Financial assets and liabilities carried at fair value at
January 31, 2016
are classified in the table below in one of the three categories described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Total Fair
Value
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
Marketable securities
a
|
$
|
31.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31.8
|
|
Time deposits
b
|
43.0
|
|
|
—
|
|
|
—
|
|
|
43.0
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Precious metal forward contracts
c
|
—
|
|
|
0.6
|
|
|
—
|
|
|
0.6
|
|
Precious metal collar contracts
c
|
—
|
|
|
0.2
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|
|
—
|
|
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0.2
|
|
Foreign exchange forward contracts
c
|
—
|
|
|
1.6
|
|
|
—
|
|
|
1.6
|
|
Derivatives not designated as hedging instruments:
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|
|
|
|
|
|
Foreign exchange forward contracts
c
|
—
|
|
|
1.3
|
|
|
—
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|
|
1.3
|
|
Total financial assets
|
$
|
74.8
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|
|
$
|
3.7
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|
|
$
|
—
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|
|
$
|
78.5
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|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Total Fair
Value
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
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|
|
|
|
|
|
|
Precious metal forward contracts
d
|
$
|
—
|
|
|
$
|
13.4
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|
|
$
|
—
|
|
|
$
|
13.4
|
|
Foreign exchange forward contracts
d
|
—
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|
|
2.4
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|
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—
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|
|
2.4
|
|
Derivatives not designated as hedging instruments:
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|
|
|
|
|
Foreign exchange forward contracts
d
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
Total financial liabilities
|
$
|
—
|
|
|
$
|
17.2
|
|
|
$
|
—
|
|
|
$
|
17.2
|
|
|
|
a
|
Included within Other assets, net.
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|
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b
|
Included within Short-term investments.
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c
|
Included within Prepaid expenses and other current assets or Other assets, net evaluated based on the maturity of the contract.
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d
|
Included within Accounts payable and accrued liabilities or Other long-term liabilities evaluated based on the maturity of the contract.
|
The fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates carrying value due to the short-term maturities of these assets and liabilities and as such is measured using Level 1 inputs. The fair value of debt with variable interest rates approximates carrying value and is measured using Level 2 inputs. The fair value of debt with fixed interest rates was determined using the quoted market prices of debt instruments with similar terms and maturities, which are considered Level 2 inputs. The total carrying value of short-term borrowings and long-term debt was
$1.1
billion and the corresponding fair value was approximately
$1.1
billion at
January 31, 2017
and
2016
.
J. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain office, distribution, retail and manufacturing facilities, land and equipment. Retail store leases may require the payment of minimum rentals and contingent rent based on a percentage of sales exceeding a stipulated amount. The lease agreements, which expire at various dates through 2062, are subject, in many cases, to renewal options and provide for the payment of taxes, insurance and maintenance. Certain leases contain escalation
clauses resulting from the pass-through of increases in operating costs, property taxes and the effect on costs from changes in consumer price indices.
Rent-free periods and other incentives granted under certain leases and scheduled rent increases are charged to rent expense on a straight-line basis over the related terms of such leases, beginning from when the Company takes possession of the leased facility. Lease expense includes predetermined rent escalations (including escalations based on the Consumer Price Index or other indices) and is recorded on a straight-line basis over the term of the lease. Adjustments to indices are treated as contingent rent and recorded in the period that such adjustments are determined.
The Company entered into sale-leaseback arrangements for its Retail Service Center, a distribution and administrative office facility in New Jersey, in 2005 and for the TIFFANY & CO. stores in Tokyo's Ginza shopping district and on London's Old Bond Street in 2007. These sale-leaseback arrangements resulted in total deferred gains of
$144.5
million which are being amortized in SG&A expenses over periods that range from
15
to
20
years. As of January 31,
2017
,
$45.9 million
of these deferred gains remained to be amortized.
Rent expense for the Company's operating leases consisted of the following:
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Years Ended January 31,
|
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
Minimum rent for retail locations
|
$
|
184.1
|
|
$
|
172.2
|
|
$
|
158.2
|
|
Contingent rent based on sales
|
32.4
|
|
34.9
|
|
38.6
|
|
Office, distribution and manufacturing facilities and equipment
|
40.0
|
|
37.0
|
|
35.8
|
|
|
$
|
256.5
|
|
$
|
244.1
|
|
$
|
232.6
|
|
In addition, the Company operates certain TIFFANY & CO. stores within various department stores outside the U.S. and has agreements where the department store operators provide store facilities and other services. The Company pays the department store operators a percentage fee based on sales generated in these locations (recorded as commission expense within SG&A expenses) which totaled
$117.9
million,
$109.4
million and
$113.7
million in
2016
,
2015
and
2014
, and which are not included in the table above.
Aggregate annual minimum rental payments under non-cancelable operating leases are as follows:
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|
|
|
Years Ending January 31,
|
Annual Minimum Rental Payments
a
(in millions)
|
|
2018
|
$
|
286.2
|
|
2019
|
203.6
|
|
2020
|
187.2
|
|
2021
|
168.8
|
|
2022
|
148.7
|
|
Thereafter
|
558.2
|
|
|
|
a
|
Operating lease obligations do not include obligations for property taxes, insurance and maintenance that are required by most lease agreements.
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Diamond Sourcing Activities
The Company has agreements with various diamond producers to purchase a minimum volume of rough diamonds at prevailing fair market prices. Under those agreements, management anticipates that it will purchase approximately
$60.0
million of rough diamonds in
2017
. Purchases beyond
2017
that are contingent upon mine production at then-prevailing fair market prices cannot be reasonably estimated. In addition, the Company also regularly purchases rough and polished diamonds from other suppliers, although it has no contractual obligations to do so.
In consideration of its diamond supply agreements, the Company has provided financing to certain suppliers of its rough diamonds. In March 2011, Laurelton Diamonds, Inc. ("Laurelton"), a wholly owned subsidiary of the Company, as lender, entered into a
$50.0
million amortizing term loan facility agreement with Koidu, as borrower, and BSG Resources Limited, as a limited guarantor. Koidu operates a kimberlite diamond mine in Sierra Leone (the "Mine") from which Laurelton acquires diamonds. Koidu was required under the terms of the Loan to apply the proceeds of the Loan to capital expenditures necessary to increase the output of the Mine, among other purposes. As of July 31, 2011, the Loan was fully funded. In consideration of the Loan, Laurelton entered into a supply agreement, pursuant to which Laurelton is required to purchase at fair market value certain diamonds recovered from the Mine that meet Laurelton's quality standards. The assets of Koidu, including all equipment and rights in respect of the Mine, are subject to the security interest of a lender that is not affiliated with the Company. The Loan is partially secured by the diamonds, if any, that have been extracted from the Mine and that have not been sold to third parties. The Company has evaluated the variable interest entity consolidation requirements with respect to this transaction and has determined that it is not the primary beneficiary, as it does not have the power to direct any of the activities that most significantly impact Koidu's economic performance.
On March 29, 2013, the Company entered into an amendment relating to the Loan which deferred principal and interest payments due in 2013 to subsequent years, and, on March 31, 2014, the Company entered into a further amendment providing that the principal payments due in 2014 be paid on a monthly basis rather than on a semi-annual basis. On April 30, 2015, the Company entered into a further amendment (the "2015 Amendment"). Pursuant to the 2015 Amendment, once certain customary conditions relating to the addition of one of Koidu's affiliates as an obligor under the Loan were satisfied, the principal payment due on March 30, 2015 would be deferred until a date to be specified by the Company (which date may be upon at least 30 days' written notice to Koidu, or upon the occurrence of certain specified acceleration conditions). As of June 2015, all of the conditions had been satisfied and the deferral of the principal payment due on March 30, 2015 had become effective, subject to the acceleration conditions set forth in the 2015 Amendment, which include Koidu remaining current on its other payment obligations to the Company. The Loan, as amended, is required to be repaid in full by March 2017 through semi-annual payments. Under the 2015 Amendment, the interest rate on the Loan was increased and, as of April 1, 2015, interest will accrue at a rate per annum that is the greater of (i)
LIBOR
plus
3.5%
or (ii)
6.75%
. Koidu also agreed to pay, and subsequently paid, an additional
2%
per annum of interest on all deferred principal repayments.
As of January 31, 2016, Koidu had not made any of its interest payments due in July 2015 and thereafter, nor its principal payment due in September 2015. The missed payments constitute events of default under the Loan. In February 2016, the Company received the results from two separate and independent reviews of Koidu's operational plans, forecasts, and cash flow projections for the mine, which were commissioned by the Company and by Koidu's largest creditor, respectively. Based on these factors, ongoing discussions with Koidu, and consideration of the possible actions that all parties, including the Government of Sierra Leone and Koidu's largest creditor, might take under the circumstances, management determined that it was probable that it would be unable to collect a portion of the amounts due under the contractual terms of the Loan, and recorded impairment charges, and a related valuation allowance, of
$37.9 million
in 2015. Additionally, the Company ceased accruing interest income on the outstanding Loan balance as of July 31, 2015. The carrying amount of the Company’s loan receivable from Koidu, net of the valuation allowance, was
$5.9 million
at January 31,
2016
.
Koidu did not make any payments due to the Company under the Loan in 2016. On March 17, 2017, the Company entered into an agreement with Koidu's largest creditor under which that creditor has agreed to purchase the Company's interest in the loan, on and effective March 22, 2017, for $
1.7 million
. Based on this agreement, the Company has recorded an additional impairment charge, and a related valuation allowance, of
$4.2 million
in 2016 to reduce the carrying amount of the Company's loan receivable from Koidu, net of the valuation allowance, to
$1.7 million
at January 31,
2017
. Additionally, on March 16, 2017, the Company and Koidu entered into an agreement to terminate the supply agreement between the parties, pursuant to which Laurelton had previously been required to purchase at fair market value certain diamonds recovered from the Mine that met Laurelton's quality standards.
Contractual Cash Obligations and Contingent Funding Commitments
At January 31,
2017
, the Company's contractual cash obligations and contingent funding commitments were for inventory purchases of
$196.6 million
(which includes the
$60.0
million obligation discussed in Diamond Sourcing Activities above), as well as for other contractual obligations of
$71.4 million
(primarily for construction-in-progress, technology licensing and service contracts, advertising and media agreements and fixed royalty commitments).
Litigation
Arbitration Award.
On December 21, 2013, an award was issued (the "Arbitration Award") in favor of The Swatch Group Ltd. ("Swatch") and its wholly owned subsidiary Tiffany Watch Co. ("Watch Company"; Swatch and Watch Company, together, the "Swatch Parties") in an arbitration proceeding (the "Arbitration") between the Registrant and its wholly owned subsidiaries, Tiffany and Company and Tiffany (NJ) Inc. (the Registrant and such subsidiaries, together, the "Tiffany Parties") and the Swatch Parties.
The Arbitration was initiated in June 2011 by the Swatch Parties, who sought damages for alleged breach of agreements entered into by and among the Swatch Parties and the Tiffany Parties in December 2007 (the "Agreements"). The Agreements pertained to the development and commercialization of a watch business and, among other things, contained various licensing and governance provisions and approval requirements relating to business, marketing and branding plans and provisions allocating profits relating to sales of the watch business between the Swatch Parties and the Tiffany Parties.
In general terms, the Swatch Parties alleged that the Tiffany Parties breached the Agreements by obstructing and delaying development of Watch Company’s business and otherwise failing to proceed in good faith. The Swatch Parties sought damages based on alternate theories ranging from CHF
73.0
million (or approximately
$73.0 million
at January 31,
2017
) (based on its alleged wasted investment) to CHF
3.8
billion (or approximately
$3.8 billion
at January 31,
2017
) (calculated based on alleged future lost profits of the Swatch Parties and their affiliates over the entire term of the Agreements).
The Registrant believes that the claims of the Swatch Parties are without merit. In the Arbitration, the Tiffany Parties defended against the Swatch Parties’ claims vigorously, disputing both the merits of the claims and the calculation of the alleged damages. The Tiffany Parties also asserted counterclaims for damages attributable to breach by the Swatch Parties, stemming from the Swatch Parties’ September 12, 2011 public issuance of a Notice of Termination purporting to terminate the Agreements due to alleged material breach by the Tiffany Parties, and for termination due to such breach. In general terms, the Tiffany Parties alleged that the Swatch Parties did not have grounds for termination, failed to meet the high standard for proving material breach set forth in the Agreements and failed to provide appropriate management, distribution, marketing and other resources for TIFFANY & CO. brand watches and to honor their contractual obligations to the Tiffany Parties regarding brand management. The Tiffany Parties’ counterclaims sought damages based on alternate theories ranging from CHF
120.0
million (or approximately
$121.0 million
at January 31,
2017
) (based on its wasted investment) to approximately CHF
540.0
million (or approximately
$542.0 million
at January 31,
2017
) (calculated based on alleged future lost profits of the Tiffany Parties).
The Arbitration hearing was held in October 2012 before a three-member arbitral panel convened in the Netherlands pursuant to the Arbitration Rules of the Netherlands Arbitration Institute (the "Rules"), and the Arbitration record was completed in February 2013.
Under the terms of the Arbitration Award, and at the request of the Swatch Parties and the Tiffany Parties, the Agreements were deemed terminated. The Arbitration Award stated that the effective date of termination was March 1, 2013. Pursuant to the Arbitration Award, the Tiffany Parties were ordered to pay the Swatch Parties damages of CHF
402.7
million (the "Arbitration Damages"), as well as interest from June 30, 2012 to the date of payment, two-thirds of the cost of the Arbitration and two-thirds of the Swatch Parties' legal fees, expenses and costs. These amounts were paid in full in January 2014.
Prior to the ruling of the arbitral panel, no accrual was established in the Company's consolidated financial statements because management did not believe the likelihood of an award of damages to the Swatch Parties was probable. As a result of the ruling, in the fourth quarter of 2013, the Company recorded a charge of
$480.2
million, which included the damages, interest, and other costs associated with the ruling and which was classified as Arbitration award expense in the consolidated statement of earnings.
On March 31, 2014, the Tiffany Parties took action in the District Court of Amsterdam to annul the Arbitration Award. Generally, arbitration awards are final; however, Dutch law does provide for limited grounds on which arbitral awards may be set aside. The Tiffany Parties petitioned to annul the Arbitration Award on these statutory grounds. These grounds include, for example, that the arbitral tribunal violated its mandate by changing the express terms of the Agreements.
A three-judge panel presided over the annulment hearing on January 19, 2015, and, on March 4, 2015, issued a decision in favor of the Tiffany Parties. Under this decision, the Arbitration Award is set aside. However, the Swatch Parties took action in the Dutch courts to appeal the District Court's decision, and a three-judge panel presided over an appellate hearing in respect of the annulment, and the related claim by the Tiffany Parties for return of the Arbitration Damages and related costs, on June 29, 2016. That panel's decision, which may be appealed to the Supreme Court of the Netherlands, is pending. As a result of this ongoing appellate process, the Arbitration Award may ultimately be upheld by the courts of the Netherlands. Registrant’s management expects that the annulment action is not likely to be ultimately resolved until at the earliest, Registrant's fiscal year ending January 31, 2018.
If the Arbitration Award is finally annulled, management anticipates that the claims and counterclaims that formed the basis of the Arbitration, and potentially additional claims and counterclaims, will be litigated in court proceedings between and among the Swatch Parties and the Tiffany Parties. The identity and location of the courts that would hear such actions have not been determined at this time.
In any litigation regarding the claims and counterclaims that formed the basis of the arbitration, issues of liability and damages will be pled and determined without regard to the findings of the arbitral panel. As such, it is possible that the court could find that the Swatch Parties were in material breach of their obligations under the Agreements, that the Tiffany Parties were in material breach of their obligations under the Agreements or that neither the Swatch Parties nor the Tiffany Parties were in material breach. If the Swatch Parties’ claims of liability were accepted by the court, the damages award cannot be reasonably estimated at this time, but could exceed the Arbitration Damages and could have a material adverse effect on the Registrant’s consolidated financial statements or liquidity.
Although the District Court issued a decision in favor of the Tiffany Parties, an amount will only be recorded for any return of amounts paid under the Arbitration Award when the District’s Court decision is final (i.e., after all rights of appeal have been exhausted) and return of these amounts is deemed probable and collection is reasonably assured. As such, the Company has not recorded any amounts in its consolidated financial statements related to the District Court’s decision.
Additionally, management has not established any accrual in the Company's consolidated financial statements for the year ended January 31, 2017 related to the annulment process or any potential subsequent litigation because it does not believe that the final annulment of the Arbitration Award and a subsequent award of damages exceeding the Arbitration Damages is probable.
In 2015, management introduced new TIFFANY & CO. brand watches, which have been designed, produced, marketed and distributed through certain of the Company's Swiss subsidiaries.
Other Litigation Matters.
The Company is from time to time involved in routine litigation incidental to the conduct of its business, including proceedings to protect its trademark rights, litigation with parties claiming infringement of patents and other intellectual property rights by the Company, litigation instituted by persons alleged to have been injured upon premises under the Company's control and litigation with present and former employees and customers. Although litigation with present and former employees is routine and incidental to the conduct of the Company's business, as well as for any business employing significant numbers of employees, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages for actions claiming discrimination on the basis of age, gender, race, religion, disability or other legally-protected characteristic or for termination of employment that is wrongful or in violation of implied contracts. However, the Company believes that all such litigation currently pending to which it is a party or to which its properties are subject will be resolved without any material adverse effect on the Company's financial position, earnings or cash flows.
Gain contingency.
On February 14, 2013, Tiffany and Company and Tiffany (NJ) LLC (collectively, the "Tiffany plaintiffs") initiated a lawsuit against Costco Wholesale Corp. ("Costco") for trademark infringement, false designation of origin and unfair competition, trademark dilution and trademark counterfeiting (the "Costco Litigation"). The Tiffany plaintiffs sought injunctive relief, monetary recovery and statutory damages on account of Costco's use of "Tiffany" on signs in the jewelry cases at Costco stores used to describe certain diamond engagement rings that were not manufactured by Tiffany. Costco filed a counterclaim arguing that the TIFFANY trademark was a generic term for multi-pronged ring settings and seeking to have the trademark invalidated, modified or partially canceled in that respect. On September 8, 2015, the U.S. District Court for the Southern District of New York (the "Court") granted the Tiffany plaintiffs' motion for summary judgment of liability in its entirety, dismissing Costco's genericism counterclaim and finding that Costco was liable for trademark infringement, trademark counterfeiting and unfair
competition under New York law in its use of "Tiffany" on the above-referenced signs. On September 29, 2016, a civil jury rendered its verdict, finding that Costco's profits on the sale of the infringing rings should be awarded at
$5.5 million
, and further finding that an award of punitive damages was warranted. On October 5, 2016, the jury awarded
$8.25 million
in punitive damages. The aggregate award of
$13.75 million
is not final, and is subject to post-verdict motion practice and ultimately to adjustment by the Court. In such post-verdict motion practice, the Tiffany plaintiffs asserted that the profits award should be trebled and that Costco should also pay the Tiffany plaintiffs' legal fees in respect of this matter. Management expects that the Court will enter its final judgment as to the damages and other monetary recovery that Costco will be ordered to pay to the Tiffany plaintiffs during the Company's 2017 fiscal year. Management also expects that Costco will appeal this judgment, and that the Tiffany plaintiffs will be unable to enforce the judgment while the appeal is pending. As such, the Company has not recorded any amount in its consolidated financial statements related to this gain contingency as of January 31, 2017, and expects that this matter will not ultimately be resolved until, at the earliest, the Company's fiscal year ending January 31, 2018.
Environmental Matter
In 2005, the U.S. Environmental Protection Agency ("EPA") designated a 17-mile stretch of the Passaic River (the "River") part of the Diamond Alkali "Superfund" site. This designation resulted from the detection of hazardous substances emanating from the site, which was previously home to the Diamond Shamrock Corporation, a manufacturer of pesticides and herbicides. Under the Superfund law, the EPA will negotiate with potentially responsible parties to agree on remediation approaches.
The Company, which operated a silverware manufacturing facility near a tributary of the River from approximately 1897 to 1985, is one of more than 300 parties (the "Potentially Responsible Parties") designated in litigation as potentially responsible parties with respect to the River. The EPA issued general notice letters to 125 of these parties. The Company, along with approximately 70 other Potentially Responsible Parties (collectively, the "Cooperating Parties Group" or "CPG") voluntarily entered into an Administrative Settlement Agreement and Order on Consent ("AOC") with the EPA in May 2007 to perform a Remedial Investigation/Feasibility Study (the "RI/FS") of the lower 17 miles of the River. In June 2012, most of the CPG voluntarily entered into a second AOC related to focused remediation actions at Mile 10.9 of the River. The actions under the Mile 10.9 AOC are complete (except for continued monitoring), the Remedial Investigation ("RI") portion of the RI/FS was submitted to the EPA on February 19, 2015, and the Feasibility Study ("FS") portion of the RI/FS was submitted to the EPA on April 30, 2015. The Company has accrued for its financial obligations under both AOCs, which have not been material to its financial position or results of operations in previous financial periods or on a cumulative basis.
The FS presented and evaluated three options for remediating the lower 17 miles of the River, including the approach recommended by the EPA in its Focused Feasibility Study discussed below, as well as a fourth option of taking no action, and recommended an approach for a targeted remediation of the entire 17-mile stretch of the River. The estimated cost of the approach recommended by the CPG in the FS is approximately
$483.0 million
. The RI and FS are being reviewed by the EPA and other governmental agencies and stakeholders. Ultimately, the Company expects that the EPA will identify and negotiate with any or all of the potentially responsible parties regarding any remediation action that may be necessary, and issue a Record of Decision with a proposed approach to remediating the entire lower 17-mile stretch of the River.
Separately, on April 11, 2014, the EPA issued a proposed plan for remediating the lower eight miles of the River, which is supported by a Focused Feasibility Study (the "FFS"). The FFS evaluated three remediation options, as well as a fourth option of taking no action. Following a public review and comment period and the EPA's review of comments received, the EPA issued a Record of Decision on March 4, 2016 that set forth a remediation plan for the lower eight miles of the River (the "RoD Remediation"). The RoD Remediation is estimated by the EPA to cost
$1.38 billion
. The Record of Decision did not identify any party or parties as being responsible for the design of the remediation or for the remediation itself. The EPA did note that it estimates the design of the necessary remediation activities will take three to four years, with the remediation to follow, which is estimated to take an additional six years to complete.
On March 31, 2016, the EPA issued a letter to approximately 100 companies (including the Company) (collectively, the "notified companies") notifying them of potential liability for the RoD Remediation and of the EPA’s planned approach to addressing the cost of the RoD Remediation, which included the possibility of a de-minimis cash-out settlement (the "settlement option") for certain parties. In April of 2016, the Company notified the EPA of its interest
in pursuing the settlement option, and accordingly recorded an immaterial liability representing its best estimate of its minimum liability for the RoD Remediation, which reflects the possibility of a de-minimis settlement. Although the EPA must determine which parties are eligible for the settlement option, the Company does not expect any settlement amount that it might agree with the EPA to be material to its financial position, results of operations or cash flows.
In October 2016, the EPA announced that it entered into a legal agreement with one of the notified companies, pursuant to which such company agreed to spend
$165.0 million
to perform the engineering and design work required in advance of the clean-up contemplated by the RoD Remediation (the "RoD Design Phase"). In the absence of a viable settlement option, the Company is unable to determine its participation in the overall RoD Remediation (of which the RoD Design Phase is only a part), if any, relative to the other potentially responsible parties or the allocation of the estimated cost thereof among the potentially responsible parties, until such time as the EPA reaches an agreement with any potentially responsible party or parties to fund the overall RoD Remediation (or pursues legal or administrative action to require any potentially responsible party or parties to perform, or pay for, the overall RoD Remediation). With respect to the RI/FS (which is distinct from the RoD Remediation), until a Record of Decision is issued with respect to the RI/FS, neither the ultimate remedial approach for the remaining upper nine miles of the relevant 17-mile stretch of the River and its cost, nor the Company's participation, if any, relative to the other potentially responsible parties in this approach and cost, can be determined.
As such, the Company's liability, if any, beyond that already recorded for (1) its obligations under the 2007 AOC and the Mile 10.9 AOC, and (2) its estimate related to a de minimis cash-out settlement for the RoD Remediation, cannot be determined at this time. However, the Company does not expect that its ultimate liability related to the relevant 17-mile stretch of the River will be material to its financial position, in light of the number of companies that have previously been identified as Potentially Responsible Parties (i.e., the more than 300 parties that were initially designated in litigation as potentially responsible parties), which includes, but goes well beyond those approximately 70 companies in the CPG that participated in the 2007 AOC and the Mile 10.9 AOC, and the Company's relative participation in the costs related to the 2007 AOC and Mile 10.9 AOC. It is nonetheless possible that any resulting liability when the uncertainties discussed above are resolved could be material to the Company's results of operations or cash flows in the period in which such uncertainties are resolved.
Other Regulatory Matters
The Company is subject to regulations in various jurisdictions in which the Company operates, including those related to the sale of consumer products. During the Company's regular internal quality testing, the Company identified a potential breach of the Company's sourcing and quality standards applicable to third party vendors. The Company is currently in the early stages of assessing the composition of certain of its gold products manufactured by certain U.S. third-party vendors, which contain gold solder manufactured by other U.S. vendors, to determine whether such products are in compliance with applicable consumer products requirements and regulations. This assessment could result in the Company reporting instances of non-compliance to regulatory authorities in one or more markets, and incurring costs, including for the possible payment of fines and penalties. Management has not recorded any liability for these matters as it does not believe that such liability is probable and reasonably estimable. It is nonetheless possible that any resulting liability when the uncertainties discussed above are resolved could be material to the Company's results of operations or cash flows in the periods in which such uncertainties are resolved.
Other
In the fourth quarter of 2015, the Company implemented specific cost-reduction initiatives and recorded
$8.8 million
of expense within SG&A expenses. These unrelated cost-reduction initiatives included severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations will be recovered.
The Company's Chairman of the Board and, effective February 5, 2017, Interim Chief Executive Officer was a member of the Board of Directors of The Bank of New York Mellon through April 14, 2015. The Bank of New York Mellon serves as the Company's trustee for its Senior Notes due in 2024 and 2044, participates as a co-syndication agent and lender for its New Credit Facilities, provides other general banking services and serves as the trustee for
the Company's pension plan. Fees paid to the bank for services rendered and interest on debt amounted to
$0.7
million and
$1.3
million in
2015
and
2014
.
L. STOCKHOLDERS' EQUITY
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
(in millions)
|
2017
|
|
|
2016
|
|
Accumulated other comprehensive (loss) earnings, net of tax:
|
|
|
|
Foreign currency translation adjustments
|
$
|
(143.7
|
)
|
|
$
|
(135.3
|
)
|
Unrealized gain (loss) on marketable securities
|
0.8
|
|
|
(1.0
|
)
|
Deferred hedging loss
|
(16.1
|
)
|
|
(26.8
|
)
|
Net unrealized loss on benefit plans
|
(97.2
|
)
|
|
(115.0
|
)
|
|
$
|
(256.2
|
)
|
|
$
|
(278.1
|
)
|
Additions to and reclassifications out of accumulated other comprehensive earnings (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
(
in millions
)
|
2017
|
|
2016
|
|
2015
|
|
Foreign currency translation adjustments
|
$
|
8.3
|
|
$
|
(59.9
|
)
|
$
|
(101.9
|
)
|
Income tax (expense) benefit
|
(16.7
|
)
|
0.9
|
|
8.8
|
|
Foreign currency adjustments, net of tax
|
(8.4
|
)
|
(59.0
|
)
|
(93.1
|
)
|
Unrealized gain (loss) on marketable securities
|
2.7
|
|
(4.1
|
)
|
(0.9
|
)
|
Reclassification for gain included in net earnings
a
|
—
|
|
(0.4
|
)
|
—
|
|
Income tax (expense) benefit
|
(0.9
|
)
|
1.6
|
|
0.1
|
|
Unrealized gain (loss) on marketable securities, net of tax
|
1.8
|
|
(2.9
|
)
|
(0.8
|
)
|
Unrealized gain (loss) on hedging instruments
|
12.1
|
|
(22.2
|
)
|
14.6
|
|
Reclassification adjustment for loss (gain) included in
net earnings
b
|
4.9
|
|
(11.7
|
)
|
(13.0
|
)
|
Income tax (expense) benefit
|
(6.3
|
)
|
12.5
|
|
(0.4
|
)
|
Unrealized gain (loss) on hedging instruments, net of tax
|
10.7
|
|
(21.4
|
)
|
1.2
|
|
Prior service cost
|
—
|
|
—
|
|
(0.5
|
)
|
Net actuarial gain (loss)
|
14.1
|
|
122.5
|
|
(234.6
|
)
|
Amortization of net loss included in net earnings
c
|
14.7
|
|
30.4
|
|
13.1
|
|
Amortization of prior service credit included in net earnings
c
|
(0.7
|
)
|
(0.6
|
)
|
(0.4
|
)
|
Income tax (expense) benefit
|
(10.3
|
)
|
(56.6
|
)
|
83.2
|
|
Net unrealized gain (loss) on benefit plans, net of tax
|
17.8
|
|
95.7
|
|
(139.2
|
)
|
Total other comprehensive earnings (loss), net of tax
|
$
|
21.9
|
|
$
|
12.4
|
|
$
|
(231.9
|
)
|
|
|
a
|
These gains are reclassified into Other (income) expense, net.
|
|
|
b
|
These losses (gains) are reclassified into Interest expense and financing costs and Cost of sales (see "Note H. Hedging Instruments" for additional details).
|
|
|
c
|
These accumulated other comprehensive income components are included in the computation of net periodic pension costs (see "Note N. Employee Benefit Plans" for additional details).
|
Stock Repurchase Program
In January 2016, the Registrant's Board of Directors approved the termination of the Company's then-existing share repurchase program, which was approved in March 2014 and had authorized the Company to repurchase up to
$300.0
million of its Common Stock through open market transactions (the "2014 Program") in favor of a new share repurchase program ("2016 Program"). The 2016 Program, which will expire on
January 31, 2019
, authorizes the Company to repurchase up to
$500.0
million of its Common Stock through open market transactions, block trades or privately negotiated transactions. Purchases under the 2014 Program were, and purchases under the 2016 Program have been, executed under a written plan for trading securities as specified under Rule 10b5-1 promulgated under the Securities and Exchange Act of 1934, as amended, the terms of which are within the Company's discretion, subject to applicable securities laws, and are based on market conditions and the Company's liquidity needs. Approximately
$310.4
million remained available for repurchase under the 2016 Program at
January 31, 2017
.
The Company's share repurchase activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
(in millions, except per share amounts)
|
2017
|
|
2016
|
|
2015
|
|
Cost of repurchases
|
$
|
183.6
|
|
$
|
220.4
|
|
$
|
27.0
|
|
Shares repurchased and retired
|
2.8
|
|
2.8
|
|
0.3
|
|
Average cost per share
|
$
|
65.24
|
|
$
|
78.40
|
|
$
|
89.91
|
|
Cash Dividends
The Company's Board of Directors declared quarterly dividends which, on an annual basis, totaled
$1.75
,
$1.58
and
$1.48
per share of Common Stock in
2016
,
2015
and
2014
.
On
February 16, 2017
, the Company's Board of Directors declared a quarterly dividend of
$0.45
per share of Common Stock. This dividend will be paid on
April 10, 2017
to stockholders of record on
March 20, 2017
.
M. STOCK COMPENSATION PLANS
The Company has two stock compensation plans under which awards may be made: the Employee Incentive Plan and the Directors Equity Compensation Plan, both of which were approved by the stockholders. No award may be made under the Employee Incentive Plan after May 22, 2024 or under the Directors Equity Compensation Plan after May 15, 2018.
Under the Employee Incentive Plan, the maximum number of common shares authorized for issuance was
8.7
million. Awards may be made to employees of the Company or its related companies in the form of stock options, stock appreciation rights, shares of stock (or rights to receive shares of stock) and cash. Awards made in the form of non-qualified stock options, tax-qualified incentive stock options or stock appreciation rights have a maximum term of
10
years from the grant date and may not be granted for an exercise price below fair market value.
The Company has granted time-vesting restricted stock units ("RSUs"), performance-based restricted stock units ("PSUs") and stock options under the Employee Incentive Plan. Stock options and RSUs vest primarily in increments of
25%
per year over
four
years. PSUs issued to the executive officers vest at the end of a
three
-year period. Vesting of all PSUs is contingent on the Company's performance against established objectives established by the Compensation Committee of the Company's Board of Directors. The PSUs and RSUs require no payment from the employee. PSU and RSU payouts will be in shares of Company stock at vesting. Compensation expense is recognized using the fair market value at the date of grant and recorded ratably over the vesting period. However, PSU compensation expense may be adjusted over the vesting period based on interim estimates of performance against the established objectives. Award holders are not entitled to receive dividends or dividend equivalents on unvested stock options or PSUs or RSUs granted prior to January 2017. PSUs and RSUs granted in January 2017 accrue dividend equivalents that may only be paid or delivered upon vesting of the underlying stock units.
Under the Directors Equity Compensation Plan, the maximum number of shares of Common Stock authorized for issuance was
1.0
million (subject to adjustment); awards may be made to non-employee directors of the Company in the form of stock options or shares of stock but may not exceed
25
thousand (subject to adjustment) shares per non-employee director in any fiscal year. Awards of shares (or rights to receive shares) reduce the above authorized amount by
1.58
shares for every share delivered pursuant to such an award. Awards made in the form of stock options may have a maximum term of
10
years from the grant date and may not be granted for an exercise price below fair market value unless the director has agreed to forego all or a portion of his or her annual cash retainer or other fees for service as a director in exchange for below-market exercise price options. Director options vest immediately. Director RSUs vest over a
one
-year period.
The Company uses newly issued shares to satisfy stock option exercises and the vesting of PSUs and RSUs.
The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model and compensation expense is recognized ratably over the vesting period. The valuation model uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company's stock. The Company uses historical data to estimate the expected term of the option that represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the grant date.
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
Dividend yield
|
2.0
|
%
|
1.9
|
%
|
1.3
|
%
|
Expected volatility
|
23.8
|
%
|
28.1
|
%
|
30.2
|
%
|
Risk-free interest rate
|
1.8
|
%
|
1.5
|
%
|
1.5
|
%
|
Expected term in years
|
5
|
|
5
|
|
5
|
|
A summary of the option activity for the Company's stock option plans is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(in millions)
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-
Average
Remaining
Contractual
Term in Years
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Outstanding at January 31, 2016
|
2.1
|
|
$
|
67.59
|
|
7.02
|
$
|
7.9
|
|
Granted
|
0.6
|
|
77.20
|
|
|
|
Exercised
|
(0.3
|
)
|
57.40
|
|
|
|
Forfeited/canceled
|
(0.1
|
)
|
75.16
|
|
|
|
Outstanding at January 31, 2017
|
2.3
|
|
$
|
70.72
|
|
7.50
|
$
|
23.8
|
|
Exercisable at January 31, 2017
|
1.1
|
|
$
|
66.42
|
|
5.70
|
$
|
17.0
|
|
The weighted-average grant-date fair value of options granted for the years ended January 31,
2017
,
2016
and
2015
was
$14.36
,
$14.42
and
$22.25
. The total intrinsic value (market value on date of exercise less grant price) of options exercised during the years ended January 31,
2017
,
2016
and
2015
was
$4.5
million,
$2.4
million and
$44.1
million.
A summary of the activity for the Company's RSUs is presented below:
|
|
|
|
|
|
|
|
Number of Shares
(in millions)
|
|
Weighted-Average
Grant-Date Fair Value
|
|
Non-vested at January 31, 2016
|
0.5
|
|
$
|
79.02
|
|
Granted
|
0.4
|
|
67.46
|
|
Vested
|
(0.2
|
)
|
71.29
|
|
Forfeited
|
(0.1
|
)
|
79.51
|
|
Non-vested at January 31, 2017
|
0.6
|
|
$
|
73.33
|
|
A summary of the activity for the Company's PSUs is presented below:
|
|
|
|
|
|
|
|
Number of Shares
(in millions)
|
|
Weighted-Average
Grant-Date Fair Value
|
|
Non-vested at January 31, 2016
|
0.7
|
|
$
|
70.56
|
|
Granted
|
0.2
|
|
79.23
|
|
Vested
|
(0.1
|
)
|
67.15
|
|
Forfeited/canceled
|
(0.1
|
)
|
69.85
|
|
Non-vested at January 31, 2017
|
0.7
|
|
$
|
73.52
|
|
The weighted-average grant-date fair value of RSUs granted for the years ended January 31,
2016
and
2015
was
$80.44
and
$90.68
. The weighted-average grant-date fair value of PSUs granted for the years ended January 31,
2016
and
2015
was
$58.09
and
$82.88
.
As of January 31,
2017
, there was
$69.2
million of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the Employee Incentive Plan and Directors Equity Compensation Plan. The expense is expected to be recognized over a weighted-average period of
2.6
years. The total fair value of RSUs vested during the years ended January 31,
2017
,
2016
and
2015
was
$13.6
million,
$18.0
million and
$27.7
million. The total fair value of PSUs vested during the years ended January 31,
2017
,
2016
and
2015
was
$6.3
million,
$4.1
million and
$8.1
million.
Total compensation cost for stock-based compensation awards recognized in income and the related income tax benefit was
$24.3
million and
$7.7
million for the year ended
January 31, 2017
,
$24.5
million and
$7.9
million for the year ended January 31,
2016
and
$26.5
million and
$8.9
million for the year ended January 31,
2015
. Total stock-based compensation cost capitalized in inventory was not significant.
|
|
N.
|
EMPLOYEE BENEFIT PLANS
|
Pensions and Other Postretirement Benefits
The Company maintains the following pension plans: a noncontributory defined benefit pension plan qualified in accordance with the Internal Revenue Service Code ("Qualified Plan") covering substantially all U.S. employees hired before January 1, 2006, a non-qualified unfunded retirement income plan ("Excess Plan") covering certain U.S. employees hired before January 1, 2006 and affected by Internal Revenue Service Code compensation limits, a non-qualified unfunded Supplemental Retirement Income Plan ("SRIP") covering certain executive officers of the Company hired before January 1, 2006 and noncontributory defined benefit pension plans in certain of its international locations ("Other Plans").
Qualified Plan benefits are based on (i) average compensation in the highest paid
five years of the last 10 years
of employment ("average final compensation") and (ii) the number of years of service. Participants with at least
10 years
of service who retire after attaining age 55 may receive reduced retirement benefits. Participants who have at least five years of service when their employment with the Company terminates may also receive certain benefits.
The Company funds the Qualified Plan's trust in accordance with regulatory limits to provide for current service and for the unfunded benefit obligation over a reasonable period and for current service benefit accruals. To the extent that these requirements are fully covered by assets in the Qualified Plan, the Company may elect not to make any contribution in a particular year. No cash contribution was required in 2016 and none is required in 2017 to meet the minimum funding requirements of the Employee Retirement Income Security Act. The Company periodically evaluates whether to make discretionary cash contributions to the Qualified Plan and made a voluntary cash contribution of
$120.0
million in 2016 but currently does not anticipate to make such contributions in 2017. This expectation is subject to change based on management’s assessment of a variety of factors, including, but not limited to, asset performance, interest rates and changes in actuarial assumptions.
The Qualified Plan, Excess Plan and SRIP exclude all employees hired on or after January 1, 2006. Instead, employees hired on or after January 1, 2006 are eligible to receive a defined contribution retirement benefit under the Employee Profit Sharing and Retirement Savings ("EPSRS") Plan (see "Employee Profit Sharing and Retirement Savings Plan" below). Employees hired before January 1, 2006 continue to be eligible for and accrue benefits under the Qualified Plan.
The Excess Plan uses the same retirement benefit formula set forth in the Qualified Plan, but includes earnings that are excluded under the Qualified Plan due to Internal Revenue Service Code qualified pension plan limitations. Benefits payable under the Qualified Plan offset benefits payable under the Excess Plan. Employees vested under the Qualified Plan are vested under the Excess Plan; however, benefits under the Excess Plan are subject to forfeiture if employment is terminated for cause and, for those who leave the Company prior to age 65, if they fail to execute and adhere to noncompetition and confidentiality covenants. The Excess Plan allows participants with at least
10 years
of service who retire after attaining age 55 to receive reduced retirement benefits.
The SRIP supplements the Qualified Plan, Excess Plan and Social Security by providing additional payments upon a participant's retirement. SRIP benefits are determined by a percentage of average final compensation; this percentage increases as specified service plateaus are achieved. Benefits payable under the Qualified Plan, Excess Plan and Social Security offset benefits payable under the SRIP. Under the SRIP, benefits vest when a participant both (i) attains age 55 while employed by the Company and (ii) has provided at least
10 years
of service. In certain limited circumstances, early vesting can occur due to a change in control. Benefits under the SRIP are forfeited if benefits under the Excess Plan are forfeited.
Benefits for the Other Plans are typically based on monthly eligible compensation and the number of years of service. Benefits are typically payable in a lump sum upon retirement, termination, resignation or death if the participant has completed the requisite service period.
The Company accounts for pension expense using the projected unit credit actuarial method for financial reporting purposes. The actuarial present value of the benefit obligation is calculated based on the expected date of separation or retirement of the Company's eligible employees.
The Company provides certain health-care and life insurance benefits ("Other Postretirement Benefits") for certain retired employees and accrues the cost of providing these benefits throughout the employees' active service period until they attain full eligibility for those benefits. Substantially all of the Company's U.S. full-time employees, hired on or before March 31, 2012, may become eligible for these benefits if they reach normal or early retirement age while working for the Company. The cost of providing postretirement health-care benefits is shared by the retiree and the Company, with retiree contributions evaluated annually and adjusted in order to maintain the Company/retiree cost-sharing target ratio. The life insurance benefits are noncontributory. The Company's employee and retiree health-care benefits are administered by an insurance company, and premiums on life insurance are based on prior years' claims experience.
Obligations and Funded Status
The following tables provide a reconciliation of benefit obligations, plan assets and funded status of the pension and other postretirement benefit plans as of the measurement date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
(in millions)
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
Change in benefit obligation:
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
742.6
|
|
$
|
841.7
|
|
|
$
|
78.4
|
|
$
|
92.9
|
|
Service cost
|
17.4
|
|
22.6
|
|
|
2.8
|
|
4.2
|
|
Interest cost
|
31.6
|
|
30.6
|
|
|
3.1
|
|
3.2
|
|
Participants' contributions
|
—
|
|
—
|
|
|
1.2
|
|
1.3
|
|
MMA retiree drug subsidy
|
—
|
|
—
|
|
|
—
|
|
0.2
|
|
Actuarial loss (gain)
|
15.9
|
|
(128.8
|
)
|
|
(10.5
|
)
|
(20.4
|
)
|
Benefits paid
|
(24.3
|
)
|
(23.1
|
)
|
|
(2.5
|
)
|
(3.0
|
)
|
Curtailments
|
—
|
|
(0.2
|
)
|
|
—
|
|
—
|
|
Translation
|
0.5
|
|
(0.2
|
)
|
|
—
|
|
—
|
|
Benefit obligation at end of year
|
783.7
|
|
742.6
|
|
|
72.5
|
|
78.4
|
|
Change in plan assets:
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
385.8
|
|
406.0
|
|
|
—
|
|
—
|
|
Actual return on plan assets
|
42.9
|
|
(2.2
|
)
|
|
—
|
|
—
|
|
Employer contribution
|
125.7
|
|
5.1
|
|
|
1.3
|
|
1.5
|
|
Participants' contributions
|
—
|
|
—
|
|
|
1.2
|
|
1.3
|
|
MMA retiree drug subsidy
|
—
|
|
—
|
|
|
—
|
|
0.2
|
|
Benefits paid
|
(24.3
|
)
|
(23.1
|
)
|
|
(2.5
|
)
|
(3.0
|
)
|
Fair value of plan assets at end of year
|
530.1
|
|
385.8
|
|
|
—
|
|
—
|
|
Funded status at end of year
|
$
|
(253.6
|
)
|
$
|
(356.8
|
)
|
|
$
|
(72.5
|
)
|
$
|
(78.4
|
)
|
Actuarial gains in 2015 reflect increases in the discount rates for all plans.
The following tables provide additional information regarding the Company's pension plans' projected benefit obligations and assets (included in pension benefits in the table above) and accumulated benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
(in millions)
|
Qualified
|
|
Excess/SRIP
|
|
Other
|
|
Total
|
|
Projected benefit obligation
|
$
|
661.5
|
|
$
|
103.6
|
|
$
|
18.6
|
|
$
|
783.7
|
|
Fair value of plan assets
|
530.1
|
|
—
|
|
—
|
|
530.1
|
|
Funded status
|
$
|
(131.4
|
)
|
$
|
(103.6
|
)
|
$
|
(18.6
|
)
|
$
|
(253.6
|
)
|
Accumulated benefit obligation
|
$
|
599.0
|
|
$
|
90.9
|
|
$
|
16.9
|
|
$
|
706.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2016
|
|
(in millions)
|
Qualified
|
|
Excess/SRIP
|
|
Other
|
|
Total
|
|
Projected benefit obligation
|
$
|
620.8
|
|
$
|
105.5
|
|
$
|
16.3
|
|
$
|
742.6
|
|
Fair value of plan assets
|
385.8
|
|
—
|
|
—
|
|
385.8
|
|
Funded status
|
$
|
(235.0
|
)
|
$
|
(105.5
|
)
|
$
|
(16.3
|
)
|
$
|
(356.8
|
)
|
Accumulated benefit obligation
|
$
|
556.8
|
|
$
|
92.1
|
|
$
|
13.5
|
|
$
|
662.4
|
|
At January 31,
2017
, the Company had a current liability of
$7.5
million and a non-current liability of
$318.6 million
for pension and other postretirement benefits. At January 31,
2016
, the Company had a current liability of
$7.1
million and a non-current liability of
$428.1
million for pension and other postretirement benefits.
Amounts recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
(in millions)
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
Net actuarial loss (gain)
|
$
|
161.8
|
|
$
|
180.1
|
|
|
$
|
(0.1
|
)
|
$
|
10.4
|
|
Prior service cost (credit)
|
0.8
|
|
0.8
|
|
|
(2.4
|
)
|
(3.0
|
)
|
Total before tax
|
$
|
162.6
|
|
$
|
180.9
|
|
|
$
|
(2.5
|
)
|
$
|
7.4
|
|
The estimated pre-tax amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost within the next 12 months is as follows:
|
|
|
|
|
|
|
|
|
(in millions)
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
Net actuarial loss
|
$
|
14.0
|
|
|
$
|
|
|
Prior service cost (credit)
|
0.2
|
|
|
(0.7
|
)
|
|
$
|
14.2
|
|
|
$
|
(0.7
|
)
|
Components of Net Periodic Benefit Cost and
Other Amounts Recognized in Other Comprehensive Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
|
2017
|
|
2016
|
|
2015
|
|
Service cost
|
$
|
17.4
|
|
$
|
22.6
|
|
$
|
16.8
|
|
|
$
|
2.8
|
|
$
|
4.2
|
|
$
|
2.4
|
|
Interest cost
|
31.6
|
|
30.6
|
|
28.3
|
|
|
3.1
|
|
3.2
|
|
2.6
|
|
Expected return on plan assets
|
(23.5
|
)
|
(24.7
|
)
|
(23.6
|
)
|
|
—
|
|
—
|
|
—
|
|
Curtailments
|
—
|
|
0.2
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
—
|
|
0.3
|
|
|
(0.7
|
)
|
(0.7
|
)
|
(0.7
|
)
|
Amortization of net loss
|
14.7
|
|
28.9
|
|
13.1
|
|
|
—
|
|
1.5
|
|
—
|
|
Net periodic benefit cost
|
40.2
|
|
57.6
|
|
34.9
|
|
|
5.2
|
|
8.2
|
|
4.3
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
(3.6
|
)
|
(102.1
|
)
|
199.8
|
|
|
(10.5
|
)
|
(20.4
|
)
|
34.8
|
|
Recognized actuarial loss
|
(14.7
|
)
|
(28.9
|
)
|
(13.1
|
)
|
|
—
|
|
(1.5
|
)
|
—
|
|
Prior service cost
|
—
|
|
—
|
|
0.5
|
|
|
—
|
|
—
|
|
—
|
|
Recognized prior service (cost) credit
|
—
|
|
(0.1
|
)
|
(0.3
|
)
|
|
0.7
|
|
0.7
|
|
0.7
|
|
Total recognized in other comprehensive earnings
|
(18.3
|
)
|
(131.1
|
)
|
186.9
|
|
|
(9.8
|
)
|
(21.2
|
)
|
35.5
|
|
Total recognized in net periodic benefit cost and other comprehensive earnings
|
$
|
21.9
|
|
$
|
(73.5
|
)
|
$
|
221.8
|
|
|
$
|
(4.6
|
)
|
$
|
(13.0
|
)
|
$
|
39.8
|
|
Assumptions
Weighted-average assumptions used to determine benefit obligations:
|
|
|
|
|
|
|
January 31,
|
|
|
2017
|
|
2016
|
|
Discount rate:
|
|
|
Qualified Plan
|
4.25
|
%
|
4.50
|
%
|
Excess Plan/SRIP
|
4.25
|
%
|
4.25
|
%
|
Other Plans
|
0.81
|
%
|
1.05
|
%
|
Other Postretirement Benefits
|
4.25
|
%
|
4.50
|
%
|
Rate of increase in compensation:
|
|
|
Qualified Plan
|
3.00
|
%
|
3.00
|
%
|
Excess Plan
|
4.25
|
%
|
4.25
|
%
|
SRIP
|
6.50
|
%
|
6.50
|
%
|
Other Plans
|
1.12
|
%
|
1.18
|
%
|
Weighted-average assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
Discount rate:
|
|
|
|
Qualified Plan
|
4.50
|
%
|
3.75
|
%
|
4.75
|
%
|
Excess Plan/SRIP
|
4.25
|
%
|
3.75
|
%
|
5.00
|
%
|
Other Plans
|
1.40
|
%
|
1.71
|
%
|
1.81
|
%
|
Other Postretirement Benefits
|
4.50
|
%
|
3.50
|
%
|
5.00
|
%
|
Expected return on plan assets
|
7.00
|
%
|
7.50
|
%
|
7.50
|
%
|
Rate of increase in compensation:
|
|
|
|
Qualified Plan
|
3.00
|
%
|
2.75
|
%
|
2.75
|
%
|
Excess Plan
|
4.25
|
%
|
4.25
|
%
|
4.25
|
%
|
SRIP
|
6.50
|
%
|
7.25
|
%
|
7.25
|
%
|
Other Plans
|
1.38
|
%
|
1.56
|
%
|
1.33
|
%
|
The expected long-term rate of return on Qualified Plan assets is selected by taking into account the average rate of return expected on the funds invested or to be invested to provide for benefits included in the projected benefit obligation. More specifically, consideration is given to the expected rates of return (including reinvestment asset return rates) based upon the plan's current asset mix, investment strategy and the historical performance of plan assets.
For postretirement benefit measurement purposes, a
7.00%
annual rate of increase in the per capita cost of covered health care was assumed for
2017
. This rate was assumed to decrease gradually to
4.75%
by 2023 and remain at that level thereafter.
Assumed health-care cost trend rates can affect amounts reported for the Company's postretirement health-care benefits plan. A one-percentage-point change in the assumed health-care cost trend rate would not have a significant effect on the Company's accumulated postretirement benefit obligation for the year ended January 31,
2017
or aggregate service and interest cost components of the
2016
postretirement expense.
Plan Assets
The Company's investment objectives, related to the Qualified Plan's assets, are the preservation of principal and balancing the management of interest rate risk associated with the duration of the plan's liabilities with the achievement of a reasonable rate of return over time. The Qualified Plan's assets are allocated based on an expectation that equity securities will outperform debt securities over the long term, but that as the plan's funded status (assets relative to liabilities) increases, the amount of assets allocated to fixed income securities which match the interest rate risk profile of the plan's liabilities will increase. The Company's target asset allocations based on its funded status as of January 31, 2017 is as follows: approximately
50%
in equity securities; approximately
35%
in fixed income securities; and approximately
15%
in other securities. The Company attempts to mitigate investment risk by rebalancing asset allocation periodically.
The fair value of the Qualified Plan's assets at January 31,
2017
and
2016
by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
Fair Value Measurements
Using Inputs Considered as*
|
(in millions)
|
January 31, 2017
|
Level 1
|
Level 2
|
Level 3
|
Equity securities:
|
|
|
|
|
U.S. equity securities
|
$
|
56.2
|
|
$
|
56.2
|
|
$
|
—
|
|
$
|
—
|
|
Mutual fund
|
35.1
|
|
35.1
|
|
—
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
Government bonds
|
78.2
|
|
77.8
|
|
0.4
|
|
—
|
|
Corporate bonds
|
83.8
|
|
—
|
|
83.8
|
|
—
|
|
Other types of investments:
|
|
|
|
|
Cash and cash equivalents
|
7.8
|
|
7.8
|
|
—
|
|
—
|
|
Mutual funds
|
36.7
|
|
36.7
|
|
—
|
|
—
|
|
Net assets in fair value hierarchy
|
297.8
|
|
213.6
|
|
84.2
|
|
—
|
|
Investments at NAV practical expedient
a
|
232.3
|
|
|
|
|
Plan assets at fair value
|
$
|
530.1
|
|
$
|
213.6
|
|
$
|
84.2
|
|
$
|
—
|
|
|
|
|
|
|
|
Fair Value at
|
Fair Value Measurements
Using Inputs Considered as*
|
(in millions)
|
January 31, 2016
|
Level 1
|
Level 2
|
Level 3
|
Equity securities:
|
|
|
|
|
U.S. equity securities
|
$
|
45.6
|
|
$
|
45.6
|
|
$
|
—
|
|
$
|
—
|
|
Mutual fund
|
27.4
|
|
27.4
|
|
—
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
Government bonds
|
62.3
|
|
61.3
|
|
1.0
|
|
—
|
|
Corporate bonds
|
87.7
|
|
—
|
|
87.7
|
|
—
|
|
Other types of investments:
|
|
|
|
|
Cash and cash equivalents
|
2.5
|
|
2.5
|
|
—
|
|
—
|
|
Mutual funds
|
25.6
|
|
25.6
|
|
—
|
|
—
|
|
Net assets in fair value hierarchy
|
251.1
|
|
162.4
|
|
88.7
|
|
—
|
|
Investments at NAV practical expedient
a
|
134.7
|
|
|
|
|
Plan assets at fair value
|
$
|
385.8
|
|
$
|
162.4
|
|
$
|
88.7
|
|
$
|
—
|
|
|
|
*
|
See "Note I. Fair Value of Financial Instruments" for a description of the levels of inputs.
|
|
|
a
|
In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value ("NAV") per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the Qualified Plan's fair value of plan assets at the end of each respective year.
|
Valuation Techniques
Investments within the fair value hierarchy.
Securities traded on the national securities exchange (certain government bonds) are valued at the last reported sales price or closing price on the last business day of the fiscal year. Investments traded in the over-the-counter market and listed securities for which no sales were reported (certain government bonds, corporate bonds and mortgage obligations) are valued at the last reported bid price.
Certain fixed income investments are held in separately managed accounts and those investments are valued using the underlying securities in the accounts.
Investments in mutual funds are stated at fair value as determined by quoted market prices based on the NAV of shares held by the Plan at year-end. Investments in U.S. equity securities are valued at the closing price reported on the active market on which the individual securities are traded.
Investments measured at NAV.
This category consists of common/collective trusts and limited partnerships.
Common/collective trusts include investments in U.S. and international large, middle and small capitalization equities. Investments in common/collective trusts are stated at estimated fair value which represents the net asset value of shares held by the Qualified Plan as reported by the investment advisor. The net asset value is based on the value of the underlying assets owned by the common/collective trusts, minus its liabilities and then divided by the number of shares outstanding. The NAV is used as a practical expedient to estimate fair value.
The Qualified Plan maintains investments in limited partnerships that are valued at estimated fair value based on financial information received from the investment advisor and/or general partner. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities and then divided by the number of shares outstanding. The NAV is used as a practical expedient to estimate fair value.
Benefit Payments
The Company expects the following future benefit payments to be paid:
|
|
|
|
|
|
|
|
Years Ending January 31,
|
Pension Benefits
(in millions)
|
|
Other Postretirement Benefits
(in millions)
|
|
2018
|
$
|
25.6
|
|
$
|
1.9
|
|
2019
|
26.5
|
|
2.0
|
|
2020
|
27.2
|
|
2.1
|
|
2021
|
28.6
|
|
2.2
|
|
2022
|
29.7
|
|
2.3
|
|
2023-2027
|
171.5
|
|
14.3
|
|
Employee Profit Sharing and Retirement Savings ("EPSRS") Plan
The Company maintains an EPSRS Plan that covers substantially all U.S.-based employees. Under the profit-sharing feature of the EPSRS Plan, the Company made contributions, in the form of newly issued Company Common Stock through 2014, to the employees' accounts based on the achievement of certain targeted earnings objectives established by, or as otherwise determined by, the Company's Board of Directors. Beginning in 2015, these contributions were made in cash. The Company recorded expense of
$2.3
million in
2016
, no expense in
2015
and expense of
$3.1
million in
2014
. Under the retirement savings feature of the EPSRS Plan, employees who meet certain eligibility requirements may participate by contributing up to
50%
of their annual compensation, not to exceed Internal Revenue Service limits, and the Company may provide a matching cash contribution of
50%
of each participant's contributions, with a maximum matching contribution of
3%
of each participant's total compensation. The Company recorded expense of
$7.5
million,
$7.3
million and
$7.7
million in
2016
,
2015
and
2014
. Contributions to both features of the EPSRS Plan are made in the following year.
Under the profit-sharing feature of the EPSRS Plan, for contributions made in the Company's stock, the Company's stock contribution is required to be maintained in such stock until the employee has two or more years of service, at which time the employee may diversify his or her Company stock account into other investment options provided under the plan. For contributions made in cash, the contribution is allocated within the participant's account based on their investment elections under the EPSRS Plan. If the participant has made no election, the contribution will be invested in the appropriate default target fund as determined by each participant's date of birth. Under the retirement savings portion of the EPSRS Plan, the employees have the ability to elect to invest a portion of their contribution and the related matching contribution in Company stock. At January 31,
2017
, investments in Company stock represented
20%
of total EPSRS Plan assets.
The EPSRS Plan provides a defined contribution retirement benefit ("DCRB") to eligible employees hired on or after January 1, 2006. Under the DCRB, the Company makes contributions each year to each employee's account at a rate based upon age and years of service. These contributions are deposited into individual accounts in each employee's name to be invested in a manner similar to the retirement savings portion of the EPSRS Plan. The Company recorded expense of
$4.6
million,
$3.2
million and
$4.6
million in
2016
,
2015
and
2014
.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan for directors, executives and certain management employees, whereby eligible participants may defer a portion of their compensation for payment at specified future dates, upon retirement, death or termination of employment. This plan also provides for an excess defined contribution retirement benefit ("Excess DC benefit") for certain eligible executives and management employees, hired on or after January 1, 2006. The Excess DC benefit is credited to the eligible employee's account, based on the compensation paid to the employee in excess of the IRS limits for contribution under the DCRB Plan. Under the plan, the deferred compensation is adjusted to reflect performance, whether positive or negative, of selected investment options chosen by each participant during the deferral period. The amounts accrued under the plans were
$26.5
million and
$24.9
million at January 31,
2017
and
2016
, and are reflected in other long-term liabilities. The Company does not promise or guarantee any rate of return on amounts deferred.
O. INCOME TAXES
Earnings from operations before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
United States
|
$
|
478.2
|
|
$
|
502.5
|
|
$
|
484.5
|
|
Foreign
|
198.4
|
|
207.4
|
|
253.0
|
|
|
$
|
676.6
|
|
$
|
709.9
|
|
$
|
737.5
|
|
Components of the provision for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
Current:
|
|
|
|
Federal
|
$
|
125.5
|
|
$
|
175.8
|
|
$
|
130.9
|
|
State
|
15.4
|
|
22.3
|
|
18.2
|
|
Foreign
|
43.5
|
|
49.8
|
|
66.5
|
|
|
184.4
|
|
247.9
|
|
215.6
|
|
Deferred:
|
|
|
|
Federal
|
36.7
|
|
(15.4
|
)
|
25.2
|
|
State
|
7.1
|
|
3.9
|
|
13.2
|
|
Foreign
|
2.3
|
|
9.6
|
|
(0.7
|
)
|
|
46.1
|
|
(1.9
|
)
|
37.7
|
|
|
$
|
230.5
|
|
$
|
246.0
|
|
$
|
253.3
|
|
Reconciliations of the provision for income taxes at the statutory Federal income tax rate to the Company's effective income tax rate were as follows:
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
Statutory Federal income tax rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
State income taxes, net of Federal benefit
|
2.2
|
|
2.4
|
|
2.8
|
|
Foreign losses with no tax benefit
|
0.2
|
|
—
|
|
0.7
|
|
Undistributed foreign earnings
|
(2.3
|
)
|
(2.5
|
)
|
(4.2
|
)
|
Net change in uncertain tax positions
|
(0.7
|
)
|
0.5
|
|
0.3
|
|
Domestic manufacturing deduction
|
(0.9
|
)
|
(1.3
|
)
|
(1.3
|
)
|
Other
|
0.6
|
|
0.6
|
|
1.1
|
|
|
34.1
|
%
|
34.7
|
%
|
34.4
|
%
|
The Company has the intent to indefinitely reinvest any undistributed earnings of all foreign subsidiaries. As of January 31,
2017
and
2016
, the Company has not provided deferred taxes on approximately
$769.0
million and
$685.0
million of undistributed earnings. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. U.S. Federal income taxes of approximately
$129.0
million and
$118.0
million would be incurred if these earnings were distributed.
Deferred tax assets (liabilities) consisted of the following:
|
|
|
|
|
|
|
|
|
January 31,
|
|
(in millions)
|
2017
|
|
2016
|
|
Deferred tax assets:
|
|
|
Pension/postretirement benefits
|
$
|
124.7
|
|
$
|
166.7
|
|
Accrued expenses
|
36.1
|
|
34.3
|
|
Share-based compensation
|
17.3
|
|
18.3
|
|
Depreciation
|
6.5
|
|
6.6
|
|
Amortization
|
10.8
|
|
11.4
|
|
Foreign and state net operating losses
|
25.5
|
|
23.5
|
|
Sale-leaseback
|
25.8
|
|
30.4
|
|
Inventory
|
57.6
|
|
50.9
|
|
Financial hedging instruments
|
11.9
|
|
19.7
|
|
Unearned income
|
10.6
|
|
11.3
|
|
Other
|
23.0
|
|
53.6
|
|
|
349.8
|
|
426.7
|
|
Valuation allowance
|
(24.1
|
)
|
(19.5
|
)
|
|
325.7
|
|
407.2
|
|
Deferred tax liabilities:
|
|
|
Foreign tax credit
|
(25.8
|
)
|
(25.1
|
)
|
Net deferred tax asset
|
$
|
299.9
|
|
$
|
382.1
|
|
The Company has recorded a valuation allowance against certain deferred tax assets related to foreign net operating loss carryforwards where management has determined it is more likely than not that deferred tax assets will not be realized in the future. The overall valuation allowance relates to tax loss carryforwards and temporary differences for
which no benefit is expected to be realized. Tax loss carryforwards of approximately
$88.5
million exist in certain foreign jurisdictions. Whereas some of these tax loss carryforwards do not have an expiration date, others expire at various times from 2019 through 2024.
The following table reconciles the unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
Unrecognized tax benefits at beginning of year
|
$
|
10.2
|
|
$
|
8.3
|
|
$
|
27.6
|
|
Gross increases – tax positions in prior period
|
0.9
|
|
1.0
|
|
1.0
|
|
Gross decreases – tax positions in prior period
|
(5.0
|
)
|
(0.4
|
)
|
(5.4
|
)
|
Gross increases – tax positions in current period
|
0.3
|
|
1.4
|
|
0.1
|
|
Settlements
|
(3.0
|
)
|
—
|
|
(14.8
|
)
|
Lapse of statute of limitations
|
—
|
|
(0.1
|
)
|
(0.2
|
)
|
Unrecognized tax benefits at end of year
|
$
|
3.4
|
|
$
|
10.2
|
|
$
|
8.3
|
|
Included in the balance of unrecognized tax benefits at January 31,
2017
,
2016
and
2015
are
$1.0
million,
$9.1
million and
$5.3
million of tax benefits that, if recognized, would affect the effective income tax rate.
The Company recognizes interest expense and penalties related to unrecognized tax benefits within the provision for income taxes. During the year ended January 31,
2017
, the Company recognized no expense associated with interest and penalties while during the years ended January 31, 2016 and 2015, the Company recognized approximately
$1.7
million and
$1.8
million of expense. Accrued interest and penalties are included within accounts payable and accrued liabilities and other long-term liabilities, and were
$8.3
million and
$7.8
million at January 31,
2017
and
2016
.
At January 31, 2017, the Company's gross uncertain tax positions decreased
$6.8
million and gross accrued interest and penalties were unchanged from January 31, 2016, primarily as a result of the conclusion of a tax examination during the three months ended April 30, 2016. This settlement resulted in an income tax benefit of
$6.6
million for the year ended January 31, 2017, and reduced the effective income tax rate by
1.0
percentage point versus the prior year.
The Company conducts business globally, and, as a result, is subject to taxation in the U.S. and various state and foreign jurisdictions. As a matter of course, tax authorities regularly audit the Company. The Company's tax filings are currently being examined by a number of tax authorities in several jurisdictions, both in the U.S. and in foreign jurisdictions. Ongoing audits where subsidiaries have a material presence include New York City (tax years
2011
–
2013
) and New York State (tax years
2012
–
2014
). Tax years from
2010
–present are open to examination in the U.S. Federal jurisdiction and
2006
–present are open in various state, local and foreign jurisdictions. As part of these audits, the Company engages in discussions with taxing authorities regarding tax positions. At January 31,
2017
, total unrecognized tax benefits were
$3.4
million of which approximately
$1.0
million, if recognized, would affect the effective income tax rate. As of January 31, 2017, unrecognized tax benefits are not expected to change materially in the next 12 months. Future developments may result in a change in this assessment.
P. SEGMENT INFORMATION
The Company's products are primarily sold in TIFFANY & CO. retail locations around the world. Net sales by geographic area are presented by attributing revenues from external customers on the basis of the country in which the merchandise is sold.
In deciding how to allocate resources and assess performance, the Company's Chief Operating Decision Maker regularly evaluates the performance of its reportable segments on the basis of net sales and earnings from operations, after the elimination of inter-segment sales and transfers. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
Certain information relating to the Company's segments is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
(in millions)
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net sales:
|
|
|
|
|
|
Americas
|
$
|
1,841.9
|
|
|
$
|
1,947.0
|
|
|
$
|
2,033.5
|
|
Asia-Pacific
|
999.1
|
|
|
1,003.1
|
|
|
1,025.2
|
|
Japan
|
604.4
|
|
|
541.3
|
|
|
554.3
|
|
Europe
|
457.6
|
|
|
505.7
|
|
|
513.3
|
|
Total reportable segments
|
3,903.0
|
|
|
3,997.1
|
|
|
4,126.3
|
|
Other
|
98.8
|
|
|
107.8
|
|
|
123.6
|
|
|
$
|
4,001.8
|
|
|
$
|
4,104.9
|
|
|
$
|
4,249.9
|
|
Earnings from operations*:
|
|
|
|
|
|
Americas
|
$
|
373.0
|
|
|
$
|
390.8
|
|
|
$
|
435.5
|
|
Asia-Pacific
|
256.0
|
|
|
264.4
|
|
|
281.6
|
|
Japan
|
204.6
|
|
|
199.9
|
|
|
196.0
|
|
Europe
|
81.6
|
|
|
97.4
|
|
|
110.5
|
|
Total reportable segments
|
915.2
|
|
|
952.5
|
|
|
1,023.6
|
|
Other
|
5.9
|
|
|
6.4
|
|
|
4.9
|
|
|
$
|
921.1
|
|
|
$
|
958.9
|
|
|
$
|
1,028.5
|
|
|
|
*
|
Represents earnings from operations before (i) unallocated corporate expenses, (ii) interest expense, financing costs and other (income) expense, net, (iii) loss on extinguishment of debt, and (iv) other operating expenses.
|
The Company's Chief Operating Decision Maker does not evaluate the performance of the Company's assets on a segment basis for internal management reporting and, therefore, such information is not presented.
The following table sets forth a reconciliation of the segments' earnings from operations to the Company's consolidated earnings from operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
Earnings from operations for segments
|
$
|
921.1
|
|
$
|
958.9
|
|
$
|
1,028.5
|
|
Unallocated corporate expenses
|
(161.9
|
)
|
(152.1
|
)
|
(137.1
|
)
|
Interest expense, financing costs and other (income) expense, net
|
(44.6
|
)
|
(50.2
|
)
|
(60.1
|
)
|
Loss on extinguishment of debt
|
—
|
|
—
|
|
(93.8
|
)
|
Other operating expense
|
(38.0
|
)
|
(46.7
|
)
|
—
|
|
Earnings from operations before income taxes
|
$
|
676.6
|
|
$
|
709.9
|
|
$
|
737.5
|
|
Unallocated corporate expenses includes certain costs related to administrative support functions which the Company does not allocate to its segments. Such unallocated costs include those for centralized information technology, finance, legal and human resources departments.
Other operating expense in the year ended January 31, 2017 represents an impairment charge related to software costs capitalized in connection with the development of a new finished goods inventory management and merchandising information system and impairment charges related to a financing arrangements with diamond mining and exploration companies. See "Note B. Summary of Significant Accounting Policies" and "Note E. Property, Plant
and Equipment" for additional details on the asset impairment and "Note B. Summary of Significant Accounting Policies" and "Note J. Commitments and Contingencies" for additional details on the loan impairments.
Other operating expense in the year ended January 31, 2016 represents impairment charges related to a financing arrangement with Koidu and expenses related to specific cost-reduction initiatives. See "Note J. Commitments and Contingencies" for additional details.
Loss on extinguishment of debt in the year ended January 31, 2015 was related to the redemption of
$400.0
million in aggregate principal amount of the Private Placement Notes prior to their scheduled maturities. See "Note G. Debt" for additional details.
Sales to unaffiliated customers and long-lived assets by geographic areas were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
Net sales:
|
|
|
|
United States
|
$
|
1,691.4
|
|
$
|
1,795.5
|
|
$
|
1,870.8
|
|
Japan
|
604.4
|
|
541.3
|
|
554.3
|
|
Other countries
|
1,706.0
|
|
1,768.1
|
|
1,824.8
|
|
|
$
|
4,001.8
|
|
$
|
4,104.9
|
|
$
|
4,249.9
|
|
Long-lived assets:
|
|
|
|
United States
|
$
|
691.3
|
|
$
|
706.9
|
|
$
|
680.1
|
|
Japan
|
21.7
|
|
20.6
|
|
24.4
|
|
Other countries
|
269.0
|
|
256.7
|
|
239.2
|
|
|
$
|
982.0
|
|
$
|
984.2
|
|
$
|
943.7
|
|
Classes of Similar Products
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
Net sales:
|
|
|
|
High, fine & solitaire jewelry
|
$
|
779.1
|
|
$
|
854.1
|
|
$
|
870.4
|
|
Engagement jewelry & wedding bands
|
1,122.0
|
|
1,142.2
|
|
1,221.0
|
|
Fashion jewelry
|
1,328.9
|
|
1,340.7
|
|
1,357.6
|
|
Designer jewelry
|
465.0
|
|
460.8
|
|
481.5
|
|
All other
|
306.8
|
|
307.1
|
|
319.4
|
|
|
$
|
4,001.8
|
|
$
|
4,104.9
|
|
$
|
4,249.9
|
|
Items bearing the name of and attributed to one of the Company's "named" designers: Elsa Peretti and Paloma Picasso, which were previously reported across the high, fine & solitaire jewelry, engagement jewelry & wedding bands and fashion jewelry categories, have been reclassified into the designer jewelry category to conform with management's current internal analysis of product sales. Additionally, certain reclassifications within the jewelry categories have been made to the prior years' amounts to conform to the current year category presentation.
Q. QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Quarters Ended*
|
|
(in millions, except per share amounts)
|
April 30
|
|
July 31
|
|
October 31
|
|
January 31
a
|
|
Net sales
|
$
|
891.3
|
|
$
|
931.6
|
|
$
|
949.3
|
|
$
|
1,229.6
|
|
Gross profit
|
545.6
|
|
577.1
|
|
579.5
|
|
788.2
|
|
Earnings from operations
|
134.6
|
|
174.9
|
|
155.2
|
|
256.5
|
|
Net earnings
|
87.5
|
|
105.7
|
|
95.1
|
|
157.8
|
|
Net earnings per share:
|
|
|
|
|
Basic
|
$
|
0.69
|
|
$
|
0.84
|
|
$
|
0.76
|
|
$
|
1.27
|
|
Diluted
|
$
|
0.69
|
|
$
|
0.84
|
|
$
|
0.76
|
|
$
|
1.26
|
|
|
|
a
|
On a pre-tax basis, includes charges for the quarter ended January 31, 2017 of:
|
|
|
i.
|
$25.4 million
, which reduced net earnings per diluted share by
$0.13
, associated with an impairment charge related to software costs capitalized in connection with the development of a new finished goods inventory management and merchandising information system (see "Note B. Summary of Significant Accounting Policies" and "Note E. Property, Plant and Equipment"); and
|
|
|
ii.
|
$12.6 million
, which reduced net earnings per diluted share by
$0.06
, associated with impairment charges related to financing arrangements with diamond mining and exploration companies (see "Note B. Summary of Significant Accounting Policies" and "Note J. Commitments and Contingencies").
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Quarters Ended*
|
|
(in millions, except per share amounts)
|
April 30
|
|
July 31
b
|
|
October 31
|
|
January 31
c
|
|
Net sales
|
$
|
962.4
|
|
$
|
990.5
|
|
$
|
938.2
|
|
$
|
1,213.6
|
|
Gross profit
|
569.0
|
|
593.0
|
|
564.5
|
|
764.8
|
|
Earnings from operations
|
170.0
|
|
172.8
|
|
156.4
|
|
260.9
|
|
Net earnings
|
104.9
|
|
104.9
|
|
91.0
|
|
163.2
|
|
Net earnings per share:
|
|
|
|
|
Basic
|
$
|
0.81
|
|
$
|
0.81
|
|
$
|
0.71
|
|
$
|
1.28
|
|
Diluted
|
$
|
0.81
|
|
$
|
0.81
|
|
$
|
0.70
|
|
$
|
1.28
|
|
|
|
b
|
On a pre-tax basis, includes a charge of
$9.6 million
for the quarter ended July 31, 2015, which reduced net earnings per diluted share by
$0.05
, associated with an impairment charge related to a financing arrangement with Koidu Limited (see "Note B. Summary of Significant Accounting Policies" and "Note J. Commitments and Contingencies").
|
|
|
c
|
On a pre-tax basis, includes charges for the quarter ended January 31, 2016 of:
|
|
|
i.
|
$28.3 million
, which reduced net earnings per diluted share by
$0.14
, associated with an impairment charge related to a financing arrangement with Koidu Limited (see "Note B. Summary of Significant Accounting Policies" and "Note J. Commitments and Contingencies"); and
|
|
|
ii.
|
$8.8 million
, which reduced net earnings per diluted share by
$0.04
, associated with severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations will be recovered (see "Note J. Commitments and Contingencies").
|
|
|
*
|
The sum of quarterly amounts may not agree with full year amounts due to rounding.
|
Basic and diluted earnings per share are computed independently for each quarter presented. Accordingly, the sum of the quarterly earnings per share may not agree with the calculated full year earnings per share.