Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KcbYxYWi/azBrAnZrFLRa0Ec8j6j7VF0e/MPtavAgzc3Bfw9L9bVGbekWOBrCzVZ 20cuJwzr8VLKy+Z1IsT6uQ== 0000950130-02-007635.txt : 20021108 0000950130-02-007635.hdr.sgml : 20021108 20021108154818 ACCESSION NUMBER: 0000950130-02-007635 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILFIGER TOMMY CORP CENTRAL INDEX KEY: 0000888747 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11226 FILM NUMBER: 02814262 BUSINESS ADDRESS: STREET 1: 6/F PRECIOUS INDUSTRIAL CENTRE STREET 2: 18 CHEUNG YUE ST CITY: CHEUNG SHA WAN KOWLO STATE: K3 BUSINESS PHONE: 8522747798 MAIL ADDRESS: STREET 1: 25 WEST 39TH STREET CITY: NEW YORK STATE: NY ZIP: 10018 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2002

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 incorporation or organization)		(I.R.S. Employer Identification No.)

11/F, Novel Industrial Building, 850-870 Lai Chi Kok Road, Cheung Sha Wan, Kowloon, Hong Kong

(Address of principal executive offices)

852-2216-0668

(Registrant’s telephone number, including area code)

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

Ordinary Shares, $0.01 par value per share, outstanding as of November 1, 2002: 90,578,712

TOMMY HILFIGER CORPORATION
INDEX TO FORM 10-Q
September 30, 2002

		Page

PART I - FINANCIAL INFORMATION

Item 1	Financial Statements

	Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2002 and 2001	3

	Condensed Consolidated Balance Sheets as of September 30, 2002 and March 31, 2002	4

	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2002 and 2001	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended September 30, 2002 and the year ended March 31, 2002	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4	Controls and Procedures	32

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	33

Item 4	Submission of Matters to a Vote of Security Holders	33

Item 6	Exhibits and Reports on Form 8-K	34

Signatures		35

Certifications		36

PART I

ITEM 1 - FINANCIAL STATEMENTS

TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

	For the Six Months Ended September 30,					For the Three Months Ended September 30,

(Unaudited)	2002			2001		2002		2001

Net revenue	$	912,809		$	902,130	$	546,479	$	546,442
Cost of goods sold		501,130			511,904		298,073		307,958

Gross profit		411,679			390,226		248,406		238,484

Depreciation and amortization		43,569			54,744		21,426		28,325
Other selling, general and administrative expenses		269,867			254,796		142,601		145,903

Total selling, general and administrative expenses		313,436			309,540		164,027		174,228

Income from operations		98,243			80,686		84,379		64,256
Interest and other expense		23,493			18,864		10,924		9,548
Interest income		3,542			6,275		1,646		2,148

Income before income taxes and cumulative effect of change in accounting principle		78,292			68,097		75,101		56,856
Provision for income taxes		26,030			11,209		14,107		8,981

Income before cumulative effect of change in accounting principle		52,262			56,888		60,994		47,875
Cumulative effect of change in accounting principle		(430,026	)		—		—		—

Net income (loss)	$	(377,764	)	$	56,888	$	60,994	$	47,875

Earnings (loss) per share:
Earnings before cumulative effect of change in accounting principle	$	0.58		$	0.64	$	0.67	$	0.54

Basic earnings (loss) per share	$	(4.19	)	$	0.64	$	0.67	$	0.54

Weighted average shares outstanding		90,194			89,150		90,490		89,292

Diluted earnings before cumulative effect of change in accounting principle	$	0.58		$	0.63	$	0.67	$	0.53

Diluted earnings (loss) per share	$	(4.16	)	$	0.63	$	0.67	$	0.53

Weighted average shares and share equivalents outstanding		90,805			89,699		90,829		89,772

See Accompanying Notes to Condensed Consolidated Financial Statements

TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

(Unaudited)			September 30, 2002			March 31, 2002

Assets
Current assets
	Cash and cash equivalents		$	392,447		$	387,247
	Accounts receivable			196,125			224,395
	Inventories			269,881			184,972
	Deferred tax and other current assets			89,770			97,274

		Total current assets		948,223			893,888
Property and equipment, at cost, less accumulated depreciation and amortization				302,578			302,937
Intangible assets, subject to amortization				9,545			10,879
Intangible assets, not subject to amortization				617,919			609,938
Goodwill				355,199			769,275
Other assets				10,063			7,534

		Total Assets	$	2,243,527		$	2,594,451

Liabilities and Shareholders’ Equity
Current liabilities
	Short-term borrowings		$	84,436		$	62,749
	Current portion of long-term debt			167,248			698
	Accounts payable			34,710			28,980
	Accrued expenses and other current liabilities			233,295			210,270

		Total current liabilities		519,689			302,697
Long-term debt				350,623			575,287
Deferred tax liability				216,582			214,964
Other liabilities				5,096			4,041
Shareholders’ equity
	Preference Shares, $0.01 par value-shares authorized 5,000,000; none issued			—			—
	Ordinary Shares, $0.01 par value-shares authorized 150,000,000; issued 96,771,312 and 96,031,167 shares, respectively			968			960
	Capital in excess of par value			606,979			598,527
	Retained earnings			579,012			956,776
	Accumulated other comprehensive income			25,809			2,430
	Treasury shares, at cost: 6,192,600 Ordinary Shares			(61,231	)		(61,231	)

		Total shareholders’ equity		1,151,537			1,497,462

Commitments and contingencies
		Total Liabilities and Shareholders’ Equity	$	2,243,527		$	2,594,451

See Accompanying Notes to Condensed Consolidated Financial Statements

TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

					For the Six Months Ended September 30,

(Unaudited)					2002			2001

Cash flows from operating activities
	Net income (loss)				$	(377,764	)	$	56,888
	Adjustments to reconcile net income (loss) to net cash from operating activities
		Cumulative effect of change in accounting principle				430,026			—
		Depreciation and amortization				44,320			55,128
		Deferred taxes				11,358			(3,146	)
		Changes in operating assets and liabilities
			Decrease (increase) in assets
				Accounts receivable		33,654			22,111
				Inventories		(79,508	)		(49,719	)
				Other assets		(6,468	)		(2,322	)
			Increase (decrease) in liabilities
				Accounts payable		5,730			(14,428	)
				Accrued expenses and other liabilities		21,098			49,744

		Net cash provided by operating activities				82,446			114,256

Cash flows from investing activities
	Purchases of property and equipment					(39,803	)		(39,319	)
	Acquisition of businesses, net of cash acquired					—			(205,061	)

		Net cash used in investing activities				(39,803	)		(244,380	)

Cash flows from financing activities
	Payments of long-term debt					(58,353	)		(25,167	)
	Proceeds from the exercise of employee stock options					7,130			4,513
	Short-term bank borrowings					13,780			18,272

		Net cash used in financing activities				(37,443	)		(2,382	)

		Net increase (decrease) in cash				5,200			(132,506	)
Cash and cash equivalents, beginning of period						387,247			318,431

Cash and cash equivalents, end of period					$	392,447		$	185,925

See Accompanying Notes to Condensed Consolidated Financial Statements

TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollar amounts in thousands)

(Unaudited)		Ordinary Shares				Capital in excess of par value		Retained earnings			Accumulated other comprehensive income (loss)			Treasury shares			Total shareholders’ equity

		Outstanding		Amount

*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 employee 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
	Net (loss)		—		—		—		(377,764	)		—			—			(377,764	)
	Foreign currency translation		—		—		—		—			25,337			—			25,337
	Change in fair value of hedging instruments		—		—		—		—			(1,958	)		—			(1,958	)
	Exercise of employee stock options		740,145		8		7,122		—			—			—			7,130
	Tax benefits from exercise of stock options		—		—		1,330		—			—			—			1,330

*Balance, September 30, 2002 (Unaudited)*			90,578,712	$	968	$	606,979	$	579,012		$	25,809		$	(61,231	)	$	1,151,537

Comprehensive income (loss) consists of net income (loss), foreign currency translation and unrealized gains and losses on hedging instruments and totaled $(354,385) for the six months ended September 30, 2002 and $139,518 for the fiscal year ended March 31, 2002.

See Accompanying Notes to Condensed Consolidated Financial Statements

TOMMY HILFIGER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(Unaudited)

Note 1 - Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared by Tommy Hilfiger Corporation (“THC” or the “Company”; unless the context indicates otherwise, all references to the “Company” include THC and its subsidiaries) in a manner consistent with that used in the preparation of the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002, as filed with the Securities and Exchange Commission (the “Form 10-K”). Certain items contained in these statements are based on estimates. In the opinion of management, the accompanying financial statements reflect all adjustments, which consist of only normal and recurring adjustments (except for the cumulative effect of the change in accounting principle and the deferred tax charge described in Note 3), necessary for a fair presentation of the financial position and results of operations and cash flows for the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

Operating results for the six-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2003, as the Company’s business is impacted by the general seasonal trends characteristic of the apparel and retail industries as well as other factors. These unaudited financial statements should be read in conjunction with the financial statements included in the Form 10-K.

The financial statements as of and for the six-month and three-month periods ended September 30, 2002 are unaudited. The Condensed Consolidated Balance Sheet as of March 31, 2002, as presented, has been derived from the Consolidated Balance Sheet as of March 31, 2002 included in the Form 10-K.

Note 2 – Summary of Significant Accounting Policies

For a description of the Company’s significant accounting policies, see Note 1 to the Consolidated Financial Statements included in the Form 10-K. Additional information regarding the Company’s significant accounting policies is set forth below.

Cost of Goods Sold and Selling, General and Administrative Expense

The Company includes in cost of goods sold all costs and expenses incurred prior to the receipt of finished goods at the Company’s distribution facilities. These costs include, but are not limited to, product cost, inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and internal transfer costs, as well as insurance, duty, brokers’ fees and consolidators’ fees. In addition, certain costs in the Company’s Retail segment distribution network, such as the costs of shipping merchandise to Company-owned retail stores, are charged to cost of goods sold. The Company includes in selling, general and administrative expenses costs incurred subsequent to the receipt of finished goods in the distribution centers, such as the cost of picking and packing goods for delivery to customers. In addition, selling, general and administrative expenses include product design costs, selling and store service costs, marketing expenses and general and administrative expenses.

The Company’s gross margins may not be directly comparable to those of its competitors, as income statement classifications of certain expenses may vary by company.

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.

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.

Shipping and Handling Costs

The Company reflects shipping and handling costs as a component of selling, general and administrative expenses in its consolidated statements of operations. Shipping and handling costs approximated $25,756 and $24,147 for the six months ended September 30, 2002 and 2001, respectively, and $14,217 and $13,255 for the three months ended September 30, 2002 and 2001, respectively. Amounts billed to customers that relate to shipping and handling on related sales transactions are de minimus.

Reclassification of Prior Year Balances

Certain prior year amounts have been reclassified to conform to current year presentation.

Note 3 – Goodwill and Intangible Assets

On April 1, 2002, the Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). 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 adoption and at least annually thereafter. The Company performed its initial test upon adoption and will perform its annual impairment review during the fourth quarter of each fiscal year, commencing in the fourth quarter of fiscal year 2003.

SFAS 142 provides new criteria for performing impairment tests on goodwill and intangible assets with indefinite useful lives. Under SFAS 142, these assets are allocated to reporting units within the Company’s operating segments. A comparison is then performed of the fair values of these assets with their carrying amounts. Fair value is determined using primarily the discounted cash flow methodology and confirmed by market comparables. This methodology differs from the Company’s previous policy, as permitted under accounting standards existing before the adoption of SFAS 142, of using undiscounted cash flows on a Company-wide basis to determine if these assets are recoverable.

Upon adoption of SFAS 142 in the first quarter of fiscal year 2003, the Company recorded a one-time, non-cash, non-operating charge of $430,026, or $4.78 per share, to reduce the carrying value of its goodwill to fair value. Such charge is reflected as a cumulative effect of change in accounting principle in the Condensed Consolidated Statements of Operations.

Prior to April 1, 2002, the Company recorded deferred tax liabilities relating to the difference in the book and tax basis of intangible assets, principally trademark rights. As a result of adopting SFAS 142, those deferred tax liabilities will no longer be used to support the realization of certain deferred tax assets. Accordingly, the Company recorded a one-time, non-cash, deferred tax charge totaling $11,358, or $0.13 per share, in order to establish a valuation allowance against those deferred tax assets. This charge was included in the Company’s provision for income taxes for the first quarter of fiscal year 2003.

Prior to performing the review for impairment, SFAS 142 required that all of the Company’s recorded goodwill be assigned to the Company’s reporting units deemed to benefit from any acquisitions that it had made, including the reporting units that the Company owned prior to such acquisitions. This differs from the previous accounting rules under which goodwill was assigned only to the businesses acquired. The balance of goodwill as of March 31, 2002 in the table below reflects the assignment of goodwill as required by SFAS 142.

A summary of changes in the Company’s goodwill during the first six months of fiscal year 2003, by reporting segment is as follows:

	Wholesale		Retail		Licensing			Total

Balance at April 1, 2002	$	187,857	$	55,969	$	525,449		$	769,275
Impairment loss		—		—		(430,026	)		(430,026	)
Foreign currency translation		15,950		—		—			15,950

Balance at September 30, 2002	$	203,807	$	55,969	$	95,423		$	355,199

As of September 30, 2002 and March 31, 2002, the Company’s intangible assets and related accumulated amortization consisted of the following:

			September 30, 2002							March 31, 2002

			Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net

Amortizable intangible assets:
		Retailer relationship	$	5,400	$	(596	)	$	4,804	$	5,400	$	(529	)	$	4,871
		Supplier relationship		4,000		(1,471	)		2,529		4,000		(1,304	)		2,696
		Financing costs		6,300		(5,825	)		475		6,300		(4,935	)		1,365
		Software and other		3,820		(2,083	)		1,737		3,820		(1,873	)		1,947

Total amortizable intangible assets			$	19,520	$	(9,975	)	$	9,545	$	19,520	$	(8,641	)	$	10,879

Indefinite-lived intangible assets:
	Trademark rights		$	617,919						$	609,938

The increase in the carrying value of the Company’s trademark rights from March 31, 2002 to September 30, 2002 was due to the changes in foreign currency exchange rates used to translate certain of these assets.

The Company recorded amortization expense of $1,077 during the first six months of fiscal year 2003 compared to $1,047 on a pro forma basis during the first six months of fiscal year 2002, assuming the adoption of SFAS 142 as of April 1, 2001. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding five years is as follows:

Estimated Amortization Expense

Fiscal year 2003	$	1,875
Fiscal year 2004		995
Fiscal year 2005		848
Fiscal year 2006		612
Fiscal year 2007		591
Subsequent years		4,624

	$	9,545

If acquisitions or dispositions occur in the future the above amounts may vary.

The fiscal year 2002 historical results do not reflect the provisions of SFAS 142. Had the Company adopted SFAS 142 on April 1, 2001, the historical net income and basic and diluted earnings per share (before the cumulative effect of the change in accounting principle) would have been changed as follows:

	For the Six Months Ended September 30, 2001

		Net Income			Net Income per Share Basic			Net Income per Share Diluted

Reported net income	$	56,888		$	0.64		$	0.63
Add back: Goodwill amortization		8,696			0.10			0.10
Add back: Trademark rights amortization		7,600			0.08			0.09
Income tax impact		(14,135	)		(0.16	)		(0.16	)

Adjusted net income	$	59,049		$	0.66		$	0.66

Note 4 – 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 plus acquisition-related costs of $6,789 and assumed debt of $42,629 (such transaction being referred to herein as the “TH Europe Acquisition”). The TH Europe Acquisition was funded using available cash.

TH Europe was purchased from a company ultimately owned 70% by Sportswear Holdings Limited (“Sportswear”), 22.5% by Thomas J. Hilfiger and 7.5% by Joel J. Horowitz. Sportswear was indirectly 50% owned by a company privately owned by members of the Chao family (including Silas K.F. Chou and Ronald K.Y. Chao) and 50% owned by a company in which Lawrence S. Stroll has an indirect beneficial ownership interest. At the time of the TH Europe Acquisition, Messrs. Chou and Stroll were Co-Chairmen of the Board and Directors of the Company, Mr. Hilfiger was Honorary Chairman of the Board, Principal Designer and a Director of the Company, Mr. Horowitz was Chief Executive Officer, President and a Director of the Company and Mr. Chao was a Director of the Company.

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 cash portion of 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 provisions of SFAS 142 requiring goodwill and indefinite-lived intangible assets to not be amortized were applied to the TH Europe Acquisition since it occurred after June 30, 2001. See Note 3.

Note 5 – Debt Facilities

As of September 30, 2002, the Company’s principal debt facilities consisted of $166,991 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”), $150,000 of 9% bonds maturing on December 1, 2031 which were issued in December 2001 (the “2031 Bonds”) and a revolving credit facility which expires on June 30, 2005 (the “Credit Facility”). The 2003 Notes, the 2008 Notes and the 2031 Bonds (collectively, the “Notes”) were issued by Tommy Hilfiger U.S.A., Inc. (“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 certain sale and leaseback transactions and restrict the ability of THC and TH USA to engage in mergers or consolidations.

During the six month period ended September 30, 2002, the Company repurchased $58,009 principal amount of the 2003 Notes in open market transactions. Cumulatively, through September 30, 2002, the Company has repurchased $83,009 of the $250,000 principal amount of 2003 Notes originally issued.

The Credit Facility, which was entered into on June 28, 2002 and which is guaranteed by THC, consists of an unsecured $300,000 TH USA three-year revolving credit facility, of which up to $175,000 may be used for direct borrowings. The Credit Facility is available for letters of credit, working capital and other general corporate purposes. The Credit Facility replaced the $250,000 TH USA revolving credit facility which was scheduled to expire on March 31, 2003. As of September 30, 2002, $120,294 of the available borrowings under the Credit Facility had been used to open letters of credit, including $55,169 for inventory purchased that are included in current liabilities and $65,125 related to commitments to purchase inventory. There were no direct borrowings outstanding under the Credit Facility as of September 30, 2002.

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 certain 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, 2002) plus $125,000, less certain

deductions. In addition, under the Credit Facility, THC and TH USA are required to comply with and maintain specified financial ratios and levels (which are based on the Company’s consolidated financial results and exclude the effects of changes in accounting principles), including, without limitation, a minimum fixed charge coverage ratio, a maximum leverage ratio and a minimum level of consolidated net worth.

The Company was in compliance with all covenants in respect of the Notes and the Credit Facility as of, and for the twelve-month period ended, September 30, 2002.

Certain of the Company’s non-U.S. subsidiaries have separate credit facilities, totalling approximately $100,000 at September 30, 2002, for working capital or trade financing purposes. In addition to short-term borrowings of $84,436, as of September 30, 2002 these subsidiaries were contingently liable for unexpired bank letters of credit of $16,821 related to commitments of these subsidiaries to suppliers for the purchase of inventory. Borrowings under these credit facilities bear interest at variable rates which, on a weighted average annual basis, amounted to 5.16% and 5.77% as of, and for the six-month period ended, September 30, 2002, respectively.

The Company’s credit facilities provide for issuance of letters of credit without restriction on cash balances.

Note 6 - Condensed Consolidating Financial Information

The Notes discussed in Note 5 were issued by TH USA and are fully and unconditionally guaranteed by THC. Accordingly, condensed consolidating balance sheets as of September 30, 2002 and March 31, 2002, and the related condensed consolidating statements of operations and cash flows for each of the six-month periods ended September 30, 2002 and 2001, are provided. The operations of TH USA, excluding its subsidiaries, consist of the U.S. operations of certain wholesale divisions, together with TH USA corporate overhead charges not allocated to subsidiaries. The non-guarantor subsidiaries of TH USA consist of 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 $590,134 and $583,180 for the six-month periods ended September 30, 2002 and 2001, respectively. The other non-guarantor subsidiaries of THC are primarily those non-U.S. subsidiaries involved in investing and buying office operations, as well as the Company’s European 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 5 for a description of certain restrictions on the ability of subsidiaries of THC to pay dividends to THC.

Condensed Consolidating Statements of Operations
Six Months Ended September 30, 2002

	Subsidiary Issuer (TH USA)			Non-Guarantor Subsidiaries			Parent Company Guarantor (THC)			Eliminations			Total

Net revenue	$	239,068		$	744,152		$	—		$	(70,411	)	$	912,809
Cost of goods sold		158,418			371,520			—			(28,808	)		501,130

Gross profit		80,650			372,632			—			(41,603	)		411,679

Depreciation and amortization		10,400			33,169			—			—			43,569
Other selling, general and administrative expenses		71,603			239,436			(2,923	)		(38,249	)		269,867

Total selling, general, and administrative expenses		82,003			272,605			(2,923	)		(38,249	)		313,436

Income (loss) from operations		(1,353	)		100,027			2,923			(3,354	)		98,243
Interest and other expense		20,056			3,437			—			—			23,493
Interest income		1,061			1,372			1,109			—			3,542
Intercompany interest expense (income)		47,752			(11,037	)		(36,715	)		—			—

Income (loss) before income taxes and cumulative effect of change in accounting principle		(68,100	)		108,999			40,747			(3,354	)		78,292
Provision (benefit) for income taxes		(14,051	)		36,604			3,477			—			26,030

Income (loss) before cumulative effect of change in accounting principle		(54,049	)		72,395			37,270			(3,354	)		52,262
Cumulative effect of change in accounting principle		—			(430,026	)		—			—			(430,026	)
Equity in net earnings of unconsolidated subsidiaries		(385,766	)		—			(416,617	)		802,383			—

Net income (loss)	$	(439,815	)	$	(357,631	)	$	(379,347	)	$	799,029		$	(377,764	)

Condensed Consolidating Statements of Operations
Six Months Ended September 30, 2001

	Subsidiary Issuer (TH USA)			Non-Guarantor Subsidiaries			Parent Company Guarantor (THC)			Eliminations			Total

Net revenue	$	288,683		$	681,083		$	—		$	(67,636	)	$	902,130
Cost of goods sold		198,955			338,955			—			(26,006	)		511,904

Gross profit		89,728			342,128			—			(41,630	)		390,226

Depreciation and amortization		14,560			40,184			—			—			54,744
Other selling, general and administrative expenses		86,962			206,558			(2,879	)		(35,845	)		254,796

Total selling, general and administrative expenses		101,522			246,742			(2,879	)		(35,845	)		309,540

Income (loss) from operations		(11,794	)		95,386			2,879			(5,785	)		80,686
Interest and other expense		18,129			735			—			—			18,864
Interest income		1,762			3,319			1,194			—			6,275
Intercompany interest expense (income)		45,045			(7,357	)		(37,688	)		—			—

Income (loss) before taxes		(73,206	)		105,327			41,761			(5,785	)		68,097
Provision (benefit) for income taxes		(21,816	)		29,470			3,555			—			11,209
Equity in net earnings of unconsolidated subsidiaries		40,506			—			21,574			(62,080	)		—

Net income (loss)	$	(10,884	)	$	75,857		$	59,780		$	(67,865	)	$	56,888

Condensed Consolidating Balance Sheets
September 30, 2002

				Subsidiary Issuer (TH USA)			Non-Guarantor Subsidiaries			Parent Company Guarantor (THC)			Eliminations			Total

Assets
	Current Assets
		Cash and cash equivalents		$	62,025		$	181,724		$	148,698		$	—		$	392,447
		Accounts receivable			30,562			165,563			—			—			196,125
		Inventories			51,825			226,497			—			(8,441	)		269,881
		Deferred tax and other current assets			48,937			39,375			1,458			—			89,770

			Total current assets		193,349			613,159			150,156			(8,441	)		948,223
Property, plant and equipment, at cost, less accumulated depreciation and amortization					145,402			157,176			—			—			302,578
Intangible assets, subject to amortization					—			9,545			—			—			9,545
Intangible assets, not subject to amortization					—			617,919			—			—			617,919
Goodwill					—			354,949			—			250			355,199
Investment in subsidiaries					1,065,825			209,290			12,249			(1,287,364	)		—
Other assets					6,896			3,167			—			—			10,063

			Total Assets	$	1,411,472		$	1,965,205		$	162,405		$	(1,295,555	)	$	2,243,527

Liabilities and Shareholders’ Equity
	Current liabilities
		Short-term borrowings		$	—		$	84,436		$	—		$	—		$	84,436
		Current portion of long-term debt			166,684			564			—			—			167,248
		Accounts payable			9,178			25,532			—			—			34,710
		Accrued expenses and other current liabilities			85,105			147,962			344			(116	)		233,295

			Total current liabilities		260,967			258,494			344			(116	)		519,689
Intercompany payable (receivable)					1,069,039			(268,415	)		(796,978	)		(3,646	)		—
Long-term debt					350,000			623			—			—			350,623
Deferred tax liability (asset)					(13,638	)		230,220			—			—			216,582
Other liabilities					609			4,487			—			—			5,096
Shareholders’ equity					(255,505	)		1,739,796			959,039			(1,291,793	)		1,151,537

			Total Liabilities and Shareholders’ Equity	$	1,411,472		$	1,965,205		$	162,405		$	(1,295,555	)	$	2,243,527

Condensed Consolidating Balance Sheets
March 31, 2002

				Subsidiary Issuer (TH USA)			Non-Guarantor Subsidiaries			Parent Company Guarantor (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			52,671			42,748			1,883			(28	)		97,274

			Total current assets		286,315			494,005			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, subject to amortization					—			10,879			—			—			10,879
Intangible assets, not subject to amortization					—			609,938			—			—			609,938
Goodwill					—			769,025			—			250			769,275
Investment in subsidiaries					1,451,590			206,790			428,865			(2,087,245	)		—
Other assets					5,560			1,974			—			—			7,534

			Total Assets	$	1,895,903		$	2,243,110		$	547,123		$	(2,091,685	)	$	2,594,451

Liabilities and Shareholders’ 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			91,202			118,600			493			(25	)		210,270

			Total current liabilities		98,081			204,148			493			(25	)		302,697
Intercompany payable (receivable)					1,053,535			(268,074	)		(784,626	)		(835	)		—
Long-term debt					574,620			667			—			—			575,287
Deferred tax liability (asset)					(13,638	)		228,602			—			—			214,964
Other liabilities					325			3,716			—			—			4,041
Shareholders’ equity					182,980			2,074,051			1,331,256			(2,090,825	)		1,497,462

			Total Liabilities and Shareholders’ Equity	$	1,895,903		$	2,243,110		$	547,123		$	(2,091,685	)	$	2,594,451

Condensed Consolidating Statements of Cash Flows
Six Months Ended September 30, 2002

						Subsidiary Issuer (TH USA)			Non-Guarantor Subsidiaries			Parent Company Guarantor (THC)			Eliminations			Total

Cash flows from operating activities
		Net income (loss)				$	(439,815	)	$	(357,631	)	$	(379,347	)	$	799,029		$	(377,764	)
		Adjustments to reconcile net income (loss) to net cash provided by operating activities
					Cumulative effect of change in accounting principle		—			430,026			—			—			430,026
					Depreciation and amortization		10,400			33,920			—			—			44,320
					Deferred taxes		7,182			4,176			—			—			11,358
					Changes in operating assets and liabilities		31,735			(46,006	)		(12,077	)		854			(25,494	)

				Net cash provided by (used in) operating activities			(390,498	)		64,485			(391,424	)		799,883			82,446

Cash flows from investing activities
	Purchases of property and equipment						(10,963	)		(28,840	)		—			—			(39,803	)
	Net activity in investment in subsidiaries						385,766			(2,500	)		416,617			(799,883	)		—

				Net cash (used in) provided by investing activities			374,803			(31,340	)		416,617			(799,883	)		(39,803	)

Cash flows from financing activities
	Payments on long-term debt						(58,009	)		(344	)		—			—			(58,353	)
	Proceeds from the exercise of stock options						—			—			7,130			—			7,130
	Repayments of short-term bank borrowings						—			13,780			—			—			13,780

			Net cash provided by (used in) financing activities				(58,009	)		13,436			7,130			—			(37,443	)

			Net increase (decrease) in cash				(73,704	)		46,581			32,323			—			5,200
Cash and cash equivalents, beginning of period							135,729			135,143			116,375			—			387,247

Cash and cash equivalents, end of period						$	62,025		$	181,724		$	148,698		$	—		$	392,447

Condensed Consolidating Statements of Cash Flows
Six Months Ended September 30, 2001

								Subsidiary Issuer (TH USA)			Non-Guarantor Subsidiaries			Parent Company Guarantor (THC)			Eliminations			Total

Cash flows from operating activities
			Net income (loss)					$	(10,884	)	$	75,857		$	59,780		$	(67,865	)	$	56,888
			Adjustments to reconcile net income (loss) to net cash provided by operating activities
							Depreciation and amortization		14,560			40,568			—			—			55,128
							Deferred taxes		—			(3,146	)		—			—			(3,146	)
						Changes in operating assets and liabilities			66,640			58,854			(125,893	)		5,785			5,386

						Net cash provided by (used in) operating activities			70,316			172,133			(66,113	)		(62,080	)		114,256

Cash flows from investing activities
			Purchases of property and equipment						(6,609	)		(32,710	)		—			—			(39,319	)
		Acquisition of businesses net of cash acquired							—			(205,061	)		—			—			(205,061	)
		Net activity in investment in subsidiaries							(40,506	)		—			(21,574	)		62,080			—

					Net cash (used in) provided by investing activities				(47,115	)		(237,771	)		(21,574	)		62,080			(244,380	)

Cash flows from financing activities
		Payments on long-term debt							(25,000	)		(167	)		—			—			(25,167	)
	Proceeds from the exercise of stock options								—			—			4,513			—			4,513
	Short-term bank borrowings								—			18,272			—			—			18,272

				Net cash provided by (used in) financing activities					(25,000	)		18,105			4,513			—			(2,382	)

				Net increase (decrease) in cash					(1,799	)		(47,533	)		(83,174	)		—			(132,506	)
Cash and cash equivalents, beginning of period									45,001			173,171			100,259			—			318,431

Cash and cash equivalents, end of period								$	43,202		$	125,638		$	17,085		$	—		$	185,925

Note 7 – 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 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. The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements included in the Form 10-K. 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 expenses, certain marketing costs, amortization of intangibles (including goodwill and indefinite-lived intangibles in fiscal year 2002), special charges and interest costs. Prior year amounts have been reclassified to conform to current year presentation. Financial information for the Company’s reportable segments is as follows:

		Wholesale		Retail		Licensing		Total

Six Months Ended September 30, 2002
	Total segment revenue	$	682,327	$	201,683	$	61,386	$	945,396
	Segment profits		61,998		22,396		39,769		124,163
	Depreciation and amortization included in segment profits		25,315		7,729		292		33,336
Six Months Ended September 30, 2001
	Total segment revenue	$	697,511	$	176,089	$	57,424	$	931,024
	Segment profits		69,486		31,382		34,086		134,954
	Depreciation and amortization included in segment profits		25,870		5,192		421		31,483



		Wholesale		Retail		Licensing		Total

Three Months Ended September 30, 2002
	Total segment revenue	$	415,753	$	114,999	$	33,485	$	564,237
	Segment profits		55,010		16,009		22,545		93,564
	Depreciation and amortization included in segment profits		12,660		3,836		148		16,644
Three Months Ended September 30, 2001
	Total segment revenue	$	428,117	$	103,833	$	29,677	$	561,627
	Segment profits		53,022		21,468		18,200		92,690
	Depreciation and amortization included in segment profits		12,872		2,920		223		16,015

A reconciliation of total segment revenue to consolidated net revenue is as follows:

	Six Months Ended September 30,						Three Months Ended September 30,

	2002			2001			2002			2001

Total segment revenue	$	945,396		$	931,024		$	564,237		$	561,627
Intercompany revenue		(32,587	)		(28,894	)		(17,758	)		(15,185	)

Consolidated net revenue	$	912,809		$	902,130		$	546,479		$	546,442

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 and cumulative effect of change in accounting principle is as follows:

	Six Months Ended September 30,				Three Months Ended September 30,

	2002		2001		2002		2001

Segment profits	$	124,163	$	134,954	$	93,564	$	92,690
Corporate expenses not allocated		25,920		54,268		9,185		28,434
Interest expense, net		19,951		12,589		9,278		7,400

Consolidated income before income taxes and cumulative effect of change in accounting principle	$	78,292	$	68,097	$	75,101	$	56,856

The Company does not disagregate assets on a segment basis for internal management reporting and, therefore, such information is not presented.

Note 8 – Earnings Per Share

Basic earnings per share were computed by dividing net income by the average number of the Company’s Ordinary Shares, par value $0.01 per share (the “Ordinary Shares”), outstanding during the respective period. Diluted earnings per share have been computed by dividing net income by the average number of Ordinary 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:

	Six Months Ended September 30,				Three Months Ended September 30,

	2002		2001		2002		2001

Weighted average shares outstanding		90,194,000		89,150,000		90,490,000		89,292,000
Net effect of dilutive stock options based on the treasury stock method using average market price		611,000		549,000		339,000		480,000

Weighted average share and share equivalents outstanding		90,805,000		89,699,000		90,829,000		89,772,000

Options to purchase 6,764,793 shares at September 30, 2002 and 4,517,380 shares at September 30, 2001 were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the Ordinary Shares.

Note 9 – Recently Issued Accounting Standards

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). SFAS 146 applies to costs associated with an exit activity not related to an entity newly acquired in a business combination, and excludes certain other exit or disposal costs.

Generally, SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized at its fair value when the liability is incurred, or when present obligations result in probable future sacrifices of economic benefits. Under the guidance of EITF 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. SFAS 146 specifically addresses recognition of one-time termination benefits, contract termination and other costs. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(dollar amounts in thousands, except per share amounts)

General

The following discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and related notes thereto in Item 1 above. All references to years relate to the fiscal year ended March 31 of such year.

Results of Operations

The following table sets forth the Condensed Consolidated Statements of Operations data as a percentage of net revenue.

	Six Months Ended September 30,						Three Months Ended September 30,

	2002			2001			2002			2001

Net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		54.9			56.7			54.5			56.4

Gross profit		45.1			43.3			45.5			43.6
Depreciation and amortization		4.8			6.1			3.9			5.2
Other SG&A expenses		29.5			28.3			26.2			26.6

Total SG&A expenses		34.3			34.4			30.1			31.8

Income from operations		10.8			8.9			15.4			11.8
Interest and other expense, net		2.2			1.4			1.7			1.4

Income before taxes and cumulative
effect of change in accounting principle		8.6			7.5			13.7			10.4
Provision for income taxes		2.9			1.2			2.5			1.6

Income before cumulative effect of charge in accounting principle		5.7			6.3			11.2			8.8
Cumulative effect of change in accounting principle		(47.1	)		—			—			—

Net income (loss)		(41.4	)		6.3			11.2			8.8

Effective April 1, 2002, the Company adopted SFAS 142. Adoption of this new Statement is considered a change in accounting principle and affects the Company’s financial results in several ways. Under SFAS 142, the Company no longer amortizes goodwill or intangibles having indefinite lives, which will reduce SG&A expenses from their fiscal year 2002 level by approximately $32,000, and increase diluted earnings per share by $0.29 for fiscal year 2003. Instead, the new statement requires an initial test at adoption, and subsequent tests at least annually thereafter, of recorded goodwill and indefinite-lived intangible assets to determine if the carrying values of such assets exceed their implied fair values as calculated under the new rules. The adoption of SFAS 142 resulted in a non-cash charge related to the impairment of goodwill in the first quarter of fiscal year 2003 of $430,026, or $4.78 per share. This charge was recorded as a cumulative effect of a change in accounting principle in the Condensed Consolidated Statements of Operations.

liabilities will no longer be used to support the realization of certain deferred tax assets. Accordingly, the Company recorded a one-time, non-cash, deferred tax charge totaling $11,358, or $0.13 per share, in order to establish a valuation allowance against those deferred tax assets. This charge is included in the Company’s provision for income taxes for the first quarter of fiscal 2003.

On July 5, 2001, the Company acquired TH Europe, its European licensee, for a purchase price of $200,000 plus acquisition-related costs of $6,789 and assumed debt of $42,629. The TH Europe Acquisition was 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 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.

Six Months Ended September 30, 2002 Compared to Six Months Ended September 30, 2001

Overview

The Company’s net revenue increased 1.2% to $912,809 during the first six months of fiscal year 2003 compared to $902,130 in the first six months last year. The increase in net revenue was mainly due to an increase in the Retail segment offset, in part, by a decrease in the Wholesale segment. The Company’s net revenue during the first six months of fiscal year 2003 in both the Wholesale and Retail segments benefited from the contribution of TH Europe, which, as noted above, the Company acquired on July 5, 2001. The fluctuations in net revenue in each of these segments were primarily volume related. Within the Retail segment, as further described below, an increase in the number of stores, offset partially by a decrease in sales at existing stores, resulted in the increased net revenue. Within the Wholesale segment, an increase in revenue in the women’s and childrenswear components was more than offset by a decline in the menswear component, as further described below. Licensing segment revenue was virtually unchanged from year to year. Net revenue by segment (after elimination of intersegment revenue) was as follows:

	Six Months Ended September 30,

	2002		2001		% Increase (Decrease)

Wholesale	$	682,327	$	697,511		(2.2	)%
Retail		201,683		176,089		14.5	%
Licensing		28,799		28,530		1.0	%

Total	$	912,809	$	902,130		1.2	%

Gross profit as a percentage of net revenue increased to 45.1% for the six months ended September 30, 2002 from 43.3% in the corresponding period last year. The improvement in gross margin was due to an improvement in the gross margin of the Company’s Wholesale segment, as well as a higher contribution of the Retail segment, which generates a higher gross margin than the Wholesale segment, to total net revenue. Gross margin in the Wholesale and Retail segments improved due to a higher contribution of TH Europe to each of the respective segments in the six-month period ended September 30, 2002 as compared to the same period in fiscal year 2002. TH Europe generates a higher gross margin than the Company’s domestic components. The Company’s gross margins may not be directly comparable to those of its competitors, as income statement classifications of certain expenses may vary by company.

Selling, general and administrative expenses for the first six months of fiscal year 2003 increased to $313,436, or 34.3% of net revenue, from $309,540, or 34.4% of net revenue, in the corresponding period last year. This increase

was mainly due to increased expenses in both the Wholesale and Retail segments, each due to expenses incurred by TH Europe to support its growth, as well as the inclusion of a full six months’ results for TH Europe in fiscal year 2003 compared to only three months in the prior year. Additionally, fiscal year 2003 results include expenses associated with 31 new stores opened since September 30, 2001. Partially offsetting these increases were the exclusion of amortization of goodwill and indefinite-lived intangible assets in the first six months of fiscal year 2003 of approximately $16,200, concurrent with the adoption of SFAS 142 effective April 1, 2002, along with net savings due to reduced expenses in the Company’s corporate and U.S. wholesale divisions.

Interest and other expense increased to $23,493 in the first six months of fiscal year 2003 from $18,864 in the corresponding period last year. The increase from the prior year period was due to the interest expense associated with the issuance in December 2001 of the 2031 Bonds and increased interest expense incurred by TH Europe during the current year as its business continues to grow. Partially offsetting this increase was the benefit of lower interest expense due to the repurchase of $83,009 principal amount of the 2003 Notes, the early retirement of $60,000 of bank term debt and the paydown of $20,000 of direct revolving credit borrowings, all of which were effected since the end of the second quarter of fiscal year 2002.

Interest income decreased from $6,275 in the six-month period ended September 30, 2001 to $3,542 in the six-month period ended September 30, 2002. The decrease from the prior-year period was due to lower interest rates earned on invested cash balances, offset in part by higher average invested cash balances. Interest rates earned on invested cash balances for the six-month periods ended September 30, 2002 and 2001 were 1.69% and 3.90%, respectively.

The provision for income taxes, before the deferred tax charge, for the six months of fiscal 2003 increased to 18.7% of income before taxes and the cumulative effect of the change in accounting principle, from 16.5% in the corresponding period last year. This increase was primarily attributable to the relative level of earnings in the various taxing jurisdictions to which the Company’s earnings are subject.

Segment Operations

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 expenses, certain marketing costs, amortization of intangibles (including goodwill and indefinite-lived intangibles in fiscal year 2002), special charges and interest costs. The Company evaluates performance and allocates resources based on segment profits. Financial information for the Company’s reportable segments is as follows:

							Wholesale			Retail			Licensing			Total

Six Months Ended September 30, 2002
						Total segment net revenue	$	682,327		$	201,683		$	61,386		$	945,396
					Segment profits			61,998			22,396			39,769			124,163
				Segment profit%				9.1	%		11.1	%		64.8	%		13.1	%
Six Months Ended September 30, 2001
			Total segment net revenue				$	697,511		$	176,089		$	57,424		$	931,024
		Segment profits						69,486			31,382			34,086			134,954
	Segment profit%							10.0	%		17.8	%		59.4	%		14.5	%

Wholesale Segment. Wholesale segment net revenue decreased by $15,184, or 2.2%, from the six-month period ended September 30, 2001 to the six-month period ended September 30, 2002. Within the Wholesale segment, net revenue by component was as follows:

	Six Months Ended September 30,

	2002		2001

Menswear	$	274,944	$	319,012
Womenswear		268,539		240,845
Childrenswear		138,844		137,654

	$	682,327	$	697,511

The decline in Wholesale net revenue from the six-month period ended September 30, 2001 to the corresponding period in the current fiscal year was due mainly to a reduction in the menswear component in the United States. Within the menswear component, which declined 13.8%, a reduced level of consumer spending together with the loss of some market share to a variety of new competitors, particularly in men’s jeans, and the promotional environment at retailers contributed to the decrease in net revenue. Partially offsetting this decrease were increases in the womenswear and childrenswear components of 11.5% and 0.9%, respectively. The womenswear component continued to benefit from the expansion of the Company’s women’s casual division through the introduction of “plus sizes” in June 2001. Partially offsetting this increase was a decrease in net revenue of the junior jeans division. Each of the wholesale components benefited from the inclusion of six months of operations of TH Europe in fiscal 2003 as compared to three months in fiscal 2002, subsequent to the TH Europe Acquisition.

The Company expects Wholesale segment net revenue for the balance of fiscal year 2003 to be level with to 5% below fiscal year 2002 net revenue for the same period, with decreases in menswear and womenswear, due to reduced purchases by major retail customers in the U.S. and lower levels of projected off-price sales, offset somewhat by increases in net revenue of the childrenswear component in the United States, as well as increases in the European business for each of the Wholesale components.

Wholesale segment profits decreased by $7,488, or 10.8%, from the first six months of fiscal year 2002 to the first six months of fiscal year 2003. As a percentage of segment revenue, Wholesale segment profits were 9.1% and 10.0% for the first six months of fiscal years 2003 and 2002, respectively. The decrease in Wholesale segment profits was mainly due to the decrease in net revenue noted above, as well as the inclusion of TH Europe’s first quarter results in the current year and not in the prior year. TH Europe’s net revenue in the first quarter of the fiscal year is seasonally low and includes limited regular price shipping to offset fixed overhead costs. Partially offsetting this decrease was an increase in gross margin percentage and a reduction in SG&A expenses in the U.S. wholesale business unit.

Retail Segment. Retail segment net revenue increased $25,594, or 14.5%, from the first six months of fiscal year 2002 to the first six months of fiscal year 2003. The improvement in the current period was due to an increase in the number of stores, offset in part by a decrease in sales at existing stores. Management believes that the decrease in sales at existing stores was due to reduced customer traffic and economic conditions in the United States. At September 30, 2002, the Company operated 176 retail stores, consisting of 112 outlet stores and 64 specialty stores, compared to 110 outlets and 35 specialty stores a year ago. Retail stores opened since September 30, 2001 contributed net revenue of $21,616 during the six-month period ended September 30, 2002.

Net revenue in the Retail segment in the second half of fiscal year 2003 is expected to be level with that of the same period in fiscal year 2002, with increases in net revenue from stores opened in Canada and Europe offset by lower volume in the U.S. stores.

Retail segment profits decreased $8,986, or 28.6%, from the first six months of fiscal year 2002 to the first six months of fiscal year 2003. As a percentage of segment revenue, Retail segment profits were 11.1% and 17.8% for the first six months of fiscal years 2003 and 2002, respectively. Segment profits and segment profits as a percentage of segment revenue decreased from the first six months of fiscal year 2002 to the first six months of fiscal year 2003 principally due to operating losses in the Company’s U.S. specialty retail division. Since September 30, 2001, the Company opened 29 specialty stores. This expansion coincided with a downturn in mall traffic, an intensely promotional climate throughout apparel retailing and an uncertain economic environment.

As discussed below under “Forward Outlook”, on October 30, 2002, the Company announced plans to close 37 of the Company’s 44 U.S. specialty retail stores following the Holiday selling season. Revenue from the 37 stores slated for closing amounted to $15,825 during the six months ended September 30, 2002. These stores generated an operating loss of $7,163 for the same six-month period.

Licensing Segment. Licensing segment net revenue increased $3,962, or 6.9%, from the six-month period ended September 30, 2001 to the six-month period ended September 30, 2002. The increase was primarily due to higher royalty revenue, particularly in licenses for fragrances, women’s intimate apparel and handbags. New products introduced under licenses entered into during the first six months of fiscal years 2003 and 2002 contributed a de minimus amount of revenue during those respective periods.

The Company expects Licensing segment net revenue for the balance of fiscal year 2003 to be level with to 5% below the comparable period of fiscal year 2002.

Licensing segment profits increased by $5,683, or 16.7%, from the first six months of fiscal year 2002 to the first six months of fiscal year 2003. As a percentage of segment revenue, Licensing segment profits were 64.8%, and 59.4% for the first six months of fiscal years 2003 and 2002, respectively. These increases were principally due to higher licensing royalties in the segment.

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

Overview

The Company’s net revenue remained level at $546,479 in the second quarter of fiscal year 2003 compared to $546,442 in the second quarter last year. Increases in net revenue in the Retail and Licensing segments were offset by a decrease in the Wholesale segment, each of which was primarily due to volume fluctuations. Within the Retail segment, as further described below, an increase in the number of stores, offset partially by a decrease in sales at existing stores, resulted in the increased net revenue. Within the Company’s Wholesale segment, an increase in revenue in the women’s component was offset by declines in both the menswear and childrenswear components, as further described below. The Licensing segment net revenue increase was due to increased licensing royalties as further described below. Net revenue by segment (after elimination of intersegment revenue) was as follows:

	Three Months Ended September 30,

	2002		2001		% Increase (Decrease)

Wholesale	$	415,753	$	428,117		(2.9	)%
Retail		114,999		103,833		10.8	%
Licensing		15,727		14,492		8.5	%

Total	$	546,479	$	546,442		0.0	%

Gross profit as a percentage of net revenue increased to 45.5% for the three months ended September 30, 2002 from 43.6% in the corresponding period last year. The improvement in gross margin was due to an improvement in the gross margin of the Company’s Wholesale segment as well as a higher contribution of the Retail segment, which generates a higher gross margin than the Wholesale segment, to total net revenue. Gross margin in the Wholesale and Retail segments improved due to a higher contribution of TH Europe to each of the respective segments in the second quarter of fiscal 2003 as compared to the same period in fiscal year 2002. TH Europe generates a higher gross margin than the Company’s domestic components. The Company’s gross margins may not be directly comparable to those of its competitors, as income statement classifications of certain expenses may vary by company.

Selling, general and administrative expenses for the second quarter of fiscal year 2003 decreased to $164,027, or 30.1% of net revenue, from $174,228, or 31.8% of net revenue, in the second quarter of fiscal year 2002. This decrease was mainly due to decreased expenses in the Company’s corporate division and Wholesale segment. The corporate division expenses decreased due to the exclusion of amortization of goodwill and indefinite-lived intangible assets in the second quarter of fiscal year 2003 of approximately $8,100, concurrent with the adoption of SFAS 142 effective April 1, 2002. The reduction in Wholesale segment expenses was due to reduced expenses in the U. S. wholesale divisions, partially offset by increased expenses in the Europe wholesale division incurred to support its growth. Partially offsetting these decreases were increased expenses in the Retail segment, primarily associated with operating 31 new stores opened since September 30, 2001.

Interest and other expense increased from $9,548 in the second quarter of fiscal year 2002 to $10,924 in the second quarter of fiscal year 2003. The increase from the prior year period was due to the interest expense associated with the issuance in December 2001 of the 2031 Bonds. Partially offsetting this increase was the benefit of lower interest expense due to the repurchase of $83,009 principal amount of the 2003 Notes, the early retirement of $60,000 of bank term debt and the paydown of $20,000 of direct revolving credit borrowings, all of which were effected since the end of the second quarter of fiscal year 2002.

Interest income decreased from $2,148 in the second quarter of fiscal year 2002 to $1,646 in fiscal year 2003. The decrease from the second quarter of fiscal year 2002 was due to lower interest rates earned on invested cash balances, offset in part by substantially higher average invested cash balances. Interest rates earned on invested cash balances for the three-month periods ended September 30, 2002 and 2001 were 1.69% and 3.35%, respectively.

The provision for income taxes, for the second quarter of fiscal year 2003 increased to 18.8% of income before taxes from 15.8% in the corresponding period last year. This increase was primarily attributable to the relative level of earnings in the various taxing jurisdictions to which the Company’s earnings are subject.

Segment Operations

Financial information for the Company’s reportable segments is as follows:

							Wholesale			Retail			Licensing			Total

Three Months Ended September 30, 2002
						Total segment net revenue	$	415,753		$	114,999		$	33,485		$	564,237
					Segment profits			55,010			16,009			22,545			93,564
				Segment profit%				13.2	%		13.9	%		67.3	%		16.6	%
Three Months Ended September 30, 2001
			Total segment net revenue				$	428,117		$	103,833		$	29,677		$	561,627
		Segment profits						53,022			21,468			18,200			92,690
	Segment profit%							12.4	%		20.7	%		61.3	%		16.5	%

Wholesale Segment. Wholesale segment net revenue decreased by $12,364, or 2.9%, from the second quarter of fiscal year 2002 to the second quarter of fiscal year 2003. Within the Wholesale segment, net revenue by component was as follows:

	Three Months Ended September 30,

	2002		2001

Menswear	$	174,113	$	190,005
Womenswear		161,564		157,448
Childrenswear		80,076		80,664

	$	415,753	$	428,117

The decline in Wholesale net revenue from the second quarter of fiscal year 2002 to the comparable quarter in fiscal year 2003 was due mainly to a reduction in the menswear component in the United States. Within the menswear component, which declined 8.4%, a reduced level of consumer spending together with the loss of some market share to a variety of new competitors, particularly in men’s jeans, and the promotional environment at retailers contributed to the decrease in net revenue. Partially offsetting this decline in the menswear component was an increase in net revenue of the womenswear component of 2.6%. The womenswear component continued to benefit from the expansion of the Company’s women’s casual division through the introduction of “plus sizes” in June 2001. Partially offsetting this increase was a decrease in net revenue of the junior jeans division. Each of the wholesale components benefited from the growth in TH Europe in the three months ended September 30, 2002 when compared to the same period last year.

Wholesale segment profits increased by $1,998, or 3.7%, from the second quarter of fiscal year 2002 to the second quarter of fiscal year 2003. As a percentage of segment revenue, Wholesale segment profits were 13.2% and 12.4% for the second quarter of fiscal years 2003 and 2002, respectively. The increase in Wholesale segment profits and segment profits as a percentage of net revenue was mainly due to an increase in the European wholesale business, in which operating profit as a percentage of net revenue was greater than the consolidated total. Also contributing to this increase was a reduction in SG&A expenses in the US wholesale business unit.

Retail Segment. Retail segment net revenue increased $11,166, or 10.8%, from the second quarter of fiscal year 2002 to the second quarter of fiscal year 2003. The improvement in the current period was due to an increase in the number of stores, offset in part by a decrease in sales at existing stores. Management believes that the decrease in sales at existing stores was due to reduced customer traffic and economic conditions in the United States. At September 30, 2002, the Company operated 176 retail stores, consisting of 112 outlet stores and 64 specialty stores, compared to 110 outlets and 35 specialty stores a year ago. Retail stores opened or acquired since September 30, 2001 contributed net revenue of $13,212 during the quarter ended September 30, 2002.

Retail segment profits decreased $5,459, or 25.4%, from the second quarter of fiscal year 2002 to the second quarter of fiscal year 2003. As a percentage of segment revenue, Retail segment profits were 13.9% and 20.7% for the second quarter of fiscal years 2003 and 2002, respectively. Segment profits and segment profits as a percentage

of segment revenue decreased from the second quarter of fiscal year 2002 to the second quarter of fiscal year 2003 principally due to operating losses in the Company’s U.S. specialty retail division and a slightly lower gross margin in the U.S. outlet division. Since September 30, 2001, the Company opened 29 specialty stores. This expansion coincided with a downturn in mall traffic, an intensely promotional climate throughout apparel retailing and an uncertain economic environment.

Revenue generated from the 37 U.S. specialty retail stores planned to be closed following the Holiday selling season amounted to $7,747 during the three months ended September 30, 2002. These stores generated an operating loss of $4,011 for the same three-month period.

Licensing Segment. Licensing segment net revenue increased $3,808, or 12.8%, from the second quarter of fiscal year 2002 to the second quarter of fiscal year 2003. The increase was primarily due to higher royalty revenue, particularly in licenses for home products, fragrances and handbags. New products introduced under licenses entered into during the second quarter of fiscal years 2003 and 2002 contributed a de minimus amount of revenue during those respective periods.

Licensing segment profits increased by $4,345, or 23.9%, from the second quarter fiscal year 2002 to the second quarter of fiscal year 2003. As a percentage of segment revenue, Licensing segment profits were 67.3%, and 61.3% for the quarter ended September 30, 2002 and 2001, respectively. These increases were principally due to higher licensing royalties in the segment.

Forward Outlook

In late October 2002, the Board of Directors approved and the Company announced plans to close 37 of its 44 U.S. specialty stores. The Company believes that a better use of management and investment resources is to meet the needs of its U.S. core businesses and to pursue its growth opportunities in Europe. The Company anticipates that there will be special charges incurred in connection with these actions, consisting primarily of the impairment of fixed assets, provisions for estimated lease termination costs and employee costs. The Company also anticipates recording a non-cash special charge to reflect the impairment of the fixed assets of its specialty store in the Soho district of New York City, based upon its current performance and anticipated future cash flows. However, the Company will continue to operate the store as part of its product development program. The Company plans to record the charges, of which 40% to 60% are expected to be non-cash, in its fiscal quarter ending December 31, 2002. The actual amount of the charges will depend upon facility appraisals, contractual negotiations and further study. The Company’s preliminary estimate of the charges is in the range of $75 to $95 million before taxes, or $0.49 to $0.70 per diluted share.

As a result of the ongoing weakness and increased levels of promotional activity throughout the retail industry, the Company has revised its expectations for the second half of fiscal year 2003. The Company now believes that a more realistic expectation for diluted earnings per share in the second half of fiscal 2003, before any special charges, is between $0.45 and $0.65. For the full fiscal year 2003, therefore, the Company expects diluted earnings per share to be in the range of $1.15 to $1.35 before the cumulative effect of the change in accounting principle and the deferred tax charge recorded in the first quarter and before any special charges expected to be reported in the third quarter as outlined above. The revised estimates assume a slightly higher effective tax rate in the second half of fiscal 2003.

The Company typically finalizes its annual fiscal year budgets after the Holiday selling season and expects to update its preliminary outlook for fiscal 2004 when it reports results for the quarter ending December 31, 2002. However, the Company’s current expectation is that fiscal year 2004 net income and earnings per share will be comparable to those expected for fiscal year 2003.

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 $5,200 from $387,247 at March 31, 2002 to $392,447 at September 30, 2002. This increase was principally due to cash provided by operating activities. In the first six months of fiscal year 2003, the Company generated net cash from operating activities of $82,446 consisting of $107,940 of net income before non-cash items, reduced by $25,494 of changes in working capital, primarily an increase in inventory of $79,508 less a reduction in accounts receivable of $33,654. Cash used in investing activities related to capital expenditures of $39,803 which were made principally in support of the Company’s retail store openings, as well as expansion of the European business. Cash used in financing activities primarily related to the early retirement of $58,009 principal amount of the 2003 Notes, partially offset by the increase in short-term borrowings under TH Europe’s credit facility and proceeds from the issuance of Ordinary Shares under the Company’s employee stock option program. A more detailed analysis of the changes in cash equivalents is presented in the Condensed Consolidated Statements of Cash Flows.

As of September 30, 2002, the Company’s principal debt facilities consisted of $166,991 of the 2003 Notes, $200,000 of the 2008 Notes, $150,000 of the 2031 Bonds and the Credit Facility. 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 certain sale and leaseback transactions and restrict the ability of THC and TH USA to engage in mergers or consolidations.

During the first six months of fiscal year 2003, the Company repurchased $58,009 principal amount of the 2003 Notes in open market transactions. Cumulatively, through September 30, 2002, the Company has repurchased $83,009 of the $250,000 principal amount of 2003 Notes originally issued.

The Credit Facility, which was entered into on June 28, 2002 and which is guaranteed by THC, consists of an unsecured $300,000 TH USA three-year revolving credit facility, of which up to $175,000 may be used for direct borrowings. The revolving credit facility is available for letters of credit, working capital and other general corporate purposes. The Credit Facility replaced the $250,000 TH USA revolving credit facility which was scheduled to expire on March 31, 2003. As of September 30, 2002, $120,294 of the available borrowings under the Credit Facility had been used to open letters of credit, including $55,169 for inventory purchased that are included in current liabilities and $65,125 related to commitments to purchase inventory. There were no direct borrowings outstanding under the Credit Facility as of September 30, 2002.

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 certain 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, 2002) plus $125,000, less certain deductions. In addition, under the Credit Facilities, THC and TH USA are required to comply with and maintain specified financial ratios and levels (which are based on the Company’s consolidated financial results and exclude the

effects of changes in accounting principles), including, without limitation, a minimum fixed charge coverage ratio, a maximum leverage ratio and a minimum level of consolidated net worth.

The Company was in compliance with all covenants in respect of the Notes and the Credit Facility as of, and for the twelve-month period ended, September 30, 2002.

The Company’s credit facilities provide for the issuance of letters of credit without restriction on cash balances.

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 September 30, 2002.

The Company expects to fund its cash requirements for the balance of fiscal year 2003 and future years from available cash balances, internally generated funds and borrowings available under the Credit Facility. The Company believes that these resources will be sufficient to fund its cash requirements for such periods.

There were no significant committed capital expenditures at September 30, 2002. The Company expects fiscal year 2003 capital expenditures to be at the higher end of its previous estimate of $75,000 to $85,000. Existing cash may also be used to repurchase Notes in the open market. As of September 30, 2002, $83,009 principal amount of the 2003 Notes have been repurchased.

Seasonality

The Company’s business is impacted by the general seasonal trends characteristic of the apparel and retail industries. The Company’s Wholesale revenues, particularly those from its European operations, are 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 approximately 80% 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 anticipated cash flows. These include the purchase of inventory, capital expenditures and the collection of foreign royalty payments. The Company enters into forward contracts, generally with maturities of up to 15 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 September 30, 2002, the Company had contracts to exchange foreign currencies, principally the Japanese yen, the Canadian dollar, the euro and the Pound Sterling having a total notional amount of $59,390. The unrealized loss associated with these contracts at September 30, 2002 was $1,958. Gains or losses on such forward contracts are recognized in other comprehensive income on a mark-to-market basis and, ultimately, in earnings at the time the underlying hedge transaction is completed or recognized in earnings.

Recently Issued Accounting Standards

A discussion of the effects of recently issued accounting standards appears in Note 9 to the Condensed Consolidated Financial Statements in Item 1 above.

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. 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, the ability of the Company to effect its planned specialty store closures for the amounts currently estimated, 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 its Annual Report on Form 10-K for the fiscal year ended March 31, 2002. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the sections entitled “Liquidity and Capital Resources” and “Exchange Rates” in Item 2 above, which sections are incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of a date within 90 days of the filing date of this report, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Sections 240.13a-14(c) and 240.15d-14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II

ITEM 1 – 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.

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.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On October 28, 2002, the Company held its Annual Meeting of Shareholders at the Sandy Lane Hotel, Sandy Lane, St. James, Barbados. There were a total of 90,576,492 Ordinary Shares entitled to vote, in person or by proxy, at the meeting.

	The following matters were voted upon at the meeting:

	(i) The election of two directors to the Board of Directors of the Company for a term to expire at the 2005 Annual Meeting of Shareholders; and

	(ii) A proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors for the fiscal year ending March 31, 2003.

	With respect to the election of directors, the following votes were cast:

Nominee	For		Withheld Authority

Thomas J. Hilfiger		77,561,649		1,380,530
Robert T. Sze		77,549,695		1,392,484

The other directors of the Company whose terms continued after the meeting are Joel J. Horowitz, Ronald K.Y. Chao, Lester M.Y. Ma, Clinton V. Silver and Simon Murray.

With respect to the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors, 72,044,502 votes were cast in favor of the proposal and 6,850,644 votes were cast against. In addition, there were 47,033 abstentions and no broker non-votes.

ITEM 6 – EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

11. Computation of Net Income Per Ordinary Share

(b) Reports on Form 8-K

During the quarter ended September 30, 2002, the Company did not file any Current Reports on Form 8-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

	TOMMY HILFIGER CORPORATION


Date: November 4, 2002	By:	/s/ JOEL J. HOROWITZ

		Joel J. Horowitz Chief Executive Officer and President Tommy Hilfiger Corporation


Date: November 4, 2002	By:	/s/ JOSEPH SCIROCCO

		Joseph Scirocco Principal Financial Officer Tommy Hilfiger Corporation

CERTIFICATIONS

I, Joel J. Horowitz, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Tommy Hilfiger Corporation;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 4, 2002
	/s/ JOEL J. HOROWITZ

	Joel J. Horowitz Chief Executive Officer and President (principal executive officer)

I, Joseph Scirocco, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Tommy Hilfiger Corporation;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 4, 2002

	/s/ JOSEPH SCIROCCO

	Joseph Scirocco Chief Financial Officer, Senior Vice President and Treasurer (principal financial officer)

EXHIBIT INDEX

Exhibit Number		Description

11.		Computation of Net Income Per Ordinary Share

EX-11 3 dex11.htm COMPUTATION OF INCOME PER ORDINARY SHARE Computation of Income Per Ordinary Share

EXHIBIT 11

Tommy Hilfiger Corporation
Computation of Net Income Per Ordinary Share
(in thousands, except per share amounts)

	Six Months Ended September 30,					Three Months Ended September 30,

	2002			2001		2002		2001

FINANCIAL STATEMENT PRESENTATION
BASIC
Weighted average shares outstanding		90,194			89,150		90,490		89,292

Earnings (loss) before cumulative effect of accounting change	$	52,262		$	56,888	$	60,994	$	47,875

Net income (loss)	$	(377,764	)	$	56,888	$	60,994	$	47,875

Earnings (loss) per share before cumulative effect of accounting change	$	0.58		$	0.64	$	0.67	$	0.54

Net income (loss) per share	$	(4.19	)	$	0.64	$	0.67	$	0.54

DILUTED
Weighted average shares outstanding		90,194			89,150		90,490		89,292
Net effect of dilutive stock options based on the treasury stock method using average market price		611			549		339		480

Total		90,805			89,699		90,829		89,772

Earnings (loss) before cumulative effect of accounting change	$	52,262		$	56,888	$	60,994	$	47,875

Net income (loss)	$	(377,764	)	$	56,888	$	60,994	$	47,875

Earnings (loss) per share before cumulative effect of accounting change	$	0.58		$	0.63	$	0.67	$	0.53

Net income (loss) per share	$	(4.16	)	$	0.63	$	0.67	$	0.53

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