and risk of ownership to customers. Revenue is recorded net of
discounts, as well as provisions for estimated returns, allowances and doubtful
accounts. Retail store revenue is recognized at the time of sale. Licensing
royalties and buying agency fees are recognized as earned.
Net wholesale revenue from major customers as a percentage of
consolidated net revenue was as follows:
Fiscal Year Ended March 31,
---------------------------
2002 2001 2000
---- ---- ----
Customer A 15% 17% 18%
Customer B 12% 13% 15%
Customer C 11% 13% 13%
(k) Foreign Currency Translation
The consolidated financial statements of the Company are prepared in
United States dollars as this is the currency of the primary economic
environment in which the Company operates, and the vast majority of its revenue
is received and expenses are disbursed in United States dollars. Adjustments
resulting from translating the financial statements of those non-United States
subsidiaries which do not use the United States dollar as their functional
currency are recorded in shareholders' equity.
(l) Advertising Costs
Advertising costs are charged to operations when incurred and totaled
$44,841, $56,329 and $57,141 during the years ended March 31, 2002, 2001 and
2000, respectively. Also, included in other current assets is $6,832 and $4,299
of prepaid advertising costs at March 31, 2002 and 2001, respectively.
The Company has no long-term commitments for cooperative advertising.
On a seasonal basis, the Company makes certain arrangements with retailers to
share the cost of specified advertising programs. The Company classifies such
costs in SG&A expenses.
(m) Shipping and Handling Costs
Amounts billed to customers that relate to shipping and handling on
related sales transactions are de minimus. Shipping and handling costs incurred
by the Company are recorded as SG&A expenses.
F-9
(n) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(o) Segments and Foreign Operations
The Company's operations are reported on the basis of three segments:
Wholesale, Retail, and Licensing, as further discussed in Note 10.
Substantially all of the Company's net revenue and income from
operations as well as identifiable assets constitute foreign operations in that
THC is incorporated in the BVI.
(p) Stock Options
The Company uses the intrinsic value method to account for stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" and has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
(q) Recently Issued Accounting Standards
In July 2001, the FASB released SFAS No. 141, "Business Combinations"
("SFAS 141"). This statement is effective for all business combinations
completed after June 30, 2001. SFAS 141 prohibits the pooling-of-interests
method of accounting for business combinations and prescribes criteria for the
initial recognition and measurement of goodwill and other intangible assets,
accounting for negative goodwill and the required disclosures in respect of
business combinations.
The Company has applied the provisions of SFAS 141 to the TH Europe
Acquisition (as defined in Note 2), since it was completed after June 30, 2001.
Approximately, $156,706 of goodwill and $60,514 of indefinite lived intangibles,
consisting of the acquired trademark rights, will continue to be evaluated for
impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", or APB 17, "Intangible
Assets", until the date that SFAS 142 is fully adopted.
In July 2001, the FASB also released SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). The Company adopted SFAS 142 on April 1, 2002,
as required. SFAS 142 requires that goodwill, including previously existing
goodwill, and intangible assets with indefinite useful lives not be amortized
but that they be tested for impairment at least annually. The Company has
applied certain provisions of SFAS 142 to the TH Europe Acquisition since it was
completed after June 30, 2001. Accordingly, the goodwill and indefinite lived
intangible assets associated with the TH Europe Acquisition are not amortized.
The Company continued to amortize goodwill and intangible assets that existed
prior to June 30, 2001 through March 31, 2002.
F-10
SFAS 142 provides new criteria for performing impairment tests on
goodwill and intangible assets with indefinite useful lives. The impairment test
for indefinite lived intangibles must be performed by the Company not later than
June 30, 2002. The impairment test for goodwill is a two-step process. SFAS 142
introduces the concept of assessing goodwill impairment at the reporting unit
level. By September 30, 2002, the Company must complete the first step of the
transitional impairment test, which consists of comparing the carrying amount of
the net assets of a reporting unit to its fair value. If the carrying amount
exceeds the fair value, the second step of the goodwill impairment test must be
completed as soon as possible, but no later than March 31, 2003. The second step
of the impairment test consists of the comparison of the implied fair value of
the reporting unit's goodwill to the carrying amount of such goodwill.
With respect to the Company's acquisition of its womenswear, jeanswear
and Canadian licensees on May 8, 1998, the Company has unamortized goodwill and
other intangibles of approximately $611,290 and $561,582, respectively, and
deferred tax liabilities of $230,522, as of March 31, 2002. Amortization expense
related to goodwill and other intangibles was $16,974 and $17,558, respectively,
for the fiscal year ended March 31, 2002. Effective April 1, 2002, the Company
no longer amortizes existing goodwill or trademark rights, which are classified
as indefinite life assets, or the related deferred tax liabilities. The combined
effect of these adjustments is expected to be a reduction in operating expenses
of approximately $32,000 per year and an increase in income tax expense of
approximately $6,000 per year. Any impairment loss recognized as a result of
adopting this standard would be recorded as a cumulative effect of a change in
accounting principle in the Company's statements of operations for the fiscal
year ending March 31, 2003 and would be a non-cash and non-operating charge. The
Company has not completed its estimate of the impact of adopting SFAS 142 on the
Company's financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized. However, any
such loss could materially decrease the Company's reported results of net income
and earnings per share or result in a substantial net loss for fiscal year 2003.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 also extends the reporting requirements to report separately as
discontinued operations, components of an entity that have either been disposed
of or classified as held-for-sale. The Company adopted the provisions of SFAS
144 effective April 1, 2002, and such adoption did not have a significant effect
on the Company's results of operations or financial position.
In November 2001, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 01-09 (formerly EITF Issue 00-25), "Accounting for
Consideration Given to a Customer or a Reseller of the Vendor's Products." This
consensus addresses the recognition, measurement and income statement
classification of consideration from a vendor to a customer in connection with a
customer's purchase or promotion of the vendor's products. Beginning January 1,
2002, the Company adopted the required accounting, which had no impact on the
recognition, measurement or classification of revenue and expense in the
Company's Consolidated Statement of Operations.
(r) Reclassification of Prior Year Balances
Certain prior year balances have been reclassified to conform to
current year presentation.
F-11
Note 2 - Acquisition of European Licensee
On July 5, 2001, the Company acquired all of the issued and outstanding
shares of capital stock of T.H. International N.V., the owner of Tommy Hilfiger
Europe B.V. ("TH Europe"), the Company's European licensee, for a purchase price
of $200,000 (such transaction being referred to herein as the "TH Europe
Acquisition"). The TH Europe Acquisition was funded using available cash.
The TH Europe Acquisition is expected to create long-term value for the
Company's shareholders through TH Europe's expected contribution to revenue and
net income beginning with the year of the acquisition. The acquisition is also
expected to further the Company's evolution as a premier global lifestyle brand
and to provide the Company with distribution channel as well as geographic
diversification. The purchase price paid reflected the current profitability and
cash flow generation of TH Europe, as well as the rapid rate of projected growth
in revenue, net income and cash flows.
The TH Europe Acquisition has been accounted for under the purchase
method of accounting and, accordingly, the operating results of the acquired
companies are included in the consolidated results of the Company from the date
of the acquisition. The purchase price, including transaction costs, has been
allocated as follows:
Cash $ 1,728
Accounts Receivable 16,944
Inventories 30,540
Other current assets 6,769
Property, plant and equipment 15,508
Indefinite lived intangible assets, including goodwill 211,839
Other assets 94
Short-term bank borrowings (42,629)
Accounts payable (5,965)
Accrued expenses and other current liabilities (12,891)
Long-term debt (1,273)
Deferred tax liability (11,925)
Other liabilities (1,950)
------------
Total Purchase Price $ 206,789
============
The Company has applied the provisions of SFAS 141 and certain
provisions of SFAS 142 to the TH Europe Acquisition. See Note 1(q).
F-12
Note 3 - Cash Equivalents
As of March 31, 2002, the balance in Cash and Cash Equivalents was
comprised of short-term money market funds and overnight deposits at several
major international financial institutions earning interest at a weighted
average interest rate of 1.77 %. As part of its ongoing control procedures, the
Company monitors its concentration of deposits with various financial
institutions in order to avoid any undue exposure.
Note 4 - Financial Instruments
Accounts Receivable
The Company collects the majority of its receivables from U.S.
customers through a credit company subsidiary of a large financial institution
pursuant to an agreement whereby the credit company pays the Company after the
credit company receives payment from the Company's customer. The credit company
establishes maximum credit limits for each customer account. If the receivable
becomes 120 days past due, or the customer becomes bankrupt or insolvent, the
full amount of the receivable is reimbursable by the credit company. The Company
has a similar arrangement with another large financial institution for credit
services to its Canadian subsidiary.
The Company's European subsidiary has an agreement with a European
credit insurance company from whom it obtains credit insurance on an individual
customer basis. At March 31, 2002, approximately 75% of its total receivables
were covered by credit insurance, bank guarantees or other means. In all cases
the Company believes that the credit risk associated with such financial
institutions is minimal.
The Company also grants credit directly to certain select customers in
the normal course of business without participation by a credit company. In such
cases the Company monitors its credit exposure limits to avoid any significant
concentration of risk. Bad debts have been minimal.
Foreign Currency Risk Management
The Company records all derivative instruments (including certain
derivative instruments embedded in other contracts) in the balance sheet as
either an asset or liability measured at its fair value. Changes in the
derivative's fair value are recognized currently in either income (loss) from
continuing operations or accumulated other comprehensive income (loss),
depending on the timing and designated purpose of the derivative.
The Company uses foreign currency forward contracts with maturities
generally up to fifteen months to mitigate the risks associated with adverse
movements in foreign currency which might affect certain firm commitments or
transactions, including the purchase of inventory, capital expenditures and the
collection of foreign royalty payments. These instruments are designated as cash
flow hedges and, accordingly, any unrealized gains or losses are included in
accumulated other comprehensive income (loss), net of related tax effects, with
the corresponding asset or liability recorded in the balance sheet. Any portion
of a cash flow hedge that is deemed to be ineffective is recognized in
current-period earnings. Other comprehensive income (loss) is reclassified to
current-period earnings when the hedged transaction is recognized in earnings.
F-13
The Company does not use financial instruments for speculative or
trading purposes.
At March 31, 2002, the Company had contracts to exchange foreign
currencies, principally, the Japanese yen, the Euro and Canadian dollar having a
total notional amount of $44,219. No significant gains or losses were recognized
in earnings during fiscal year 2002 or are expected to be released from other
comprehensive income/(loss) in fiscal year 2003.
Fair Value of Other Financial Instruments
The fair value of the Company's cash and cash equivalents is equal to
their carrying value at March 31, 2002. The fair value of the Company's 2003 and
2008 Notes and the 2031 Bonds, having a face value of $575,000, is approximately
$534,573 based on quoted market prices as of March 31, 2002. The fair value of
the Company's other monetary assets and liabilities approximate carrying value
due to the relatively short-term nature of these items.
Note 5 - Property and Equipment
Property and equipment consists of the following:
March 31,
------------------------
2002 2001
-------- --------
Furniture and fixtures ......... $268,136 $273,687
Buildings and land ............. 111,407 105,770
Leasehold improvements ......... 91,208 51,456
Machinery and equipment ........ 44,618 31,246
-------- --------
515,369 462,159
Less: accumulated depreciation
and amortization ............. 212,432 180,477
-------- --------
$302,937 $281,682
======== ========
Note 6 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the
following:
March 31,
------------------------
2002 2001
-------- --------
Letters of credit payable ...... $ 38,029 $ 36,176
Accrued compensation ........... 37,972 34,238
Merchandise payable ............ 17,046 9,644
Accrued interest ............... 11,175 11,392
Other accrued liabilities ...... 106,048 80,190
-------- --------
$210,270 $171,640
======== ========
F-14
Note 7 - Long-Term Debt
Long-term debt consists of the following:
March 31,
-----------------------------
2002 2001
------------- -------------
Unsecured 9.00% bonds due December 1, 2031 ..... $ 150,000 $ --
Unsecured 6.85% notes due June 1, 2008,
less unamortized discount of $298 at
March 31, 2002 ............................... 199,702 199,653
Unsecured 6.50% notes due June 1, 2003,
less unamortized discount of $82 at
March 31, 2002 ............................... 224,918 249,842
Term and revolving credit facilities at a
weighted average interest rate of
approximately 6.33% at March 31, 2001 ........ -- 130,000
Obligation under capital lease ................. 1,365 --
------------- -------------
575,985 579,495
Less current maturities ........................ (698) (50,000)
------------- -------------
$ 575,287 $ 529,495
============= =============
The 6.50% notes maturing on June 1, 2003 (the "2003 Notes"), the 6.85%
notes maturing on June 1, 2008 and the 9.00% bonds maturing on December 1, 2031
(collectively, the "Notes") were issued by Tommy Hilfiger U.S.A., Inc., a
subsidiary of THC ("TH USA"), and are fully and unconditionally guaranteed by
THC. The indenture under which the Notes were issued contains covenants that,
among other things, restrict the ability of subsidiaries of THC to incur
additional indebtedness, restrict the ability of THC and its subsidiaries to
incur indebtedness secured by liens or enter into sale and leaseback
transactions and restrict the ability of THC and TH USA to engage in mergers or
consolidations.
During fiscal 2002, the Company repurchased $25,000 principal amount of
the 2003 Notes in open market transactions.
The revolving credit facility (the "Credit Facility"), which is
guaranteed by THC, consists of an unsecured $250,000 TH USA revolving credit
line, expiring on March 31, 2003, of which up to $150,000 may be used for direct
borrowings. The Credit Facility is available for letters of credit, working
capital and other general corporate purposes. As of March 31, 2002, there were
no direct borrowings outstanding under the Credit Facility, and $104,687 of the
available borrowings under the Credit Facility had been used to open letters of
credit.
During fiscal 2002, in addition to making $50,000 in scheduled
amortization payments under its $200,000 five-year term loan facility, the
Company prepaid the remaining principal balance of $60,000. The Company also
paid down $20,000 principal amount of outstanding direct borrowings under the
Credit Facility.
The Credit Facility contains a number of covenants that, among other
things, restrict the ability of subsidiaries of THC to dispose of assets, incur
additional indebtedness, create liens on assets, pay dividends or make other
payments in respect of capital stock, make investments, loans and advances,
engage in transactions with affiliates, enter into certain sale and leaseback
transactions, engage in mergers or consolidations or change the businesses
conducted by them. The Credit Facility also restricts the ability of THC to
create liens on assets or enter into sale
F-15
and leaseback transactions. Under the Credit Facility, subsidiaries of THC may
not pay dividends or make other payments in respect of capital stock to THC that
in the aggregate exceed 33% of the Company's cumulative consolidated net income,
commencing with the fiscal year ended March 31, 1998, less certain deductions.
In addition, under the Credit Facility, THC and TH USA are required to comply
with and maintain specified financial ratios and tests (based on the Company's
consolidated financial results), including, without limitation, an interest
expense coverage ratio, a maximum leverage ratio and a minimum consolidated net
worth test.
The Company was in compliance with all covenants in respect of the
Notes and the Credit Facility as of March 31, 2002. The Company believes that it
will be able to renew its revolving credit line on terms similar to those of the
Credit Facility, which expires on March 31, 2003.
Certain of the Company's non-U.S. subsidiaries have separate credit
facilities for working capital or trade financing purposes. In addition to
short-term borrowings of $62,749, as of March 31, 2002 these subsidiaries were
contingently liable for unexpired bank letters of credit of $10,325 related to
commitments of these subsidiaries to suppliers for the purchase of inventory and
bank guarantees of $913. Borrowings under these credit facilities bear interest
at variable rates which, on a weighted average annual basis, amounted to 4.86%
and 5.27% as of, and for the fiscal year ended, March 31, 2002, respectively.
Note 8 - Commitments and Contingencies
Leases
The Company leases office, warehouse and showroom space, retail stores
and office equipment under operating leases, which expire not later than 2022.
The Company normalizes fixed escalations in rental expense under its operating
leases. Minimum annual rentals under non-cancelable operating leases, excluding
operating cost escalations and contingent rental amounts based upon retail
sales, are payable as follows:
Fiscal Year Ending March 31,
---------------------------
2003 .............. $ 43,396
2004 .............. 41,933
2005 .............. 35,683
2006 .............. 29,151
2007 .............. 25,771
Thereafter ........ 123,213
Rent expense, including operating cost escalations and contingent
rental amounts based upon retail sales, was $34,781, $22,561 and $20,092 for the
years ended March 31, 2002, 2001 and 2000, respectively.
Letters of credit
The Company was contingently liable at March 31, 2002 for unexpired
bank letters of credit of $76,983 related to commitments for the purchase of
inventories and bank guarantees of $913.
F-16
Legal matters
Saipan Litigation. On January 13, 1999, two actions were filed against
the Company and other garment manufacturers and retailers asserting claims that
garment factories located on the island of Saipan, which allegedly supply
product to the Company and other co-defendants, engage in unlawful practices
relating to the recruitment and employment of foreign workers. One action,
brought in San Francisco Superior Court (the "State Action"), was filed by a
union and three public interest groups alleging unfair competition and false
advertising by the Company and others. It seeks equitable relief, restitution
and disgorgement of profits relating to the allegedly wrongful conduct, as well
as interest and an award of fees to the plaintiffs' attorneys. The other, an
action seeking class action status filed in Federal Court for the Central
District of California and subsequently transferred to the Federal Court in
Saipan (the "Federal Action"), was brought on behalf of an alleged class
consisting of the Saipanese factory workers. The defendants include both
companies selling goods purchased from factories located on the island of Saipan
and the factories themselves. This complaint alleges claims under RICO, the
Alien Tort Claims Act, federal anti-peonage and indentured servitude statutes
and state and international law. It seeks equitable relief and damages,
including treble and punitive damages, interest and an award of fees to the
plaintiffs' attorneys.
In addition, the same law firm that filed the State Action and the
Federal Action has filed an action seeking class action status in the Federal
Court in Saipan. This action is brought on behalf of Saipanese garment factory
workers against the Saipanese factories and alleges violation of federal and
Saipanese wage and employment laws. The Company is not a defendant in this
action.
The Company has entered into settlement agreements with the plaintiffs
in the Federal Action and in the State Action. As part of these agreements, the
Company specifically denies any wrongdoing or any liability with regard to the
claims made in the Federal Action and the State Action. The settlement agreement
provides for a monetary payment, in an amount that is not material to the
Company's financial position, results of operations or cash flows, to a class of
plaintiffs in the Federal Action, as well as the creation of a monitoring
program for factories in Saipan. On May 10, 2002, the Federal Court issued an
order granting preliminary approval of the settlement.
The Company and its subsidiaries are from time to time involved in
routine legal matters incidental to their businesses.
In the opinion of the Company's management, based on advice of counsel,
the resolution of the foregoing matters will not have a material effect on its
financial position, its results of operations or its cash flows.
F-17
Note 9 - Income Taxes
The components of the provision for income taxes are as follows:
Fiscal Year Ended March 31,
--------------------------------
2002 2001 2000
------- -------- --------
Current:
U.S. Federal ................. $ 3,445 $18,320 $ 92,332
State and Local .............. (222) 270 25,850
Non-U.S. ..................... 23,617 14,824 16,779
------- ------- -------
26,840 33,414 134,961
------- ------- -------
Deferred:
U.S. Federal ................. (3,750) 12,640 (55,683)
State and Local .............. (3,021) (3,557) (24,105)
Non-U.S. ..................... -- -- --
------- ------- -------
(6,771) 9,083 (79,788)
------- ------- -------
Provision for income taxes ..... $20,069 $42,497 $55,173
======= ======= =======
Significant components of the Company's deferred tax assets and
liabilities are summarized as follows:
March 31,
--------------------------
2002 2001
--------- ---------
Deferred tax assets - current:
Inventory costs ............................ $ 6,406 $ 9,479
Non-deductible accruals .................... 38,002 37,125
Accrued compensation ....................... 11,734 10,391
Other items, net ........................... 5,324 7,801
--------- ---------
61,466 64,796
--------- ---------
Deferred tax assets (liabilities) -
non-current:
Depreciation and amortization .............. 19,996 12,740
Intangible assets, other than
goodwill ................................. (242,790) (237,129)
Net operating loss carry forwards .......... 19,788 14,561
Other, net ................................. (958) 10,705
--------- ---------
Subtotal ................................... (203,964) (199,123)
Valuation allowance ........................ (11,000) (3,000)
--------- ---------
Total deferred tax assets
(liabilities) - non-current .............. (214,964) (202,123)
--------- ---------
Total net deferred tax liabilities ........... $(153,498) $(137,327)
========= =========
As of March 31, 2002, the Company had state net operating loss
carryforwards of approximately $19,788 which begin to expire in 2007. As of
March 31, 2002, the Company has recorded valuation allowances of $11,000 against
these carryforwards in jurisdictions where management believes it is more likely
than not that certain of the assets will not be used to reduce future tax
payments.
F-18
The U.S. and non-U.S. components of income before income taxes are as
follows:
Fiscal Year Ended March 31,
--------------------------------------
2002 2001 2000
---------- ---------- ----------
U.S. ............................................. $ (5,066) $ 24,691 $ 82,965
Non-U.S. ......................................... 159,680 148,767 144,566
---------- ---------- ----------
$154,614 $173,458 $227,531
========== ========== ==========
The provision for income taxes differs from the amounts computed by
applying the applicable U.S. federal statutory rate to income before taxes as
follows:
Fiscal Year Ended March 31,
--------------------------------------
2002 2001 2000
---------- ---------- ----------
Provision for income taxes at the
U.S. federal statutory rate .................... $ 54,115 $ 60,710 $ 79,636
State and local income taxes, net of
federal benefits ............................... (10,003) (2,408) 1,330
Non-U.S. income taxed at different
rates .......................................... (34,892) (24,326) (34,950)
Valuation allowance .............................. 8,000 3,000 --
Goodwill amortization ............................ 5,787 5,787 5,787
Other ............................................ (2,938) (266) 3,370
---------- ---------- ----------
Provision for income taxes ....................... $ 20,069 $ 42,497 $ 55,173
========== ========== ==========
THC is not taxed on income in the BVI, where it is incorporated. THC
and its subsidiaries are subject to taxation in the jurisdictions in which they
operate.
Provision has not been made for taxes on undistributed non-BVI earnings
of $283,751 at March 31, 2002, as those earnings have been and are expected to
be reinvested. As a result of various tax planning strategies available to the
Company, it is not practical to estimate the amount of tax, if any, that might
be payable on the eventual remittance of such earnings.
Note 10 - Segment Reporting
The Company has three reportable segments: Wholesale, Retail and
Licensing. The Company's reportable segments are business units that offer
different products and services or similar products through different
distribution channels. The Wholesale segment consists of the design and sourcing
of men's sportswear and jeanswear, women's casualwear and jeanswear and
childrenswear for wholesale distribution. The Retail segment reflects the
operations of the Company's outlet, specialty and, through February 2001,
flagship stores. The Licensing segment consists of the operations of licensing
the Company's trademarks for specified products in specified geographic areas.
The Company evaluates performance and allocates resources based on segment
profits. The accounting policies of the reportable segments are the same as
those described in Note 1. Segment profits are comprised of segment net revenue
less cost of goods sold and selling, general and administrative expenses.
F-19
Excluded from segment profits, however, are the vast majority of
executive compensation, certain marketing costs, brand image costs associated
with the Company's flagship stores (through February 2001), amortization of
intangibles including goodwill, special charges and interest costs. Financial
information for the Company's reportable segments is as follows:
Wholesale Retail Licensing Total
---------- ---------- ---------- ----------
Fiscal year ended March 31, 2002
--------------------------------
Total segment revenue ........ $1,440,888 $ 379,781 $ 109,861 $1,930,530
Segment profits .............. 155,951 54,429 65,878 276,258
Depreciation and amortization
included in segment profits. 51,758 12,239 826 64,823
Fiscal year ended March 31, 2001
--------------------------------
Total segment revenue ........ $1,484,544 $ 330,965 $ 119,405 $1,934,914
Segment profits .............. 164,823 62,225 71,315 298,363
Depreciation and amortization
included in segment profits. 54,317 7,332 965 62,614
Fiscal year ended March 31, 2000
--------------------------------
Total segment revenue ........ $1,635,242 $ 280,255 $ 120,256 $2,035,753
Segment profits .............. 269,472 73,548 77,190 420,210
Depreciation and amortization
included in segment profits. 46,090 9,179 1,171 56,440
A reconciliation of total segment revenue to consolidated net revenue
is as follows:
Fiscal Year Ended March 31,
-----------------------------------------
2002 2001 2000
---------- ---------- ----------
Total segment revenue .......... $1,930,530 $1,934,914 $2,035,753
Intercompany revenue ........... (53,809) (53,979) (58,573)
---------- ---------- ----------
Consolidated net revenue ....... $1,876,721 $1,880,935 $1,977,180
========== ========== ==========
Intercompany revenue represents buying agency commissions from
consolidated subsidiaries which is classified under Licensing for segment
reporting purposes.
A reconciliation of total segment profits to consolidated income before
income taxes is as follows:
Fiscal Year Ended March 31,
-----------------------------------------
2002 2001 2000
---------- ---------- ----------
Segment profits ................ $ 276,258 $ 298,363 $ 420,210
Corporate expenses not
allocated .................... 90,529 100,943 102,558
Special charges ................ -- -- 62,153
Interest expense, net .......... 31,115 23,962 27,968
---------- ---------- ----------
Consolidated income before
income taxes ................. $ 154,614 $ 173,458 $ 227,531
========== ========== ==========
F-20
The Company was incorporated in the BVI; accordingly all sales outside
the BVI are considered foreign. Countries representing 5% or more of
consolidated net revenue are as follows:
Fiscal Year Ended March 31,
-------------------------------------------
2002 2001 2000
----------- ---------- ----------
United States .................. $1,616,726 $1,771,721 $1,855,968
Europe ......................... 156,536 -- --
Canada ......................... 80,311 76,392 88,680
Other .......................... 23,148 32,822 32,532
---------- ---------- ----------
Consolidated net revenue ....... $1,876,721 $1,880,935 $1,977,180
========== ========== ==========
The Company's long-lived assets by country are as follows:
March 31,
------------------------------
2002 2001
---------- -----------
United States ............... $1,340,386 $1,369,137
Europe ...................... 240,346 1,150
Canada ...................... 99,632 97,234
Other ....................... 20,199 23,391
---------- ----------
Total ....................... $1,700,563 $1,490,912
========== ==========
The Company does not desegregate assets on a segment basis for internal
management reporting and, therefore, such information is not presented.
Note 11 - Related Parties
See related disclosures in Note 2.
Prior to the TH Europe Acquisition, the Company was party to a
third-party geographic license agreement for Europe and certain other countries
with TH Europe, a related party. Under this agreement, the licensee paid Tommy
Hilfiger Licensing, Inc., a subsidiary of THC ("THLI"), a royalty based on a
percentage of the value of licensed products sold by the licensee. Subject to
certain exceptions, all products sold by or through the licensee had to be
purchased through Tommy Hilfiger (Eastern Hemisphere) Limited, a wholly owned
subsidiary of THC ("THEH"), or TH USA pursuant to buying agency agreements.
Under these agreements, THEH and TH USA were paid a buying agency commission
based on a percentage of the cost of products sourced through them. The
distribution of products under this arrangement began in fiscal 1998. Results of
operations include $2,129, for the three months ended June 30, 2001, and $9,554
and $6,372 for the years ended March 31, 2001 and 2000, respectively, of
royalties and commissions under this arrangement. In addition, TH Europe
subleases certain office space in Amsterdam from a related party for annual rent
of approximately $115. In fiscal year 2001, TH Europe also purchased certain
fixtures and inventory from the Company for an aggregate purchase price of $358.
The Company is party to a geographic license agreement for Japan with a
related party. Subject to certain exceptions, all products sold by or through
the licensee must be purchased through THEH or TH USA pursuant to buying agency
agreements. Under these agreements, THEH and TH USA are paid a buying agency
commission based on a percentage of the cost of
F-21
products sourced through them. Pursuant to these arrangements, royalties and
commissions totaled $2,616, $3,562 and $3,429 in fiscal 2002, 2001 and 2000,
respectively.
Affiliates of the Company hold an indirect 45% equity interest in
Macauniter Malhas E Confeccoes Lda., a company which serves as TH Europe's
distributor in Portugal and also operates a Tommy Hilfiger store under a
franchise arrangement with TH Europe. In fiscal year 2002, with respect to the
period after the closing of the TH Europe Acquisition, TH Europe sold $1,349 of
merchandise to this company pursuant to such arrangements.
An affiliate of the Company holds an indirect 25% equity interest in
Pepe Jeans SL, which serves as TH Europe's sales and collection agent in Spain.
In the fiscal year ended March 31, 2002, with respect to the period after the
closing of the TH Europe Acquisition, commissions and fees paid by TH Europe
pursuant to these arrangements totaled $2,946.
TH USA purchases finished goods in the ordinary course of business from
other affiliated companies. Such purchases amounted to $90,408, $63,245 and
$64,670 during the fiscal years ended March 31, 2002, 2001 and 2000,
respectively. In addition, contractors of the Company purchase raw materials in
the ordinary course of business from affiliates of the Company. Such purchases
amounted to $9,796, $5,168 and $9,364 during the fiscal years ended March 31,
2002, 2001 and 2000, respectively.
TH USA sells merchandise in the ordinary course of business to a retail
store that is owned by a relative of a director and executive officer of the
Company. Sales to this customer amounted to approximately $338, $690 and $522
during the years ended March 31, 2002, 2001 and 2000, respectively.
THEH has two consulting agreements with affiliates. THEH paid fees of
$1,000 under these agreements during each of the fiscal years ended March 31,
2002, 2001 and 2000.
Under the terms of an agreement with an affiliate, Tommy Hilfiger (HK)
Limited, a subsidiary of THC ("THHK"), reimburses an affiliate for certain
general and administrative expenses, including rent for office space, incurred
by the affiliate on behalf of THHK. Payments made to the affiliate for the years
ended March 31, 2002, 2001 and 2000 were $394, $318 and $401, respectively.
Note 12 - Retirement Plans
The Company maintains employee savings plans for eligible U.S.
employees. The Company's contributions to the plans are discretionary with
matching contributions of up to 50% of employee contributions up to a maximum of
6% of an employee's compensation. For the years ended March 31, 2002, 2001 and
2000, the Company made plan contributions of $1,871, $1,753 and $1,486
respectively.
Effective January 1, 1998, the Company adopted a supplemental executive
retirement plan which provides certain members of senior management with a
supplemental pension. The supplemental executive retirement plan is an unfunded
plan for purposes of both the Internal Revenue Code of 1986 and the Employee
Retirement Income Security Act of 1974. The Company recorded expense related to
this plan of $1,500, $1,300 and $2,000 for the fiscal years ended March 31,
2002, 2001 and 2000, respectively. Included in accrued expenses and other
current liabilities is $6,400 and $4,900 at March 31, 2002 and 2001,
respectively, related to this plan.
F-22
Effective January 1, 1998, the Company adopted a voluntary deferred
compensation plan which provides certain members of senior management with an
opportunity to defer a portion of base salary or bonus pursuant to the terms of
the plan. The voluntary deferred compensation plan is an unfunded plan for
purposes of both the Internal Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974. Included in accrued expenses and other current
liabilities is $629 and $355 at March 31, 2002 and 2001, respectively, related
to this plan.
Note 13 - Stock-Based Plans
In September 1992, the Company and its subsidiaries adopted the Tommy
Hilfiger U.S.A. and Tommy Hilfiger (Eastern Hemisphere) Limited 1992 Stock
Incentive Plans (the "1992 Stock Incentive Plans") authorizing the issuance up
to 5,940,000 Ordinary Shares to directors, officers and employees of the Company
and its subsidiaries. Through October 2001, a total of 13,500,000 additional
Ordinary Shares of THC were authorized and reserved for issuance under the 1992
Stock Incentive Plans.
In October 2001, the Company's shareholders approved the Tommy Hilfiger
Corporation 2001 Stock Incentive Plan (together with the 1992 Stock Incentive
Plans, the "Employee Stock Incentive Plans"), authorizing the issuance of up to
3,500,000 Ordinary Shares. Following such approval, no further grants may be
made under the 1992 Stock Incentive Plans, but grants previously made under such
plans remain outstanding in accordance with their terms.
In August 1994, the shareholders of the Company approved the Tommy
Hilfiger Corporation Non-Employee Directors Stock Option Plan (the "Directors
Option Plan"). Under the Directors Option Plan, directors who are not officers
or employees of the Company are eligible to receive stock option grants. The
total number of Ordinary Shares for which options may be granted under the
Directors Option Plan may not exceed 400,000, subject to certain adjustments.
Options granted under the Employee Stock Incentive Plans and the
Directors Option Plan vest over periods ranging from 1-6 years with a maximum
term of 10 years. The exercise price of all options granted under the Employee
Stock Incentive Plans and the Directors Option Plan is the market price on the
dates of grant.
F-23
Transactions involving the Employee Stock Incentive Plans and the
Directors Option Plan are summarized as follows:
Weighted Average
Exercise
Option Shares Price Per Share
------------- ----------------
Outstanding as of March 31, 1999 ... 6,973,450 $22.89
Granted ............................ 4,757,125 $16.69
Exercised .......................... (506,550) $17.59
Canceled ........................... (1,160,120) $25.65
----------
Outstanding as of March 31, 2000 ... 10,063,905 $19.92
Granted ............................ 1,175,000 $ 7.47
Exercised .......................... (338,764) $11.16
Canceled ........................... (2,269,101) $21.58
----------
Outstanding as of March 31, 2001 ... 8,631,040 $18.09
Granted ............................ 1,487,543 $10.70
Exercised .......................... (861,765) $ 9.21
Canceled ........................... (1,374,745) $19.84
----------
Outstanding as of March 31, 2002 ... 8,143,073 $17.10
Options exercisable at March 31, 2002, 2001 and 2000 were 3,022,948,
2,361,013 and 982,620, respectively, at weighted average exercise prices of
$19.53, $18.75 and $18.78, respectively.
F-24
The following table summarizes information concerning currently
outstanding and exercisable options:
Options Outstanding Options Exercisable
---------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
----------------------------------------------------------------------------------------------
$3.75 - $11.53 4,232,733 8.24 $ 10.36 996,968 $ 11.11
$11.77 - $23.00 1,379,940 5.74 $ 18.86 890,440 $ 19.73
$23.06 - $25.23 1,514,030 6.17 $ 25.01 741,530 $ 25.02
$25.69 - $40.06 1,016,370 6.36 $ 31.00 394,010 $ 30.09
------------- -------- ----------- ------------- -----------
8,143,073 7.20 $ 17.10 3,022,948 $ 19.53
============= ======== =========== ============= ===========
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock option
awards. Accordingly, no compensation expense has been recognized for stock
options granted in 2002, 2001 and 2000. Had compensation cost been recorded
based upon the fair value at the grant dates as an alternative provided by SFAS
No. 123, "Accounting for Stock Based Compensation", the Company's net income and
diluted earnings per share would have been reduced by approximately $7,501 and
$0.08, respectively, in 2002, $10,687 and $0.12, respectively, in 2001 and
$10,153 and $0.10, respectively, in 2000. These amounts are for disclosure
purposes only and may not be representative of future calculations since the
estimated fair value of stock options is amortized to expense over the vesting
period, and additional options may be granted in future years. The fair values
of options granted were estimated at $4.55 in 2002, $3.17 in 2001 and $8.24 in
2000 on the dates of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for 2002, 2001 and 2000, respectively:
volatility of 66%, 53% and 44%; risk free interest rate of 4.0%, 6.3% and 6.4%;
expected life of 3.0 years, 3.2 years and 5.6 years; and no future dividends.
F-25
Note 14 - Statements of Cash Flows
Fiscal Year Ended March 31,
--------------------------------------
2002 2001 2000
--------- --------- ----------
Supplemental disclosure of cash
flow information:
Cash paid during the year:
Interest.................... $41,887 $41,452 $ 41,349
========= ========= ==========
Income Taxes................ $ 7,325 $45,318 $114,702
========= ========= ==========
The impact of exchange rate movements on cash balances was
insignificant in fiscal years 2002, 2001 and 2000.
Note 15 - Special Charges
During the quarter ended March 31, 2000, the Company recorded a special
charge of $62,153, before income taxes, principally related to the following: a
redirection of the Company's full-price retail store program, which includes the
closure of its flagship stores in Beverly Hills, California and London, England;
the postponement of the launch of a new women's dress-up division; and the
consolidation of the junior sportswear and junior jeans divisions. This charge
consisted of provisions of $44,857 for the write-off of fixed assets and
operating leases of the Company's flagship stores and the write-off of fixed
assets related to the dress-up and junior sportswear divisions, $11,700 for
inventory of the junior sportswear division and, to a lesser extent, the
flagship stores, and $5,596 for severance and other costs. Inventory provisions
have been included in cost of sales in fiscal year 2000. As of March 31, 2002,
the Company had utilized the full provision recorded in fiscal 2000.
F-26
Note 16 - Condensed Consolidating Financial Information
The Notes discussed in Note 7 were issued by TH USA and are fully and
unconditionally guaranteed by THC. Accordingly, condensed consolidating balance
sheets as of March 31, 2002 and 2001, and the related condensed consolidating
statements of operations and cash flows for each of the three years in the
period ended March 31, 2002 are provided. The operations of TH USA, excluding
its subsidiaries, comprise the U.S. operations of certain wholesale divisions,
together with TH USA corporate overhead charges not allocated to subsidiaries,
including amortization of intangibles (including goodwill). The non-guarantor
subsidiaries of TH USA comprise the Company's U.S. retail, licensing and other
wholesale divisions, as well as the Company's Canadian operations. Such
operations contributed net revenue of $1,238,069, $1,265,424 and $1,367,253 for
the fiscal years ended March 31, 2002, 2001 and 2000, respectively. The other
non-guarantor subsidiaries of THC are primarily those non-U.S. subsidiaries
involved in investing and buying office operations. These condensed
consolidating financial statements have been prepared using the equity method of
accounting in accordance with the requirements for presentation of such
information under which TH USA's and THC's results reflect 100% of the earnings
of their respective subsidiaries in each of the years presented. See Note 7 for
a description of certain restrictions on the ability of subsidiaries of THC to
pay dividends to THC.
F-27
Condensed Consolidating Statements of Operations
Year Ended March 31, 2002
Parent
Subsidiary Company
Issuer Non-Guarantor Guarantor
(TH USA) Subsidiaries (THC) Eliminations Total
----------- ------------ ---------- ------------ ----------
Net revenue ......................... $ 552,711 $ 1,458,515 $ -- $ (134,505) $ 1,876,721
Cost of goods sold .................. 385,943 741,899 -- (54,753) 1,073,089
----------- ---------- ---------- ----------- ----------
Gross profit ........................ 166,768 716,616 -- (79,752) 803,632
----------- ---------- ---------- ----------- ----------
Depreciation and amortization ....... 64,257 49,872 -- -- 114,129
Other operating expenses ............ 153,463 437,278 (6,263) (80,704) 503,774
----------- ---------- ---------- ----------- ----------
Total operating expenses ............ 217,720 487,150 (6,263) (80,704) 617,903
----------- ---------- ---------- ----------- ----------
Income/(loss) from operations ....... (50,952) 229,466 6,263 952 185,729
Interest expense .................... 38,501 2,676 -- -- 41,177
Interest income ..................... 3,724 4,606 1,732 -- 10,062
Intercompany interest expense(income) 94,396 (18,158) (76,238) -- --
----------- ---------- ---------- ----------- ----------
Income/(loss) before taxes .......... (180,125) 249,554 84,233 952 154,614
Provision/(benefit) for income taxes. (68,053) 80,950 7,172 -- 20,069
Equity in net earnings of
unconsolidated subsidiaries........ 119,060 -- 48,832 (167,892) --
----------- ---------- ---------- ----------- ----------
Net income/(loss).................... $ 6,988 $ 168,604 $ 125,893 $ (166,940) $ 134,545
=========== ========== ========== =========== ==========
F-28
Condensed Consolidating Statements of Operations
Year Ended March 31, 2001
Parent
Subsidiary Company
Issuer Non-Guarantor Guarantor
(TH USA) Subsidiaries (THC) Eliminations Total
----------- ------------ ---------- ------------ ----------
Net revenue ........................... $ 693,132 $ 1,332,220 $ -- $ (144,417) $ 1,880,935
Cost of goods sold .................... 457,330 724,146 -- (65,155) 1,116,321
----------- ---------- ---------- ----------- ----------
Gross profit .......................... 235,802 608,074 -- (79,262) 764,614
----------- ---------- ---------- ----------- ----------
Depreciation and amortization ......... 64,809 41,831 -- -- 106,640
Other operating expenses .............. 180,427 369,190 (7,271) (81,792) 460,554
----------- ---------- ---------- ----------- ----------
Total operating expenses .............. 245,236 411,021 (7,271) (81,792) 567,194
----------- ---------- ---------- ----------- ----------
Income/(loss) from operations ......... (9,434) 197,053 7,271 2,530 197,420
Interest expense ...................... 41,402 10 -- -- 41,412
Interest income ....................... 3,528 7,823 6,099 -- 17,450
Intercompany interest expense (income). 89,092 (10,365) (78,727) -- --
----------- ---------- ---------- ----------- ----------
Income/(loss) before taxes ............ (136,400) 215,231 92,097 2,530 173,458
Provision/(benefit) for income taxes... (29,525) 64,537 7,485 -- 42,497
Equity in net earnings of
unconsolidated subsidiaries.......... 111,104 -- 44,387 (155,491) --
----------- ---------- ---------- ----------- ----------
Net income/(loss)...................... $ 4,229 $ 150,694 $ 128,999 $ (152,961) $ 130,961
=========== ========== ========== =========== ==========
F-29
Condensed Consolidating Statements of Operations
Year Ended March 31, 2000
Parent
Subsidiary Company
Issuer Non-Guarantor Guarantor
(TH USA) Subsidiaries (THC) Eliminations Total
----------- ------------ ---------- ------------ ----------
Net revenue ........................... $ 704,036 $ 1,436,920 $ -- $ (163,776) $ 1,977,180
Cost of goods sold .................... 449,132 729,475 -- (75,025) 1,103,582
----------- ---------- ---------- ----------- ----------
Gross profit .......................... 254,904 707,445 -- (88,751) 873,598
----------- ---------- ---------- ----------- ----------
Depreciation and amortization ......... 62,079 36,062 -- -- 98,141
Other operating expenses .............. 184,487 382,168 (9,004) (88,146) 469,505
Special charges ....................... -- 50,453 -- -- 50,453
----------- ---------- ---------- ----------- ----------
Total operating expenses .............. 246,566 468,683 (9,004) (88,146) 618,099
----------- ---------- ---------- ----------- ----------
Income/(loss) from operations ......... 8,338 238,762 9,004 (605) 255,499
Interest expense ...................... 41,419 100 (495) -- 41,024
Interest income ....................... 2,347 4,565 6,144 -- 13,056
Intercompany interest expense (income). 73,790 5 (73,795) -- --
----------- ---------- ---------- ----------- ----------
Income/(loss) before taxes ............ (104,524) 243,222 89,438 (605) 227,531
Provision/(benefit) for income taxes... (30,795) 78,160 7,808 -- 55,173
Equity in net earnings of
unconsolidated subsidiaries.......... 130,155 -- 91,557 (221,712) --
----------- ---------- ---------- ----------- ----------
Net income/(loss)...................... $ 56,426 $ 165,062 $ 173,187 $ (222,317) $ 172,358
=========== ========== ========== =========== ==========
F-30
Condensed Consolidating Balance Sheets
March 31, 2002
Parent
Subsidiary Company
Issuer Non-Guarantor Guarantor
(TH USA) Subsidiaries (THC) Eliminations Total
---------- ------------ ----------- ------------ ----------
Assets
Current Assets
Cash and cash equivalents...................... $ 135,729 $ 135,143 $ 116,375 $ -- $ 387,247
Accounts receivable............................ 51,781 172,614 -- -- 224,395
Inventories.................................... 46,134 143,500 -- (4,662) 184,972
Deferred tax and other current assets.......... 86,684 8,735 1,883 (28) 97,274
---------- ------------ ---------- ------------ ----------
Total current assets........................ 320,328 459,992 118,258 (4,690) 893,888
Property, plant and equipment, at cost, less
accumulated depreciation and amortization ........ 152,438 150,499 -- -- 302,937
Intangible assets, net of accumulated amortization . 1,150,464 239,378 -- 250 1,390,092
Investment in subsidiaries ......................... 552,746 206,790 428,865 (1,188,401) --
Other assets ....................................... 5,559 1,974 -- 1 7,534
---------- ------------ ---------- ------------ ----------
Total Assets ............................... $2,181,535 $ 1,058,633 $ 547,123 $ (1,192,840) $2,594,451
========== ============ ========== ============= ==========
Liabilities and Shareholder's Equity
Current liabilities
Short-term borrowings ......................... $ -- $ 62,749 $ -- $ -- $ 62,749
Current portion of long-term debt ............. -- 698 -- -- 698
Accounts payable .............................. 6,879 22,101 -- -- 28,980
Accrued expenses and other current
liabilities ................................... 78,628 131,174 493 (25) 210,270
Intercompany payable / (receivable) ........... 1,075,847 (290,387) (784,626) (834) --
---------- ------------ ---------- ------------ ----------
Total current liabilities .................. 1,161,354 (73,665) (784,133) (859) 302,697
Long-term debt ..................................... 574,620 667 -- -- 575,287
Deferred tax liability ............................. 262,256 (47,292) -- -- 214,964
Other liabilities .................................. 325 3,716 -- -- 4,041
Shareholders' equity ............................... 182,980 1,175,207 1,331,256 (1,191,981) 1,497,462
---------- ------------ ---------- ------------ ----------
Total Liabilities and Shareholders' Equity.. $2,181,535 $ 1,058,633 $ 547,123 $ (1,192,840) $2,594,451
========== ============ ========== ============= ==========
F-31
Condensed Consolidating Balance Sheets
March 31, 2001
Parent
Subsidiary Company
Issuer Non-Guarantor Guarantor
(TH USA) Subsidiaries (THC) Eliminations Total
---------- --------------- ----------- ------------ -----
Assets
Current Assets
Cash and cash equivalents.................... $ 45,001 $173,171 $ 100,259 $ -- $ 318,431
Accounts receivable.......................... 105,716 131,698 -- -- 237,414
Inventories.................................. 76,511 133,720 -- (4,785) 205,446
Deferred tax and other current assets........ 14,715 74,157 1,579 (98) 90,353
---------- -------- ---------- --------- ----------
Total current assets........................ 241,943 512,746 101,838 (4,883) 851,644
Property, plant and equipment, at cost, less
accumulated depreciation and amortization..... 170,398 111,284 -- -- 281,682
Intangible assets, net of accumulated
amortization................................... 1,181,259 24,849 -- 250 1,206,358
Investment in subsidiaries..................... 433,686 -- 380,033 (813,719) --
Other assets................................... 469 2,397 -- 6 2,872
---------- -------- ---------- --------- ----------
Total Assets................................ $2,027,755 $651,276 $ 481,871 $(818,346) $2,342,556
========== ======== ========== ========= ==========
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt............ $ 50,000 $ -- $ -- $ -- $ 50,000
Accounts payable............................. 20,813 17,815 -- -- 38,628
Accrued expenses and other current
liabilities.................................. 56,334 114,511 821 (26) 171,640
Intercompany payable / (receivable).......... 982,480 (266,097) (716,316) (67) --
---------- -------- ---------- --------- ----------
Total current liabilities................... 1,109,627 (133,771) (715,495) (93) 260,268
Long-term debt................................. 529,495 -- -- -- 529,495
Deferred tax liability......................... 213,995 (11,872) -- -- 202,123
Other liabilities.............................. -- 2,078 -- (1) 2,077
Shareholders' equity .......................... 174,638 794,841 1,197,366 (818,252) 1,348,593
---------- -------- ---------- ---------- ----------
Total Liabilities and Shareholders' Equity.. $2,027,755 $651,276 $ 481,871 $(818,346) $2,342,556
========== ======== ========== ========= ==========
F-32
Condensed Consolidating Statements of Cash Flows
Year Ended March 31, 2002
Parent
Subsidiary Company
Issuer Non-Guarantor Guarantor
(TH USA) Subsidiaries (THC) Eliminations Total
---------- ------------- --------- ------------ ---------
Cash flows from operating activities
Net income/(loss) ........................................ $ 6,988 $ 168,604 $ 125,893 $(166,940) $ 134,545
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization ....................... 72,937 44,389 - - 117,326
Deferred taxes ...................................... (18,731) 11,960 - - (6,771)
Changes in operating assets and liabilities ......... 185,917 (7,823) (68,942) (952) 108,200
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities . 247,111 217,130 56,951 (167,892) 353,300
--------- --------- --------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment . .................... (27,244) (69,679) - - (96,923)
Acquisition of businesses, net of cash acquired .......... - (205,061) - - (205,061)
Net activity in equity in net earnings of
unconsolidated subsidiaries ............................. (119,060) - (48,832) 167,892 -
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities.. (146,304) (274,740) (48,832) 167,892 (301,984)
--------- --------- --------- --------- ---------
Cash flows from financing activities
Proceeds of long-term debt ............................... 144,921 - - - 144,921
Payments on long-term debt ............................... (155,000) (538) - - (155,538)
Proceeds from the exercise of stock options .............. - - 7,997 - 7,997
Purchase of treasury shares .............................. - - - - -
Repayments of short-term bank borrowings, net ............ - 20,120 - - 20,120
Capital contribution ..................................... - - - - -
--------- --------- --------- -------- ---------
Net cash provided by (used in) financing activities . (10,079) 19,582 7,997 - 17,500
--------- --------- --------- -------- ---------
Net increase (decrease) in cash ..................... 90,728 (38,028) 16,116 - 68,816
Cash and cash equivalents, beginning of period ............ 45,001 173,171 100,259 - 318,431
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period .................. $ 135,729 $ 135,143 $ 116,375 $ - $ 387,247
========= ========= ========= ========= =========
F-33
Condensed Consolidating Statements of Cash Flows
Year Ended March 31, 2001
Parent
Subsidiary Company
Issuer Non-Guarantor Guarantor
(TH USA) Subsidiaries (THC) Eliminations Total
---------- ------------- --------- ------------ ---------
Cash flows from operating activities
Net income/(loss) ........................................ $ 4,229 $ 150,694 $ 128,999 $(152,961) $ 130,961
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization ........................ 64,809 43,426 -- -- 108,235
Deferred taxes ....................................... (14,039) 23,122 -- -- 9,083
Changes in operating assets and liabilities .......... 62,562 (112,370) (4,973) (2,530) (57,311)
---------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities .. 117,561 104,872 124,026 (155,491) 190,968
---------- --------- --------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment ..................... (26,956) (46,934) -- -- (73,890)
Net activity in equity in net earnings of
unconsolidated subsidiaries ........................... (111,104) -- (44,387) 155,491 --
---------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities .. (138,060) (46,934) (44,387) 155,491 (73,890)
---------- --------- --------- --------- ---------
Cash flows from financing activities
Payments on long-term debt .............................. (50,000) -- -- -- (50,000)
Proceeds from the exercise of stock options ............. -- -- 3,710 -- 3,710
Purchase of treasury shares ............................. -- -- (61,231) -- (61,231)
Repayments of short-term bank borrowings, net ........... -- (523) -- -- (523)
Capital contribution .................................... 90,000 -- (90,000) -- --
---------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities .. 40,000 (523) (147,521) -- (108,044)
---------- --------- --------- --------- ---------
Net increase (decrease) in cash ...................... 19,501 57,415 (67,882) -- 9,034
Cash and cash equivalents, beginning of period ............ 25,500 115,756 168,141 -- 309,397
---------- --------- --------- --------- ---------
Cash and cash equivalents, end of period .................. $ 45,001 $ 173,171 $ 100,259 $ -- $ 318,431
========== ========= ========= ========= =========
F-34
Condensed Consolidating Statements of Cash Flow
Year Ended March 31, 2000
Parent
Subsidiary Company
Issuer Non-Guarantor Guarantor
(TH USA) Subsidiaries (THC) Eliminations Total
-------- ------------ ----- ------------ -----
Cash flows from operating activities
Net income / (loss).......................................... $ 56,426 $ 165,062 $173,187 $ (222,317) $172,358
Adjustments to reconcile net income to net cash provided
by operating activites
Depreciation and amorization........................... 62,079 37,317 -- -- 99,396
Deferred taxes......................................... (8,945) (70,843) -- -- (79,788)
Provision for special charges.......................... -- 62,153 -- -- 62,153
Changes in operating assets and liabilities............ 52,997 (71,041) (5,471) 605 (22,910)
--------- ------------- --------- ----------- ---------
Net cash provided by (used in) operating activities.... 162,557 122,648 167,716 (221,712) 231,209
--------- ------------ --------- ----------- ---------
Cash flows from investing activities
Purchases of property and equipment.......................... (96,945) (55,039) -- -- (151,984)
Net activities in equity in net earnings of
unconsolidated subsidiaries............................... (130,155) -- (91,557) 221,712 --
---------- ------------- --------- ----------- ---------
Net cash provided by (used in) investing activities.... (227,100) (55,039) (91,557) 221,712 (151,984)
---------- ------------- --------- ----------- ---------
Cash flows from financing activities
Proceeds of long-term debt................................... 20,000 -- -- -- 20,000
Payments on long-term debt................................... (40,000) -- -- -- (40,000)
Proceeds from the exercise of stock options.................. -- -- 8,933 -- 8,933
Repayments of short-term bank borrowings, net................ -- (711) -- -- (711)
---------- ------------- --------- ----------- ---------
Net cash provided by (used in) financing activities.... (20,000) (711) 8,933 -- (11,778)
---------- ------------- --------- ----------- ---------
Net increase (decrease) in cash........................ (84,543) 66,898 85,092 -- 67,447
Cash and cash equivilants, beginning of period................. 110,043 48,858 83,049 -- 241,950
---------- ------------- --------- ----------- ---------
Cash and cash equivilants, end of period....................... $ 25,500 $ 115,756 $168,141 $ -- $309,397
========== ============= ========= =========== =========
F-35
Note 17 - Quarterly Financial Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
2002
----
Net revenue ............... $ 355,688 $ 546,442 $ 474,793 $ 499,798
Gross profit .............. 151,742 238,484 201,349 212,057
Net income ................ 9,013 47,875 36,958 40,698
Basic earnings per share .. 0.10 0.54 0.41 0.45
Diluted earnings per share. 0.10 0.53 0.41 0.45
2001
----
Net revenue ............... $ 399,878 $ 533,301 $ 475,759 $ 471,997
Gross profit .............. 159,779 223,941 198,098 182,796
Net income ................ 9,736 44,924 42,701 33,600
Basic earnings per share .. 0.10 0.49 0.47 0.38
Diluted earnings per share. 0.10 0.49 0.47 0.37
The quarterly financial data for the years ended March 31, 2002 and
2001 are unaudited; however, in the opinion of the Company, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present such data fairly.
Note 18 - Share Split
On June 4, 1999, the Company announced that its Board of Directors had
approved and declared a two-for-one split of the Ordinary Shares. The split was
effected in the form of a dividend of one Ordinary Share per Ordinary Share
issued and outstanding or held by the Company in its treasury (the "Share
Split"), and was paid on July 9, 1999 to shareholders of record at the close of
business on June 18, 1999. In connection with the Share Split, the Board of
Directors of the Company also approved an increase in the number of authorized
Ordinary Shares to 150,000,000 from 75,000,000. All earnings per share and share
equivalents have been restated to reflect the Share Split.
F-36
Note 19 - Share Repurchase Program
On April 7, 2000 the Company announced that its Board of Directors
authorized the repurchase of up to $150,000 of its outstanding Ordinary Shares
over a period of up to 18 months using available cash. Under this share
repurchase program, the Company repurchased 6,192,600 Ordinary Shares at an
aggregate cost of $61,231 during fiscal year 2001. In connection with the TH
Europe Acquisition, the Company's Board of Directors terminated the remaining
portion of the share repurchase program, effective June 28, 2001.
F-37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors and Executive Officers
Name Age Present Position
---- --- ----------------
Silas K. F. Chou 55 Co-Chairman of the Board and Director
Lawrence S. Stroll 42 Co-Chairman of the Board and Director
Thomas J. Hilfiger 51 Honorary Chairman of the Board, Principal
Designer and Director
Joel J. Horowitz 51 Chief Executive Officer, President and Director
Ronald K.Y. Chao 63 Director
Lester M.Y. Ma 55 Director
Joseph M. Adamko 69 Director
Clinton V. Silver 72 Director
Simon Murray 62 Director
Joel H. Newman 60 Chief Financial Officer, Executive Vice
President-Finance and Operations
and Assistant Secretary
Arthur Bargonetti 68 Senior Vice President-Operations
Joseph Scirocco 45 Senior Vice President and Treasurer
Lawrence T.S. Lok 45 Secretary
Silas K.F. Chou has been Co-Chairman of the Board of the Company since 1998 and
served as Chairman of the Board from 1992 to 1998. Mr. Chou has been a Director
of the Company since 1992. Mr. Chou also served as Managing Director of Novel
Enterprises Limited ("Novel Enterprises"), where he continues to serve as a
director, from 1996 to 2001 and has been Chairman of the Board of Novel Denim
Holdings Limited, a company quoted on the Nasdaq National Market and an
affiliate of Novel Enterprises ("Novel Denim"), since 1996. In addition, Mr.
Chou was Chairman of the Board of Pepe Jeans London Corporation and its
predecessor (collectively, "PJLC") from 1992 to 1998.
Lawrence S. Stroll has been Co-Chairman of the Board of the Company since 1998
and served as Chief Executive Officer of Tommy Hilfiger (HK) Limited, a
subsidiary of the Company ("THHK"), from 1993 to 1998. Mr. Stroll has been a
Director of the Company since 1992. In addition, Mr. Stroll was Group Chief
Executive Officer of PJLC from 1993 to 1998.
Thomas J. Hilfiger has been a Director and Principal Designer of the Company
since 1992 and Honorary Chairman of the Board of the Company since 1994. Mr.
Hilfiger was Vice Chairman of the Board of the Company and its predecessors from
1989 to 1994, and President of Tommy Hilfiger, Inc. from 1982 to 1989. Mr.
Hilfiger has been designing clothes under the Tommy Hilfiger trademarks since
1984.
32
Joel J. Horowitz is Chief Executive Officer and President of the Company. Mr.
Horowitz has served as Chief Executive Officer since 1994 and as President since
1995. From 1989 to 1994, Mr. Horowitz served as President and Chief Operating
Officer of the Company and its predecessors. Mr. Horowitz has been a Director of
the Company since 1992.
Ronald K.Y. Chao has been a Director of the Company since 1992. Since 1996, Mr.
Chao has been Vice Chairman of Novel Enterprises. Prior thereto, Mr. Chao served
as the Managing Director of Novel Enterprises. In addition, Mr. Chao has served
as a director of Novel Denim since 1997.
Lester M.Y. Ma has been a Director of the Company since 1992 and served as its
Treasurer from 1996 to 1997. Mr. Ma has been an Executive Director and Group
Chief Accountant of Novel Enterprises for more than the past five years. In
addition, Mr. Ma has been a director of Novel Denim since 1992 and its Treasurer
since 1997.
Joseph M. Adamko has been a Director of the Company since 1993. Since 1992, Mr.
Adamko has been Vice Chairman and a director of Sterling Bancorp and Sterling
National Bank. Prior thereto, Mr. Adamko was employed by Manufacturers Hanover
Trust Company of New York in a variety of positions for over 30 years, including
most recently as a Managing Director.
Clinton V. Silver has been a Director of the Company since 1994. Mr. Silver was
employed by Marks & Spencer plc, an international retailer based in London, as
Deputy Chairman from 1991 to 1994 and as a consultant from 1994 to 1999. In
addition, Mr. Silver served as a director of Marks & Spencer plc from 1974 to
1994 and as Joint Managing Director from 1990 to 1994. Mr. Silver also served as
Chairman of the British Fashion Council from 1994 to 1997.
Simon Murray has been a Director of the Company since 1997. From 1993 to 1997,
Mr. Murray was the Executive Chairman Asia Pacific of Deutsche Bank AG. Since
1998, Mr. Murray has been the Chairman of General Enterprise Management Services
Limited, a private equity fund management company sponsored by Simon Murray &
Company Ltd. Mr. Murray is also a director of a number of public companies in
the Far East, including Cheung Kong Holdings Limited, Hutchison Whampoa Limited
and Orient Overseas (International) Limited, and other companies in Europe,
including Hermes International and Vivendi Universal.
Joel H. Newman was appointed Chief Financial Officer and Executive Vice
President-Finance and Operations of the Company in 2001, after serving as Chief
Financial and Administrative Officer and Executive Vice President since 2000.
Prior thereto, Mr. Newman served as Chief Administrative Officer and Executive
Vice President-Finance from 1998 to 2000 and as Executive Vice
President-Operations from 1997 to 1998. Since 1993, Mr. Newman has also held
various senior operations and financial positions with TH USA, for which he
currently serves as Chief Operating Officer. Prior to joining the Company, Mr.
Newman held various senior operations and financial positions with major
companies in the apparel wholesale and retail industries.
Arthur Bargonetti has been Senior Vice President-Operations of the Company since
1998. From 1994 to 1998, Mr. Bargonetti served as Chief Operating Officer and
Executive Vice President of Pepe USA. Prior thereto, Mr. Bargonetti was the
Chief Operating Officer and Executive Vice President of Bidermann Industries
U.S.A., Inc.
33
Joseph Scirocco has been Senior Vice President and Treasurer of the Company
since 1997. Prior to joining the Company, Mr. Scirocco was employed in the
Retail and Consumer Products Group of Price Waterhouse LLP, where he had served
as an Audit Partner since 1990.
Lawrence T.S. Lok has served as Secretary of the Company since 1994. In
addition, Mr. Lok has been Secretary of Novel Enterprises since 1994 and of
Novel Denim since 1997. Mr. Lok has also served as Deputy Financial Controller
of Novel Enterprises for more than the past five years.
Ronald K.Y. Chao and Silas K.F. Chou are brothers.
Terms of Directors
The Company's Board of Directors is divided into three classes with
staggered three-year terms. At each Annual Meeting of Shareholders, the
successors of the class of directors whose terms expire at such meeting are
elected for three-year terms. The terms of Messrs. Chou, Hilfiger and Adamko
expire in 2002; the terms of Messrs. Stroll, Ma and Silver expire in 2003; and
the terms of Messrs. Horowitz, Chao and Murray expire in 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and certain persons who own more than 10% of a registered class of
the Company's equity securities (collectively, "Reporting Persons"), to file
reports of ownership and changes in ownership ("Section 16 Reports") with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange.
Reporting Persons are required by the SEC to furnish the Company with copies of
all Section 16 Reports they file.
Based solely on its review of the copies of such Section 16 Reports
received by it, or written representations received from certain Reporting
Persons, all Section 16(a) filing requirements applicable to the Company's
Reporting Persons during and with respect to the fiscal year ended March 31,
2002 have been complied with on a timely basis.
34
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid and accrued by the
Company and its subsidiaries for the fiscal years ended March 31, 2002, 2001 and
2000 to the Company's chief executive officer and the four other most highly
compensated executive officers (the "Named Executive Officers").
Long-Term
Annual Compensation Compensation
------------------- ------------
Awards
---------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Stock Options (#) Compensation ($)
--------------------------- ---- ---------- --------- ----------------- ----------------
Joel J. Horowitz 2002 662,678 10,053,000(1) -- 5,500(2)
Chief Executive Officer and 2001 625,000 12,097,000(1) -- 5,100
President 2000 581,600 16,631,000(1) -- 5,100
Thomas J. Hilfiger 2002 22,360,000(3) -- -- 5,500 (2)
Honorary Chairman of the Board 2001 24,925,000(3) -- -- 5,100
and Principal Designer 2000 26,851,000(3) -- -- 5,100
Silas K.F. Chou 2002 900,000(4) 623,274 -- --
Co-Chairman of the Board 2001 750,000(4) 545,532 -- --
2000 750,000(4) 750,000 -- --
Lawrence S. Stroll 2002 600,000(5) 623,274 -- --
Co-Chairman of the Board 2001 750,000(5) 545,532 -- --
2000 750,000(5) 750,000 -- --
Joel H. Newman 2002 750,000 600,000 -- 15,100(6)
Chief Financial Officer and 2001 650,000 550,000 100,000 15,475
Executive Vice President-Finance 2000 600,000 600,000 165,000 15,088
and Operations
--------
(1) Pursuant to an incentive plan approved by shareholders of the Company, Mr.
Horowitz receives an annual bonus equal to 5% of the Company's operating
earnings (as defined below). "See Certain Employment Agreements."
(2) Amount represents employer matching contribution under the Tommy Hilfiger
U.S.A. 401(k) Profit Sharing Plan (the "401(k) Plan").
(3) Pursuant to an employment agreement entered into prior to the Company's
initial public offering, Mr. Hilfiger receives annual salary payments equal
to $900,000 plus 1.5% of the net sales of TH USA and its subsidiaries over
$48,333,333. See "Certain Employment Agreements."
(4) Includes $400,000 of the fees paid pursuant to a consulting agreement
between Tommy Hilfiger (Eastern Hemisphere) Limited, a subsidiary of THC
("THEH"), and Fasco International, Inc. ("Fasco International"), an
affiliate of Messrs. Chou and, until August 2001, Stroll. See "Certain
Relationships and Related Transactions - Other Relationships and
Transactions" in Item 13.
(5) Includes $100,000 of the fees paid pursuant to a consulting agreement
between THEH and Fasco International, and all of the fees paid pursuant to
a consulting agreement between THEH and another affiliate of Mr. Stroll.
See "Certain Relationships and Related Transactions - Other Relationships
and Transactions" in Item 13.
(6) Amount represents employer matching contribution under the 401(k) Plan of
$5,100 plus reimbursement for supplemental term life insurance premium
payments of $10,000.
35
Option Grants in Fiscal 2002
During fiscal year 2002, no Company stock option grants were made to
any of the Named Executive Officers.
Aggregated Option Exercises in Fiscal 2002 and Fiscal Year-End Option Values
The following table sets forth information regarding stock option
exercises during fiscal year 2002 by the only Named Executive Officer who has
received Company option grants, and the values of such officer's unexercised
options as of March 31, 2002.
Number of Securites
Underlying Unexercised Value of Unexercised In-the-
Shares Stock Options at Money Stock Options at
Acquired on Value Fiscal Year-End (#) Fiscal Year-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------ ------------------------- -----------------------------
Joel H. Newman 33,334 221,796 495,000/66,666 465,094/512,912
Supplemental Executive Retirement Plan
The Company maintains the Tommy Hilfiger U.S.A., Inc. Supplemental
Executive Retirement Plan (the "SERP"), a nonqualified unfunded plan, to provide
retirement benefits to senior executives designated by the Chief Executive
Officer of TH USA. As of March 31, 2002, Mr. Newman was the only Named Executive
Officer participating in the SERP.
Pension Plan Table. The following table shows the estimated
hypothetical annual benefit payable under the SERP to participants retiring at
age 65 based on the specified final average compensation and years of service.
Years of Service
---------------------------------------------------------------------------------------------
Final Average
Base Salary 15 20 25 30 35
------------ -- -- -- -- --
$ 250,000 $ 75,000 $100,000 $125,000 $125,000 $125,000
300,000 90,000 120,000 150,000 150,000 150,000
350,000 105,000 140,000 175,000 175,000 175,000
400,000 120,000 160,000 200,000 200,000 200,000
450,000 135,000 180,000 225,000 225,000 225,000
500,000 150,000 200,000 250,000 250,000 250,000
750,000 225,000 300,000 375,000 375,000 375,000
The benefit payable under the SERP is a lifetime annuity equal to 2% of
the participant's average base salary for the last three full calendar years of
employment multiplied by the participant's years of service (up to a maximum of
25 years). Payments to vested participants commence after termination of
employment and upon the earlier of (i) the attainment of age 65 or (ii) the
request of the participant at any time after the attainment of age 55 (in which
case the annual amount is reduced by 5% per year for each year it is paid before
the participant's attainment of age 65). Participants become vested under the
SERP upon the earliest of (a) the completion of 10 years of service, (b) the
attainment of age 40 and completion of five years of service or (c) the
attainment of age 65; provided that a participant who is terminated for "cause"
(as defined in the SERP) will forfeit all rights to the SERP benefit (whether or
not vested). Payments under the SERP are subject to any applicable Social
Security or other taxes required to be withheld by law.
36
For purposes of the SERP, the amount specified in the Annual
Compensation portion of the Summary Compensation Table under the heading
"Salary" would constitute "base salary." As of March 31, 2002, Mr. Newman had
completed 9 years of service and was vested under the SERP.
Certain Employment Agreements
Subsidiaries of the Company had employment agreements with Messrs.
Hilfiger, Horowitz and Newman during fiscal year 2002.
The employment agreement with Tommy Hilfiger, the Company's Honorary
Chairman of the Board and Principal Designer, provides for his employment as the
designer of all products carrying the Tommy Hilfiger trademarks until his death,
disability or incompetence. Mr. Hilfiger receives an annual base salary of
$900,000, subject to adjustments. If net sales of TH USA and its subsidiaries
are less than $48,333,333 in any year, Mr. Hilfiger's base salary for such year
is reduced by 1.5% of such shortfall, to not less than $500,000. If net sales
are greater than $48,333,333 in any fiscal year, Mr. Hilfiger receives an
additional payment equal to 1.5% of such excess. If Mr. Hilfiger terminates his
employment without the consent of TH USA other than by reason of his death,
disability or incompetence, TH USA will have no further obligations under the
agreement. The employment agreement provides that TH USA and its subsidiaries
cannot enter into any line of business without the consent of Mr. Hilfiger if he
shall reasonably determine that such line of business would be detrimental to
the Tommy Hilfiger trademarks.
The employment agreement with Mr. Horowitz provides for his employment
as Chief Executive Officer of the Company and TH USA until March 31, 2004. The
agreement provided for an annual base salary in fiscal year 2002 of $662,678.
The base salary is subject to increase each year by the average percentage
increase for all employees of TH USA.
The Company is subject to Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), under which public companies are not permitted
to deduct for federal income tax purposes annual compensation paid to certain
executive officers in excess of $1,000,000 per executive, unless such excess is
paid pursuant to an arrangement based upon performance and approved by
shareholders and provided that the other requirements set forth in Section
162(m) and related regulations are met. Payments required to be made pursuant to
the aforementioned employment agreement with Mr. Hilfiger, which was entered
into prior to the effective date of Section 162(m), are not subject to such
restrictions.
On August 6, 1998, the Company's Compensation Committee approved and
the Board of Directors adopted, and on November 2, 1998, the shareholders
approved, the renewal of the Tommy Hilfiger U.S.A., Inc. Supplemental Executive
Incentive Compensation Plan (the "SEIC Plan"), which was scheduled to terminate
on April 1, 1999, for each of the five fiscal years in the period ending March
31, 2004. The purpose of the SEIC Plan is to provide a significant and flexible
economic opportunity to Mr. Horowitz, Chief Executive Officer and President of
the Company and Chief Executive Officer of TH USA, in an effort to reward his
contribution to the Company and its subsidiaries. The SEIC Plan is administered
by the Company's Compensation Committee and provides for a cash award to Mr.
Horowitz equal to 5% of the Company's consolidated earnings before depreciation,
interest on financing of fixed assets, non-operating expenses and taxes
("operating earnings"). Awards under the plan are calculated and paid quarterly
based on 3.75% of operating earnings for the first three fiscal quarters, with
the remaining amount of the bonus (based on the 5% rate) payable at the end of
the fiscal year. The amount of the award is reduced by the amount of any other
bonuses paid or payable under any
37
employment or bonus agreement between the Company or TH USA and Mr. Horowitz.
The SEIC Plan does not contain any cap on the maximum amount of the bonus
payable thereunder. The SEIC Plan bonus payable to Mr. Horowitz in respect of
fiscal year 2002 was $10,053,000. While the Company believes that compensation
payable pursuant to the SEIC Plan will be deductible for federal income tax
purposes pursuant to Section 162(m), there can be no assurance in this regard.
The employment agreements with Messrs. Hilfiger and Horowitz also
provide that such executives are eligible to receive additional annual bonuses
at the discretion of TH USA's Board of Directors or Compensation Committee. If,
however, compensation is awarded based on an arrangement that does not satisfy
the requirements of Section 162(m), the Company would not be allowed to deduct
for tax purposes any payments in excess of the $1,000,000 limitation. No
discretionary bonuses were paid to these executives with respect to the
Company's last three fiscal years.
Messrs. Hilfiger and Horowitz have agreed to waive any additional
compensation attributable to the net sales and operating earnings of the
Company's acquired European licensee to which they might otherwise be
contractually entitled under their existing employment arrangements. See
"Certain Relationships and Related Transactions - The TH Europe Acquisition" in
Item 13.
The employment agreement with Mr. Newman, the Company's Chief Financial
and Administrative Officer and Executive Vice President, provides for his
employment with TH USA until March 31, 2003. Thereafter, the agreement
automatically renews for successive one-year terms unless terminated upon prior
notice by either party. The agreement provided for an annual base salary in
fiscal year 2002 of $750,000, and provides for base salaries of $850,000 and
$950,000 in fiscal years 2003 and 2004 (if renewed for such year), respectively.
Mr. Newman received $600,000 in bonuses in fiscal year 2002. Under the
agreement, Mr. Newman is entitled to receive minimum bonuses of $567,000 and
$634,000 in fiscal years 2003 and 2004 (if renewed for such year), respectively;
provided that if the Company achieves or exceeds its annual budget for a
specified fiscal year, the minimum bonus will be 100% of the base salary for
such year. Upon execution of the agreement, Mr. Newman received a grant of
100,000 stock options under the 1992 Stock Incentive Plans and the
exercisability of 66,000 stock options previously granted to Mr. Newman were
accelerated to the date of execution. In addition, under the agreement, the
exercisability of all stock options granted to Mr. Newman prior to March 31,
2000 that had not previously become exercisable were accelerated to March 31,
2002.
If Mr. Newman's employment is terminated by the Company without "cause"
(as defined in the agreement) or due to a long-term disability or by Mr. Newman
with "good reason" (as defined in the agreement), or the Company does not renew
the agreement at the end of the initial term or any renewal term, Mr. Newman
will, subject to certain conditions, be entitled to receive base salary
continuation until the end of the initial term or then current renewal term plus
one year (subject to mitigation from compensation and benefits received from
other employment or Company-sponsored long-term disability payments), as well as
a pro rated annual bonus for the fiscal year in which the termination occurs.
38
Stock-Based Plans
Employee Stock Incentive Plans. At the Company's 2001 annual meeting,
the shareholders approved the Tommy Hilfiger Corporation 2001 Stock Incentive
Plan (the "2001 Stock Incentive Plan"). Following such approval, no further
grants may be made under the Tommy Hilfiger U.S.A. and Tommy Hilfiger (Eastern
Hemisphere) Limited 1992 Stock Incentive Plans (the "1992 Stock Incentive
Plans"; and together with the 2001 Stock Incentive Plan, the "Employee Stock
Incentive Plans"). Grants previously made under the 1992 Stock Incentive Plans
remain outstanding in accordance with their terms.
The 2001 Stock Incentive Plan authorizes the grant of stock options,
stock appreciation rights related to stock options and restricted stock to
officers, employees and directors of the Company and its subsidiaries with
respect to up to 3,500,000 Ordinary Shares (subject to certain adjustments as
provided in the plan); provided that no more than 350,000 of those shares may be
awarded pursuant to grants of restricted stock. No participant under the 2001
Stock Incentive Plan may be granted awards covering in excess of 700,000
Ordinary Shares in any fiscal year of the Company.
The 2001 Stock Incentive Plan is administered by the Company's
Compensation Committee. Awards under the plan are subject to such terms and
conditions as may be determined by the Compensation Committee and specified in
the applicable award agreement; provided that any stock option or related stock
appreciation right must have an exercise price of not less than fair market
value at, and may not be exercisable more than 10 years after, the date of
grant. An award agreement may provide for acceleration or immediate vesting in
the event of a change of control of the Company or any of its subsidiaries.
Messrs. Chou, Stroll, Hilfiger, Horowitz and Chao are not eligible for
grants under the 2001 Stock Incentive Plan. Currently, over half of the
full-time employees of the Company and its subsidiaries are participants in the
Employee Stock Incentive Plans.
Directors Option Plan. In August 1994, the shareholders of the Company
approved the Tommy Hilfiger Corporation Non-Employee Directors Stock Option Plan
(the "Directors Option Plan"). Options for up to 400,000 Ordinary Shares
(subject to certain adjustments as provided in the plan) may be granted under
the Directors Option Plan. Each director who is not an officer or employee of
the Company or any subsidiary of the Company (a "Non-Employee Director")
receives an initial stock option to purchase 20,000 Ordinary Shares, and
subsequent annual grants of options to purchase 2,000 Ordinary Shares, in each
case at an exercise price equal to the fair market value at the date of grant.
The Directors Option Plan is administered by the Company's Compensation
Committee. However, grants of stock options to participants under the Plan and
the amount, nature and timing of the grants are not subject to the determination
of such committee.
The term of each stock option granted under the Directors Option Plan
is 10 years unless earlier terminated by termination of the director status of a
Non-Employee Director, and the stock options are exercisable in equal
installments over five years from the date of grant.
39
Director Compensation
Directors who are officers or employees of the Company or any of its
subsidiaries receive no additional compensation for their service on the Board
and its Committees. All Non-Employee Directors receive the following retainers:
$40,000 per annum for members of the Board; $5,000 per annum for members of
standing committees; and $3,000 per annum for Chairmen of standing committees.
The Non-Employee Directors also receive $2,000 for attendance at each meeting of
the Board or a Committee. In addition, the Non-Employee Directors participate in
the Directors Option Plan. See "Stock-Based Plans."
In May 2001, a Special Committee of Independent Directors, consisting
of Messrs. Murray, Adamko and Silver, was formed to consider and negotiate the
possible acquisition of the Company's European licensee. In fiscal year 2002,
each member of the Special Committee received a retainer of $25,000 and a $2,000
per meeting attendance fee. Mr. Adamko attended all, and Messrs. Murray and
Silver attended all but one, of the 14 meetings held by the Special Committee.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee consists of Mr. Adamko, who is the
Chairman, Mr. Silver and Mr. Murray.
Sportswear Holdings Limited, a BVI corporation ("Sportswear"), is
indirectly 50% owned by Westleigh Limited, a BVI corporation privately owned by
members of the Chao family (including Messrs. Silas K.F. Chou, Co-Chairman of
the Board and a Director of the Company, and Ronald K.Y. Chao, a Director of the
Company) and an affiliate of Novel Enterprises ("Westleigh"), and 50% owned by
Flair Investment Holdings Limited, a BVI corporation in which Mr. Stroll,
Co-Chairman of the Board and a Director of the Company, has an indirect
beneficial ownership interest ("Flair"). AIHL-Pepe Limited, a BVI corporation
(collectively with its predecessors and certain of its affiliates, "AIHL"), is
owned 70% by Sportswear, 22.5% by Mr. Hilfiger, Honorary Chairman of the Board,
Principal Designer and a Director of the Company, and 7.5% by Mr. Horowitz,
Chief Executive Officer, President and a Director of the Company.
Mr. Ma, a Director of the Company, may have certain economic interests
based on the performance of AIHL and its affiliates. Novel Enterprises and its
affiliates also hold other interests in the apparel industry, including an
approximately 50% ownership interest in Novel Denim.
During the Company's last fiscal year, (i) Messrs. Chou, Stroll,
Hilfiger, Horowitz, Chao and Ma were executive officers and/or directors of
AIHL, (ii) Messrs. Chou, Stroll, Chao and Ma were executive officers and/or
directors of Sportswear, (iii) Messrs. Chou and Chao were executive officers
and/or directors of Westleigh, (iv) Messrs. Chou, Chao and Ma were executive
officers and/or directors of Novel Enterprises and (v) Mr. Chou was an executive
officer, director and Chairman of the compensation committee, Mr. Ma was an
executive officer and director and Mr. Chao was a director, of Novel Denim.
See Item 13, "Certain Relationships and Related Transactions."
40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth data as of May 31, 2002 concerning the
beneficial ownership of Ordinary Shares by (i) the persons known to the Company
to beneficially own more than 5% of the outstanding Ordinary Shares, (ii) all
directors and nominees and each Named Executive Officer and (iii) all directors
and executive officers as a group.
Amount Percent
Beneficially Owned of Class(1)
------------------ -----------
FMR Corp. (2)
82 Devonshire Street
Boston, MA 02109 ........................... 10,134,600 11.3%
Franklin Resources, Inc. (3)
One Franklin Parkway
San Mateo, CA 94403-1906.................... 7,570,168 8.4%
PRIMECAP Management Company (4)
225 South Lake Avenue #400
Pasadena, CA 91101 ........................ 6,069,575 6.7%
Vanguard Horizon Funds - Vanguard Capital
Opportunity Fund (5)
100 Vanguard Boulevard
Malvern, PA 19355 .......................... 5,754,800 6.4%
Lord, Abbett & Co. (6)
90 Hudson Street
Jersey City, NJ 07302 ...................... 4,666,104 5.2%
Directors and Named Executive Officers:
Silas K.F. Chou ............................... 1,015,324(7) 1.1%
Lawrence S. Stroll ............................ 1,015,324(7) 1.1%
Thomas J. Hilfiger ............................ 3,968,548 4.4%
Joel J. Horowitz .............................. 516,182 *
Ronald K.Y. Chao .............................. 1,028,924(7)(8) 1.1%
Lester M.Y. Ma ................................ 42,400(9) *
Joseph M. Adamko .............................. 26,800(10) *
Clinton V. Silver ............................. 9,600(11) *
Simon Murray .................................. 22,400(11) *
Joel H. Newman ................................ 528,333(12) *
All directors and executive officers as a group
(13 persons) ............................... 6,373,187(13) 7.0%
-------------
* Less than 1%.
(1) Shares outstanding with respect to each person includes the right to
acquire beneficial ownership of Ordinary Shares pursuant to currently
exercisable stock options, if any, held by such person under Company stock
option plans. See footnotes 8, 9, 10, 11, 12 and 13. For purposes of this
table, "currently exercisable" stock options includes options becoming
vested and exercisable within 60 days from May 31, 2002.
(2) Information based on Amendment No. 1 to Schedule 13G dated March 11, 2002
filed with the SEC by FMR Corp. ("FMR"). According to the Schedule 13G,
FMR, a parent holding company, had sole dispositive power over all of the
shares and sole voting power over 368,200 of the shares.
41
(3) Information based on Amendment No. 1 to Schedule 13G dated February 12,
2002 filed with the SEC by Franklin Resources, Inc. ("Franklin"). According
to Schedule 13G, subsidiaries of Franklin, a parent holding company, had
sole dispositive power over all of the shares and sole voting power over
7,569,700 of the shares.
(4) Information based on Amendment No. 3 to Schedule 13G dated May 31, 2002
filed with the SEC by PRIMECAP Management Company ("PRIMECAP"). According
to the Schedule 13G, PRIMECAP, an investment adviser, had sole dispositive
power over all of the shares and sole voting power over 2,254,775 of the
shares.
(5) Information based on Amendment No. 1 to Schedule 13G dated February 12,
2002 filed with the SEC by Vanguard Horizon Funds - Vanguard Capital
Opportunity Fund ("Vanguard"). According to the Schedule 13G, Vanguard, an
investment company, had shared dispositive power and sole voting power over
all of the shares.
(6) Information based on Schedule 13G dated January 16, 2002 filed with the SEC
by Lord, Abbett & Co. ("Lord, Abbett"). According to the Schedule 13G,
Lord, Abbett, an investment adviser, had sole dispositive power and sole
voting power over all of the shares.
(7) Sportswear directly owns 1,015,324 Ordinary Shares. Sportswear is
indirectly 50% owned by Westleigh, which is privately owned by members of
the Chao family (including Messrs. Chou and Chao), and 50% owned by Flair,
in which Mr. Stroll has an indirect beneficial ownership interest. Each of
Sportswear, Westleigh and Flair, as well as Messrs. Chou, Chao and Stroll,
may be deemed to have shared dispositive power and shared voting power
over, and thus to beneficially own, all of the Ordinary Shares owned by
Sportswear through their respective direct or indirect ownership interests
in Sportswear.
(8) Includes 13,600 Ordinary Shares issuable upon the exercise of currently
exercisable stock options under the Directors Option Plan.
(9) Issuable upon the exercise of currently exercisable stock options under the
1992 Stock Incentive Plans and the Directors Option Plan.
(10) Includes 20,000 Ordinary Shares issuable upon the exercise of currently
exercisable stock options under the Directors Option Plan.
(11) Issuable upon the exercise of currently exercisable stock options under the
Directors Option Plan.
(12) Issuable upon the exercise of currently exercisable stock options under the
1992 Stock Incentive Plans.
(13) Includes 866,333 Ordinary Shares issuable upon the exercise of currently
exercisable stock options held by all directors and executive officers
under the 1992 Stock Incentive Plans and the Directors Option Plan. The
1,015,324 Ordinary Shares directly owned by Sportswear and attributed to
each of Messrs. Chou, Chao and Stroll in this table are only counted once.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and transactions between the Company and certain
directors and officers of the Company and certain of their affiliates are
described below.
The TH Europe Acquisition
On June 29, 2001, THC and THEH entered into a stock purchase agreement
(the "Stock Purchase Agreement") with TH Europe Holdings Limited, a subsidiary
of AIHL ("TH Europe Holdings"), pursuant to which THEH agreed to acquire from TH
Europe Holdings all of the issued and outstanding shares of capital stock of
THNV, the owner of TH Europe, the Company's European licensee, for a cash
purchase price of $200,000,000. Also on June 29, 2001, AIHL executed a guarantee
of the performance by TH Europe Holdings of its obligations under the Stock
Purchase Agreement. The TH Europe Acquisition was completed on July 5, 2001.
At the time of the execution of the Stock Purchase Agreement, Messrs.
Chou and Stroll entered into a non-competition agreement with the Company
restricting their ability to compete in Europe with the THNV businesses for two
years following the TH Europe Acquisition. In addition, Messrs. Hilfiger and
Horowitz executed waivers with respect to any additional compensation
attributable to the net sales and operating earnings of THNV and its
consolidated subsidiaries to which they might otherwise be contractually
entitled under their existing employment arrangements.
In fiscal year 2002, with respect to the period prior to the closing of
the TH Europe Acquisition, the Company's results of operations included
$2,129,000 of royalties and buying
42
agency commissions paid by TH Europe. In addition, TH Europe subleases certain
office space in Amsterdam from a subsidiary of AIHL for annual rent of
approximately $115.
Other Relationships and Transactions
The Company is party to a lock-up agreement (the "Lock-Up Agreement")
and a registration rights agreement (the "Registration Rights Agreement"), in
each case with AIHL, Anasta Holdings Limited, Sportswear, Westleigh, Flair, Mr.
Hilfiger and Mr. Horowitz (collectively, the "AIHL Affiliates"), relating to the
Ordinary Shares paid by the Company as part of the purchase price consideration
for the May 8, 1998 acquisition (the "1998 Acquisition") of its womenswear,
jeanswear and Canadian licensees (the "Purchase Price Shares"). The Lock-Up
Agreement prohibited the transfer of the Purchase Price Shares until May 8,
2000, and imposes additional restrictions until May 8, 2003 on transfers of the
shares as a block, subject to certain exceptions. Under the Registration Rights
Agreement, the AIHL Affiliates, along with their successors and permitted
transferees under the Lock-Up Agreement, have the right to require the Company
to register sales of the Purchase Price Shares. At the time of the 1998
Acquisition, Messrs. Chou and Stroll also entered into a non-competition
agreement with the Company that restricted their ability to compete in the
United States or Canada with the womenswear and jeanswear businesses until May
8, 2002.
The Company is party to a geographic license agreement for Japan with
Tommy Hilfiger Japan Corporation ("THJC"). Affiliates of AIHL hold a 20% equity
interest in THJC. Under the license agreement, THJC pays THLI a royalty based on
a percentage of the value of licensed products sold by it. Subject to certain
exceptions, all products sold by or through THJC must be purchased through THEH
or TH USA pursuant to buying agency agreements. Under these agreements, THEH and
TH USA are paid a buying agency commission based on a percentage of the cost of
products sourced through them. Pursuant to these arrangements, royalties and
buying agency commissions totaled $2,616,000 during fiscal year 2002.
TH USA purchases finished goods in the ordinary course of business from
affiliates of Novel Enterprises. Such purchases amounted to $90,408,000 during
the fiscal year ended March 31, 2002. In addition, contractors of the Company
purchase raw materials in the ordinary course of business from affiliates of
Novel Enterprises pursuant to the Company's designation of such sources as
acceptable suppliers. Such purchases amounted to $9,796,000 during the fiscal
year ended March 31, 2002.
Members of the Chao family (including Messrs. Chou and Chao) hold an
indirect 45% equity interest in Macauniter Malhas E Confeccoes Lda., a company
which serves as TH Europe's distributor in Portugal and also operates a Tommy
Hilfiger store under a franchise arrangement with TH Europe. In fiscal year
2002, with respect to the period after the closing of the TH Europe Acquisition,
TH Europe sold $1,349,000 of merchandise to this Company pursuant to such
arrangements.
AIHL holds an indirect 25% equity interest in Pepe Jeans SL, which
serves as TH Europe's sales and collection agent in Spain. In fiscal year 2002,
with respect to the period after the closing of the TH Europe Acquisition,
commissions and fees paid by TH Europe pursuant to these arrangements totaled
$2,946,000.
TH USA sells merchandise in the ordinary course of business to a retail
store that is owned by Mr. Hilfiger's sister. Sales to this customer amounted to
approximately $338,000 during fiscal year 2002.
43
THEH has a consulting agreement with Fasco International, an affiliate
of Messrs. Chou and, until August 2001, Stroll. The fees paid by THEH under this
agreement totaled $500,000 during fiscal year 2002.
THEH has a consulting agreement with another affiliate of Mr. Stroll.
THEH paid fees under this agreement of $500,000 in fiscal year 2002.
Under the terms of an agreement with Novel Enterprises, the Company
reimburses Novel Enterprises for certain general and administrative expenses,
including rent for office space, incurred by it on behalf of the Company.
Payments made to Novel Enterprises under this agreement for the fiscal year
ended March 31, 2002 were $394,000.
The Audit Committee of the Board of Directors reviews transactions
between the Company and its affiliates to seek to provide that such transactions
are on terms which are no less favorable as a whole to the Company than could be
obtained from unaffiliated parties.
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Index to Financial Statements and Financial Statement Schedules
(a) 1. Financial Statements
The following consolidated financial statements of the Company are
included in Item 8:
Consolidated Statements of Operations for the years ended March
31, 2002, 2001 and 2000
Consolidated Balance Sheets as of March 31, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended March
31, 2002, 2001 and 2000
Consolidated Statements of Changes in Shareholders' Equity for the
years ended March 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
All schedules have been omitted because of the absence of the
conditions under which they are required or because the required
information is included in the Consolidated Financial Statements or
Notes thereto.
(a) 3. Exhibits
Exhibit
Number Description
------ -----------
3. -- Memorandum of Association and Articles of Association of THC, as amended (conformed
to reflect all amendments to date) (previously filed as Exhibit 3.4 to THC's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999 and incorporated herein
by reference)
4.1 -- Indenture, dated as of May 1, 1998, among TH USA, as Issuer, THC, as Guarantor, and
The Chase Manhattan Bank, as Trustee (previously filed as Exhibit 4.2 to THC's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and incorporated
herein by reference)
4.2 -- Forms of TH USA 6.50% Note due 2003 and 6.85% Note due 2008 (previously filed as
Exhibit 4.1 to THC's Current Report on Form 8-K dated May 5, 1998 and incorporated
herein by reference)
4.3 -- Form of TH USA 9% Bond due 2031 (previously filed as Exhibit 4.1 to THC's Current
Report on Form 8-K dated November 28, 2001 and incorporated herein by reference)
*10.1 -- TH USA 1992 Stock Incentive Plan, as amended and restated (previously filed as
Exhibit 4.1 to Registration No. 333-96011 and incorporated herein by reference)
45
*10.2 -- THEH 1992 Stock Incentive Plan, as amended and restated (previously filed as Exhibit
4.2 to Registration No. 333-96011 and incorporated herein by reference)
*10.3 -- THC 2001 Stock Incentive Plan (previously filed as Appendix B to the Company's Proxy
Statement dated September 21, 2001 and incorporated herein by reference)
*10.4 -- THC Non-Employee Directors Stock Option Plan (previously filed as Exhibit 10.3 to
Registration No. 33-88906 and incorporated herein by reference)
*10.5 -- TH USA Supplemental Executive Incentive Compensation Plan (previously filed as
Exhibit A to THC's Proxy Statement dated September 25, 1998 and incorporated herein
by reference)
*10.6 -- TH USA Voluntary Deferred Compensation Plan (previously filed as Exhibit 10.8 to
THC's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and
incorporated herein by reference)
*10.7 -- TH USA Supplemental Executive Retirement Plan (previously filed as Exhibit 10.9 to
THC's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and
incorporated herein by reference)
*10.8 -- Amended and Restated Employment Agreement, dated as of June 30, 1992, between TH USA
and Thomas J. Hilfiger (previously filed as Exhibit 10.3 to Registration No.
33-48587 and incorporated herein by reference)
*10.9 -- Waiver of Certain Payments, dated as of June 29, 2001, by Thomas J. Hilfiger
(previously filed as Exhibit 10.3 to THC's Current Report on Form 8-K dated July 6,
2001 and incorporated herein by reference)
*10.10 -- Amended and Restated Employment Agreement, dated as of June 30, 1992, between TH USA
and Joel J. Horowitz (the "Horowitz Employment Agreement") (previously filed as
Exhibit 10.4 to Registration No. 33-48587 and incorporated herein by reference)
*10.11 -- Amendment, dated as of March 8, 1994, to the Horowitz Employment Agreement
(previously filed as Exhibit 7 to THC's Annual Report on Form 20-F for the fiscal
year ended March 31, 1994 and incorporated herein by reference)
*10.12 -- Amendment No. 2, dated as of August 7, 1998, to the Horowitz Employment Agreement
(previously filed as Exhibit 10(b) to THC's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998 and incorporated herein by reference)
*10.13 -- Waiver of Certain Payments, dated as of June 29, 2001, by Joel J. Horowitz
(previously filed as Exhibit 10.4 to THC's Current Report on Form 8-K dated July 6,
2001 and incorporated herein by reference)
*10.14 -- Employment Agreement, dated as of June 12, 2000, between TH USA and Joel H. Newman
(previously filed as Exhibit 10.11 to THC's Annual Report on Form 10-K for the
fiscal year ended March 31, 2001 and incorporated herein by reference)
46
*10.15 -- Consulting Agreement, dated April 1, 1991, between Polostro Limited and THEH (the
"Polostro Consulting Agreement") (previously filed as Exhibit 10.13 to Registration
No. 33-48587 and incorporated herein by reference)
*10.16 -- Amendment, dated April 1, 1993, to the Polostro Consulting Agreement (previously
filed as Exhibit 18 to THC's Annual Report on Form 20-F for the fiscal year ended
March 31, 1994 and incorporated herein by reference)
*10.17 -- Amendment No. 2, dated November 2, 1998, to the Polostro Consulting Agreement
(previously filed as Exhibit 10(c) to THC's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998 and incorporated herein by reference)
*10.18 -- Consulting Agreement, dated April 1, 1996, between Fasco International, Inc. and
THEH (previously filed as Exhibit 10.25 to THC's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference)
10.19 -- Credit Agreement, dated as of May 8, 1998, among THC, as Guarantor, TH USA, as
Borrower, the several Lenders from time to time parties thereto, Fleet Bank, N.A.,
as Documentation Agent, Nationsbank, N.A., as Syndication Agent, and The Chase
Manhattan Bank, as Administrative Agent (previously filed as Exhibit 10.4 to THC's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and incorporated
herein by reference)
10.20 -- Trademark Agreement, dated June 30, 1992, between Thomas J. Hilfiger and Tommy
Hilfiger, Inc. (previously filed as Exhibit 10.15 to Registration No. 33-48587 and
incorporated herein by reference)
10.21 -- License Agreement, dated as of January 1, 2001, between THLI and THJC (portions of
this exhibit, which have been filed separately with the Securities and Exchange
Commission, have been omitted and are the subject of a request made to the
Commission for confidential treatment) (previously filed as Exhibit 10.19 to THC's
Annual Report on Form 10-K for the fiscal year ended March 31, 2001 and incorporated
herein by reference)
10.22 -- Lock-Up Agreement, dated as of January 31, 1998, by and among THC, PJLC, Blackwatch
Investments Limited ("Blackwatch"), AIHL, Anasta Holdings Limited ("Anasta"),
Sportswear, Westleigh, Flair, Thomas J. Hilfiger and Joel J. Horowitz (previously
filed as Exhibit 10.1 to THC's Current Report on Form 8-K dated April 1, 1998 and
incorporated herein by reference)
10.23 -- Registration Rights Agreement, dated as of May 8, 1998, by and among THC, PJLC,
Blackwatch, AIHL, Anasta, Sportswear, Westleigh, Flair, Thomas J. Hilfiger and Joel
J. Horowitz (previously filed as Exhibit 10.26 to THC's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998 and incorporated herein by reference)
10.24 -- Stock Purchase Agreement, dated as of June 29, 2001, by and among THC, THEH and TH
Europe Holdings (previously filed as Exhibit 10.1 to THC's Current Report on Form
8-K dated July 6, 2001 and incorporated herein by reference)
10.25 -- Guarantee, dated as of June 29, 2001, by AIHL in favor of THC and THEH (previously
filed as Exhibit 10.2 to THC's Current Report on Form 8-K dated July 6, 2001 and
incorporated herein by reference)
10.26 -- Non-Competition Agreement, dated as of June 29, 2001, by and among
47
Silas K.F. Chou, Lawrence S. Stroll and THC (previously filed as Exhibit 10.5 to THC's Current Report
on Form 8-K dated July 6, 2001 and incorporated herein by reference)
11. -- Statement re: Computation of Per Share Earnings
21. -- Subsidiaries of THC
23. -- Consent of PricewaterhouseCoopers LLP
24. -- Powers of Attorney
--------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
three months ended March 31, 2002.
48
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOMMY HILFIGER CORPORATION
/s/ Joel J. Horowitz
---------------------
Joel J. Horowitz
Chief Executive Officer and President
June 21, 2002
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.
* Co-Chairman of the Board and Director June 21, 2002
-----------------
(Silas K.F. Chou)
* Co-Chairman of the Board and Director June 21, 2002
--------------------
(Lawrence S. Stroll)
* Honorary Chairman of the Board, Principal June 21, 2002
------------------- Designer and Director
(Thomas J. Hilfiger)
/s/ Joel J. Horowitz Chief Executive Officer, President and Director June 21, 2002
-------------------- (principal executive officer)
(Joel J. Horowitz)
* Director June 21, 2002
------------------
(Ronald K.Y. Chao)
* Director June 21, 2002
-----------------
(Lester M.Y. Ma)
* Director June 21, 2002
------------------
(Joseph Adamko)
* Director June 21, 2002
--------------------
(Clinton V. Silver)
* Director June 21, 2002
--------------------
(Simon Murray)
* Chief Financial Officer, Executive Vice June 21, 2002
-------------------- President-Finance and Operations and
(Joel H. Newman) Assistant Secretary (principal financial
officer)
* Senior Vice President and Treasurer (principal June 21, 2002
-------------------- accounting officer)
(Joseph Scirocco)
*/s/ Joel J. Horowitz
---------------------
Joel J. Horowitz
(Attorney-in-Fact)
49
EXHIBIT INDEX
-------------
Exhibit
Number Description
------- -----------
3. -- Memorandum of Association and Articles of Association of THC, as amended (conformed
to reflect all amendments to date) (previously filed as Exhibit 3.4 to THC's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999 and incorporated herein
by reference)
4.1 -- Indenture, dated as of May 1, 1998, among TH USA, as Issuer, THC, as Guarantor, and
The Chase Manhattan Bank, as Trustee (previously filed as Exhibit 4.2 to THC's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and incorporated
herein by reference)
4.2 -- Forms of TH USA 6.50% Note due 2003 and 6.85% Note due 2008 (previously filed as
Exhibit 4.1 to THC's Current Report on Form 8-K dated May 5, 1998 and incorporated
herein by reference)
4.3 -- Form of TH USA 9% Bond due 2031 (previously filed as Exhibit 4.1 to THC's Current
Report on Form 8-K dated November 28, 2001 and incorporated herein by reference)
*10.1 -- TH USA 1992 Stock Incentive Plan, as amended and restated (previously filed as
Exhibit 4.1 to Registration No. 333-96011 and incorporated herein by reference)
*10.2 -- THEH 1992 Stock Incentive Plan, as amended and restated (previously filed as Exhibit
4.2 to Registration No. 333-96011 and incorporated herein by reference)
*10.3 -- THC 2001 Stock Incentive Plan (previously filed as Appendix B to the Company's Proxy
Statement dated September 21, 2001 and incorporated herein by reference)
*10.4 -- THC Non-Employee Directors Stock Option Plan (previously filed as Exhibit 10.3 to
Registration No. 33-88906 and incorporated herein by reference)
*10.5 -- TH USA Supplemental Executive Incentive Compensation Plan (previously filed as
Exhibit A to THC's Proxy Statement dated September 25, 1998 and incorporated herein
by reference)
*10.6 -- TH USA Voluntary Deferred Compensation Plan (previously filed as Exhibit 10.8 to
THC's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and
incorporated herein by reference)
*10.7 -- TH USA Supplemental Executive Retirement Plan (previously filed as Exhibit 10.9 to
THC's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and
incorporated herein by reference)
*10.8 -- Amended and Restated Employment Agreement, dated as of June 30, 1992, between TH USA
and Thomas J. Hilfiger (previously filed as Exhibit 10.3 to Registration No.
33-48587 and incorporated herein by reference)
*10.9 -- Waiver of Certain Payments, dated as of June 29, 2001, by Thomas J. Hilfiger
(previously filed as Exhibit 10.3 to THC's Current Report on Form 8-K dated July 6,
2001 and incorporated herein by reference)
*10.10 -- Amended and Restated Employment Agreement, dated as of June 30, 1992, between TH USA
and Joel J. Horowitz (the "Horowitz Employment Agreement") (previously filed as
Exhibit 10.4 to
50
Registration No. 33-48587 and incorporated herein by reference)
*10.11 -- Amendment, dated as of March 8, 1994, to the Horowitz Employment Agreement
(previously filed as Exhibit 7 to THC's Annual Report on Form 20-F for the fiscal
year ended March 31, 1994 and incorporated herein by reference)
*10.12 -- Amendment No. 2, dated as of August 7, 1998, to the Horowitz Employment Agreement
(previously filed as Exhibit 10(b) to THC's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998 and incorporated herein by reference)
*10.13 -- Waiver of Certain Payments, dated as of June 29, 2001, by Joel J. Horowitz
(previously filed as Exhibit 10.4 to THC's Current Report on Form 8-K dated July 6,
2001 and incorporated herein by reference)
*10.14 -- Employment Agreement, dated as of June 12, 2000, between TH USA and Joel H. Newman
(previously filed as Exhibit 10.11 to THC's Annual Report on Form 10-K for the
fiscal year ended March 31, 2001 and incorporated herein by reference)
*10.15 -- Consulting Agreement, dated April 1, 1991, between Polostro Limited and THEH (the
"Polostro Consulting Agreement") (previously filed as Exhibit 10.13 to Registration
No. 33-48587 and incorporated herein by reference)
*10.16 -- Amendment, dated April 1, 1993, to the Polostro Consulting Agreement (previously
filed as Exhibit 18 to THC's Annual Report on Form 20-F for the fiscal year ended
March 31, 1994 and incorporated herein by reference)
*10.17 -- Amendment No. 2, dated November 2, 1998, to the Polostro Consulting Agreement
(previously filed as Exhibit 10(c) to THC's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998 and incorporated herein by reference)
*10.18 -- Consulting Agreement, dated April 1, 1996, between Fasco International, Inc. and
THEH (previously filed as Exhibit 10.25 to THC's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference)
10.19 -- Credit Agreement, dated as of May 8, 1998, among THC, as Guarantor, TH USA, as
Borrower, the several Lenders from time to time parties thereto, Fleet Bank, N.A.,
as Documentation Agent, Nationsbank, N.A., as Syndication Agent, and The Chase
Manhattan Bank, as Administrative Agent (previously filed as Exhibit 10.4 to THC's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and incorporated
herein by reference)
10.20 -- Trademark Agreement, dated June 30, 1992, between Thomas J. Hilfiger and Tommy
Hilfiger, Inc. (previously filed as Exhibit 10.15 to Registration No. 33-48587 and
incorporated herein by reference)
10.21 -- License Agreement, dated as of January 1, 2001, between THLI and THJC (portions of
this exhibit, which have been filed separately with the Securities and Exchange
Commission, have been omitted and are the subject of a request made to the
Commission for confidential treatment) (previously filed as Exhibit 10.19 to THC's
Annual Report on Form 10-K for the fiscal year ended March 31, 2001 and incorporated
herein by reference)
10.22 -- Lock-Up Agreement, dated as of January 31, 1998, by and among THC, PJLC, Blackwatch
Investments Limited ("Blackwatch"), AIHL, Anasta Holdings Limited ("Anasta"),
Sportswear, Westleigh, Flair, Thomas J.
51
Hilfiger and Joel J. Horowitz (previously filed as Exhibit 10.1 to THC's Current
Report on Form 8-K dated April 1, 1998 and incorporated herein by reference)
10.23 -- Registration Rights Agreement, dated as of May 8, 1998, by and among THC, PJLC,
Blackwatch, AIHL, Anasta, Sportswear, Westleigh, Flair, Thomas J. Hilfiger and Joel
J. Horowitz (previously filed as Exhibit 10.26 to THC's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998 and incorporated herein by reference)
10.24 -- Stock Purchase Agreement, dated as of June 29, 2001, by and among THC, THEH and TH
Europe Holdings (previously filed as Exhibit 10.1 to THC's Current Report on Form
8-K dated July 6, 2001 and incorporated herein by reference)
10.25 -- Guarantee, dated as of June 29, 2001, by AIHL in favor of THC and THEH (previously
filed as Exhibit 10.2 to THC's Current Report on Form 8-K dated July 6, 2001 and
incorporated herein by reference)
10.26 -- Non-Competition Agreement, dated as of June 29, 2001, by and among Silas K.F. Chou,
Lawrence S. Stroll and THC (previously filed as Exhibit 10.5 to THC's Current Report
on Form 8-K dated July 6, 2001 and incorporated herein by reference)
11. -- Statement re: Computation of Per Share Earnings
21. -- Subsidiaries of THC
23. -- Consent of PricewaterhouseCoopers LLP
24. -- Powers of Attorney
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* Management contract or compensatory plan or arrangement.
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