10-K
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2008
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from                      to                     
Commission file no. 1-9494
(TIFFANY & CO. LOGO)
(Exact name of registrant as specified in its charter)
     
Delaware   13-3228013
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)    
     
727 Fifth Avenue, New York, New York   10022
(Address of principal executive offices)   (Zip code)
Registrant’s telephone number, including area code: (212)755-8000
 
Securities registered pursuant to Section 12(b) of the Act:
     
Title of each class
  Name of each exchange on which registered
 
   
Common Stock, $.01 par value per share
  New York Stock Exchange
 
   
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form10-K or any amendment to this Annual Report on Form10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check One).
     
Large Accelerated filer ý
  Accelerated filer o
Non-Accelerated filer o
  Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
As of July 31, 2007 the aggregate market value of the registrant’s voting and non-voting stock held by non-affiliates of the registrant was approximately $6,535,940,127 using the closing sales price on this day of $48.25. See Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of March 20, 2008, the registrant had outstanding 126,087,745 shares of its common stock, $.01 par value per share.

DOCUMENTS INCORPORATED BY REFERENCE.

The following documents are incorporated by reference into this Annual Report on Form 10-K: Registrant’s Proxy Statement Dated April 10, 2008 (Part III).
 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including information incorporated herein by reference, contains certain “forward-looking statements” concerning the Registrant’s objectives and expectations with respect to store openings, sales, retail prices, gross margin, expenses, effective tax rate, net earnings and net earnings per share, inventories, capital expenditures and cash flow. In addition, management makes other forward-looking statements from time to time concerning objectives and expectations. Statements beginning with such words as “believes”, “intends”, “plans”, and “expects” include forward-looking statements that are based on management’s expectations given facts as currently known by management on the date this Annual Report on Form 10-K was first filed with the Securities and Exchange Commission. All forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
The statements in this Annual Report on Form 10-K are made as of the date this Annual Report on Form 10-K was first filed with the Securities and Exchange Commission and the Registrant undertakes no obligation to update any of the forward-looking information included in this document, whether as a result of new information, future events, changes in expectations or otherwise.
 
TIFFANY & CO.
K - 2


 

PART I
Item 1. Business.
a) General history of business.
Registrant (also referred to as the “Company”) is the parent corporation of Tiffany and Company (“Tiffany”). Charles Lewis Tiffany founded Tiffany’s business in 1837. He incorporated Tiffany in New York in 1868. Registrant acquired Tiffany in 1984 and completed the initial public offering of Registrant’s Common Stock in 1987. Through its subsidiary companies, the Company sells fine jewelry and other items that it makes or has made by others to its specifications.
b) Financial information about industry segments.
Registrant’s segment information for the fiscal years ended January 31, 2008, 2007 and 2006 is stated in Item 8. Financial Statements and Supplementary Data (see Note P. “Segment Information”).
c) Narrative description of business.
As used below, the terms “Fiscal 2007,” “Fiscal 2006” and “Fiscal 2005” refer to the fiscal years ended on January 31, 2008, 2007 and 2006, respectively. Registrant is a holding company, and conducts all business through its subsidiary corporations.
DISTRIBUTION AND MARKETING
Maintenance of the TIFFANY & CO. Brand
The TIFFANY & CO. brand (the “Brand”) is the single most important asset of Tiffany and, indirectly, of Registrant. The strength of the Brand goes beyond trademark rights (see TRADEMARKS below) and is inherent in consumer aspirations for the Brand. Management monitors the strength of the Brand through focus groups and survey research.
Management believes that the Brand stands for a pronounced and emphatic association with high-quality gemstone jewelry, particularly diamond jewelry; excellent customer service; an elegant store and online environment; upscale store locations; “classic” product positioning; distinctive and high-quality packaging materials (most significantly, the TIFFANY & CO. blue box); and sophisticated style and romance.
Maintaining the strength of the Brand informs Tiffany’s business plan in nearly all aspects. Stores must be staffed with knowledgeable professionals to provide excellent service. Elegant store and online environments increase capital and maintenance costs. Display practices require larger store footprints and lease budgets, but enable Tiffany to showcase fine jewelry in a retail setting consistent with the Brand positioning. Stores in the best “high street” and luxury mall locations are more expensive and difficult to secure, but reinforce the Brand’s luxury connotations through association with other luxury brands. By the same token, over-proliferation of stores, or stores that are located in second-tier markets, can diminish the strength of the Brand. The classic positioning of Tiffany’s product line supports the Brand, but limits the display space that can be afforded to fashion jewelry. Tiffany’s packaging practices support consumer expectations with respect to the Brand and are more expensive. Advertising that reinforces the Brand offsets the amount of pure product promotional advertising that may be done within a given budget. To maintain its position within the high-end of the jewelry market requires
 
TIFFANY & CO.
K - 3


 

Tiffany to invest significantly in gemstone and diamond inventory and accept reduced overall gross margins; it also causes some consumers to view Tiffany as beyond their price range.
All of the foregoing demand that management make difficult tradeoffs between business initiatives that might generate incremental sales and profits and Brand maintenance objectives. This is a dynamic process. To the extent that management deems that product or distribution initiatives will unduly and negatively affect the strength of the Brand, such initiatives have been and will be curtailed or modified appropriately. At the same time, Brand maintenance suppositions are regularly questioned by management to determine if the tradeoff between sales and profit is truly worth the positive effect on the Brand. At times, management has determined, and will in the future determine, that the strength of the Brand warranted, or that it will permit, more aggressive and profitable distribution and marketing initiatives.
Channels of Distribution
For financial reporting purposes, Registrant categorizes its sales as follows:
U.S. Retail consists of retail sales transacted in TIFFANY & CO. stores in the United States and sales of TIFFANY & CO. products through business-to-business direct selling operations in the United States (see U.S. Retail below);
International Retail consists of sales in TIFFANY & CO. stores and department store boutiques outside the United States, as well as business-to-business, Internet and wholesale sales of TIFFANY & CO. products outside the United States (see International Retail below);
Direct Marketing consists of Internet and catalog sales of TIFFANY & CO. products in the United States (see Direct Marketing below); and
Other consists of worldwide sales of businesses operated under trademarks or tradenames other than TIFFANY & CO. (i.e., IRIDESSE). Other also includes wholesale sales of diamonds obtained through bulk purchases that are subsequently deemed not suitable for Tiffany’s needs (see Other below). All prior year amounts in this Annual Report on Form 10-K have been restated to reflect Little Switzerland, Inc. as a discontinued operation.
Products
Registrant’s principal product category is jewelry. It also sells timepieces, sterling silver goods (other than jewelry), china, crystal, stationery, fragrances and personal accessories.
Tiffany offers an extensive selection of TIFFANY & CO. brand jewelry at a wide range of prices. In Fiscal 2007, 2006 and 2005 approximately 86%, 86% and 85%, respectively, of Registrant’s net sales were attributable to TIFFANY & CO. brand jewelry. Designs are developed by employees, suppliers, independent designers and independent “name” designers (see Designer Licenses below).
 
TIFFANY & CO.
K - 4


 

Sales by Reportable Segment of TIFFANY & CO. Jewelry by Category*
                                 
            % to total     % to total     % to total  
2007
  % to total     International     Direct     Reportable  
Category
  U.S. Retail Sales     Retail Sales     Marketing Sales     Segment Sales  
 
A
    32 %     30 %     8 %     29 %
B
    16 %     24 %           18 %
C
    10 %     11 %     8 %     10 %
D
    29 %     26 %     58 %     30 %
 
                                 
            % to total     % to total     % to total  
2006
  % to total     International     Direct     Reportable  
Category
  U.S. Retail Sales     Retail Sales     Marketing Sales     Segment Sales  
 
A
    31 %     29 %     8 %     29 %
B
    14 %     24 %           17 %
C
    11 %     11 %     9 %     11 %
D
    29 %     27 %     56 %     30 %
 
                                 
            % to total     % to total     % to total  
2005
  % to total     International     Direct     Reportable  
Category
  U.S. Retail Sales     Retail Sales     Marketing Sales     Segment Sales  
 
A
    30 %     28 %     8 %     28 %
B
    15 %     24 %           17 %
C
    11 %     12 %     8 %     11 %
D
    29 %     26 %     55 %     29 %
 
A)   This category includes most gemstone jewelry and gemstone band rings, other than engagement jewelry. Most jewelry in this category is constructed of platinum, although gold was used as the primary metal in approximately 10%, 11% and 12% of pieces in 2007, 2006 and 2005, respectively. Most items in this category contain diamonds, other gemstones or both. The average price of merchandise sold in 2007, 2006 and 2005, respectively, in this category was approximately $3,400, $3,000 and $2,800 for total reportable segments.
 
B)   This category includes diamond rings and wedding bands marketed to brides and grooms. Most jewelry in this category is constructed of platinum, although gold was used as the primary metal in approximately 3%, 3% and 4% of pieces in 2007, 2006 and 2005, respectively. Most sales in this category are of items containing diamonds. The average price of merchandise sold in 2007, 2006 and 2005, respectively, in this category was approximately $3,000, $2,500 and $2,500 for total reportable segments.
 
C)   This category generally consists of non-gemstone, gold or platinum jewelry, although small gemstones are used as accents in some pieces. The average price of merchandise sold in 2007, 2006 and 2005, respectively, in this category was approximately $700, $600 and $600 for total reportable segments.
 
D)   This category generally consists of non-gemstone, sterling silver jewelry, although small gemstones are used as accents in some pieces. The average price of merchandise sold in 2007,
 
TIFFANY & CO.
K - 5


 

    2006 and 2005, in this category was approximately $200 for total reportable segments in each year.
 
*   Certain reclassifications have been made to the prior years’ percentages to conform to current-year presentations.
In addition to jewelry, the Company sells TIFFANY & CO. brand merchandise in the following categories: timepieces and clocks; sterling silver merchandise, including flatware, hollowware (tea and coffee services, bowls, cups and trays), trophies, key holders, picture frames and desk accessories; stainless steel flatware; crystal, glassware, china and other tableware; custom engraved stationery; writing instruments; eyewear and fashion accessories. Fragrance products are sold under the trademarks TIFFANY, PURE TIFFANY and TIFFANY FOR MEN. Tiffany also sells other brands of timepieces and tableware in its U.S. stores. Other than jewelry, none of these categories individually represent 10% or more of consolidated net sales.
[Remainder of this page is intentionally left blank]
 
TIFFANY & CO.
K - 6


 

U.S. Retail
New York Flagship Store. Tiffany’s New York Flagship store on Fifth Avenue accounts for a significant portion of the Company’s net sales and is the focal point for marketing and public relations efforts. Approximately 10% of total Company net sales for Fiscal 2007, 2006 and 2005 were attributable to the New York Flagship store’s retail sales.
U.S. Branch Stores. On January 31, 2008, in addition to its New York Flagship store, Tiffany had 69 branch stores in the United States. Most of Tiffany’s U.S. branch stores display a representative selection of merchandise, but none of them maintains the extensive selection carried by the New York Flagship store.

         
    Fiscal Year  
Store Locations   Opened  
 
San Francisco, California
    1963  
Houston, Texas
    1963  
Beverly Hills, California
    1964  
Chicago, Illinois
    1966  
Atlanta, Georgia
    1969  
Dallas, Texas
    1982  
Boston, Massachusetts
    1984  
Costa Mesa, California
    1988  
Philadelphia, Pennsylvania
    1990  
Vienna, Virginia
    1990  
Palm Beach, Florida
    1991  
Honolulu (Ala Moana), Hawaii
    1992  
San Diego, California
    1992  
Troy, Michigan
    1992  
Bal Harbour, Florida
    1993  
Oak Brook, Illinois
    1994  
King of Prussia, Pennsylvania
    1995  
Short Hills, New Jersey
    1995  
White Plains, New York
    1995  
Hackensack, New Jersey
    1996  
Chevy Chase, Maryland
    1996  
Charlotte, North Carolina
    1997  
Chestnut Hill, Massachusetts
    1997  
Cincinnati, Ohio
    1997  
Palo Alto, California
    1997  
Denver, Colorado
    1998  
Las Vegas (Bellagio), Nevada
    1998  
Manhasset, New York
    1998  
Seattle, Washington
    1998  
Scottsdale, Arizona
    1998  
Century City, California
    1999  
Dallas (NorthPark), Texas
    1999  
Boca Raton, Florida
    1999  
Tamuning, Guam
    1999  
 
       
 

         
    Fiscal Year  
Store Locations   Opened  
 
Old Orchard (Skokie), Illinois
    2000  
Maui (Wailea), Hawaii
    2000  
Greenwich, Connecticut
    2000  
Portland, Oregon
    2000  
Tampa, Florida
    2001  
Santa Clara (San Jose), California
    2001  
Honolulu (Waikiki), Hawaii
    2002  
Bellevue, Washington
    2002  
East Hampton, New York
    2002  
St. Louis, Missouri
    2002  
Orlando, Florida
    2002  
Coral Gables, Florida
    2003  
Tumon Bay (DFS), Guam
    2003  
Palm Desert, California
    2003  
Walnut Creek, California
    2003  
Edina, Minnesota
    2004  
Kansas City, Missouri
    2004  
Palm Beach Gardens, Florida
    2004  
Westport, Connecticut
    2004  
Carmel, California
    2005  
Naples, Florida
    2005  
Pasadena, California
    2005  
San Antonio, Texas
    2005  
Atlantic City, New Jersey
    2006  
Indianapolis, Indiana
    2006  
Nashville, Tennessee
    2006  
Tucson, Arizona
    2006  
The Big Island (Waikoloa), Hawaii
    2006  
Austin, Texas
    2007  
Las Vegas (Forum Shops), Nevada
    2007  
Natick, Massachusetts
    2007  
New York (37 Wall Street), New York
    2007  
Red Bank, New Jersey
    2007  
Providence, Rhode Island
    2007  
Santa Barbara, California
    2007  
 


 
TIFFANY & CO.
K - 7


 

Not included in the above list is a holiday sales boutique that the Company operated in late 2007 at the Mohegan Sun Resort, Connecticut.
Expansion of U.S. Retail Operations. Management currently contemplates opening six new TIFFANY & CO. branch stores in the United States in 2008, and eight to twelve branch stores per year beginning in 2009 (which will include a new smaller store format). Management regularly evaluates potential markets for new TIFFANY & CO. stores with a view to the demographics of the area to be served, consumer demand and the proximity of other luxury brands and existing TIFFANY & CO. locations. Management recognizes that over-saturation of any market could diminish the distinctive appeal of the TIFFANY & CO. brand, but believes that there are a significant number of locations remaining in the United States that meet the requirements of a TIFFANY & CO. location, particularly for small stores (see Item 2. Properties for further information concerning U.S. Retail store leases).
Business-to-Business Sales Division. Tiffany’s Business Sales Division sales executives call on business clients throughout the United States, selling products drawn from the retail product line and items specially developed or sourced for the business market, including trophies and items designed for the particular customer. Price allowances are given to business account holders for certain purchases. Business Sales Division customers have typically purchased for business gift giving, employee service and achievement recognition awards, customer incentives and other purposes. Products and services are marketed through a sales organization, through advertising in newspapers and business periodicals and through the publication of special catalogs.
International Retail
The following tables set forth locations operated by Registrant’s subsidiaries:
         
Europe        
 
Austria: Vienna
 
Italy: Milan
   
France: Paris, Galeries Lafayette
   
Italy: Rome
 
France: Paris, Printemps Department Store
   
Switzerland: Zurich
 
France: Paris, Rue de la Paix
   
United Kingdom: London, Harrods
 
Germany: Frankfurt
   
United Kingdom: London, Old Bond Street
 
Germany: Hamburg
   
United Kingdom: London, Royal Exchange
 
Germany: Munich
   
United Kingdom: London, Selfridges
 
Italy: Bologna
   
United Kingdom: London, Sloane Street
 
Italy: Florence
   
 
         
Canada and Central/South America        
 
Canada: Toronto
   
Mexico: Mexico City, Palacio Store, Perisur
 
Canada: Vancouver
   
Mexico: Mexico City, Palacio Store, Polanco
 
Brazil: Sao Paulo, Jardins
   
Mexico: Monterrey, Palacio Store
 
Brazil: Sao Paulo, Iguatemi Shopping Center
   
Mexico: Puebla, Palacio Store
 
Mexico: Mexico City, Masaryk
   
Mexico: Santa Fe
 
 
TIFFANY & CO.
K - 8


 

Japan
     
Abeno, Kintetsu Department Store
   
Chiba, Mitsukoshi Department Store
   
Fukuoka, Mitsukoshi Department Store
   
Ginza, Mitsukoshi Department Store
   
Hiroshima, Fukuya Department Store
   
Ikebukuro, Mitsukoshi Department Store
   
Ikebukuro, Tobu Department Store
   
Kagoshima, Mitsukoshi Department Store
   
Kanazawa, Mitsukoshi
   
Kashiwa, Takashimaya Department Store
   
Kawasaki, Saikaya Department Store
   
Kobe, Daimaru Department Store
   
Kochi, Daimaru Department Store
   
Kokura, Izutsuya Department Store
   
Koriyama, Usui Department Store
   
Kumamoto, Tsuruya Department Store
   
Kyoto, Daimaru Department Store
   
Kyoto, Takashimaya Department Store
   
Matsuyama, Mitsukoshi Department Store
   
Mito, Keisei Department Store
   
Nagoya, Mitsukoshi
   
Nagoya, Takashimaya Department Store
   
Nagoya, Matsuzakaya Department Store
   
Nihonbashi, Mitsukoshi Department Store
   
Niigata, Mitsukoshi Department Store
   
Oita, Tokiwa Department Store
   
Okayama, Tenmaya Department Store
   
     
Omiya, Sogo Department Store
   
Osaka, Takashimaya Department Store
   
Osaka, Umeda ‡
   
Sagamihara, Isetan Department Store
   
Sapporo, Mitsukoshi Department Store
   
Sapporo, Daimaru Department Store
   
Sendai, Mitsukoshi Department Store
   
Shibuya, Seibu Department Store
   
Shinjuku, Isetan Department Store
   
Shinjuku, Mitsukoshi Department Store
   
Shinjuku, Takashimaya Department Store
   
Shinsaibashi, Sogo Department Store
   
Shizuoka, Matsuzakaya Department Store
   
Tachikawa, Isetan Department Store
   
Takamatsu, Mitsukoshi Department Store
   
Takasaki, Takashimaya Department Store
   
Tamagawa, Takashimaya Department Store
   
Tokyo, Ginza Flagship Store ‡
   
Tokyo, Marunouchi ‡
   
Tokyo, Roppongi Hills ‡
   
Umeda, Daimaru Department Store
   
Utsunomiya, Tobu Department Store
   
Wakayama, Kintetsu Department Store
   
Yokohama, Landmark Plaza, Mitsukoshi
   
Yokohama, Takashimaya Department Store
   
Yonago, Takashimaya Department Store
   

  Freestanding stores operated by Registrant’s Subsidiaries.
Asia-Pacific Excluding Japan
     
Australia: Brisbane
   
Australia: Melbourne
   
Australia: Sydney
   
China: Beijing, The Peninsula Palace Hotel
   
China: Beijing, Oriental Plaza
   
China: Shanghai, Jiu Guang City Plaza
   
China: Shanghai, Plaza 66
   
China: Tianjin
   
Hong Kong: Elements
   
Hong Kong: Hong Kong International Airport
   
Hong Kong: International Finance Center
   
Hong Kong: The Landmark Center
   
Hong Kong: Pacific Place
   
Hong Kong: The Peninsula Hotel
   
Hong Kong: Sogo Department Store
   
Korea: Busan, Lotte Department Store
   
Korea: Seoul, Galleria Luxury Hall East Dept. Store
   
     
Korea: Seoul, Hyundai Department Store
   
Korea: Seoul, Hyundai Coex Department Store
   
Korea: Seoul, Lotte Downtown Department Store
   
Korea: Seoul, Lotte World
   
Korea: Seoul, Shinsegae Main
   
Macau: The Venetian Resort
   
Macau: Wynn Resort
   
Malaysia: Kuala Lumpur, KLCC
   
Malaysia: Kuala Lumpur, Pavillion
   
Singapore: Changi Airport
   
Singapore: Ngee Ann City
   
Singapore: Raffles Hotel
   
Taiwan: Kaohsiung, Hanshin Department Store
   
Taiwan: Taichung, Sogo Department Store
   
Taiwan: Taipei, The Regent Hotel
   
Taiwan: Taipei, Sogo Department Store
   
Taiwan: Taipei, Taipei Financial Center
   

 
 
TIFFANY & CO.
K - 9


 

Business with Department Stores in Japan. In Fiscal 2007, 2006 and 2005, respectively, total net sales in Japan of TIFFANY & CO. merchandise represented 17%, 19% and 21% of Registrant’s net sales.
In Fiscal 2007, approximately 2% of Registrant’s net sales were recorded in Registrant’s Tokyo Flagship store, which is operated by Registrant’s wholly-owned subsidiary Tiffany & Co. Japan Inc. (“Tiffany-Japan”). Sales recorded in retail locations operated in connection with Mitsukoshi Ltd. of Japan (“Mitsukoshi”) accounted for 5%, 9% and 11%, in Fiscal 2007, 2006 and 2005, respectively. With a concentration of 15 of the total 49 TIFFANY & CO. department store boutiques in Japan, Mitsukoshi is the single largest department store with TIFFANY & CO. boutiques in Japan.
Tiffany-Japan has merchandising and marketing responsibilities in the operation of TIFFANY & CO. boutiques in department store locations throughout Japan. Department stores act for Tiffany-Japan in the sale of merchandise. Tiffany-Japan owns the merchandise and recognizes as revenues the retail price charged to the ultimate consumer in Japan. Tiffany-Japan establishes retail prices, bears the risk of currency fluctuation, provides one or more brand managers in each boutique, controls merchandising and display within the boutiques, manages inventory and controls and funds all advertising and publicity programs with respect to TIFFANY & CO. merchandise. The department stores in Japan provide and maintain boutique facilities and assume retail credit and certain other risks.
The department stores provide retail staff in “Standard Boutiques” and Tiffany-Japan provides retail staff in “Concession Boutiques.” At the end of Fiscal 2007, there were 6 Standard Boutiques and 43 Concession Boutiques operated with department stores in Japan. Risk of inventory loss varies depending on whether the boutique is a Standard Boutique or a Concession Boutique. The department stores bear responsibility for loss or damage to the merchandise in Standard Boutiques and Tiffany-Japan bears the risk in Concession Boutiques.
The department stores retain a portion (the “basic portion”) of the net retail sales made in TIFFANY & CO. boutiques. The basic portion varies depending on the type of boutique and the retail price of the merchandise involved with the fees generally varying from store to store. The highest basic portion available to any department store is 23% and the lowest is 14%.
In recent years, the Company has been closing underperforming boutiques in Japan and relocating to other department store locations in order to improve sales growth and profitability. Management will continue to identify suitable prime retail locations and does not anticipate reducing overall store-count in Japan during that transition.
The Company’s commercial relationships with department stores in Japan, and their abilities to continue to operate as leading department store operators have been and will continue to be substantial factors in the Company’s continued success in Japan. At the end of Fiscal 2007, TIFFANY & CO. boutiques were located in 15 locations operated with Mitsukoshi and 34 other retail locations with other Japanese department stores, including among others Takashimaya, Isetan and Daimaru. Tiffany-Japan also operates four freestanding stores outside the scope of its Japanese department store operations.
In recent years, the Japanese department store industry has, in general, suffered declining sales. There is a risk that such financial difficulties will force consolidations or store closings. Should one or more Japanese department store operators elect or be required to close one or more stores now housing a TIFFANY & CO. boutique, the Company’s sales and earnings would be reduced while alternate premises were being obtained.
In 2007, Mitsukoshi and Isetan department stores announced plans to merge to form the company Isetan Mitsukoshi Holdings Ltd. in April 2008, making it the largest department store group in Japan.
 
TIFFANY & CO.
K - 10


 

Mitsukoshi and Isetan department stores will retain their current names after the merger. The establishment of Isetan Mitsukoshi Holdings Ltd. realigned Japan’s department store sector, transforming it into a venue dominated by four main department store groups including the J. Front Retailing Co., which integrated Daimaru and Matsuzakaya department stores, Takashimaya and the Millennium Retailing Co., which was formed in 2003, integrating the Sogo and Seibu department stores. The Company operates TIFFANY & CO. boutiques in each of the aforementioned department stores.
International Internet Sales. The Company offers a selection of TIFFANY & CO. merchandise for purchase in England, Wales, Northern Ireland and Scotland through its U.K. website at www.tiffany.com/uk. The Company also offers a selection of TIFFANY & CO. merchandise for purchase in Japan and Canada through websites at www.tiffany.co.jp and www.tiffany.ca. In 2008, the Company expects to offer a selection of TIFFANY & CO. merchandise for purchase in Australia through its website at www.tiffany.com/au. The scope and selection of merchandise offered for purchase on these international websites is comparable to the selection offered on the U.S. website (see U.S. Internet Sales below).
International Wholesale Distribution. Selected TIFFANY & CO. merchandise is sold to independent distributors for resale in markets in the Central/South American, Caribbean, Canadian, Asia-Pacific, Russian and Middle Eastern regions. Such sales represented approximately 3% of net sales in Fiscal 2007. Management anticipates continued expansion of international wholesale distribution in these regions as markets are developed.
Expansion of International Retail Operations. Tiffany began its ongoing program of international expansion through proprietary retail stores in 1986 with the establishment of the London Flagship store. Registrant expects to continue to open TIFFANY & CO. stores in locations outside the United States and to selectively expand its channels of distribution in important markets around the world without compromising the long-term value of the TIFFANY & CO. trademark. Management currently contemplates opening approximately 20 TIFFANY & CO. international stores and boutiques in 2008, and at least 12 to 15 annually in subsequent years.
 
[Remainder of this page is intentionally left blank]
 
TIFFANY & CO.
K - 11


 

The following chart details the growth in TIFFANY & CO. stores and boutiques since Fiscal 1987 on a worldwide basis:
Worldwide TIFFANY & CO. Retail Locations Operated by Registrant’s Subsidiary Companies
                                                 
 
            Canada,                              
            Central/                              
End of           South                     Other        
Fiscal:   U.S.     Americas     Europe     Japan     Asia-Pacific     Total  
 
1987
    8       0       2       0       0       10  
1988
    9       0       3       0       1       13  
1989
    9       0       5       0       2       16  
1990
    12       0       5       0       3       20  
1991
    13       1       7       0       4       25  
1992
    16       1       7       7       4       35  
1993
    16       1       6       37 *     5       65  
1994
    18       1       6       37       7       69  
1995
    21       1       6       38       9       75  
1996
    23       1       6       39       12       81  
1997
    28       2       7       42       17       96  
1998
    34       2       7       44       17       104  
1999
    38       3       8       44       17       110  
2000
    42       4       8       44       21       119  
2001
    44       5       10       47       20       126  
2002
    47       5       11       48       20       131  
2003
    51       7       11       50       22       141  
2004
    55       7       12       53       24       151  
2005
    59       7       13       50       25       154  
2006
    64       9       14       52       28       167  
2007
    70       10       17       53       34       184  
 
* Prior to July 1993, many TIFFANY & CO. boutiques in Japan were operated by Mitsukoshi (ranging from 21 in 1987 to 29 in 1993)  
Direct Marketing
U.S. Internet Sales. Tiffany distributes a selection of more than 3,500 products through its website at www.tiffany.com for purchase in the United States. Sales for transactions made on websites outside the U.S. are reported in the International Retail channel of distribution. Business account holders may make gift purchases through the Company’s website at http://business.tiffany.com. Price allowances are given to eligible business account holders for certain purchases on the Tiffany for Business website.
Catalogs. Tiffany also distributes catalogs of selected merchandise to its proprietary list of customers and to mailing lists rented from third parties. SELECTIONS® catalogs are published, supplemented by COLLECTIONS and other catalogs.
 
TIFFANY & CO.
K - 12


 

The following table sets forth certain data with respect to mail, telephone and Internet order operations for the periods indicated:
                         
    2007     2006     2005  
 
Number of names on U.S. catalog mailing and U.S. Internet
lists at fiscal year-end (consists of U.S. customers who
purchased by mail, telephone or Internet prior to the
applicable date):
    3,593,167       3,187,500       2,821,638  
 
                       
Total U.S. catalog mailings during fiscal year (in millions):
    19.5       21.7       24.4  
 
                       
Total U.S. mail, telephone or Internet orders received
during fiscal year:
    770,918       744,414       704,221  
 
Other
This channel of distribution includes the consolidated results of existing businesses that sell merchandise under trademarks or tradenames other than TIFFANY & CO. In Fiscal 2004, the Company also initiated, through this channel of distribution, wholesale sales of diamonds that were found to be unsuitable for Tiffany’s needs.
Registrant believes that the sale of merchandise under trademarks or tradenames other than TIFFANY & CO. offers an opportunity to achieve incremental growth in sales and earnings without diminishing the distinctive appeal of the TIFFANY & CO. brand. Businesses to be developed or acquired for this channel have been and will be chosen with a view to more fully exploit Registrant’s established infrastructure for distribution and manufacturing of luxury products, store development and brand management.
Wholesale Diamond Sales. In Fiscal 2003, the Company began to purchase rough diamonds. In Fiscal 2004, the Company commenced the sale of diamonds that were found unsuitable for Tiffany’s needs. Tiffany purchases parcels of rough diamonds, but not all the diamonds in a parcel are suitable for Tiffany’s production. In addition, after production not all polished diamonds are suitable for Tiffany jewelry. These diamonds that do not meet Tiffany’s quality standards are sold to third parties through the Other channel of distribution. The Company’s objective from such sales is to recoup its original costs, thereby earning minimal, if any, gross margin on those transactions.
Iridesse, Inc. In Fiscal 2004, the Company organized a new retail subsidiary, under the name Iridesse, Inc., to engage exclusively in the design and retail sale of pearl jewelry in the United States. At the end of Fiscal 2007, there were 16 IRIDESSE retail stores (see Item 2. Properties, IRIDESSE Stores, for further information concerning IRIDESSE retail store leases).
Little Switzerland, Inc. In 2007, the Company sold its interest in Little Switzerland, Inc. to an unaffiliated third party. Its results have been reclassified to discontinued operations.
ADVERTISING AND PROMOTION
Registrant regularly advertises, primarily in newspapers and magazines, and periodically conducts product promotional events. In Fiscal 2007, 2006 and 2005, Registrant spent approximately $174 million, $162 million and $137 million, respectively, on worldwide advertising, which includes costs for media, production, catalogs, promotional events and other related items.
 
TIFFANY & CO.
K - 13


 

Public Relations (promotional) activity is a significant aspect of Registrant’s business. Management believes that Tiffany’s image is enhanced by a program of charity sponsorships, grants and merchandise donations. Donations are also made to The Tiffany & Co. Foundation, a private foundation organized to support 501(c)(3) charitable organizations with efforts concentrated in environmental conservation and support for the decorative arts. Tiffany also engages in a program of retail promotions and media activities to maintain consumer awareness of the Company and its products. Each year, Tiffany publishes its well-known Blue Book which showcases jewelry and other merchandise. John Loring, Tiffany’s Design Director, is the author of numerous books featuring TIFFANY & CO. products. Registrant considers these and other promotional efforts important in maintaining Tiffany’s image.
TRADEMARKS
The designations TIFFANY® and TIFFANY & CO.® are the principal trademarks of Tiffany, as well as serving as tradenames. Through its subsidiaries, the Company has obtained and is the proprietor of trademark registrations for TIFFANY and TIFFANY & CO., as well as the TIFFANY BLUE BOX® and the color TIFFANY BLUE® for a variety of product categories in the United States and in other countries.
Tiffany maintains a program to protect its trademarks and institutes legal action where necessary to prevent others either from registering or using marks which are considered to create a likelihood of confusion with the Company or its products.
Tiffany has been generally successful in such actions and management considers that its United States trademark rights in TIFFANY and TIFFANY & CO. are strong. However, use of the designation TIFFANY by third parties (often small companies) on unrelated goods or services, frequently transient in nature, may not come to the attention of Tiffany or may not rise to a level of concern warranting legal action.
Tiffany actively pursues those who counterfeit or sell counterfeit TIFFANY & CO. goods through civil action and cooperation with criminal law enforcement agencies. However, counterfeit TIFFANY & CO. goods remain available in many markets and the cost of enforcement is expected to continue to rise. In recent years, there has been an increase in the availability of counterfeit goods, predominantly silver jewelry, in various markets by street vendors and small retailers and on the Internet.
The continued availability of counterfeit goods within these various markets has the potential, in the long term, to devalue the TIFFANY brand.
In July 2004, Tiffany initiated a civil proceeding against eBay, Inc. in the Federal District Court for the Southern District of New York, alleging direct and contributory trademark infringement, unfair competition, false advertising and trademark dilution. Tiffany seeks damages and injunctive relief stemming from eBay’s alleged assistance and contribution to the offering for sale, advertising and promotion, in the United States, of counterfeit TIFFANY jewelry and any other jewelry or merchandise which bears the TIFFANY trademark and is dilutive or confusingly similar to the TIFFANY trademarks. In November 2007, the case was tried as a bench trial and the parties are awaiting the Court’s verdict.
Despite the general fame of the TIFFANY and TIFFANY & CO. name and mark for the Company’s products and services, Tiffany is not the sole person entitled to use the name TIFFANY in every category in every country of the world; third parties have registered the name TIFFANY in the United States in the food services category, and in a number of foreign countries in respect of certain product categories (including, in a few countries, the categories of fragrance, cosmetics, jewelry, clothing and tobacco products) under circumstances where Tiffany’s rights were not sufficiently clear under local law, and/or where management concluded that Tiffany’s foreseeable business interests did not warrant the expense of litigation.
TIFFANY & CO.
K - 14


 

DESIGNER LICENSES
Tiffany has been the sole licensee for jewelry designed by Elsa Peretti, Paloma Picasso and the late Jean Schlumberger since Fiscal 1974, 1980 and 1956, respectively.
In Fiscal 2005, Tiffany became the sole licensee for jewelry designed by the architect, Frank Gehry. The Gehry collection was made available for retail sale in the first quarter of Fiscal 2006. Merchandise designed by Mr. Gehry accounted for 2% of the Company’s net sales in Fiscal 2007 and 2006.
Ms. Peretti and Ms. Picasso retain ownership of copyrights for their designs and of their trademarks and exercise approval rights with respect to important aspects of the promotion, display, manufacture and merchandising of their designs. Tiffany is required by contract to devote a portion of its advertising budget to the promotion of their respective products; each is paid a royalty by Tiffany for jewelry and other items designed by them and sold under their respective names. Written agreements exist between Ms. Peretti and Tiffany and between Ms. Picasso and Tiffany, but may be terminated by either party following six months notice to the other party. No arrangements are currently in place to continue the sale of designs following the death or disability of either Elsa Peretti or Paloma Picasso. Tiffany is the sole retail source for merchandise designed by Ms. Peretti worldwide; however, she has reserved by contract the right to appoint other distributors in markets outside the United States, Canada, Japan, Singapore, Australia, Italy, the United Kingdom, Switzerland and Germany. In Fiscal 1992, Tiffany acquired trademark and other rights necessary to sell the designs of the late Mr. Schlumberger under the TIFFANY-SCHLUMBERGER trademark.
The designs of Ms. Peretti accounted for 11%, 12% and 13% of the Company’s net sales in Fiscal 2007, 2006 and 2005, respectively. Merchandise designed by Ms. Picasso accounted for 3% of the Company’s net sales in Fiscal 2007, and 4% of the Company’s net sales in Fiscal 2006 and 2005. Registrant’s operating results could be adversely affected were it to cease to be a licensee of either of these designers or should its degree of exclusivity in respect of their designs be diminished.
MERCHANDISE PURCHASING, MANUFACTURING AND RAW MATERIALS
Merchandise offered for sale by the Company is supplied from Tiffany’s jewelry and silver goods manufacturing facilities in Cumberland and Cranston, Rhode Island; Pelham and Mount Vernon, New York; the hollowware manufacturing facility in Tiffany’s Retail Service Center and through purchases and consignments from others. It is Registrant’s long-term objective to continue its expansion of Tiffany’s internal manufacturing operations. However, it is not expected that Tiffany will ever manufacture all of its needs. Factors to be considered in its decision to outsource manufacturing include product quality, gross margin improvement, access to or mastery of various jewelry-making skills and technology, support for alternative capacity and the cost of capital investments.
The following table shows Tiffany’s sources of jewelry merchandise, based on cost, for the periods indicated:
                         
    2007     2006     2005  
     
Finished Goods produced by Tiffany*
    59 %     58 %     65 %
Finished Goods purchased from others
    41 %     42 %     35 %
     
 
    100 %     100 %     100 %
     
*   Includes raw materials provided by Tiffany to subcontractors.
TIFFANY & CO.
K - 15
 


 

Almost all non-jewelry items are purchased from third-party vendors.
Purchases of Polished Gemstones and Precious Metals. Gemstones and precious metals used in making Tiffany’s jewelry may be purchased from a variety of sources. Most purchases are from suppliers with which Tiffany enjoys long-standing relationships.
Products containing one or more diamonds of varying sizes, including diamonds used as accents, side-stones and center-stones, accounted for approximately 48%, 46% and 46% of Tiffany’s net sales in Fiscal 2007, 2006 and 2005, respectively. Products containing one or more diamonds of one carat or larger accounted for 11%, 10% and 10% of net sales in each of those years, respectively.
Tiffany purchases polished diamonds principally from seven key vendors. Were trade relations between Tiffany and one or more of these vendors to be disrupted, the Company’s sales would be adversely affected in the short term until alternative supply arrangements could be established. Diamonds of one carat or greater that meet the quality demands of Tiffany are increasingly more scarce and difficult to acquire than smaller diamonds. Prices for all Tiffany quality diamonds are increasing, however the prices for greater-than-one-carat diamonds are increasing at a faster rate than diamonds smaller than one carat. Established sources for smaller diamonds would be more easily replaced in the event of a disruption in supply than could sources for larger diamonds.
Some, but not all, of Tiffany’s suppliers are DTC sight-holders (see below), and it is estimated that a significant portion of the diamonds that Tiffany has purchased have had their source with the DTC.
Acquiring diamonds for the engagement business is increasingly difficult because of supply limitations; at times, Tiffany is not able to maintain a comprehensive selection of diamonds in each retail location due to the broad assortment of sizes, colors, clarity grades and cuts demanded by customers.
Except as noted above, Tiffany believes that there are numerous alternative sources for gemstones and precious metals and that the loss of any single supplier would not have a material adverse effect on its operations.
Purchases of Rough Diamonds. Until Fiscal 2003, the Company did not purchase rough (uncut and unpolished) diamonds. Since that time, the Company has established diamond processing operations that purchase, sort, cut and/or polish rough diamonds for use by Tiffany. The Company now has such operations in Canada’s Northwest Territories, Belgium, South Africa, Botswana, Namibia, China and Vietnam. Operations in South Africa, Botswana and Namibia are conducted through joint ventures with third parties. The Company will continue to invest in additional opportunities that will potentially lead to additional “conflict-free” (see below) sources of rough diamonds.
In Fiscal 2007, approximately 40% of the polished diamonds acquired by Tiffany for use in jewelry were produced from rough diamonds purchased by the Company. The balance of Tiffany’s needs for polished diamonds were purchased from third parties (see above). The Company expects to continue to purchase rough diamonds in increasing amounts. In conducting these activities, it is the Company’s intention to supply Tiffany’s needs for cut/polished diamonds to as great an extent as possible.
In order to acquire rough diamonds, the Company must purchase mixed boxes of rough diamonds or purchase “run-of-mine” production. Thus, it is necessary to purchase rough diamonds that cannot be cut to meet Tiffany’s quality standards and that must be sold to third parties; such sales have been conducted through Registrant’s Other channel of distribution. To make such sales, the Company must charge a market price and is unable to earn any significant profit above its original cost. Sales of rough
TIFFANY & CO.
K - 16
 


 

diamonds in the Other channel of distribution have had and will continue to have the effect of reducing the Company’s overall gross margins.
The DTC. The supply and price of rough diamonds in the principal world markets have been and continue to be significantly influenced by a single entity, the Diamond Trading Company (the “DTC”), an affiliate of De Beers S.A., the Luxembourg-based holding company of the De Beers Group. However, the role of the DTC is rapidly changing and that change has greatly affected, and will continue to affect, traditional channels of supply in the markets for rough and cut diamonds. The DTC continues to supply a significant portion of the world market for rough, gem-quality diamonds, notwithstanding that its historical ability to control worldwide production supplies has been significantly diminished due to changing policies in diamond-producing countries and revised contractual arrangements with other diamond mine operators. Responding to pressure from the European Commission, in Fiscal 2005 the DTC entered into commitments for a three-year phase-out of purchases of rough diamonds from the world’s second largest producer, ALROSA Company Limited, which accounts for over 98% of Russian diamond production. Russia is the second largest diamond producing country in the world, in value, after Botswana. The DTC maintains separate arrangements to purchase and distribute diamonds produced in Botswana. The DTC’s three-year phase-out commitments with ALROSA are anticipated to make additional rough diamonds available for competitive bid.
The DTC continues to exert a significant influence on the demand for polished diamonds through advertising and marketing efforts throughout the world and through the requirements it imposes on those who purchase rough diamonds from the DTC (“sight-holders”). The Company is a DTC sight-holder through its joint ventures (see above).
Worldwide Availability of Diamonds. The availability and price of diamonds to the DTC, Tiffany and Tiffany’s suppliers may be, to some extent, dependent on the political situation in diamond-producing countries, the opening of new mines and the continuance of the prevailing supply and marketing arrangements for rough diamonds. As a consequence of changes in the sight-holder system and increased competition in the retail diamond trade, substantial competition exists for rough diamonds, which resulted in significant increases in diamond prices commencing in Fiscal 2004 and continued, albeit lesser, increases in diamond prices through 2007. Sustained interruption in the supply of rough diamonds, an overabundance of supply or a substantial change in the marketing arrangements described above could adversely affect Tiffany and the retail jewelry industry as a whole. Changes in the marketing and advertising policies of the DTC and its direct purchasers could affect consumer demand for diamonds. Additionally, an affiliate of the DTC has formed a joint venture with an affiliate of a major luxury goods retailer for the purpose of retailing diamond jewelry under the DEBEERS trademark. This joint venture has become a competitor of Tiffany. Further, the DTC has encouraged its sight-holders to engage in diamond brand development, which may also increase demand for diamonds and affect the supply of diamonds in certain categories.
Conflict Diamonds. Increasing attention has been focused in recent years on the issue of “conflict” diamonds. Conflict diamonds are extracted from war-torn geographic regions and sold by rebel forces to fund insurrection. Allegations have been made that diamond trading is used as a source of funds to further terrorist activities. Concerned participants in the diamond trade, including Tiffany and non-government organizations, seek to exclude such diamonds, which represent a small fraction of the world’s supply, from legitimate trade through an international system of certification and legislation. It is expected that such efforts will not substantially affect the supply of diamonds.
Manufactured Diamonds. Manufactured diamonds have become available in small quantities. Although significant questions remain as to the ability of producers to produce manufactured diamonds economically within a full range of sizes and natural diamond colors, and as to consumer acceptance of
TIFFANY & CO.
K - 17
 


 

manufactured diamonds, it is possible that manufactured diamonds may become a factor in the market. Should manufactured diamonds come into the market in significant quantities at prices significantly below those for natural diamonds of comparable quality, the price for natural diamonds may fall unless consumers are willing to pay a premium for natural diamonds. Such a price decline could affect the price that Tiffany is able to obtain for its products. Also, a significant decline in the price of natural diamonds may affect the economics of diamond mining, causing some mining operations to become uneconomic; this, in turn, could lead to shortages in natural diamonds.
Finished Jewelry. Finished jewelry is purchased from approximately 90 manufacturers, most of which have long-standing relationships with Tiffany. However, Tiffany does not enter into long-term supply arrangements with its finished goods vendors. Tiffany does enter into written blanket purchase-order agreements with nearly all of its finished goods vendors. These agreements may be terminated at any time by Tiffany without penalty; such termination would not discharge Tiffany’s obligations under unfilled purchase orders placed prior to termination. The blanket purchase-order agreements establish non-price terms by which Tiffany may purchase and by which vendors may sell finished goods to Tiffany. These terms include payment terms, shipping procedures, product quality requirements, merchandise specifications and vendor social responsibility requirements. Tiffany believes that there are alternative sources for most jewelry items; however, due to the craftsmanship involved in certain designs, Tiffany would have difficulty finding readily available alternatives in the short term.
Watches. Watch sales by the Company in Fiscal 2007 constituted approximately 2% of net sales. In 2007, the Company entered into a 20-year license and distribution agreement with The Swatch Group Ltd. for the manufacture and distribution of TIFFANY & CO. brand watches. Under the agreement, the Swatch Group will incorporate a new watch-making company in Switzerland. The new company will be authorized to use certain trademarks owned by the Company and operate under the TIFFANY & CO. name. The two companies will collaborate on design, engineering, manufacturing, marketing, distribution and service. The distribution of TIFFANY & CO. watches will be made through the Swatch Group Ltd. distribution network via Swatch Group affiliates, Swatch Group retail facilities and third party distributors as well as through TIFFANY & CO. stores.
COMPETITION
TIFFANY & CO. stores encounter significant competition in all product lines. Some competitors specialize in just one area in which Tiffany is active. Many competitors have established worldwide, national or local reputations for style, quality, expertise and customer service similar to Tiffany and compete on the basis of that reputation. Other jewelers and retailers compete primarily through advertised price promotion. Tiffany competes on the basis of its reputation for high-quality products, brand recognition, customer service and distinctive value-priced merchandise and does not engage in price promotional advertising.
Competition for engagement jewelry sales is particularly fierce and becoming more so. Tiffany’s price for diamonds reflects the rarity of the stones it offers and the rigid parameters it exercises with respect to the cut, clarity and other quality factors which increase the beauty of Tiffany diamonds, but also increase Tiffany’s cost. Tiffany competes in this market by stressing quality.
Registrant also faces increasing competition in the area of direct marketing. A growing number of direct sellers compete for access to the same mailing lists of known purchasers of luxury goods. Tiffany currently distributes selected merchandise through its websites and anticipates continuing competition in this area as the technology evolves. Tiffany does not offer diamond engagement jewelry through its website, while certain of Tiffany’s competitors do. Nonetheless, Tiffany will seek to maintain and improve
TIFFANY & CO.
K - 18
 


 

its position in the Internet marketplace by refining and expanding its merchandise selection and services.
SEASONALITY
As a jeweler and specialty retailer, the Company’s business is seasonal in nature, with the fourth quarter typically representing at least one-third of annual net sales and approximately one-half of annual net earnings. Management expects such seasonality to continue.
EMPLOYEES
As of January 31, 2008, the Registrant’s subsidiary corporations employed an aggregate of approximately 8,800 full-time and part-time persons. Of those employees, approximately 6,000 are employed in the United States. Approximately 40 of the total number of Registrant’s subsidiary’s employees in South Africa are represented by unions and approximately 440 of the total number of Registrant’s subsidiary’s employees in Vietnam are represented by unions. None of Registrant’s unionized employees are employed in the United States. Registrant believes that relations with its employees and these unions are good.
AVAILABLE INFORMATION
The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding Tiffany & Co. and other companies that file materials with the SEC electronically. You may also obtain copies of the Company’s annual reports on Form 10-K, Forms 10-Q and Forms 8-K, free of charge on the Company’s website at http://investor.tiffany.com/financials.cfm.
[Remainder of this page is intentionally left blank]
TIFFANY & CO.
K - 19
 


 

Item 1A. Risk Factors.
As is the case for any retailer, Registrant’s success in achieving its objectives and expectations is dependent upon general economic conditions, competitive conditions and consumer attitudes. However, certain factors are specific to the Registrant and/or the markets in which it operates.
The following “risk factors” are specific to Registrant; these risk factors affect the likelihood that Registrant will achieve the financial objectives and expectations communicated by management:
(i) Risk: that a decline in consumer confidence will adversely affect Registrant’s sales.
          As a retailer of goods which are discretionary purchases, Registrant’s sales results are particularly sensitive to changes in consumer confidence. Consumer confidence is affected by general business conditions; changes in the market value of securities and real estate; inflation; interest rates and the availability of consumer credit; tax rates; and expectations of future economic conditions and employment prospects.
          Consumer spending for discretionary goods generally declines during times of falling consumer confidence, which will negatively affect Registrant’s earnings because of its cost base and inventory investment.
(ii) Risk: that sales will decline or remain flat in Registrant’s fourth fiscal quarter, which includes the holiday selling season.
          Registrant’s business is seasonal in nature, with the fourth quarter typically representing at least one-third of annual net sales and approximately one-half of annual net earnings. Poor sales results during Registrant’s fourth quarter will have a material adverse effect on Registrant’s sales and profits.
(iii) Risk: that regional instability and conflict will disrupt tourist travel.
          Unsettled regional and global conflicts or crises which result in military, terrorist or other conditions creating disruptions or disincentives to, or changes in the pattern, practice or frequency of tourist travel to the various regions where the Registrant operates retail stores could adversely affect the Registrant’s sales and profits.
(iv) Risk: that the Japanese yen will weaken against the U.S. dollar and require Registrant to raise prices or shrink profit margins in Japan.
          Registrant’s sales in Japan represented approximately 17% of Registrant’s net sales in Fiscal 2007. A substantial weakening of the Japanese yen against the U.S. dollar would require Registrant to raise its retail prices in Japan or reduce its profit margins. Japanese consumers may not accept significant price increases on Registrant’s goods; thus there is a risk that a substantial weakening of the yen will result in reduced sales or profit margins.
(v) Risk: that Registrant will be unable to continue to offer merchandise designed by Elsa Peretti or Paloma Picasso.
          Registrant’s long-standing right to sell the jewelry designs of Elsa Peretti and Paloma Picasso and use their trademarks is responsible for a substantial portion of Registrant’s revenues. Merchandise designed by Elsa Peretti and by Paloma Picasso accounted for 11% and 3% of Fiscal 2007 net sales, respectively. Tiffany has exclusive license arrangements with Elsa Peretti and Paloma Picasso; these arrangements are subject to royalty payments as well as other requirements. Each license may be
TIFFANY & CO.
K - 20
 


 

terminated by Tiffany or the designer on six-months notice, even in the case where no default has occurred. Also, no agreements have been made for the continued sale of the designs or use of the trademarks ELSA PERETTI or PALOMA PICASSO following the death of either designer. Loss of either license would materially adversely affect Registrant’s business through lost sales and profits.
(vi) Risk: that increased commodity prices or reduced supply availability will adversely affect Registrant’s ability to produce and sell products at historic profit margins.
          Most of Registrant’s jewelry and non-jewelry offerings are made with diamonds, gemstones and/or precious metals. A significant change in the prices of these commodities could adversely affect Registrant’s business, which is vulnerable to the risks inherent in the trade for such commodities. A substantial decrease in the supply or an increase in the price of raw materials and/or high-quality rough and polished diamonds within the quality grades, colors and sizes that customers demand could lead to decreased customer demand and lost sales and/or reduced gross profit margins.
(vii) Risk: that the value of the TIFFANY & CO. trademark will decline due to the sale by infringers of counterfeit merchandise.
          The TIFFANY & CO. trademark is an asset which is essential to the competitiveness and success of Registrant’s business and Registrant takes appropriate action to protect it. However, Registrant’s enforcement actions have not stopped the imitation and counterfeit of Registrant’s merchandise or the infringement of the trademark. The continued sale of counterfeit merchandise could have an adverse effect on the TIFFANY & CO. brand by undermining Tiffany’s reputation for quality goods and making such goods appear less desirable to consumers of luxury goods. Damage to the brand would result in lost sales and profits.
(viii) Risk: that Registrant will be unable to lease sufficient space for its retail stores in prime locations.
          Registrant, positioned as a luxury goods retailer, has established its retail presence in choice store locations. If Registrant cannot secure and retain locations on suitable terms in prime and desired luxury shopping locations, its expansion plans, sales and profits will be jeopardized.
(ix) Risk: that Registrant’s business is dependent upon the distinctive appeal of the TIFFANY & CO. brand.
          The TIFFANY & CO. brand’s association with quality, luxury and exclusivity is integral to the success of Registrant’s business. Registrant’s expansion plans for retail and direct selling operations and merchandise development, production and management support the brand’s appeal. Consequently, poor maintenance, promotion and positioning of the TIFFANY & CO. brand through market over-saturation may adversely affect the business by diminishing the distinctive appeal of the TIFFANY & CO. brand and tarnishing its image. This will result in lower sales and profits.
Item 1B. Unresolved Staff Comments.
NONE
Item 2. Properties.
Registrant owns or leases its principal operating facilities and occupies its various store premises under lease arrangements that are generally on a two to ten-year basis.
TIFFANY & CO.
K - 21
 


 

NEW YORK FLAGSHIP STORE
In November 1999, Tiffany purchased the land and building housing its Flagship store at 727 Fifth Avenue in New York City which it had leased since 1984. The building was originally constructed for Tiffany in 1940 but was later sold by Tiffany and leased back. It was designed to be a retail store for Tiffany and is believed to be well located for this function. Currently, approximately 40,000 gross square feet of this 124,000 square foot building are devoted to retail sales, with the balance devoted to administrative offices, certain product services, jewelry manufacturing and storage. In Fiscal 2000, Tiffany commenced a multi-year renovation and reconfiguration project to increase the store’s selling space and provide additional floor space for customer service and special exhibitions. An additional selling floor was opened in November 2001 and all renovations were completed by the end of Fiscal 2006.
LONDON FLAGSHIP STORE
In October 2007, the Company sold the building housing the TIFFANY & CO. Flagship store in London and simultaneously entered into a 15-year lease with two 10-year renewable options. The Company completed a renovation and reconfiguration of the store in Fiscal 2006, which increased its gross square footage from 15,200 to 22,400.
TOKYO FLAGSHIP STORE
In August 2007, the Company sold the land and multi-tenant building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district and leased back only the 12,000 gross square feet of the property that was occupied immediately prior to the transaction. The lease expires in 2032; however, the Company has options to terminate the lease in 2022 and 2027 without penalty.
TIFFANY & CO. — U.S. AND INTERNATIONAL RETAIL STORES
The following table provides a reconciliation of Company-operated TIFFANY & CO. stores and boutiques:
                                 
                    Other        
2007   United States     Japan     Countries     Total  
 
Beginning of year
    64       52       51       167  
Opened, net of relocations
    7       4       10       21  
Closed
    (1 )     (3 )           (4 )
     
End of year
    70       53       61       184  
     
                                 
                    Other        
2006   United States     Japan     Countries     Total  
 
Beginning of year
    59       50       45       154  
Opened, net of relocations
    5       4       7       16  
Closed
          (2 )     (1 )     (3 )
     
End of year
    64       52       51       167  
     
U.S. TIFFANY & CO. Stores
In Fiscal 2007, Tiffany leased and operated 69 retail branch locations in the U.S. totaling approximately 493,000 gross square feet devoted to retail selling and operations (not including the New York Flagship store). Tiffany retail branch stores range from approximately 1,300 to 18,000 gross square feet with an
TIFFANY & CO.
K - 22
 


 

average retail store size of approximately 7,100 gross square feet. Most new branch stores opened since Fiscal 2001 are approximately 5,000 to 6,000 gross square feet, and display primarily jewelry and timepieces, with a select assortment of china and crystal giftware. Management currently contemplates the opening of new TIFFANY & CO. branch stores in the United States in this format at the rate of approximately five to seven stores per year. Beginning in 2008, the Company will also open a smaller format 2,000 gross square foot store that offers jewelry (except engagement and high-end statement jewelry) and anticipates opening three to five of these stores annually. Stores of this format will carry a reduced selection of merchandise in order to concentrate on higher-margin products and will occupy a smaller footprint than Tiffany’s full-line stores. Management believes that this new format will be highly efficient and will give the Company the opportunity to open stores in affluent, albeit smaller, U.S. cities and to better serve larger markets where the Company already operates full assortment stores. Anticipation of this format underpins management’s expanded store opening program for the U.S.
New U.S. TIFFANY & CO. Retail Branch Store Leases. In addition to the U.S. leases described above, Registrant has entered into the following new leases for domestic stores expected to open in Fiscal 2008: a 10-year lease for an approximately 5,900 gross square foot store in Topanga Plaza in Los Angeles, California, a 10-year lease for an approximately 6,000 gross square foot store in West Hartford, Connecticut, a 10-year lease for an approximately 5,600 gross square foot store in Pittsburgh, Pennsylvania, a 10-year lease for an approximately 6,100 gross square foot store in Columbus, Ohio, and a 10-year lease for an approximately 2,600 gross square foot store in Glendale, California. This Glendale store will be the first to employ a new format.
International TIFFANY & CO. Stores
At the end of Fiscal 2007, Registrant operated 114 retail locations internationally, including the London and Tokyo Flagship stores, totaling approximately 327,000 gross square feet devoted to retail selling and operations. Outside of Japan, Registrant operates 61 international retail stores ranging from approximately 700 to 22,000 gross square feet with an average retail store size of approximately 3,000 gross square feet. At the end of Fiscal 2007, Registrant operated 53 retail locations in Japan ranging from approximately 1,100 to 12,000 gross square feet with an average retail store size of approximately 2,700 gross square feet.
New International TIFFANY & CO. Retail Branch Store Leases. In addition to the International locations listed above, Registrant has entered into the following new leases for International branch stores expected to open in Fiscal 2008: a 7-year lease for an approximately 1,600 gross square foot store in London Heathrow Airport, United Kingdom; a 9-year lease for an approximately 3,100 gross square foot store in Brussels, Belgium; a 10-year lease for an approximately 3,900 gross square foot store in Dusseldorf, Germany; a 10-year lease for an approximately 6,000 gross square foot store in Madrid, Spain; a 10-year lease for an approximately 4,700 gross square foot store in Perth, Australia; a 3-year lease for an approximately 2,200 gross square foot store in Shenyang, China and a 3-year lease for an approximately 2,200 gross square foot store in Chengdu, China .
For Fiscal 2008, Registrant’s Japanese affiliate has entered into contractual obligations with Daimaru Department store in Fukuoka, Japan; Matsuzakaya Department store in Tokyo, Japan; Entetsu Department store in Hamamatsu, Japan; and Hankyu Department Store in Osaka, Japan for the operation of Concession Boutiques within said department stores of areas comprising approximately 1,800, 4,900, 1,800, and 600 gross square feet, respectively.
TIFFANY & CO.
K - 23
 


 

IRIDESSE Stores
In Fiscal 2007, Iridesse leased and operated 16 retail locations in the U.S. totaling approximately 23,000 gross square feet devoted to retail selling and operations. Iridesse retail stores range from approximately 1,200 to 1,700 gross square feet with an average retail store size of approximately 1,400 gross square feet. Iridesse rents its retail store locations under standard shopping mall leases, which may contain minimum rent escalations, for an average term of 10 years. Iridesse leases are all directly or indirectly guaranteed by Registrant.
New IRIDESSE Store Leases. Iridesse has not entered into any new lease agreements for stores in 2008.
RETAIL SERVICE CENTER
In April 1997, construction of the Retail Service Center (“RSC”) in the Township of Parsippany-Troy Hills in New Jersey was completed and Tiffany commenced operations. The RSC comprises approximately 370,000 square feet, of which approximately 186,000 square feet are devoted to office and computer operations use, with the balance devoted to warehousing, shipping, receiving, light manufacturing, merchandise processing and other distribution functions. The RSC specializes in receipt of merchandise from around the world and replenishment of retail stores. Registrant believes that the RSC has been properly designed to handle worldwide distribution functions and that it is suitable for that purpose.
In September 2005, Tiffany sold the RSC and entered into a long term lease which expires in 2025 and has options for two 10-year renewal periods.
CUSTOMER FULFILLMENT CENTER
In Fiscal 2001, Tiffany entered into a ground lease of undeveloped property in Hanover Township, New Jersey in order to construct and occupy a Customer Fulfillment Center (“CFC”) to manage the warehousing and processing of direct-to-customer orders and to perform other distribution functions. Construction of the CFC was completed and Tiffany commenced operations at this facility in September 2003. The CFC is approximately 266,000 square feet; an area of approximately 34,500 square feet is devoted to office use and the balance is devoted to warehousing, shipping, receiving, merchandise processing and other warehouse functions.
MANUFACTURING FACILITIES
Since 2001, Tiffany has owned and operated a manufacturing facility in Cumberland, Rhode Island. It is an approximately 100,000 square foot facility that was specially designed and constructed for Tiffany for the manufacture of jewelry. It produces a significant portion of the silver, gold and platinum jewelry and silver accessory items sold under the TIFFANY & CO. trademark.
On January 31, 2003, Tiffany purchased a warehouse facility and land located in Cranston, Rhode Island. During Fiscal 2003, Tiffany renovated the approximately 75,000 square foot building to process metals for use in jewelry manufacturing.
On July 1, 1997, Tiffany entered into a lease for an approximately 34,000 square foot manufacturing facility in Pelham, New York, to expire on June 30, 2008. In 2007, Tiffany renewed the lease until June 30, 2013 and modified the rentable square footage to total approximately 44,500 square feet.
On February 16, 2005, Tiffany purchased approximately 22,000 square feet of space to be used as a manufacturing facility for jewelry setting in Mount Vernon, New York.
TIFFANY & CO.
K - 24
 


 

Item 3. Legal Proceedings.
Registrant and Tiffany are from time to time involved in routine litigation incidental to the conduct of Tiffany’s business, including proceedings to protect its trademark rights, litigation with parties claiming infringement of their intellectual property rights by Tiffany, litigation instituted by persons alleged to have been injured upon premises within Registrant’s control and litigation with present and former employees and customers. Although litigation with present and former employees is routine and incidental to the conduct of Tiffany’s business, as well as for any business employing significant numbers of U.S.-based employees, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages for actions claiming discrimination on the basis of age, gender, race, religion, disability or other legally protected characteristic or for termination of employment that is wrongful or in violation of implied contracts. However, Registrant believes that litigation currently pending to which it or Tiffany is a party or to which its properties are subject will be resolved without any material adverse effect on Registrant’s financial position, earnings or cash flows.
On or about July 1, 2004, both Tiffany and the landlord of Tiffany’s Customer Fulfillment Center (“River Park”) requested arbitration of the parties’ continuing dispute over their respective obligations surrounding completion of River Park’s site work (Tiffany and Company v. River Park Business Center, Inc., American Arbitration Association). In connection with the arbitration, River Park’s then pending civil claim in the Superior Court of New Jersey (Morris County), River Park Business Center, Inc. v. Tiffany and Company, was dismissed in September 2004.
In the arbitration, Tiffany asserts River Park’s continuing breach of its obligations to complete Landlord’s Work by the close of Fiscal 2001, as originally required under the Ground Lease, and to obtain timely site plan approval from the Township of Hanover. Tiffany seeks damages stemming from River Park’s continuous delays in completing its obligations, which damages Tiffany contends are in excess of $1,000,000. In its arbitration complaint, River Park seeks an unspecified amount in damages alleging entitlement to reimbursement of grading costs and excess installation costs of the landfill gas venting system.
See Item 1. Business under TRADEMARKS for disclosure on Tiffany and Company v. eBay, Inc.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company’s security holders during the fourth quarter of the fiscal year ended January 31, 2008.
Executive Officers of Registrant. See Item 13. Certain Relationships and Related Transactions, and Director Independence for information on the section titled “EXECUTIVE OFFICERS OF THE COMPANY” as incorporated by reference from Registrant’s Proxy Statement dated April 10, 2008.
TIFFANY & CO.
K - 25
 


 

PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Registrant’s Common Stock is traded on the New York Stock Exchange. In consolidated trading, the high and low selling prices per share for shares of such Common Stock for Fiscal 2007 were:
                 
    High     Low  
 
First Fiscal Quarter
  $ 50.00     $ 39.13  
Second Fiscal Quarter
  $ 56.79     $ 46.56  
Third Fiscal Quarter
  $ 57.34     $ 39.53  
Fourth Fiscal Quarter
  $ 53.66     $ 32.84  
 
On March 20, 2008, the high and low selling prices quoted on such exchange were $38.95 and $36.25, respectively. On March 20, 2008, there were 11,814 holders of record of Registrant’s Common Stock.
In consolidated trading, the high and low selling prices per share for shares of such Common Stock for Fiscal 2006 were:
                 
    High     Low  
 
First Fiscal Quarter
  $ 39.50     $ 34.77  
Second Fiscal Quarter
  $ 35.31     $ 30.11  
Third Fiscal Quarter
  $ 36.95     $ 29.63  
Fourth Fiscal Quarter
  $ 40.80     $ 34.71  
 
It is Registrant’s policy to pay a quarterly dividend on the Registrant’s Common Stock, subject to declaration by Registrant’s Board of Directors. In Fiscal 2006, a dividend of $0.08 per share of Common Stock was paid on April 10, 2006, and dividends of $0.10 per share of Common Stock were paid on July 10, 2006, October 10, 2006 and January 10, 2007. In Fiscal 2007, a dividend of $0.10 per share of Common Stock was paid on April 10, 2007, a dividend of $0.12 per share of Common Stock was paid on July 10, 2007 and dividends of $0.15 were paid on October 10, 2007 and January 10, 2008.
In calculating the aggregate market value of the voting stock held by non-affiliates of the Registrant shown on the cover page of this Annual Report on Form 10-K, 1,262,521 shares of Registrant’s Common Stock beneficially owned by the executive officers and directors of the Registrant (exclusive of shares which may be acquired on exercise of employee stock options) were excluded, on the assumption that certain of those persons could be considered “affiliates” under the provisions of Rule 405 promulgated under the Securities Act of 1933.
TIFFANY & CO.
K - 26


 

The following table contains the Company’s stock repurchases of equity securities in the fourth quarter of Fiscal 2007:
Issuer Purchases of Equity Securities
                                 
                            (d) Maximum Number  
                    (c) Total Number of     (or Approximate Dollar  
                    Shares (or Units)     Value) of Shares, (or  
    (a) Total Number of     (b) Average Price     Purchased as Part of     Units) that May Yet Be  
    Shares (or Units)     Paid per Share (or     Publicly Announced     Purchased Under the  
Period   Purchased     Unit)     Plans or Programs     Plans or Programs*  
 
November 1, 2007 to
November 30, 2007
    4,313,691       $46.82       4,313,691       $337,224,000  
 
December 1, 2007 to
December 31, 2007
    2,565,200       $46.58       2,565,200       $217,736,000  
 
January 1, 2008 to
January 31, 2008
    2,420,600       $40.04       2,420,600       $620,806,000  
 
TOTAL
    9,299,491       $44.99       9,299,491       $620,806,000  
 
*   In January 2008, the Company extended the expiration date of the program to January 2011 and increased by $500,000,000 the amount authorized for repurchase of its Common Stock.
[Remainder of this page is intentionally left blank]
TIFFANY & CO.
K - 27


 

Item 6. Selected Financial Data.
The following table sets forth selected financial data, certain of which have been derived from the Company’s consolidated financial statements for fiscal 2003-2007:
                                         
(in thousands, except per share amounts,                              
percentages, ratios, retail locations and employees)   2007     2006     2005     2004     2003  
 
EARNINGS DATA
                                       
Net sales
  $ 2,938,771     $ 2,560,734     $ 2,312,792     $ 2,127,559     $ 1,928,949  
Gross profit
    1,630,272       1,441,550       1,307,778       1,197,521       1,128,322  
Selling, general & administrative expenses
    1,204,990       1,010,754       920,153       902,042       769,091  
Net earnings from continuing operations
    331,319       268,693       260,283       305,856       220,022  
Net earnings
    303,772       253,927       254,655       304,299       215,517  
Net earnings from continuing operations
    2.40       1.91       1.79       2.07       1.48  
per diluted share
                                       
Net earnings per diluted share
    2.20       1.80       1.75       2.05       1.45  
Weighted-average number of diluted
common shares
    138,140       140,841       145,578       148,093       148,472  
 
BALANCE SHEET AND CASH FLOW DATA
                                       
Total assets
  $ 2,922,156     $ 2,845,510     $ 2,777,272     $ 2,666,118     $ 2,391,088  
Cash and cash equivalents
    246,654       175,008       391,594       186,065       246,180  
Short-term investments
          15,500             139,200       27,450  
Inventories, net
    1,242,465       1,146,674       999,706       1,002,221       826,314  
Short-term borrowings and long-term
debt (including current portion)
    453,137       518,462       471,676       430,963       477,773  
Stockholders’ equity
    1,637,367       1,804,895       1,830,913       1,701,160       1,468,200  
Working capital
    1,258,706       1,253,973       1,334,233       1,208,068       952,923  
Cash flows from operating activities
    391,395       239,036       268,458       144,664       287,425  
Capital expenditures
    185,608       174,551       148,159       137,059       268,567  
Stockholders’ equity per share outstanding
    12.92       13.28       12.85       11.77       10.01  
Cash dividends paid per share
    0.52       0.38       0.30       0.23       0.19  
 
RATIO ANALYSIS AND OTHER DATA
                                       
As a percentage of net sales:
                                       
Gross profit
    55.5 %     56.3 %     56.5 %     56.3 %     58.5 %
Selling, general & administrative expenses
    41.0 %     39.5 %     39.8 %     42.4 %     39.9 %
Net earnings from continuing operations
    11.3 %     10.5 %     11.3 %     14.4 %     11.4 %
Net earnings
    10.3 %     9.9 %     11.0 %     14.3 %     11.2 %
Capital expenditures
    6.3 %     6.8 %     6.4 %     6.4 %     13.9 %
Return on average assets
    10.5 %     9.0 %     9.4 %     12.0 %     10.0 %
Return on average stockholders’ equity
    17.6 %     14.0 %     14.4 %     19.2 %     16.1 %
Total debt-to-equity ratio
    27.7 %     28.7 %     25.8 %     25.3 %     32.5 %
Dividends as a percentage of net earnings
    23.0 %     20.7 %     16.8 %     11.0 %     12.9 %
Company-operated TIFFANY & CO.
stores and boutiques
    184       167       154       151       141  
Number of employees
    8,800       8,700       8,100       7,300       6,900  
 
All references to years relate to the fiscal year that ends on January 31 of the following calendar year. All prior year amounts have been restated to present the sale of Little Switzerland, Inc. as a discontinued operation (see Note C to consolidated financial statements).
TIFFANY & CO.
K - 28


 

NOTES TO SELECTED FINANCIAL DATA
Financial information for 2007 includes the following amounts, totaling $41,934,000 of net pre-tax expense ($12,667,000 net after-tax expense, or $0.09 per diluted share):
    $105,051,000 pre-tax gain related to the sale of the land and multi-tenant building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district;
 
    $10,000,000 pre-tax contribution to The Tiffany & Co. Foundation funded with the proceeds from the immediately preceding transaction;
 
    $54,260,000 pre-tax expense due to the sale of Little Switzerland, Inc., included within discontinued operations;
 
    $47,981,000 pre-tax impairment charge on the note receivable from Tahera Diamond Corporation;
 
    $19,212,000 pre-tax expense related to the discontinuance of certain watches as a result of the Company’s agreement with The Swatch Group, Ltd.; and
 
    $15,532,000 pre-tax charge due to impairment losses associated with the Company’s IRIDESSE business.
Financial information for 2005 includes a $22,588,000 income tax benefit, or $0.16 per diluted share, related to the American Jobs Creation Act of 2004.
Financial information for 2004 includes the following amounts totaling $168,597,000 of net pre-tax income ($110,179,000 net after-tax income, or $0.74 per diluted share):
    $193,597,000 pre-tax gain due to the Company’s sale of its equity investment in Aber Diamond Corporation; and
 
    $25,000,000 pre-tax contribution to The Tiffany & Co. Foundation funded with the proceeds from the immediately preceding transaction.
In addition, financial information for 2007, 2006, 2005 and 2004 includes pre-tax expense of $37,069,000, $32,793,000, $25,622,000 and $22,100,000, respectively, or $0.17, $0.14, $0.11 and $0.09, respectively, per diluted share, due to the effect of expensing stock-based compensation.
TIFFANY & CO.
K - 29


 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes. All references to years relate to the fiscal year that ends on January 31 of the following calendar year.
KEY GROWTH STRATEGIES
The Company’s key growth strategies are:
    To selectively expand its channels of distribution in important markets around the world without compromising the value of the TIFFANY & CO. trademark;
 
    To maintain an active product development program;
 
    To increase its control over product supply through direct diamond sourcing and internal jewelry manufacturing;
 
    To achieve improved profit margins;
 
    To enhance customer awareness through marketing and public relations programs; and
 
    To provide superior customer service.
2007 SUMMARY
    Net sales increased 15% to $2.9 billion due to growth in all channels of distribution.
 
    Worldwide comparable store sales increased 7% on a constant-exchange-rate basis (see Non-GAAP Measures). Comparable TIFFANY & CO. store sales in the U.S. increased 7%. Comparable international store sales on a constant-exchange-rate basis increased 7% due to growth in most countries.
 
    Net earnings rose 20% and net earnings per diluted share rose 22%. Included in net earnings were the following items:
    The Company entered into a strategic alliance with The Swatch Group, Ltd. which will design, manufacture, distribute and market TIFFANY & CO. brand watches worldwide. As a result of this agreement, management decided to discontinue certain watch models and, accordingly, recorded a pre-tax charge of $19,212,000 within cost of sales.
 
    The Company sold and leased back the land and building housing the TIFFANY & CO. Flagship store in Tokyo. The Company received proceeds of $327,537,000 and recorded a pre-tax gain of $105,051,000 as other operating income.
 
    The Company contributed $10,000,000 (recorded within selling, general and administrative (“SG&A”) expenses) to The Tiffany & Co. Foundation, funded with the proceeds from the sale of the Tokyo Flagship store.
 
    The Company recorded a pre-tax impairment charge of $15,532,000 associated with its IRIDESSE business within SG&A expenses.
 
    The Company recorded a pre-tax impairment charge of $47,981,000 on the note receivable from Tahera Diamond Corporation (“Tahera”) within SG&A expenses.
 
    The Company sold 100% of the stock of Little Switzerland, Inc. (“Little Switzerland”) for net proceeds of $32,870,000 and recorded within discontinued operations a pre-tax
TIFFANY & CO.
K - 30


 

      impairment charge of $54,260,000 due to the sale.
    The Company sold and leased back the land and building housing the TIFFANY & CO. Flagship store in London and received proceeds of $148,628,000.
 
    The Company repurchased 12.4 million shares of its Common Stock.
 
    The number of Company-operated TIFFANY & CO. stores and boutiques increased 10%. The Company added 17 retail locations, net of closings: opening seven in the U.S. and 14 internationally, while closing four locations, one in the U.S. and three in Japan.
 
    The Board of Directors increased the quarterly dividend rate twice — for a total increase of 50%.
NON-GAAP MEASURES
The Company’s reported sales reflect either a translation-related benefit from strengthening foreign currencies or a detriment from a strengthening U.S. dollar.
The Company reports information in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). Internally, management monitors its international sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars (“constant-exchange-rate basis”). Management believes this constant-exchange-rate measure provides a more representative assessment of the sales performance and provides better comparability between reporting periods.
The Company’s management does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate the Company’s operating results. The following table reconciles sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year:
                                                 
    2007     2006  
 
                    Constant-                     Constant-  
    GAAP     Translation     Exchange-     GAAP     Translation     Exchange-  
    Reported     Effect     Rate Basis     Reported     Effect     Rate Basis  
         
Net Sales:
                                               
Worldwide
    15 %     2 %     13 %     11 %           11 %
U.S. Retail
    11 %           11 %     9 %           9 %
International Retail
    19 %     4 %     15 %     12 %     (1 )%     13 %
Japan Retail
    1 %     1 %           (1 )%     (5 )%     4 %
Other Asia-Pacific
    39 %     5 %     34 %     25 %     2 %     23 %
Europe
    31 %     9 %     22 %     28 %     5 %     23 %
 
                                               
Comparable Store Sales:
                                               
Worldwide
    8 %     1 %     7 %     6 %     (1 )%     7 %
U.S. Retail
    7 %           7 %     5 %           5 %
International Retail
    10 %     3 %     7 %     7 %     (1 )%     8 %
Japan Retail
    (4 )%     1 %     (5 )%     (4 )%     (4 )%      
Other Asia-Pacific
    31 %     5 %     26 %     24 %     2 %     22 %
Europe
    22 %     9 %     13 %     25 %     5 %     20 %
TIFFANY & CO.
K - 31


 

RESULTS OF OPERATIONS
Certain operating data as a percentage of net sales were as follows:
                         
    2007     2006     2005  
     
Net sales
    100.0 %     100.0 %     100.0 %
Cost of sales
    44.5       43.7       43.5  
     
Gross profit
    55.5       56.3       56.5  
Other operating income
    3.5              
Selling, general and administrative expenses
    41.0       39.5       39.8  
     
Earnings from continuing operations
    18.0       16.8       16.7  
Interest expense, financing costs and other income, net
    0.2       0.4       0.6  
     
Earnings from continuing operations before income taxes
    17.8       16.4       16.1  
Provision for income taxes
    6.5       5.9       4.8  
     
Net earnings from continuing operations
    11.3       10.5       11.3  
Loss from discontinued operations, net of tax
    (1.0 )     (0.6 )     (0.3 )
     
Net earnings
    10.3 %     9.9 %     11.0 %
     
Net Sales
                                         
                            2007 vs. 2006     2006 vs. 2005  
(in thousands)   2007     2006     2005     Increase     Increase  
 
U.S. Retail
  $ 1,474,637     $ 1,326,441     $ 1,220,683       11 %     9 %
International Retail
    1,200,442       1,010,627       900,689       19 %     12 %
Direct Marketing
    182,127       174,078       157,483       5 %     11 %
Other
    81,565       49,588       33,937       64 %     46 %
     
 
  $ 2,938,771     $ 2,560,734     $ 2,312,792       15 %     11 %
     
Comparable Store Sales. Reference will be made to “comparable store sales” below. A store’s sales are included in comparable store sales when the store has been open for more than 12 months. In markets other than Japan, sales for relocated stores are included in comparable store sales if the relocation occurs within the same geographical market. In Japan, sales for a new store or boutique are not included if the store was relocated from one department store to another or from a department store to a free-standing location. In all markets, the results of a store in which the square footage has been expanded or reduced remain in the comparable store base.
U.S. Retail. U.S. Retail includes sales in TIFFANY & CO. stores in the U.S., as well as sales of TIFFANY & CO. products through business-to-business direct selling operations in the U.S. The following table presents the U.S. Retail channel and its components as a percentage of worldwide net sales:
                         
    2007     2006     2005  
     
New York Flagship store
    10 %     10 %     10 %
Branch stores
    38 %     40 %     41 %
Business-to-business
    2 %     2 %     2 %
     
 
    50 %     52 %     53 %
     
TIFFANY & CO.
K - 32


 

U.S. Retail sales increased in 2007 and 2006 as a result of comparable store sales growth of 7% (or $94,451,000) in 2007 and 5% (or $61,885,000) in 2006 and non-comparable store sales growth of $51,478,000 and $41,601,000 in those periods. In 2007 and 2006, the New York Flagship store’s sales increased 21% and 9% and comparable branch store sales increased 4% in both periods. Total sales growth in both 2007 and 2006 was driven equally by an increase in the average sales amount per transaction and an increase in the number of transactions. Management attributes the increased amount per transaction to sales of higher-priced merchandise. In addition, the New York Flagship store and certain branch stores benefited from higher sales to foreign tourists. In 2007 and 2006, the Company experienced growth across a range of jewelry categories, with especially strong results in jewelry with diamonds. The Company opened seven new U.S. stores and closed one in 2007 and opened five new U.S. stores in 2006.
International Retail. International Retail includes sales in TIFFANY & CO. stores and department store boutiques outside the U.S., as well as business-to-business, Internet and wholesale sales of TIFFANY & CO. products outside the U.S. The following table presents the sales contribution in U.S. dollars of each geographic region within the International Retail channel as a percentage of worldwide net sales:
                         
    2007     2006     2005  
     
Japan
    17 %     19 %     21 %
Other Asia-Pacific
    11 %     9 %     8 %
Europe
    8 %     7 %     6 %
Other International
    5 %     4 %     4 %
     
 
    41 %     39 %     39 %
     
International Retail sales increased in 2007 and 2006 primarily due to comparable store sales growth of 10% (or $88,044,000) in 2007 and 7% (or $57,353,000) in 2006 and non-comparable store sales growth of $78,573,000 and $28,968,000 in those periods. International Retail sales, on a constant-exchange-rate basis, increased 15% in 2007 and 13% in 2006, and comparable store sales rose 7% in 2007 and 8% in 2006. When compared with the prior year, the weighted-average U.S. dollar exchange rate was weaker in 2007 and stronger in 2006.
Japan retail sales, on a constant-exchange-rate basis, were unchanged in 2007 due to an increase in the average sales amount per unit offset by a decline in the number of units sold, and increased 4% in 2006 due to an increase in unit sales of engagement and other fine jewelry. Comparable store sales declined 5% in 2007 and were unchanged in 2006. Management attributes this performance to a lack of consumer confidence and a stagnant economy. Management will respond by further developing relationships with key customers, introducing new products to the market and enhancing retail locations through renovation, expansion and relocation. Management will consider, if the occasion arises, closing or consolidating certain locations when better locations can be obtained.
In 2007, the Company opened four locations in Japan and closed three. In 2006, the Company opened four locations and two were closed. Management closed these locations to enhance the quality of its selling locations in Japan. The Company also launched an e-commerce website in 2005.
In the Asia-Pacific region outside of Japan, comparable store sales on a constant-exchange-rate basis increased 26% in 2007 due to growth in all markets and 22% in 2006 due to growth in most markets. The Company opened six stores in 2007 and three stores (net) in 2006.
TIFFANY & CO.
K - 33


 

In Europe, comparable store sales on a constant-exchange-rate basis increased 13% in 2007 and 20% in 2006 due to growth in all markets. The United Kingdom represents more than half of European sales. The Company opened three stores in 2007 and one store in 2006.
Store Data. Gross square footage of Company-operated TIFFANY & CO. stores increased 9% to 860,000 in 2007, following a 6% increase to 792,000 in 2006. Sales per gross square foot generated by those stores were $2,890 in 2007, $2,746 in 2006 and $2,666 in 2005. Management’s objective is to increase sales per square foot by increasing consumer traffic and the conversion rate (the percentage of shoppers who actually purchase). Management intends to increase traffic through more targeted advertising and to improve the conversion rate through continued sales training and customer-focused initiatives.
The Company’s worldwide expansion strategy is to continue to open Company-operated TIFFANY & CO. stores and boutiques annually. In 2008, the Company expects to add 6 new U.S. stores and approximately 20 international stores. 2008 store openings announced to date for the U.S. are: Los Angeles, California; West Hartford, Connecticut; Columbus, Ohio; and Pittsburgh, Pennsylvania.
In 2008, the Company will also open a new store in the Los Angeles market. This store will be the first to employ a new store format. Stores of this format will carry a reduced selection of merchandise in order to concentrate on higher-margin products and will occupy a smaller footprint than Tiffany’s full-line stores. Management believes that this new format will be highly efficient and will give the Company the opportunity to open stores in affluent, albeit smaller U.S. cities and to better serve larger markets where the Company already operates full-line stores. Anticipation of the success of this format underpins management’s expanded store opening program for the U.S.
For non-U.S. markets, 2008 store openings announced to date are: Perth, Australia; Brussels, Belgium; Düsseldorf, Germany; London—Heathrow Airport, United Kingdom; Madrid, Spain; Shenyang, China; Chengdu, China; Fukuoka, Japan; Osaka, Japan; and Tokyo, Japan. Additional international locations are being planned.
Direct Marketing. Direct Marketing includes Internet and catalog sales of TIFFANY & CO. products in the U.S. Direct Marketing sales rose in both 2007 and 2006. In 2007, approximately three quarters of the increase resulted from an increase in the number of orders shipped. In 2006, the increase was evenly divided between a higher number of orders shipped and an increased average order size. Website traffic and orders have continued to increase as consumers have shifted their purchases from catalogs to the Internet. Catalogs remain an effective marketing tool for both retail and Internet sales, but the Company has reduced catalog circulation and in 2006 began e-mail marketing communications to customers.
Other. Other includes worldwide sales of businesses operated under trademarks or tradenames other than TIFFANY & CO. A significant portion of sales in this channel are of wholesale diamonds. Wholesale diamond sales are made to divest gemstones that do not meet the Company’s quality requirements; typically the Company purchases such gemstones in mixed lots which are then culled. Wholesale sales of diamonds increased to $70,407,000 in 2007 from $39,848,000 in 2006 and $26,218,000 in 2005. IRIDESSE store sales (representing 14% of Other sales and less than 1% of net sales in 2007) increased in both years due to store openings, however, performance has been below management’s expectations. The Company recorded an impairment charge in 2007 associated with Iridesse (see SG&A expenses below).
Gross Margin
Gross margin (gross profit as a percentage of net sales) declined in 2007 by 0.8 percentage point and declined in 2006 by 0.2 percentage point. The primary components of the net decline in 2007 were: (i) a 0.7 percentage point decline due to a $19,212,000 charge related to the discontinuance of certain watch
TIFFANY & CO.
K - 34


 

models; (ii) a 0.6 percentage point decline due to increased low-margin wholesale sales of diamonds; which was partially offset by (iii) a 0.2 percentage point improvement due to the leverage effect of fixed product-related costs, which includes costs associated with merchandising and distribution. The primary components affecting the net decline in 2006 were: (i) a 0.4 percentage point decline due to increased low-margin wholesale sales of diamonds; and (ii) a 0.4 percentage point improvement due to the leverage effect of fixed product-related costs.
In 2007 and 2006, the Company increased its retail prices in response to higher costs of precious metals and diamonds. The Company adjusts its retail prices from time to time to address specific market conditions, product cost increases and longer-term changes in foreign currencies/dollar relationships. In addition, the Company’s hedging program (see Note I to consolidated financial statements) uses yen put options to stabilize the effect of exchange rate fluctuations of product costs in Japan over the short-term. Beginning with the first quarter of 2007, the Company also has a zero-cost collar hedging program that covers a portion of its platinum and silver needs for internal manufacturing.
Management’s objective is to improve gross margin through greater product manufacturing/sourcing efficiencies (including increased direct rough-diamond sourcing and internal manufacturing), increased use of distribution center capacity, and selective price adjustments to address higher product costs.
Other Operating Income
In 2007, the Company entered into a sale-leaseback arrangement for the land and multi-tenant building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district. The Company was able to secure a long-term lease and proceed with a renovation of the store and the building’s exterior. The Company is leasing back that portion of the property that it occupied immediately prior to the transaction. The transaction resulted in a pre-tax gain of $105,051,000 and a deferred gain of $75,244,000, which will be amortized in selling, general and administrative expenses over a 15-year period. The pre-tax gain represents the profit on the sale of the property in excess of the present value of the minimum lease payments. The lease is accounted for as an operating lease. The lease expires in 2032; however, the Company has options to terminate the lease in 2022 and 2027 without penalty.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased $194,236,000, or 19%, in 2007 which included the following expenses:
    $47,981,000 impairment charge on the note receivable from Tahera (see Liquidity and Capital Resources below);
 
    $15,532,000 impairment charge for losses in the IRIDESSE business (included in the non-reportable segment Other). In accordance with its policy on impairment of long-lived assets, the Company recorded an impairment charge as a result of lower than expected store performance and a related reduction in future cash flow projections; and
 
    $10,000,000 contribution to The Tiffany & Co. Foundation, a private charitable foundation established by the Company. The contribution was made from proceeds received from the sale-leaseback of the land and multi-tenant building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district.
Excluding the above charges, SG&A expenses increased $120,723,000, or 12%, primarily due to increased labor and benefit costs of $42,136,000 and increased depreciation and store occupancy expenses of $37,805,000 (both of which were largely due to new and existing stores), as well as an increase of
TIFFANY & CO.
K - 35


 

$12,287,000 in marketing expenses. SG&A expenses as a percentage of net sales increased 1.5 percentage points to 41.0%. Excluding the above charges, SG&A expenses as a percentage of net sales improved 1.0 percentage point to 38.5% which resulted from the leverage effect of strong sales growth against fixed costs.
SG&A expenses increased $90,601,000, or 10%, in 2006 largely due to increased labor and benefit costs of $31,245,000 and increased depreciation and occupancy expenses of $24,580,000, both of which were largely due to new and existing stores. In addition, marketing expenses increased $25,177,000 which included costs to promote the launch of the Frank Gehry jewelry collection. SG&A expenses as a percentage of net sales improved by 0.3 percentage point in 2006.
Management’s long-term objective is to improve the ratio of SG&A expenses to net sales by controlling expenses wherever feasible and enhancing productivity so that sales growth can generate a higher rate of earnings growth.
Earnings from Continuing Operations
                                                 
            % of             % of             % of  
(in thousands)   2007     Sales*     2006     Sales*     2005     Sales*  
 
Earnings (losses) from continuing operations:
                                               
U.S. Retail
  $ 288,030       20 %   $ 243,258       18 %   $ 248,129       20 %
International Retail
    301,957       25 %     253,835       25 %     211,164       23 %
Direct Marketing
    62,533       34 %     58,046       33 %     53,681       34 %
Other
    (33,038 )     (41 )%     (14,379 )     (29 )%     (14,525 )     (43 )%
     
 
    619,482               540,760               498,449          
Unallocated corporate expenses
    (127,007 )     (4 )%     (109,964 )     (4 )%     (110,824 )     (5 )%
Other operating income
    105,051                                      
Other operating expenses
    (67,193 )                                    
     
Earnings from continuing
operations
  $ 530,333             $ 430,796             $ 387,625          
     
* Percentages represent earnings (losses) from continuing operations as a percentage of each segment’s net sales.
Reclassifications were made to the prior years’ earnings (losses) from continuing operations by segment to conform to the current year presentation and to reflect the revised manner in which management evaluates the performance of segments. Effective with the first quarter of 2007, the Company revised certain allocations of operating expenses between unallocated corporate expenses and earnings (losses) from continuing operations for segments.
Earnings from continuing operations rose 23% in 2007. On a segment basis, the ratio of earnings (losses) from continuing operations (before the effect of unallocated corporate expenses, other operating income and interest expense, financing costs and other income, net) to each segment’s net sales in 2007 compared with 2006 was as follows:
    U.S. Retail — the ratio increased 2 percentage points primarily due to an increase in gross margin (due to the leverage effect of sales growth on fixed product-related costs) and the leverage effect of sales growth on operating expenses;
 
    International Retail — the ratio was consistent with prior year. Strong sales growth and profitability in most international markets was offset by increased operating expenses (due to
TIFFANY & CO.
K - 36


 

      increased marketing activity and new stores) and a decline in gross margin (due to changes in sales mix) in Japan;
 
    Direct Marketing — the ratio increased 1 percentage point primarily due to the leverage effect of sales growth on operating expenses; and
 
    Other — the loss ratio increased 12 percentage points which was more than entirely driven by the impairment charge associated with the IRIDESSE business.
Earnings from continuing operations rose 11% in 2006. On a segment basis, the ratio of earnings (losses) from continuing operations (before the effect of unallocated corporate expenses, other operating income and interest expense, financing costs and other income, net) to each segment’s net sales in 2006 compared with 2005 was as follows:
    U.S. Retail — the ratio decreased 2 percentage points primarily due to a decline in gross margin (due to higher product costs) and increased SG&A expenses (due to new and existing stores as well as increased marketing expenses);
 
    International Retail — the ratio increased 2 percentage points primarily due to an improved gross margin (due to the leverage effect of sales growth on product-related costs) and the leverage effect of sales growth on operating expenses;
 
    Direct Marketing — the ratio decreased 1 percentage point primarily due to a decline in gross margin (due to higher product costs); and
 
    Other — the loss ratio improved 14 percentage points primarily due to increased sales.
Unallocated corporate expenses include costs related to administrative support functions which the Company does not allocate to its segments. Such unallocated costs include those for information technology, finance, legal and human resources. Unallocated corporate expenses increased 15% in 2007 partly due to the $10,000,000 contribution to The Tiffany & Co. Foundation. Unallocated corporate expenses decreased 1% in 2006.
Other operating income represents the $105,051,000 pre-tax gain on the sale-leaseback of the land and multi-tenant building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district. Other operating expenses include the $47,981,000 impairment charge on the note receivable from Tahera and the $19,212,000 charge related to the discontinuance of certain watch models.
Interest Expense and Financing Costs
Interest expense decreased $1,345,000 in 2007 primarily due to reduced borrowings under the revolving credit facility and repayments of long-term debt obligations. Interest expense increased $3,174,000 in 2006 primarily due to increased borrowings to support inventory growth and share repurchases.
Other Income, Net
Other income, net includes interest income, gains/losses on investment activities and foreign currency transactions, and minority interest income/expense. Other income, net increased $1,012,000 in 2007. Other income, net increased $7,257,000 in 2006 due to (i) $6,774,000 of gains associated with the sale of equity investments and marketable securities; (ii) increased interest income; partially offset by (iii) a change of $3,794,000 in foreign currency transaction gains/losses.
TIFFANY & CO.
K - 37


 

Provision for Income Taxes
The effective income tax rate was 36.6% in 2007, compared with 36.1% in 2006 and 30.2% in 2005. The lower effective tax rate in 2005 primarily reflected tax benefits associated with the repatriation provisions of the American Jobs Creation Act of 2004 (“AJCA”).
The AJCA, which was signed into law on October 22, 2004, created a temporary incentive for U.S. companies to repatriate accumulated foreign earnings by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. The incentive effectively reduced the amount of U.S. Federal income tax due on repatriation. Taking advantage of the AJCA, the Company recorded an income tax benefit of $22,588,000 in 2005 associated with the repatriation of foreign earnings. The tax benefit to the Company occurred because the Company had previously accrued income taxes on un-repatriated foreign earnings at statutory tax rates. In total, the Company repatriated $178,245,000 of accumulated foreign earnings.
Loss from Discontinued Operations, net of tax
Management concluded that Little Switzerland’s operations did not demonstrate the potential to generate a return on investment consistent with management’s objectives and, therefore, during the second quarter of 2007 the Company’s Board of Directors authorized the sale of Little Switzerland. On July 31, 2007, the Company entered into an agreement with NXP Corporation (“NXP”) by which NXP would purchase 100% of the stock of Little Switzerland. The results of Little Switzerland are presented as a discontinued operation in the consolidated financial statements for all periods presented. Prior to the reclassification, Little Switzerland’s results had been included within the non-reportable segment Other (see Note C to consolidated financial statements).
The loss from discontinued operations in 2007 included a pre-tax impairment charge of $54,260,000 due to the sale of Little Switzerland. The loss from discontinued operations in 2006 included a pre-tax charge of $6,893,000 related to the impairment of goodwill for the Little Switzerland business as a result of store performance and cash flow projections.
2008 Outlook
Management’s financial performance objectives for 2008 are based on the following assumptions and should be read in conjunction with Item 1A “Risk Factors” on page K-20. In addition, these objectives reflect the Company’s decision to change its inventory valuation method from LIFO to average cost beginning in the first quarter of 2008 (see Note R to consolidated financial statements).
    Net sales growth of approximately 10% reflecting a near-term cautious outlook for the U.S. and continued strong growth in most international markets.
    Management’s outlook reflects the view that the U.S. economy will remain weak through the first half of 2008 and that U.S. consumer confidence will continue to reflect conditions observed during the last quarter of 2007.
 
    The net sales growth objective is composed of (i) a high-single-digit percentage increase in U.S. Retail sales, reflecting a low-single-digit percentage increase in comparable store sales and the planned opening of six stores; (ii) a mid-teens percentage increase in International Retail sales, which reflects a mid-single-digit percentage increase in comparable store sales (on a constant-exchange-rate basis) and the opening of approximately 20 stores and boutiques (net of closings); (iii) a mid-
TIFFANY & CO.
K - 38


 

      single-digit percentage increase in Direct Marketing sales; and (iv) a low-single-digit percentage increase in Other sales.
    Operating margin approximately equal to the prior year.
 
    Other expenses, net of approximately $20 million.
 
    An effective tax rate of 36% — 37%.
 
    Net earnings per diluted share of $2.75 — $2.85.
 
    Net inventories increasing by a high-single-digit percentage.
 
    Capital expenditures of approximately $200 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity needs have been, and are expected to remain, primarily a function of its seasonal and expansion-related working capital requirements and capital expenditure needs. The ratio of total debt (short-term borrowings, current portion of long-term debt and long-term debt) to stockholders’ equity was 28% and 29% at January 31, 2008 and 2007.
The following table summarizes cash flows from operating, investing and financing activities:
                         
(in thousands)   2007     2006     2005  
 
Net cash provided by (used in):
                       
Operating activities
  $ 391,395     $ 239,036     $ 268,458  
Investing activities
    335,170       (197,137 )     40,820  
Financing activities
    (664,408 )     (248,871 )     (85,151 )
Effect of exchange rates on cash and
cash equivalents
    15,610       3,162       (3,555 )
Net cash used in discontinued operations
    (7,616 )     (13,296 )     (14,644 )
     
Net increase (decrease) in cash and cash
equivalents
  $ 70,151     $ (217,106 )   $ 205,928  
     
Operating Activities
The Company had net cash inflows from operating activities of $391,395,000 in 2007, $239,036,000 in 2006 and $268,458,000 in 2005. The increase in 2007 from 2006 primarily resulted from increased net earnings from continuing operations and smaller growth in inventories. Taxes payable also increased in 2007 due to the increase in net earnings. The decrease in 2006 from 2005 resulted from higher inventory purchases, partly offset by increased net earnings after adjustment for non-cash items and lower payments for taxes made in 2006 (in 2005, payments for taxes were higher due to the gain on the sale of an equity investment in 2004).
Working Capital. Working capital (current assets less current liabilities) and the corresponding current ratio (current assets divided by current liabilities) were $1,258,706,000 and 3.2 at January 31, 2008, compared with $1,253,973,000 and 3.8 at January 31, 2007.
Accounts receivable, less allowances, at January 31, 2008 were 17% higher than January 31, 2007 primarily due to sales growth. Changes in foreign currency exchange rates increased accounts receivable, less
TIFFANY & CO.
K - 39


 

allowances, by 5% compared to January 31, 2007. On a 12-month rolling basis, accounts receivable turnover was 18 times in both 2007 and 2006.
Inventories, net at January 31, 2008 were 8% above January 31, 2007. Combined raw material and work-in-process inventories increased 15% due to expanded diamond sourcing operations, as well as higher precious metal costs. Finished goods inventories increased 5% reflecting store openings, broadened product assortments and higher costs. Changes in foreign currency exchange rates increased inventories, net by 4% compared to January 31, 2007.
Investing Activities
The Company had a net cash inflow from investing activities of $335,170,000 in 2007, a net cash outflow of $197,137,000 in 2006 and a net cash inflow of $40,820,000 in 2005. Investing activities in 2007 included proceeds from the sale of assets. Investing activities in 2005 included higher net proceeds from the sale of marketable securities and short-term investments and proceeds from the sale of assets.
Proceeds from Sale of Assets. In the third quarter of 2007, the Company entered into a sale-leaseback arrangement for the land and multi-tenant building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district. The Company received proceeds of $327,537,000 (¥38,050,000,000) (see Other Operating Income above for more information).
In the third quarter of 2007, the Company received net proceeds of $32,870,000 associated with the sale of Little Switzerland.
In the third quarter of 2007, the Company entered into a sale-leaseback arrangement for the building housing the TIFFANY & CO. Flagship store in London. Following the renovation of the store, the Company was able to secure a long-term lease and, therefore, determined that ownership of the property was no longer strategically necessary. The Company sold the building for proceeds of $148,628,000 (£73,000,000) and simultaneously entered into a 15-year lease with two 10-year renewal options. The transaction resulted in a deferred gain of $63,961,000, which will be amortized in SG&A expenses over a 15-year period. The Company continues to occupy the entire building and the lease is accounted for as an operating lease.
In the third quarter of 2005, the Company entered into a sale-leaseback arrangement for its Retail Service Center, a distribution and administrative office facility. The Company received proceeds of $75,000,000 resulting in a gain of $5,300,000, which has been deferred and is being amortized over the lease term. The lease has been accounted for as an operating lease. The lease expires in 2025 and has two ten-year renewal options.
Capital Expenditures. Capital expenditures were $185,608,000 in 2007, $174,551,000 in 2006 and $148,159,000 in 2005, representing 6%, 7% and 6% of net sales in those respective years. In all three years, expenditures were primarily related to the opening, renovation and expansion of stores and distribution facilities and ongoing investments in new systems. Management expects that capital expenditures in future years will continue at a rate of approximately 6% — 7% of net sales.
In 2002, the Company acquired the property housing its Flagship store on Old Bond Street in London and an adjacent building, in order to renovate and reconfigure the interior retail selling space. Construction commenced in 2004 and was completed in 2006 at a cost of approximately $36,000,000.
In 2000, the Company began a multi-year project to renovate and reconfigure its New York Flagship store in order to increase the total sales area by approximately 25% and to provide additional space for customer service, customer hospitality and special exhibitions. The increase in the sales area was
TIFFANY & CO.
K - 40


 

completed in 2001 when the renovated second floor opened to provide an expanded presentation of engagement and other jewelry. Additional floors were renovated in 2002 to 2005 and the Company completed the project in 2006 with the renovation of the main floor, for a total cost of approximately $110,000,000.
Acquisitions. In October 2005, the Company acquired a corporation that specializes in polishing small carat weight diamonds. The price paid by the Company for the entire equity interest in this corporation was $2,000,000, of which $1,200,000 was paid in 2005, $400,000 in 2006 and $400,000 in 2007. This acquisition was strategically important to the Company’s diamond sourcing program, but not significant to the Company’s financial position, earnings or cash flows.
The Company made a $10,000,000 investment ($4,500,000 in 2004 and $5,500,000 in 2005) in a joint venture that owns and operates a diamond polishing facility. The Company’s interest in, and control over, this venture are such that its results are consolidated with those of the Company and its subsidiaries. The Company expects, through its investment, to gain access to additional supplies of diamonds that meet its quality standards.
Marketable Securities. The Company invests excess cash in short-term investments and marketable securities. The Company had (net purchases of) or net proceeds from investments in marketable securities and short-term investments of $13,182,000, ($13,063,000) and $147,994,000 during 2007, 2006 and 2005.
Financing Activities
The Company had net cash outflows from financing activities of $664,408,000 in 2007, $248,871,000 in 2006 and $85,151,000 in 2005, largely reflecting increased share repurchases.
Dividends. Cash dividends have been increased for five consecutive years, and twice in 2007. The quarterly dividend rate has increased from $0.06 per share at the beginning of 2005 to a rate of $0.15 per share at the end of 2007. Cash dividends paid were $69,921,000 in 2007, $52,611,000 in 2006 and $42,903,000 in 2005. The dividend payout ratio (dividends as a percentage of net earnings) was 23% in 2007, 21% in 2006 and 17% in 2005.
Stock Repurchases. In January 2008, the Company’s Board of Directors amended the existing share repurchase program to extend the expiration date of the program to January 2011 and to authorize the repurchase of up to an additional $500,000,000 of the Company’s Common Stock. The timing of repurchases and the actual number of shares to be repurchased depend on a variety of discretionary factors such as price and other market conditions.
The Company’s stock repurchase activity was as follows:
                         
(in thousands, except per share amounts)   2007     2006     2005  
 
Cost of repurchases
  $ 574,608     $ 281,176     $ 132,816  
Shares repurchased and retired
    12,374       8,149       3,835  
Average cost per share
  $ 46.44     $ 34.50     $ 34.63  
At January 31, 2008, there remained $620,806,000 of authorization for future repurchases.
At least annually, the Company’s Board of Directors reviews its policies with respect to dividends and share repurchases with a view to actual and projected earnings, cash flow and capital requirements.
TIFFANY & CO.
K - 41


 

Recent Borrowings. The Company’s current sources of working capital are internally-generated cash flows and borrowings available under a revolving credit facility.
In July 2005, the Company entered into a $300,000,000 revolving credit facility (“Credit Facility”) and, in October 2006, exercised its option to increase the Credit Facility by $150,000,000 to $450,000,000. The Company has the option to increase such commitments to $500,000,000. The Credit Facility is available for working capital and other corporate purposes and contains covenants that require maintenance of certain debt/equity and interest-coverage ratios, in addition to other requirements customary to loan facilities of this nature. Borrowings may be made from eight participating banks and are at interest rates based upon local currency borrowing rates plus a margin that fluctuates with the Company’s fixed charge coverage ratio. There was $40,695,000 and $106,681,000 outstanding under the Credit Facility at January 31, 2008 and 2007. The weighted-average interest rate at January 31, 2008 and 2007 was 4.58% and 2.44%. The Credit Facility expires in July 2010.
In January 2006, the Company borrowed HKD 300,000,000 ($38,672,000 at issuance) (“Hong Kong Term Loan”), SGD 13,100,000 ($8,043,000 at issuance) (“Singapore Term Loan”) and CHF 19,500,000 ($15,145,000 at issuance) (“Switzerland Term Loan”) due in January 2011. These funds were used to partially finance the repatriation of dividends related to the AJCA (see Provision for Income Taxes above). Principal payments of 10% of the original principal amount are due each year, with the balance due upon maturity. Amounts may be prepaid without incurring penalties. The covenants of the term loans are similar to the Credit Facility. Interest rates are based upon local currency borrowing rates plus a margin that fluctuates with the Company’s fixed charge coverage ratio. In 2006, the Singapore Term Loan was paid in full with existing funds. The interest rates for the Hong Kong Term Loan and the Switzerland Term Loan were 3.96% and 3.09%, respectively, at January 31, 2008 and 4.28% and 2.40%, respectively, at January 31, 2007.
At January 31, 2008, the Company was in compliance with all covenants.
Contractual Cash Obligations and Commercial Commitments
The following is a summary of the Company’s contractual cash obligations at January 31, 2008:
                                         
(in thousands)   Total     2008     2009-2010     2011-2012     Thereafter  
 
Unrecorded contractual obligations:
                                       
Operating leases
  $ 1,024,539     $   114,078     $   210,238     $   176,614     $   523,609  
Inventory purchase obligations
    403,571       153,571       100,000       100,000       50,000  
Interest on debt and interest-rate
swap agreements a
    43,106       16,519       21,651       4,936        
Construction-in-progress
    16,047       16,047                    
Non-inventory purchase obligations
    9,946       9,946                    
Other contractual obligations b
    12,473       9,258       2,185       1,015       15  
Recorded contractual obligations:
                                       
Short-term borrowings
    44,032       44,032                    
Long-term debt
    409,105       65,640       232,479       110,986        
     
 
  $ 1,962,819     $ 429,091     $ 566,553     $ 393,551     $ 573,624  
     
a)   Excludes interest payments on amounts outstanding under available lines of credit, as the outstanding amounts fluctuate based on the Company’s working capital needs. Variable-rate interest
TIFFANY & CO.
K - 42


 

    payments were estimated based on rates at January 31, 2008. Actual payments will differ based on changes in interest rates.
 
b)   Other contractual obligations consist primarily of royalty and maintenance commitments.
The summary above does not include cash contributions for the Company’s pension plan and cash payments for other postretirement obligations. The Company plans to contribute approximately $15,000,000 to the pension plan in 2008. However, this expectation is subject to change if actual asset performance is different than the assumed long-term rate of return on pension plan assets. The Company estimates cash payments for postretirement health-care and life insurance benefit obligations to be $955,000 in 2008.
The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN No. 48”) on February 1, 2007. During 2007, the unrecognized tax benefits were reduced by $1,812,000 to $30,306,000. Accrued interest and penalties during 2007 was reduced by $4,649,000 to $3,395,000. The final outcome of tax uncertainties is dependent upon various matters including tax examinations, interpretation of the applicable tax law or expiration of statutes of limitations. The Company believes that its tax positions comply with applicable tax law and that it has adequately provided for these matters. However, the audits may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. Ongoing audits are in various stages of completion and, while the Company does not anticipate any material changes in unrecognized income tax benefits over the next 12 months, future developments in the audit process may result in a change in this assessment.
The following is a summary of the Company’s outstanding borrowings and available capacity under the Credit Facility and other lines of credit at January 31, 2008:
                         
    Total     Borrowings     Available  
(in thousands)   capacity     outstanding     capacity  
 
Credit Facility*
  $ 450,000     $ 40,695     $ 409,305  
Other lines of credit
    9,206       3,337       5,869  
     
 
  $ 459,206     $ 44,032     $ 415,174  
     
*   This facility matures in July 2010 and the capacity may be increased to $500,000,000.
In addition, the Company had letters of credit and financial guarantees of $20,139,000 at January 31, 2008, of which $19,305,000 expires within one year.
The Company is party to a CDN$35,000,000 ($35,423,000 at January 31, 2008) credit facility and a CDN$8,000,000 ($8,097,000 at January 31, 2008) working capital loan commitment (collectively the “Commitment”) to Tahera, a Canadian diamond mining and exploration company. At January 31, 2008 the Commitment was fully funded and no further amounts remain available to Tahera. In consideration of the Commitment, the Company was granted the right to purchase or market all diamonds mined at the Jericho mine. This mine has been developed and constructed by Tahera in Nunavut, Canada (the “Project”). Indebtedness under the Commitment is secured by certain assets of the Project. Although the Project has been operational, Tahera has continued to experience financial losses as a result of production problems, appreciation of the Canadian Dollar versus the U.S. Dollar, the rise of oil prices and other costs relative to diamond prices. Due to the financial difficulties, Tahera sought additional financing in the fourth quarter of 2007 in order to meet its cash flow requirements, but was not successful. In January 2008, Tahera filed for protection from creditors pursuant to the provisions of the Companies’ Creditors Arrangement Act in Canada. Tahera is continuing to pursue financing and strategic alternatives, but it has not shown indications of possible success to-date and the Project’s operations
TIFFANY & CO.
K - 43


 

have had to cease and be placed in care and maintenance mode. As a result of these events, the Company’s management has determined that collectibility of the outstanding Commitment is not probable. Therefore, the Company has recorded an impairment charge of $47,981,000, within SG&A expenses, for the full amount outstanding including accrued interest under the Commitment.
Based on the Company’s financial position at January 31, 2008, management anticipates that cash on hand, internally-generated cash flows and the funds available under the Credit Facility will be sufficient to support the Company’s planned worldwide business expansion, share repurchases, debt service and seasonal working capital increases for the foreseeable future.
Seasonality
As a jeweler and specialty retailer, the Company’s business is seasonal in nature, with the fourth quarter typically representing at least one-third of annual net sales and approximately one-half of annual net earnings. Management expects such seasonality to continue.
CRITICAL ACCOUNTING ESTIMATES
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from those estimates. Periodically, the Company reviews all significant estimates and assumptions affecting the financial statements and records the effect of any necessary adjustments.
The development and selection of critical accounting estimates and the related disclosures below have been reviewed with the Audit Committee of the Company’s Board of Directors. The following critical accounting policies that rely on assumptions and estimates were used in the preparation of the Company’s consolidated financial statements:
Inventory. The Company writes down its inventory for discontinued and slow-moving products. This write-down is equal to the difference between the cost of inventory and its estimated market value, and is based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs might be required. The Company has not made any material changes in the accounting methodology used to establish its reserve for discontinued and slow-moving products during the past three years. At January 31, 2008, a 10% change in the reserve for discontinued and slow-moving products would have resulted in a change of $4,201,000 in inventory and cost of sales. The Company’s U.S. and foreign branch inventories, excluding Japan, are valued using the last-in, first-out (LIFO) method, and inventories held by foreign subsidiaries and Japan are valued using the average cost method. Fluctuation in inventory levels, along with the costs of raw materials, could affect the carrying value of the Company’s inventory. Beginning in the first quarter of 2008, the Company will change its inventory valuation method for the U.S. and foreign branches from LIFO to average cost (see Note R to consolidated financial statements).
Long-lived assets. The Company’s long-lived assets are primarily property, plant and equipment. The Company reviews its long-lived assets for impairment when management determines that the carrying value of such assets may not be recoverable due to events or changes in circumstances. Recoverability of long-lived assets is evaluated by comparing the carrying value of the asset with estimated future undiscounted cash flows. If the comparisons indicate that the value of the asset is not recoverable, an impairment loss is calculated as the difference between the carrying value and the fair value of the asset and the loss is recognized during that period. The Company recorded impairment charges of $15,532,000
TIFFANY & CO.
K - 44


 

in 2007 and did not record any impairment charges in 2006 or 2005 (see Note B to consolidated financial statements).
Goodwill. The Company performs its annual impairment evaluation of goodwill during the fourth quarter of its fiscal year or when circumstances otherwise indicate an evaluation should be performed. The evaluation, based upon discounted cash flows, requires management to estimate future cash flows, growth rates and economic and market conditions. The Company recorded impairment charges of $6,893,000 in 2006 within loss from discontinued operations (see Note C to consolidated financial statements). The 2007 and 2005 evaluations resulted in no impairment charges.
Income taxes. Foreign and domestic tax authorities periodically audit the Company’s income tax returns. These audits often examine and test the factual and legal basis for positions the Company has taken in its tax filings with respect to its tax liabilities, including the timing and amount of deductions and the allocation of income among various tax jurisdictions (“tax filing positions”). Management believes that its tax filing positions are reasonable and legally supportable. However, in specific cases, various tax authorities may take a contrary position. In evaluating the exposures associated with the Company’s various tax filing positions, management records reserves using a more-likely-than-not recognition threshold for income tax positions taken or expected to be taken in accordance with FIN No. 48. Earnings could be affected to the extent the Company prevails in matters for which reserves have been established or is required to pay amounts in excess of established reserves. The Company also records valuation allowances when management determines it is more likely than not that deferred tax assets will not be realized in the future.
Employee benefit plans. The Company maintains several pension and retirement plans, as well as provides certain postretirement health-care and life insurance benefits for current and retired employees. The Company makes certain assumptions that affect the underlying estimates related to pension and other postretirement costs. Significant changes in interest rates, the market value of securities and projected health-care costs would require the Company to revise key assumptions and could result in a higher or lower charge to earnings.
The Company used a discount rate of 6.00% to determine its 2007 pension and postretirement expense for all U.S. plans. Holding all other assumptions constant, a 0.5% increase in the discount rate would have decreased 2007 pension and postretirement expenses by $3,893,000 and $197,000. A decrease of 0.5% in the discount rate would have increased the 2007 pension and postretirement expenses by $4,270,000 and $230,000. The discount rate is subject to change each year, consistent with changes in the yield on applicable high-quality, long-term corporate bonds. Management selects a discount rate at which pension and postretirement benefits could be effectively settled based on (i) analysis of expected benefit payments attributable to current employment service and (ii) appropriate yields related to such cash flows.
The Company used an expected long-term rate of return of 7.50% to determine its 2007 pension expense. Holding all other assumptions constant, a 0.5% change in the long-term rate of return would have changed the 2007 pension expense by $913,000. The expected long-term rate of return on pension plan assets is selected by taking into account the average rate of return expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. More specifically, consideration is given to the expected rates of return (including reinvestment asset return rates) based upon the plan’s current asset mix, investment strategy and the historical performance of plan assets.
For postretirement benefit measurement purposes, the following annual rates of increase in the per capita cost of covered health care were assumed for 2008: 9.00% (for pre-age 65 retirees) and 10.00% (for post-age 65 retirees). The rate was assumed to decrease gradually to 5.00% by 2016 (for pre-age 65
TIFFANY & CO.
K - 45


 

retirees) and by 2018 (for post-age 65 retirees) and remain at that level thereafter. A one-percentage-point increase in the assumed health-care cost trend rate would have increased the aggregate service and interest cost components of the 2007 postretirement expense by $28,000. Decreasing the assumed health-care cost trend rate by one-percentage-point would have decreased the aggregate service and interest cost components of the 2007 postretirement expense by $25,000.
NEW ACCOUNTING STANDARDS
See Note B to consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
[Remainder of this page is intentionally left blank]
TIFFANY & CO.
K - 46


 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from fluctuations in foreign currency exchange rates, interest rates and precious metal prices, which could affect its consolidated financial position, earnings and cash flows. The Company manages its exposure to market risk through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company uses derivative financial instruments as risk management tools and not for trading or speculative purposes, and does not maintain such instruments that may expose the Company to significant market risk.
Foreign Currency Risk
In Japan, the Company uses yen put options to minimize the potential effect of a weakening yen on U.S. dollar-denominated transactions over a maximum term of 12 months. The Company also uses foreign-exchange forward contracts to protect against changes in local currencies. Gains or losses on these instruments substantially offset losses or gains on the assets, liabilities and transactions being hedged.
The fair value of yen put options is sensitive to changes in yen exchange rates. If the market yen exchange rate at the time of an option’s expiration is stronger than the contracted exchange rate, the Company allows the option to expire, limiting its loss to the cost of the option contract. The cost of outstanding option contracts at January 31, 2008 and 2007 was $3,369,000 and $2,978,000. At January 31, 2008 and 2007, the fair value of outstanding yen put options was $863,000 and $6,056,000. The fair value of the options was determined using quoted market prices for these instruments. At January 31, 2008 and 2007, a 10% appreciation in yen exchange rates (i.e. a strengthening yen) from the prevailing market rates would have resulted in a fair value of $230,000 and $563,000. At January 31, 2008 and 2007, a 10% depreciation in yen exchange rates (i.e. a weakening yen) from the prevailing market rates would have resulted in a fair value of $7,786,000 and $16,784,000.
At January 31, 2008 and 2007, the Company had $7,311,000 and $5,885,000 of outstanding forward foreign-exchange contracts, which subsequently matured in February and March 2008 and February and March 2007, respectively. Due to the short-term nature of the Company’s forward foreign-exchange contracts, the book value of the underlying assets and liabilities approximates fair value.
Interest Rate Risk
The Company uses interest-rate swap contracts related to certain debt arrangements to manage its net exposure to interest rate changes. The interest-rate swap contracts effectively convert fixed-rate obligations to floating-rate instruments. The fair value of the interest-rate swap agreements is based on the amounts the Company would expect to pay/receive to/from third parties to terminate the agreements. Additionally, since the fair value of the Company’s fixed-rate long-term debt is sensitive to interest rate changes, the interest-rate swap contracts serve as a hedge to changes in the fair value of these debt instruments. A 100 basis-point increase in interest rates at January 31, 2008 and 2007 would have decreased the market value of the Company’s fixed-rate long-term debt, including the effect of the interest-rate swap, by $6,731,000 and $8,652,000. A 100 basis-point decrease in interest rates at January 31, 2008 and 2007 would have increased the market value of the Company’s fixed-rate long-term debt, including the effect of the interest-rate swap, by $6,440,000 and $9,006,000.
TIFFANY & CO.
K - 47


 

Precious Metal Price Risk
Beginning in the first quarter of 2007, the Company began using a combination of call and put option contracts in a net-zero cost collar arrangement (“collars”), as hedges of a portion of forecasted purchases of platinum and silver for internal manufacturing. If the price of the precious metal at the time of the expiration of the collar is within the call and put price, the collar would expire at no cost to the Company. The maximum term over which the Company is hedging its exposure to the variability of future cash flows for all forecasted transactions is 12 months. The fair value of the outstanding collars at January 31, 2008 was $6,435,000. The fair value was determined using quoted market prices for these instruments. At January 31, 2008, a 10% appreciation in precious metal prices from the prevailing market rates would have resulted in a fair value of $11,000,000. At January 31, 2008, a 10% depreciation in precious metal prices from the prevailing market rates would have resulted in a fair value of $2,954,000.
Management neither foresees nor expects significant changes in the Company’s exposure to fluctuations in foreign currencies, interest rates or precious metal prices, nor in its risk-management practices.
TIFFANY & CO.
K - 48


 

Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Tiffany & Co.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of stockholders’ equity and comprehensive earnings, and of cash flows present fairly, in all material respects, the financial position of Tiffany & Co. and its subsidiaries (the “Company”) at January 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Controls over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
TIFFANY & CO.
K - 49


 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 27, 2008
TIFFANY & CO.
K - 50


 

CONSOLIDATED BALANCE SHEETS
                 
    January 31,  
(in thousands, except per share amounts)   2008     2007  
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 246,654     $ 175,008  
Short-term investments
          15,500  
Accounts receivable, less allowances of $9,712 and $7,900
    193,974       165,594  
Inventories, net
    1,242,465       1,146,674  
Deferred income taxes
    71,402       72,934  
Prepaid expenses and other current assets
    89,072       57,460  
Assets held for sale
          73,474  
     
Total current assets
    1,843,567       1,706,644  
 
               
Property, plant and equipment, net
    748,210       912,143  
Deferred income taxes
    158,579       37,368  
Other assets, net
    171,800       156,097  
Assets held for sale – noncurrent
          33,258  
     
 
  $ 2,922,156     $ 2,845,510  
     
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Short-term borrowings
  $ 44,032     $ 106,681  
Current portion of long-term debt
    65,640       5,398  
Accounts payable and accrued liabilities
    203,622       198,471  
Income taxes payable
    203,611       62,979  
Merchandise and other customer credits
    67,956       61,511  
Liabilities held for sale
          17,631  
     
Total current liabilities
    584,861       452,671  
 
               
Long-term debt
    343,465       406,383  
Pension/postretirement benefit obligations
    79,254       84,466  
Deferred gains on sale-leasebacks
    145,599       4,944  
Other long-term liabilities
    131,610       87,774  
Liabilities held for sale – noncurrent
          4,377  
 
               
Commitments and contingencies
               
 
               
Stockholders’ equity:
               
Preferred Stock, $0.01 par value; authorized 2,000 shares,
none issued and outstanding
           
Common Stock, $0.01 par value; authorized 240,000 shares,
issued and outstanding 126,753 and 135,875
    1,268       1,358  
Additional paid-in capital
    632,671       536,187  
Retained earnings
    958,915       1,269,940  
Accumulated other comprehensive gain (loss), net of tax:
               
Foreign currency translation adjustments
    42,117       11,846  
Deferred hedging gain
    889       2,046  
Unrealized (loss) gain on marketable securities
    (621 )     178  
Net unrealized gain (loss) on benefit plans
    2,128       (16,660 )
     
Total stockholders’ equity
    1,637,367       1,804,895  
     
 
  $ 2,922,156     $ 2,845,510  
     
See notes to consolidated financial statements.
TIFFANY & CO.
K - 51


 

CONSOLIDATED STATEMENTS OF EARNINGS
                         
    Years Ended January 31,  
(in thousands, except per share amounts)   2008     2007     2006  
 
Net sales
  $ 2,938,771     $ 2,560,734     $ 2,312,792  
 
                       
Cost of sales
    1,308,499       1,119,184       1,005,014  
     
 
                       
Gross profit
    1,630,272       1,441,550       1,307,778  
 
                       
Other operating income
    105,051              
 
                       
Selling, general and administrative expenses
    1,204,990       1,010,754       920,153  
     
 
                       
Earnings from continuing operations
    530,333       430,796       387,625  
 
                       
Interest expense and financing costs
    24,724       26,069       22,895  
 
                       
Other income, net
    16,593       15,581       8,324  
     
 
                       
Earnings from continuing operations before income
taxes
    522,202       420,308       373,054  
 
                       
Provision for income taxes
    190,883       151,615       112,771  
     
 
                       
Net earnings from continuing operations
    331,319       268,693       260,283  
 
                       
Loss from discontinued operations, net of tax
    (27,547 )     (14,766 )     (5,628 )
     
 
                       
Net earnings
  $ 303,772     $ 253,927     $ 254,655  
     
 
                       
Earnings per share:
                       
Basic
                       
Net earnings from continuing operations
  $ 2.46     $ 1.94     $ 1.82  
Net loss from discontinued operations
    (0.21 )     (0.10 )     (0.04 )
     
Net earnings
  $ 2.25     $ 1.84     $ 1.78  
     
 
                       
Diluted
                       
Net earnings from continuing operations
  $ 2.40     $ 1.91     $ 1.79  
Net loss from discontinued operations
    (0.20 )     (0.11 )     (0.04 )
     
Net earnings
  $ 2.20     $ 1.80     $ 1.75  
     
 
                       
Weighted-average number of common shares:
                       
Basic
    134,748       138,362       142,976  
Diluted
    138,140       140,841       145,578  
See notes to consolidated financial statements.
TIFFANY & CO.
K - 52


 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE EARNINGS
                                                 
                    Accumulated                        
    Total             Other                     Additional  
    Stockholders'     Retained     Comprehensive     Common Stock     Paid-In  
(in thousands)   Equity     Earnings     Gain (Loss)     Shares     Amount     Capital  
 
Balances, January 31, 2005
  $ 1,701,160     $ 1,246,331     $ 27,076       144,548     $ 1,445     $ 426,308  
Exercise of stock options and vesting of restricted stock units (“RSUs”)
    24,545                   1,653       17       24,528  
Tax benefit from exercise of stock options and vesting of RSUs
    13,791                               13,791  
Share-based compensation expense
    25,950                               25,950  
Issuance of Common Stock under Employee Profit
Sharing and Retirement Savings (“EPSRS”) Plan
    4,400                   143       1       4,399  
Purchase and retirement of Common Stock
    (132,816 )     (126,762 )           (3,835 )     (38 )     (6,016 )
Cash dividends on Common Stock
    (42,903 )     (42,903 )                        
Deferred hedging gain, net of tax
    5,365             5,365                    
Unrealized gain on marketable securities, net of tax
    530             530                    
Foreign currency translation adjustments, net of tax
    (23,764 )           (23,764 )                  
Net earnings
    254,655       254,655                          
     
 
                                               
Balances, January 31, 2006
    1,830,913       1,331,321       9,207       142,509       1,425       488,960  
Exercise of stock options and vesting of RSUs
    21,689                   1,394       13       21,676  
Tax benefit from exercise of stock options and vesting of RSUs
    5,927                               5,927  
Share-based compensation expense
    33,473                               33,473  
Issuance of Common Stock under EPSRS Plan
    4,550                   121       1       4,549  
Purchase and retirement of Common Stock
    (281,176 )     (262,697 )           (8,149 )     (81 )     (18,398 )
Cash dividends on Common Stock
    (52,611 )     (52,611 )                        
Deferred hedging loss, net of tax
    (1,201 )           (1,201 )                  
Unrealized loss on marketable securities, net of tax
    (501 )           (501 )                  
Foreign currency translation adjustments, net of tax
    6,565             6,565                    
Net unrealized loss on benefit plans, net of tax
    (16,660 )           (16,660 )                  
Net earnings
    253,927       253,927                          
     
 
                                               
Balances, January 31, 2007
    1,804,895       1,269,940       (2,590 )     135,875       1,358       536,187  
Implementation effect of FIN No. 48
    (4,299 )     (4,299 )                        
     
Balances, February 1, 2007
    1,800,596       1,265,641       (2,590 )     135,875       1,358       536,187  
Exercise of stock options and vesting of RSUs
    68,830                   3,200       32       68,798  
Tax benefit from exercise of stock options and vesting of RSUs
    20,802                               20,802  
Share-based compensation expense
    38,343                               38,343  
Issuance of Common Stock under EPSRS Plan
    2,450                   52       1       2,449  
Purchase and retirement of Common Stock
    (574,608 )     (540,577 )           (12,374 )     (123 )     (33,908 )
Cash dividends on Common Stock
    (69,921 )     (69,921 )                        
Deferred hedging loss, net of tax
    (1,157 )           (1,157 )                  
Unrealized loss on marketable securities, net of tax
    (799 )           (799 )                  
Foreign currency translation adjustments, net of tax
    30,271             30,271                    
Net unrealized gain on benefit plans, net of tax
    18,788             18,788                    
Net earnings
    303,772       303,772                          
     
 
                                               
Balances, January 31, 2008
  $ 1,637,367     $ 958,915     $ 44,513       126,753     $ 1,268     $ 632,671  
     
                         
    Years Ended January 31,  
    2008     2007     2006  
     
Comprehensive earnings are as follows:
                       
Net earnings
  $ 303,772     $ 253,927     $ 254,655  
Deferred hedging (loss) gain, net of tax (benefit) expense of ($110), ($647) and $3,393
    (1,157 )     (1,201 )     5,365  
Foreign currency translation adjustments, net of tax expense (benefit) of $4,714, $3,011 and
($13,222)
    30,271       6,565       (23,764 )
Unrealized (loss) gain on marketable securities, net of tax (benefit) expense of ($283), ($301) and
$269
    (799 )     (501 )     530  
Net unrealized gain on benefit plans, net of tax expense of $14,352
    18,788              
     
 
  $ 350,875     $ 258,790     $ 236,786  
     
See notes to consolidated financial statements.
TIFFANY & CO.
K - 53


 

CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net earnings
  $ 303,772     $ 253,927     $ 254,655  
Loss from discontinued operations, net of tax
    27,547       14,766       5,628  
     
Net earnings from continuing operations
    331,319       268,693       260,283  
Adjustments to reconcile net earnings from continuing operations to net cash provided by (used in) operating activities:
                       
Gain on sale-leaseback
    (105,051 )            
Gain on sale of investments and marketable securities
    (1,564 )     (6,774 )      
Depreciation and amortization
    122,151       114,572       106,389  
Excess tax benefits from share-based payment arrangements
    (18,739 )     (6,330 )     (8,636 )
Provision for inventories
    33,700       8,273       10,108  
Deferred income taxes
    (83,608 )     582       (58,441 )
Loss on disposal of assets
    1,672       460       4,925  
Provision for pension/postretirement benefits
    26,666       24,751       22,334  
Share-based compensation expense
    37,069       32,793       25,622  
Impairment charges
    63,513              
Changes in assets and liabilities:
                       
Accounts receivable
    (10,237 )     (16,644 )     (16,952 )
Inventories
    (82,993 )     (156,292 )     (38,121 )
Prepaid expenses and other current assets
    (36,377 )     (22,037 )     1,142  
Other assets, net
    (13,883 )     (32,560 )     (22,852 )
Accounts payable and accrued liabilities
    8,986       17,678       20,652  
Income taxes payable
    145,774       8,122       (41,199 )
Merchandise and other customer credits
    5,967       4,887       4,201  
Other long-term liabilities
    (32,970 )     (1,138 )     (997 )
     
Net cash provided by operating activities
    391,395       239,036       268,458  
     
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Purchases of marketable securities and short-term investments
    (870,025 )     (163,341 )     (100,234 )
Proceeds from sales of marketable securities and short-term investments
    883,207       150,278       248,228  
Proceeds from sale of assets, net
    509,035             75,000  
Capital expenditures
    (185,608 )     (174,551 )     (148,159 )
Notes receivable funded
    (7,172 )     (9,728 )     (25,363 )
Acquisitions, net of cash acquired
    (400 )     (400 )     (6,845 )
Other
    6,133       605       (1,807 )
     
Net cash provided by (used in) investing activities
    335,170       (197,137 )     40,820  
     
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Proceeds from issuance of long-term debt
                61,914  
Repayment of long-term debt
    (32,301 )     (14,560 )      
(Repayments of) proceeds from short-term borrowings, net
    (75,147 )     71,548       (3,795 )
Repurchase of Common Stock
    (574,608 )     (281,176 )     (132,816 )
Proceeds from exercise of stock options
    68,830       21,689       24,545  
Excess tax benefits from share-based payment arrangements
    18,739       6,330       8,636  
Cash dividends on Common Stock
    (69,921 )     (52,611 )     (42,903 )
Other
          (91 )     (732 )
     
Net cash used in financing activities
    (664,408 )     (248,871 )     (85,151 )
     
Effect of exchange rate changes on cash and cash equivalents
    15,610       3,162       (3,555 )
     
CASH FLOWS FROM DISCONTINUED OPERATIONS:
                       
Operating activities
    (6,596 )     (5,454 )     (5,767 )
Investing activities
    (1,020 )     (7,842 )     (8,877 )
     
Net cash used in discontinued operations
    (7,616 )     (13,296 )     (14,644 )
     
Net increase (decrease) in cash and cash equivalents
    70,151       (217,106 )     205,928  
Cash and cash equivalents at beginning of year
    175,008       391,594       186,065  
Decrease (increase) in cash and cash equivalents of discontinued operations
    1,495       520       (399 )
     
Cash and cash equivalents at end of year
  $ 246,654     $ 175,008     $ 391,594  
     
See notes to consolidated financial statements.
TIFFANY & CO.
K - 54


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS
Tiffany & Co. is a holding company that operates through its subsidiary companies (the “Company”). The Company’s principal subsidiary, Tiffany and Company, is a jeweler and specialty retailer whose principal merchandise offering is fine jewelry. It also sells timepieces, sterling silverware, china, crystal, stationery, fragrances and accessories. Through Tiffany and Company and other subsidiaries, the Company is engaged in product design, manufacturing and retailing activities.
The Company’s channels of distribution are as follows:
    U.S. Retail includes sales in TIFFANY & CO. stores in the U.S., as well as sales of TIFFANY & CO. products through business-to-business direct selling operations in the U.S.;
 
    International Retail includes sales in TIFFANY & CO. stores and department store boutiques outside the U.S., as well as business-to-business, Internet and wholesale sales of TIFFANY & CO. products outside the U.S.;
 
    Direct Marketing includes Internet and catalog sales of TIFFANY & CO. products in the U.S.; and
 
    Other includes worldwide sales of businesses operated under trademarks or tradenames other than TIFFANY & CO., such as IRIDESSE. Sales in the Other channel primarily consist of wholesale sales of diamonds.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company’s fiscal year ends on January 31 of the following calendar year. All references to years relate to fiscal years rather than calendar years.
Basis of Reporting
The consolidated financial statements include the accounts of the Company and its subsidiaries in which a controlling interest is maintained. Controlling interest is determined by majority ownership interest and the absence of substantive third-party participating rights or, in the case of variable interest entities, by majority exposure to expected losses, residual returns or both. Intercompany accounts, transactions and profits have been eliminated in consolidation. The equity method of accounting is used for investments in which the Company has significant influence, but not a controlling interest. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America; these principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from these estimates. Periodically, the Company reviews all significant estimates and assumptions affecting the financial statements relative to current conditions and records the effect of any necessary adjustments.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents include highly liquid investments with an original maturity of three months or less and consist of time deposits and money market fund investments with a number of U.S. and non-U.S.
TIFFANY & CO.
K - 55


 

financial institutions with high credit ratings. The Company’s policy restricts the amounts invested in any one institution.
Short-Term Investments
Short-term investments include investments with original maturities greater than three months that the Company anticipates holding for less than 12 months. Short-term investments are stated at fair value.
Receivables and Finance Charges
The Company’s U.S. and international presence and its large, diversified customer base serve to limit overall credit risk. The Company maintains reserves for potential credit losses and, historically, such losses for trade receivables, in the aggregate, have not exceeded expectations.
Finance charges on retail revolving charge accounts are not significant and are accounted for as a reduction of selling, general and administrative expenses.
Inventories
Inventories are valued at the lower of cost or market. U.S. and foreign branch inventories, excluding Japan, are valued using the last-in, first-out (LIFO) method. Inventories held by foreign subsidiaries and Japan are valued using the average cost method. Beginning in the first quarter of 2008, the Company will change its inventory valuation method for the U.S. and foreign branches from LIFO to average cost (see Note R).
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated useful lives:
     
 
Buildings
     39 years
 
Machinery and Equipment
  5-15 years
 
Office Equipment
  3-10 years
 
Furniture and Fixtures
  3-10 years
 
Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease terms. Maintenance and repair costs are charged to earnings while expenditures for major renewals and improvements are capitalized. Upon the disposition of property, plant and equipment, the accumulated depreciation is deducted from the original cost, and any gain or loss is reflected in current earnings.
The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. The Company’s capitalized interest costs were not significant in 2007, 2006 or 2005.
TIFFANY & CO.
K - 56


 

Intangible Assets
Intangible assets are recorded at cost and are amortized on a straight-line basis over their estimated useful lives which are approximately 15 years. Intangible assets are reviewed for impairment in accordance with the Company’s policy for impairment of long-lived assets (see below). Intangible assets amounted to $9,751,000 and $9,209,000, net of accumulated amortization of $4,398,000 and $3,607,000 at January 31, 2008 and 2007, and consist primarily of product rights and trademarks. Amortization of intangible assets for the years ended January 31, 2008, 2007 and 2006 was $791,000, $717,000 and $357,000. Amortization expense in each of the next five years is estimated to be $806,000.
Goodwill
Goodwill represents the excess of cost over fair value of net assets acquired. Goodwill is evaluated for impairment annually in the fourth quarter or when events or changes in circumstances indicate that the value of goodwill may be impaired. This evaluation, based on discounted cash flows, requires management to estimate future cash flows, growth rates and economic and market conditions. If the evaluation indicates that goodwill is not recoverable, an impairment loss is calculated and recognized during that period (see Note C). At January 31, 2008 and 2007, unamortized goodwill was included in other assets, net and consisted of the following by segment:
                         
    Balance at             Balance at  
    January 31,             January 31,  
(in thousands)   2007     Translation     2008  
 
U.S. Retail
  $ 10,312     $     $ 10,312  
International Retail
    831             831  
Other
    2,079       34       2,113  
     
 
  $ 13,222     $ 34     $ 13,256  
     
Impairment of Long-Lived Assets
The Company reviews its long-lived assets other than goodwill for impairment when management determines that the carrying value of such assets may not be recoverable due to events or changes in circumstances. Recoverability of long-lived assets is evaluated by comparing the carrying value of the asset with the estimated future undiscounted cash flows. If the comparisons indicate that the asset is not recoverable, an impairment loss is calculated as the difference between the carrying value and the fair value of the asset and the loss is recognized during that period. In 2007, the Company determined that the long-lived assets for its IRIDESSE business (included in the non-reportable segment Other) were impaired as a result of lower than expected store performance and a related reduction in future cash flow projections. The Company recorded total charges in selling, general and administrative expenses of $15,532,000 related to the impairment.
Hedging Instruments
The Company uses a limited number of derivative financial instruments to mitigate its foreign currency, interest rate and precious metal price exposures. Derivative instruments are recorded on the consolidated balance sheet at their fair value, as either assets or liabilities, with an offset to current or comprehensive earnings, depending on whether a derivative is designated as part of an effective hedge transaction and, if it is, the type of hedge transaction. For fair-value hedge transactions, changes in fair value of the derivative and changes in the fair value of the item being hedged are recorded in current
TIFFANY & CO.
K - 57


 

earnings. For cash-flow hedge transactions, the effective portion of the changes in fair value of derivatives are reported as other comprehensive earnings and are recognized in current earnings in the period or periods during which the hedged transaction affects current earnings. Amounts excluded from the effectiveness calculation and any ineffective portions of the change in fair value of the derivative of a cash-flow hedge are recognized in current earnings. For a derivative to qualify as a hedge at inception and throughout the hedged period, the Company formally documents the nature and relationships between the hedging instruments and hedged items. The Company also documents its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in current earnings. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedge instrument and the item being hedged, both at inception and throughout the hedged period. The Company does not use derivative financial instruments for trading or speculative purposes.
Marketable Securities
The Company’s marketable securities, recorded within other assets, net on the consolidated balance sheet, are classified as available-for-sale and are recorded at fair value with unrealized gains and losses reported as a separate component of stockholders’ equity. Realized gains and losses are recorded in other income, net. The marketable securities are held for an indefinite period of time, but might be sold in the future as changes in market conditions or economic factors occur. The fair value of the marketable securities is determined based on prevailing market prices. The Company recorded $423,000 and $296,000 of gross unrealized gains and $1,264,000 and $55,000 of gross unrealized losses within accumulated other comprehensive income as of January 31, 2008 and 2007, respectively.
The following table summarizes activity in other comprehensive income related to marketable securities:
         
(in thousands)   January 31, 2008  
 
Change in fair value of marketable securities, net of tax benefit
of $244
  $ (741 )
Adjustment for net gains realized and included in net earnings, net
of tax expense of $39
    (58 )
 
Change in unrealized loss on marketable securities
  $ (799 )
 
The amount reclassified from other comprehensive income was determined on the basis of specific identification.
Merchandise and Other Customer Credits
Merchandise and other customer credits represent outstanding credits issued to customers for returned merchandise. It also includes outstanding gift coins and gift certificates or cards (collectively “gift cards”) sold to customers. All such outstanding items may be tendered for future merchandise purchases. A merchandise credit liability is established when a merchandise credit is issued to a customer for a returned item and the original sale is reversed. A gift card liability is established when the gift card is sold. The liabilities are relieved and revenue is recognized when merchandise is purchased and delivered to the customer and the merchandise credit or gift card is used as a form of payment.
TIFFANY & CO.
K - 58


 

If merchandise credits or gift cards are not redeemed over an extended period of time (approximately 3-5 years), the value of the merchandise credits or gift cards is generally remitted to the applicable jurisdiction in accordance with unclaimed property laws.
Revenue Recognition
Sales are recognized at the “point of sale,” which occurs when merchandise is taken in an “over-the-counter” transaction or upon receipt by a customer in a shipped transaction. Sales are reported net of returns, sales tax and other similar taxes. Shipping and handling fees billed to customers are included in net sales. The Company maintains a reserve for potential product returns and it records, as a reduction to sales and cost of sales, its provision for estimated product returns, which is determined based on historical experience.
Cost of Sales
Cost of sales includes costs related to the purchase of merchandise from third parties, the cost to internally manufacture merchandise (metal, gemstones, labor and overhead), inbound freight, purchasing and receiving, inspection, warehousing, internal transfers and other costs associated with distribution and merchandising. Cost of sales also includes royalty fees paid to outside designers and customer shipping and handling charges.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses include costs associated with the selling and promotion of products as well as administrative expenses. The types of expenses associated with these functions are store operating expenses (such as labor, rent and utilities), advertising and other corporate level administrative expenses.
Advertising Costs
Media and production costs for print advertising are expensed as incurred, while catalog costs are expensed upon mailing. Advertising costs, which include media, production, catalogs, promotional events and other related costs totaled $173,975,000, $161,688,000 and $136,511,000 in 2007, 2006 and 2005, representing 5.9%, 6.3% and 5.9% of net sales, respectively.
Preopening Costs
Costs associated with the opening of new retail stores are expensed in the period incurred.
Stock-Based Compensation
New, modified and unvested share-based payment transactions with employees, such as stock options and restricted stock, are measured at fair value and recognized as compensation expense over the requisite service period.
Merchandise Design Activities
Merchandise design activities consist of conceptual formulation and design of possible products and creation of preproduction prototypes and molds. Costs associated with these activities are expensed as incurred.
TIFFANY & CO.
K - 59


 

Foreign Currency
The functional currency of most of the Company’s foreign subsidiaries and branches is the applicable local currency. Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are recorded as a component of other comprehensive earnings within stockholders’ equity. The Company also recognizes gains and losses associated with transactions that are denominated in foreign currencies. The Company recorded a net gain resulting from foreign currency transactions of $2,290,000 in 2007, a net loss of $1,549,000 in 2006 and a net gain of $2,245,000 in 2005 within other income, net.
Income Taxes
Income taxes are accounted for by using the asset and liability method in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. In evaluating the exposures associated with the Company’s various tax filing positions, management records reserves using a more-likely-than-not recognition threshold for income tax positions taken or expected to be taken in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN No. 48”). The Company, its domestic subsidiaries and the foreign branches of its domestic subsidiaries file a consolidated Federal income tax return.
Earnings Per Share
Basic earnings per share is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share includes the dilutive effect of the assumed exercise of stock options and restricted stock units.
The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings per share (“EPS”) computations:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Net earnings for basic and diluted EPS
  $ 303,772     $ 253,927     $ 254,655  
     
Weighted-average shares for basic EPS
    134,748       138,362       142,976  
Incremental shares based upon the assumed exercise
of stock options and restricted stock units
    3,392       2,479       2,602  
     
Weighted-average shares for diluted EPS
    138,140       140,841       145,578  
     
For the years ended January 31, 2008, 2007 and 2006, there were 427,000, 4,543,000 and 4,586,000 stock options and restricted stock units excluded from the computations of earnings per diluted share due to their antidilutive effect.
New Accounting Standards
In July 2006, the FASB issued FIN No. 48 which clarifies the accounting for uncertainty in income tax positions by prescribing a more-likely-than-not recognition threshold for income tax positions taken or
TIFFANY & CO.
K - 60


 

expected to be taken in a tax return. FIN No. 48 is effective for fiscal years beginning after December 15, 2006 with the cumulative effect of the change in accounting principle recorded as an adjustment to retained earnings at the beginning of the year. The Company has adopted FIN No. 48 as of February 1, 2007 which resulted in a charge of $4,299,000 to retained earnings as a cumulative effect of an accounting change (see Note O).
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which establishes a framework for measuring fair value of assets and liabilities and expands disclosures about fair value measurements. The changes to current practice resulting from the application of SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB deferred the implementation of the provisions of SFAS No. 157 relating to nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. Management has evaluated the provisions of SFAS No. 157 and determined that its adoption will not have a material effect on the Company’s financial position or earnings.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 requires a company to clearly identify and present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity. It also requires the amount of consolidated net earnings attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of earnings; changes in ownership interest be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Management has evaluated the provisions of SFAS No. 160 and determined that its adoption will not have a material effect on the Company’s financial position or earnings.
C. ACQUISITIONS AND DISPOSITIONS
Management concluded that Little Switzerland, Inc.’s (“Little Switzerland”) operations did not demonstrate the potential to generate a return on investment consistent with management’s objectives and, therefore, during the second quarter of 2007 the Company’s Board of Directors authorized the sale of Little Switzerland. On July 31, 2007, the Company entered into an agreement with NXP Corporation (“NXP”) by which NXP would purchase 100% of the stock of Little Switzerland. The transaction closed on September 18, 2007 for net proceeds of $32,870,000 which excludes payments for existing trade payables owed to the Company by Little Switzerland. The purchase price remains subject to customary post-closing adjustments. The Company has agreed to continue to distribute TIFFANY & CO. merchandise through TIFFANY & CO. boutiques maintained in certain LITTLE SWITZERLAND stores post-closing. In addition, the Company has agreed to provide warehousing services to Little Switzerland for a transition period.
The Company determined that the continuing cash flows from Little Switzerland operations were not significant. Therefore, the results of Little Switzerland are presented as a discontinued operation in the consolidated financial statements for all periods presented. Prior to the reclassification, Little Switzerland’s results had been included within the non-reportable segment Other.
Little Switzerland’s loss before income taxes in 2007 includes a $54,260,000 pre-tax charge ($22,602,000 after-tax) due to the sale of Little Switzerland. The tax benefit recorded in connection with the charge
TIFFANY & CO.
K - 61


 

included the effect of basis differences in the investment in Little Switzerland. In the fourth quarter of 2006, the Company performed its annual impairment testing for goodwill and determined that all goodwill for the Little Switzerland business was impaired as a result of store performance and cash flow projections. Therefore, the loss before income taxes in 2006 includes a $6,893,000 pre-tax charge related to the impairment of goodwill.
Summarized statement of earnings data for Little Switzerland is as follows:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Net revenues
  $ 52,817     $ 87,587     $ 82,361  
     
Loss on disposal
  $ 54,260     $     $  
Loss from operations
    5,401       15,873       5,080  
Income tax (benefit) expense
    (32,114 )     (1,107 )     548  
     
Loss from discontinued operations, net of tax
  $ 27,547     $ 14,766     $ 5,628  
     
Summarized balance sheet data for Little Switzerland is as follows:
         
(in thousands)   January 31, 2007  
 
Assets held for sale:
       
Inventories, net
  $ 67,948  
Other current assets
    5,526  
Property, plant and equipment, net
    20,246  
Other assets
    13,012  
 
   
Total assets held for sale
  $ 106,732  
 
   
Liabilities held for sale:
       
Current liabilities
  $ 17,631  
Other liabilities
    4,377  
 
   
Total liabilities held for sale
  $ 22,008  
 
   
In October 2005, the Company acquired a corporation that specializes in polishing small carat weight diamonds. The price paid by the Company for the entire equity interest in this corporation was $2,000,000, of which $1,200,000 was paid in 2005, $400,000 in 2006 and $400,000 in 2007. This acquisition was strategically important to the Company’s diamond sourcing program, but not significant to the Company’s financial position, earnings or cash flows.
The Company made a $10,000,000 investment ($4,500,000 in 2004 and $5,500,000 in 2005) in a joint venture that owns and operates a diamond polishing facility. The Company’s interest in, and control over, this venture are such that its results are consolidated with those of the Company and its subsidiaries. The Company expects, through its investment, to gain access to additional supplies of diamonds that meet its quality standards.
TIFFANY & CO.
K - 62


 

D. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Interest, net of interest
capitalization
  $ 23,543     $ 24,493     $ 18,593  
     
Income taxes
  $ 142,034     $ 141,209     $ 210,360  
     
Details of businesses acquired in purchase transactions:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Fair value of assets acquired
  $     $     $ 2,306  
Liabilities assumed
                (958 )
     
Cash paid for acquisition
                1,348  
Cash acquired
                (3 )
Additional consideration on prior-year acquisitions
    400       400       5,500  
     
Net cash paid for acquisition
  $ 400     $ 400     $ 6,845  
     
Supplemental noncash investing and financing activities:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Issuance of Common Stock under
the Employee Profit Sharing and
Retirement Savings Plan
  $ 2,450     $ 4,550     $ 4,400  
     
E. INVENTORIES
                 
    January 31,  
(in thousands)   2008     2007  
 
Finished goods
  $ 812,928     $ 772,102  
Raw materials
    352,211       316,206  
Work-in-process
    77,326       58,366  
     
 
  $ 1,242,465     $ 1,146,674  
     
LIFO-based inventories at January 31, 2008 and 2007 represented 68% and 72% of inventories, net, with the current cost exceeding the LIFO inventory value by $137,152,000 and $108,501,000. The Company recorded a $19,212,000 pre-tax charge during the fourth quarter of 2007 within cost of sales related to the discontinuance of certain watch models as a result of the Company’s recent agreement by which The Swatch Group Ltd. will design, manufacture, distribute and market TIFFANY & CO. brand watches worldwide.
TIFFANY & CO.
K - 63


 

F. PROPERTY, PLANT AND EQUIPMENT
                 
    January 31,  
(in thousands)   2008     2007  
 
Land
  $ 41,713     $ 201,529  
Buildings
    104,527       157,708  
Leasehold improvements
    623,048       543,289  
Office equipment
    325,864       283,610  
Furniture and fixtures
    178,535       149,129  
Machinery and equipment
    104,377       96,720  
Construction-in-progress
    21,379       11,994  
     
 
    1,399,443       1,443,979  
Accumulated depreciation and
amortization
    (651,233 )     (531,836 )
     
 
  $ 748,210     $ 912,143  
     
The provision for depreciation and amortization for the years ended January 31, 2008, 2007 and 2006 was $129,462,000, $118,129,000 and $110,018,000. In each of those years, the Company accelerated the depreciation of certain leasehold improvements and equipment as a result of the shortening of useful lives related to renovations and/or expansions of retail stores and office facilities. The amount of accelerated depreciation recognized was $3,916,000, $3,467,000 and $3,710,000 for the years ended January 31, 2008, 2007 and 2006.
G. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
                 
    January 31,  
(in thousands)   2008     2007  
 
Accounts payable-trade
  $ 69,186     $ 69,039  
Accrued compensation and
commissions
    64,302       47,511  
Accrued sales, withholding and other
taxes
    19,432       33,721  
Other
    50,702       48,200  
     
 
  $ 203,622     $ 198,471  
     
TIFFANY & CO.
K - 64


 

H. DEBT
                 
    January 31,  
(in thousands)   2008     2007  
 
Short-term borrowings:
               
Credit Facility
  $ 40,695     $ 106,681  
Other
    3,337        
     
 
    44,032       106,681  
     
Long-term debt:
               
Senior Notes:
               
6.90% Series A, due 2008
  $ 60,000     $ 60,000  
7.05% Series B, due 2010
    40,000       40,000  
6.15% Series C, due 2009
    41,272       39,706  
6.56% Series D, due 2012
    64,231       59,848  
4.50% yen loan, due 2011
    46,755       41,110  
First Series Yen Bonds, due 2010
    140,265       123,329  
Hong Kong Term Loan, due 2011
    12,624       34,572  
Switzerland Term Loan, due 2011
    3,958       13,216  
     
 
    409,105       411,781  
Less current portion of long-term debt
    65,640       5,398  
     
 
  $ 343,465     $ 406,383  
     
Credit Facility
In July 2005, the Company entered into a $300,000,000 revolving credit facility (“Credit Facility”) and, in October 2006, exercised its option to increase the Credit Facility by $150,000,000 to $450,000,000. The Company has the option to increase such commitments to $500,000,000. Borrowings may be made from eight participating banks and are at interest rates based upon local currency borrowing rates plus a margin that fluctuates with the Company’s fixed charge coverage ratio. The Credit Facility, which expires in July 2010, requires the payment of an annual fee based on the total commitment and contains covenants that require maintenance of certain debt/equity and interest-coverage ratios, in addition to other requirements customary to loan facilities of this nature. The weighted-average interest rate for the Credit Facility was 4.58% and 2.44% at January 31, 2008 and 2007.
6.90% Series A Senior Notes and 7.05% Series B Senior Notes
In December 1998, the Company, in private transactions with various institutional lenders, issued, at par, $60,000,000 principal amount 6.90% Series A Senior Notes Due 2008 and $40,000,000 principal amount 7.05% Series B Senior Notes Due 2010. The proceeds of these issuances were used by the Company for working capital and to refinance a portion of the outstanding short-term indebtedness. The Note Purchase Agreements require lump sum repayments upon maturities, maintenance of specific financial covenants and ratios and limit certain payments, investments and indebtedness, in addition to other requirements customary to such borrowings.
6.15% Series C Senior Notes and 6.56% Series D Senior Notes
In July 2002, the Company, in a private transaction with various institutional lenders, issued, at par, $40,000,000 of 6.15% Series C Senior Notes Due 2009 and $60,000,000 of 6.56% Series D Senior Notes
TIFFANY & CO.
K - 65


 

Due 2012 with lump sum repayments upon maturities. The proceeds of these issuances were used by the Company for general corporate purposes, working capital and to redeem previously issued Senior Notes which came due in January 2003. The Note Purchase Agreements require maintenance of specific financial covenants and ratios and limit certain changes to indebtedness and the general nature of the business, in addition to other requirements customary to such borrowings. Concurrent with the issuance of such debt, the Company entered into an interest-rate swap agreement to hedge the change in fair value of its fixed-rate obligation. Under the swap agreement, the Company pays variable-rate interest and receives fixed interest-rate payments periodically over the life of the instrument. The Company accounts for the interest-rate swap agreement as a fair-value hedge of the debt (see Note I), requiring the debt to be valued at fair value. The interest-rate swap agreement had the effect of decreasing interest expense by $535,000 for the year ended January 31, 2008, increasing interest expense by $424,000 for the year ended January 31, 2007, and decreasing interest expense by $751,000 for the year ended January 31, 2006.
4.50% Yen Loan
The Company has a yen 5,000,000,000 ($46,755,000 at January 31, 2008), 15-year term loan due 2011, bearing interest at a rate of 4.50%.
First Series Yen Bonds
In September 2003, the Company issued yen 15,000,000,000 ($140,265,000 at January 31, 2008) of senior unsecured First Series Yen Bonds (“Bonds”) due in 2010 with principal due upon maturity and a fixed coupon rate of 2.02% payable in semi-annual installments. The Bonds were sold in a private transaction to qualified institutional investors in Japan. The proceeds from the issuance were primarily used by the Company to finance the purchase of the land and building housing its Tokyo Flagship store, which was subsequently sold in 2007.
Term Loans
In January 2006, the Company borrowed HKD 300,000,000 ($38,672,000 at issuance) (“Hong Kong Term Loan”) and CHF 19,500,000 ($15,145,000 at issuance) (“Switzerland Term Loan”) due in January 2011. These funds were used to partially finance the repatriation of dividends related to the American Jobs Creation Act of 2004 (see Note O). Principal payments of 10% of the original principal amount are due each year, with the balance due upon maturity. Amounts may be prepaid without incurring penalties. The covenants of the term loans are similar to the Credit Facility. Interest rates are based upon local currency borrowing rates plus a margin that fluctuates with the Company’s fixed charge coverage ratio. The interest rates for the Hong Kong Term Loan and the Switzerland Term Loan were 3.96% and 3.09%, respectively, at January 31, 2008 and 4.28% and 2.40%, respectively, at January 31, 2007.
Other Lines of Credit
The Company had other lines of credit totaling $9,206,000, of which $3,337,000 was outstanding at January 31, 2008.
The Company had letters of credit and financial guarantees of $20,139,000 outstanding at January 31, 2008.
TIFFANY & CO.
K - 66


 

Debt Covenants
As of January 31, 2008, the Company was in compliance with all covenants. In the event of any default of payment or performance obligations extending beyond applicable cure periods under the provisions of any one of the Credit Facility, Senior Notes or Term Loans, the loan agreements may be terminated or payment of the notes accelerated. Further, each of the Credit Facility, Senior Notes or Term Loans contain cross default provisions permitting the termination of the loans, or acceleration of the notes, as the case may be, in the event that any of the Company’s other debt obligations are terminated or accelerated prior to the expressed maturity.
Long-Term Debt Maturities
Aggregate maturities of long-term debt as of January 31, 2008 are as follows:
         
    Amount  
Years Ending January 31,   (in thousands)  
 
2009
  $ 65,640  
2010
    46,912  
2011
    185,567  
2012
    46,755  
2013
    64,231  
Thereafter
     
     
 
  $ 409,105  
     
I. FINANCIAL INSTRUMENTS
Hedging Instruments
In the normal course of business, the Company uses financial hedging instruments, including derivative financial instruments, for purposes other than trading. These instruments include interest-rate swap agreements, foreign currency-purchased put options, forward foreign-exchange contracts and a combination of call and put option contracts in a net-zero cost collar arrangement (“collars”). The Company does not use derivative financial instruments for speculative purposes.
The Company’s foreign subsidiaries and branches satisfy nearly all of their inventory requirements by purchasing merchandise, payable in U.S. dollars, from the Company’s principal subsidiary. Accordingly, the foreign subsidiaries and branches have foreign currency exchange risk that may be hedged. In addition, the Company has foreign currency exchange risk related to foreign currency-denominated purchases of inventory and services from third-party vendors. To mitigate these risks, the Company uses foreign-exchange forward contracts to hedge the settlement of foreign currency liabilities. At January 31, 2008 and 2007, the Company had $7,311,000 and $5,885,000 of outstanding forward foreign-exchange contracts, which subsequently matured in February and March 2008 and February and March 2007, respectively.
To minimize the potentially negative effect of a significant strengthening of the U.S. dollar against the yen, the Company purchases yen put options (“options”) as hedges of forecasted purchases of merchandise. The Company accounts for its option contracts as cash-flow hedges. The Company assesses hedge effectiveness based on the total changes in the options’ cash flows. The effective portion of unrealized gains and losses associated with the value of the option contracts is deferred as a component of accumulated other comprehensive gain (loss) and is recognized as a component of cost of sales on the
TIFFANY & CO.
K - 67


 

Company’s consolidated statement of earnings when the related inventory is sold. There was no material ineffectiveness related to the Company’s option contracts in 2007, 2006 and 2005.
Beginning in the first quarter of 2007, the Company began using collars as hedges of forecasted purchases of precious metals to minimize the effect of changes in platinum and silver prices. The Company accounts for its collars as cash-flow hedges. The Company assesses hedge effectiveness based on the total changes in the collars’ cash flows. The effective portion of unrealized gains and losses associated with the value of the collars is deferred as a component of other comprehensive gain (loss) and is recognized as a component of cost of sales on the Company’s consolidated statement of earnings when the related inventory is sold. There was no material ineffectiveness related to the Company’s collars in 2007.
As discussed in Note H, the Company uses an interest-rate swap agreement to effectively convert its fixed-rate Senior Notes Series C and Series D obligations to floating-rate obligations. The Company accounts for the interest-rate swaps as a fair-value hedge. The terms of each swap agreement match the terms of the underlying debt, resulting in no ineffectiveness.
Hedging activity affected accumulated other comprehensive gain (loss), net of tax, as follows:
                 
    Years Ended January 31,  
(in thousands)   2008     2007  
 
Balance at beginning of period
  $ 2,046     $ 3,247  
Gains transferred to earnings, net of tax
expense of $1,089 and $2,006
    (2,013 )     (3,725 )
Change in fair value, net of tax expense
of $979 and $1,359
    856       2,524  
 
 
  $ 889     $ 2,046  
 
The Company expects that $951,000 of net derivative gains included in accumulated other comprehensive income at January 31, 2008 will be reclassified into earnings within the next 12 months. This amount will vary due to fluctuations in the yen exchange rate and precious metal prices. The maximum term over which the Company is hedging its exposure to the variability of future cash flows for all forecasted transactions is 12 months.
Fair Value
The fair value of financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market. The fair value of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates carrying value due to the short-term maturities of these assets and liabilities. The fair value of short-term borrowings and certain long-term debt approximates carrying value due to its variable interest-rate terms. The fair value of certain long-term debt was determined using the quoted market prices of debt instruments with similar terms and maturities. The fair value of the interest-rate swap agreements is based on the amounts the Company would expect to pay/receive to/from third parties to terminate the agreements.
TIFFANY & CO.
K - 68


 

The carrying amounts and estimated fair values of financial instruments are as follows:
                                 
    January 31,  
    2008     2007  
    Carrying     Estimated     Carrying     Estimated  
(in thousands)   Value     Fair Value     Value     Fair Value  
 
Mutual funds
  $ 28,133     $ 28,133     $ 26,615     $ 26,615  
Auction rate securities
                15,500       15,500  
Short-term borrowings
    44,032       44,032       106,681       106,681  
Current portion of long-term
debt
    65,640       67,273       5,398       5,398  
Long-term debt
    343,465       355,976       406,383       419,220  
Yen put options
    863       863       6,056       6,056  
Collars
    6,435       6,435              
Interest-rate swap agreements
    5,503       5,503       (446 )     (446 )
J. COMMITMENTS AND CONTINGENCIES
The Company leases certain office, distribution, retail and manufacturing facilities and equipment. Retail store leases may require the payment of minimum rentals and contingent rent based on a percentage of sales exceeding a stipulated amount. The lease agreements, which expire at various dates through 2051, are subject, in many cases, to renewal options and provide for the payment of taxes, insurance and maintenance. Certain leases contain escalation clauses resulting from the pass-through of increases in operating costs, property taxes and the effect on costs from changes in consumer price indices.
Rent-free periods and other incentives granted under certain leases and scheduled rent increases are charged to rent expense on a straight-line basis over the related terms of such leases. Lease expense includes predetermined rent escalations (including escalations based on the Consumer Price Index or other indices) and is recorded on a straight-line basis over the term of the lease. Adjustments to indices are treated as contingent rent and recorded in the period that such adjustments are determined.
In the third quarter of 2007, the Company entered into a sale-leaseback arrangement for the land and multi-tenant building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district. The Company is leasing back that portion of the property that it occupied immediately prior to the transaction. In the third quarter of 2007, the Company received proceeds of $327,537,000 (¥38,050,000,000) and the transaction resulted in a pre-tax gain of $105,051,000, recorded within other operating income, and a deferred gain of $75,244,000, which will be amortized in SG&A expenses over a 15-year period. The pre-tax gain represents the profit on the sale of the property in excess of the present value of the minimum lease payments. The lease is accounted for as an operating lease. The lease expires in 2032; however, the Company has options to terminate the lease in 2022 and 2027 without penalty.
In the third quarter of 2007, the Company entered into a sale-leaseback arrangement for the building housing the TIFFANY & CO. Flagship store in London. The Company sold the building for proceeds of $148,628,000 (£73,000,000) and simultaneously entered into a 15-year lease with two 10-year renewal options. The transaction resulted in a deferred gain of $63,961,000, which will be amortized in SG&A expenses over a 15-year period. The Company continues to occupy the entire building and the lease is accounted for as an operating lease.
TIFFANY & CO.
K - 69


 

In the third quarter of 2005, the Company entered into a sale-leaseback arrangement for its Retail Service Center, a distribution and administrative office facility. The Company received proceeds of $75,000,000 resulting in a gain of $5,300,000, which has been deferred and is being amortized over the lease term. The lease has been accounted for as an operating lease. The lease expires in 2025 and has two ten-year renewal options.
Rent expense for the Company’s operating leases, including escalations, consisted of the following:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Minimum rent for retail locations
  $ 82,577     $ 54,153     $ 48,633  
Contingent rent based on sales
    40,694       34,756       30,395  
Office, distribution and manufacturing facilities
and equipment
    15,633       29,435       27,099  
     
 
  $ 138,904     $ 118,344     $ 106,127  
     
Aggregate minimum annual rental payments under non-cancelable operating leases are as follows:
         
    Minimum Annual  
    Rental Payments  
Years Ending January 31,   (in thousands)  
 
2009
  $ 114,078  
2010
    109,092  
2011
    101,146  
2012
    91,878  
2013
    84,736  
Thereafter
    523,609  
The Company entered into a diamond purchase agreement with Aber Diamond Corporation (“Aber”) whereby the Company has the obligation to purchase a minimum of $50,000,000 of diamonds, subject to availability and the Company’s quality standards, per year for 10 years beginning in 2004.
At January 31, 2008, the Company’s contractual cash obligations and contingent funding commitments were: inventory purchases of $403,571,000 including the obligation under the agreement with Aber, non-inventory purchases of $9,946,000, construction-in-progress of $16,047,000 and other contractual obligations of $12,473,000.
The Company is party to a CDN$35,000,000 ($35,423,000 at January 31, 2008) credit facility and a CDN$8,000,000 ($8,097,000 at January 31, 2008) working capital loan commitment (collectively the “Commitment”) to Tahera, a Canadian diamond mining and exploration company. At January 31, 2008, the Commitment was fully funded and no further amounts remain available to Tahera. In consideration of the Commitment, the Company was granted the right to purchase or market all diamonds mined at the Jericho mine. This mine has been developed and constructed by Tahera in Nunavut, Canada (the “Project”). Indebtedness under the Commitment is secured by certain assets of the Project. Although the Project has been operational, Tahera has continued to experience financial losses as a result of production problems, appreciation of the Canadian Dollar versus the U.S. Dollar, the rise of oil prices and other costs relative to diamond prices. Due to the financial difficulties, Tahera sought additional financing in the fourth quarter of 2007 in order to meet its cash flow requirements but was not successful. In January 2008, Tahera filed for protection from creditors pursuant to the provisions of the Companies’ Creditors Arrangement Act in Canada. Tahera is continuing to pursue financing and strategic alternatives, but it has not shown indications of possible success to-date and the Project’s operations
TIFFANY & CO.
K - 70


 

have had to cease and be placed in care and maintenance mode. As a result of these events, the Company’s management has determined that collectibility of the outstanding Commitment is not probable. Therefore, the Company has recorded an impairment charge of $47,981,000, within SG&A expenses, for the full amount outstanding including accrued interest under the Commitment.
The Company has an agreement with Mitsukoshi Ltd. of Japan (“Mitsukoshi”) which is subject to renewal on an annual basis. The agreement continued long-standing commercial relationships that the Company has maintained with Mitsukoshi. Sales at Mitsukoshi department stores represented 5%, 9% and 11% of net sales for the years ended January 31, 2008, 2007 and 2006. The Company also operates boutiques in other Japanese department stores. The Company pays the department stores a percentage fee based on sales generated in these locations. Fees paid to Mitsukoshi and other Japanese department stores totaled $65,513,000, $69,982,000 and $72,231,000 in 2007, 2006 and 2005 and are included in SG&A expenses. Sales transacted at these retail locations are recognized at the “point of sale.”
The Company is, from time to time, involved in routine litigation incidental to the conduct of its business, including proceedings to protect its trademark rights, litigation instituted by persons injured upon premises under the Company’s control, litigation with present and former employees and litigation claiming infringement of the copyrights and patents of others. Management believes that such pending litigation will not have a significant effect on the Company’s financial position, earnings or cash flows.
K. RELATED PARTIES
The Company’s Chairman of the Board and Chief Executive Officer is a member of the Board of Directors of The Bank of New York Mellon, which serves as the Company’s lead bank for its Credit Facility, provides other general banking services; serves as the trustee and an investment manager for the Company’s pension plan; and Mellon Investor Services LLC serves as the Company’s transfer agent and registrar. In addition, the Company’s President is a member of the Board of Directors of The Bank of New York Hamilton Funds, Inc. Fees paid to the bank for services rendered, interest on debt and premiums on derivative contracts amounted to $1,534,000, $2,375,000 and $1,931,000 in 2007, 2006 and 2005.
The Company’s Executive Vice President and Chief Financial Officer is a member of the Board of Directors of The Dun & Bradstreet Corporation. Fees paid to that company for credit information reports were less than $100,000 in each of 2007, 2006 and 2005.
A member of the Company’s Board of Directors is a Senior Managing Director of Evercore Partners, a financial advisory and private equity firm. Fees paid to that company for financial advisory services, all of which related to the sale of Little Switzerland, were $1,136,000 in 2007.
A member of the Company’s Board of Directors was an officer of IBM Corporation until January 2006. Fees paid to that company for information technology equipment and services rendered amounted to $14,794,000 in 2005.
TIFFANY & CO.
K - 71


 

L. STOCKHOLDERS’ EQUITY
Stock Repurchase Program
In January 2008, the Company’s Board of Directors amended the existing share repurchase program to extend the expiration date of the program to January 2011 and to authorize the repurchase of up to an additional $500,000,000 of the Company’s Common Stock. The timing of repurchases and the actual number of shares to be repurchased depend on a variety of discretionary factors such as price and other market conditions.
The Company’s share repurchase activity was as follows:
                         
    Years Ended January 31,  
(in thousands, except per share amounts)   2008     2007     2006  
 
Cost of repurchases
  $ 574,608     $ 281,176     $ 132,816  
Shares repurchased and retired
    12,374       8,149       3,835  
Average cost per share
  $ 46.44     $ 34.50     $ 34.63  
At January 31, 2008, there remained $620,806,000 of authorization for future repurchases under the program.
Cash Dividends
In August 2007, the Company’s Board of Directors declared a 25% increase in the quarterly dividend rate on common shares, increasing it from $0.12 per share to $0.15 per share. In May 2007, they declared a 20% increase in the quarterly rate, increasing it from $0.10 per share to $0.12 per share. In May 2006, they declared a 25% increase in the quarterly rate, increasing it from $0.08 per share to $0.10 per share. On February 21, 2008, they declared a quarterly dividend of $0.15 per common share. This dividend will be paid on April 10, 2008 to stockholders of record on March 20, 2008.
M. STOCK COMPENSATION PLANS
The Company has two stock compensation plans under which awards may continue to be made: the Employee Incentive Plan and the Directors Option Plan, both of which were approved by the stockholders. No award may be made under the employee plan after April 30, 2015 and under the Directors Option Plan after May 21, 2008.
Under the Employee Incentive Plan, the maximum number of common shares authorized for issuance was 11,000,000, as amended (subject to adjustment); awards may be made to employees of the Company or its related companies in the form of stock options, stock appreciation rights, shares of stock (or rights to receive shares of stock) and cash. Awards of shares (or rights to receive shares) reduce the above authorized amount by 1.58 shares for every share delivered pursuant to such an award. Awards made in the form of non-qualified stock options, tax-qualified incentive stock options or stock appreciation rights have a maximum term of 10 years from the grant date and may not be granted for an exercise price below fair-market value.
The Company grants performance stock units (“PSU”) and stock options to the executive officers of the Company. Other management employees are granted restricted stock units (“RSU”) or a combination of RSU’s and PSU’s. Stock options vest in increments of 25% per year over four years. PSU’s issued to the executive officers vest at the end of a three-year period while PSU’s issued to other management
TIFFANY & CO.
K - 72


 

employees vest in increments of 25% per year over a four-year period. All PSU’s are contingent on the Company’s performance against pre-set objectives established by the Compensation Committee of the Company’s Board of Directors. RSU’s vest in increments of 25% per year over a four-year period. The PSU’s and RSU’s require no payment from the employee. PSU and RSU payouts will be in shares of Company stock at vesting. Compensation expense is recognized using the fair market value at the date of grant and recorded ratably over the vesting period. However, PSU compensation expense may be adjusted over the vesting period if interim performance objectives are not met.
Under the Directors Option Plan, the maximum number of shares of Common Stock authorized for issuance was 1,000,000 (subject to adjustment); awards may be made to non-employee directors of the Company in the form of stock options or shares of stock but may not exceed 20,000 (subject to adjustment) shares per non-employee director in any fiscal year; awards made in the form of stock options may have a maximum term of 10 years from the grant date and may not be granted for an exercise price below fair-market value unless the director has agreed to forego all or a portion of his or her annual cash retainer or other fees for service as a director in exchange for below market exercise price options. All director options granted to-date vest in increments of 50% per year over a two-year period.
The Company uses newly-issued shares to satisfy stock option exercises and vesting of PSU’s and RSU’s.
The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model and compensation expense is recognized ratably over the vesting period. The valuation model uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The Company uses historical data to estimate the expected term of the option that represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date.
                         
    Years Ended January 31,  
    2008     2007     2006  
     
Dividend yield
    0.7 %     0.7 %     0.5 %
Expected volatility
    33.5 %     38.5 %     39.2 %
Risk-free interest rate
    4.0 %     4.5 %     4.6 %
Expected term in years
    7       8       7  
A summary of the option activity for the Company’s stock option plans is presented below:
                                 
                    Weighted-        
                    Average     Aggregate  
            Weighted-     Remaining     Intrinsic  
    Number of     Average     Contractual     Value  
    Shares     Exercise Price     Term in Years     (in thousands)  
     
Outstanding at January 31, 2007
    11,153,201     $ 30.26                  
Granted
    497,000       37.89                  
Exercised
    (2,810,152 )     24.48                  
Forfeited/cancelled
    (67,038 )     38.33                  
                     
Outstanding at January 31, 2008
    8,773,011     $ 32.49       4.79     $ 58,456  
     
Exercisable at January 31, 2008
    7,597,108     $ 31.75       4.16     $ 56,433  
     
TIFFANY & CO.
K - 73


 

The weighted-average grant-date fair value of options granted for the years ended January 31, 2008, 2007 and 2006 was $14.81, $18.75 and $17.56. The total intrinsic value (market value on date of exercise less grant price) of options exercised during the years ended January 31, 2008, 2007 and 2006 was $69,693,000, $21,518,000 and $34,336,000.
A summary of the activity for the Company’s RSU’s is presented below:
                 
            Weighted-Average  
    Number of Shares     Grant-Date Fair Value  
     
Non-vested at January 31, 2007
    1,269,517     $ 37.99  
Granted
    547,280       37.57  
Vested
    (389,453 )     37.36  
Forfeited
    (91,251 )     37.92  
     
Non-vested at January 31, 2008
    1,336,093     $ 38.02  
     
A summary of the activity for the Company’s PSU’s is presented below:
                 
            Weighted-Average  
    Number of Shares     Grant-Date Fair Value  
     
Non-vested at January 31, 2007
    942,000     $ 36.25  
Granted
    491,352       36.03  
     
Non-vested at January 31, 2008
    1,433,352     $ 36.18  
     
The weighted-average grant-date fair value of RSU’s granted for the years ended January 31, 2007 and 2006 was $39.33 and $39.10. The weighted-average grant-date fair value of PSU’s granted for the years ended January 31, 2007 and 2006 was $40.15 and $37.84.
As of January 31, 2008, there was $74,888,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the Employee Incentive Plan and Directors Option Plan. The expense is expected to be recognized over a weighted-average period of 2.9 years. The total fair value of RSU’s vested during the year ended January 31, 2008, 2007 and 2006 was $15,183,000, $9,826,000 and $4,594,000. No PSU’s were vested or forfeited during the years ended January 31, 2008, 2007 and 2006.
Total compensation cost for stock-based-compensation awards recognized in income and the related income tax benefit was $37,069,000 and $13,764,000 for the year ended January 31, 2008, $32,793,000 and $13,061,000 for the year ended January 31, 2007 and $25,622,000 and $10,104,000 for the year ended January 31, 2006. Total compensation cost capitalized in inventory was not significant.
N. EMPLOYEE BENEFIT PLANS
Pensions and Other Postretirement Benefits
The Company maintains the following pension plans: a noncontributory defined benefit pension plan (“Qualified Plan”) covering substantially all U.S. employees hired before January 1, 2006 and qualified in accordance with the Internal Revenue Service Code, a non-qualified unfunded retirement income plan (“Excess Plan”) covering certain employees affected by Internal Revenue Service Code compensation limits, a non-qualified unfunded Supplemental Retirement Income Plan (“SRIP”) that covers executive officers of the Company and a noncontributory defined benefit pension plan covering substantially all employees of Tiffany and Company Japan Inc. (“Japan Plan”).
TIFFANY & CO.
K - 74


 

Qualified Plan benefits are based on the highest five years of compensation and the number of years of service. Effective February 1, 2007, the Qualified Plan was amended to allow participants with at least 10 years of service who retire after attaining age 55 to receive reduced retirement benefits. The Company funds the Qualified Plan’s trust in accordance with regulatory limits to provide for current service and for the unfunded benefit obligation over a reasonable period and for current service benefit accruals. The Company made cash contributions of $15,000,000 to the Qualified Plan in 2007 and plans to contribute approximately $15,000,000 in 2008. However, this expectation is subject to change based on asset performance being significantly different than the assumed long-term rate of return on pension assets.
Effective February 1, 2006, the Qualified Plan was amended to exclude all employees hired on or after January 1, 2006 from the Qualified Plan. Instead, employees hired on or after January 1, 2006 will be eligible to receive a defined contribution retirement benefit under the Employee Profit Sharing and Retirement Savings Plan (see below). Employees hired before January 1, 2006 will continue to be eligible for and accrue benefits under the Qualified Plan.
On January 1, 2004, the Company established the Excess Plan which uses the same retirement benefit formula set forth in the Qualified Plan, but includes earnings that are excluded under the Qualified Plan due to Internal Revenue Service Code qualified pension plan limitations. Benefits payable under the Qualified Plan offset benefits payable under the Excess Plan. Employees vested under the Qualified Plan are vested under the Excess Plan; however, benefits under the Excess Plan are subject to forfeiture if employment is terminated for cause and, for those who leave the Company prior to age 65 if they fail to execute and adhere to non-competition and confidentiality covenants. Effective February 1, 2007, the Excess Plan was amended to allow participants with at least 10 years of service who retire after attaining age 55 to receive reduced retirement benefits.
The SRIP is a supplement to the Qualified Plan, Excess Plan and Social Security by providing additional payments upon a participant’s retirement. Benefits payable under the Qualified Plan, Excess Plan and Social Security offset benefits payable under the SRIP. Effective February 1, 2007, benefits payable under the SRIP do not vest until a participant both (i) attains at least age 55 while employed by the Company and (ii) the employee has provided at least 10 years of service, except in the event of a change in control. Furthermore, benefits are subject to forfeiture if benefits under the Excess Plan are forfeited.
Japan Plan benefits are based on monthly compensation and the numbers of years of service. Benefits are payable in a lump sum upon retirement, termination, resignation or death if the participant has completed at least three years of service and attains at least age 60 while employed by Tiffany and Company Japan Inc.
The Company accounts for pension expense using the projected unit credit actuarial method for financial reporting purposes. The actuarial present value of the benefit obligation is calculated based on the expected date of separation or retirement of the Company’s eligible employees.
The Company provides certain health-care and life insurance benefits (“Other Postretirement Benefits”) for current and retired employees and accrues the cost of providing these benefits throughout the employees’ active service period until they attain full eligibility for those benefits. Substantially all of the Company’s U.S. full-time employees may become eligible for these benefits if they reach normal or early retirement age while working for the Company. The cost of providing postretirement health-care benefits is shared by the retiree and the Company, with retiree contributions evaluated annually and adjusted in order to maintain the Company/retiree cost-sharing target ratio. The life insurance benefits are noncontributory. The Company’s employee and retiree health-care benefits are administered by an insurance company, and premiums on life insurance are based on prior years’ claims experience.
TIFFANY & CO.
K - 75


 

The Company uses a December 31 measurement date for its U.S. employee benefit plans and January 31 for the Japan Plan. In accordance with SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)”, the Company is required to change the measurement date of plan assets and benefit obligations from December 31 to January 31 for the fiscal year ending January 31, 2008. The Company does not expect the change in measurement date to have a significant impact on the Company’s financial position or earnings.
Obligations and Funded Status
The following tables provide a reconciliation of benefit obligations, plan assets and funded status of the plans as of the measurement date:
                                 
    January 31,  
    Pension Benefits   Other Postretirement
Benefits
 
(in thousands)   2008     2007     2008     2007  
 
Change in benefit obligation:
                               
Benefit obligation at beginning
of year
  $ 265,482     $ 249,015     $ 31,819     $ 24,983  
Service cost
    17,796       16,643       1,513       900  
Interest cost
    15,932       13,739       1,671       1,417  
Participants’ contributions
                293       446  
MMA retiree drug subsidy
                62       164  
Amendment
          6,500             6,207  
Actuarial gain
    (21,253 )     (15,312 )     (5,053 )     (518 )
Benefits paid
    (5,422 )     (4,844 )     (1,014 )     (1,780 )
Translation
    1,029       (259 )            
     
Benefit obligation at end
of year*
    273,564       265,482       29,291       31,819  
     
Change in plan assets:
                               
Fair value of plan assets at beginning of year
    211,020       173,436              
Actual return on plan assets
    17,234       21,612              
Employer contribution
    15,900       20,816       659       1,170  
Participants’ contributions
                293       446  
MMA retiree drug subsidy
                62       164  
Benefits paid
    (5,422 )     (4,844 )     (1,014 )     (1,780 )
     
Fair value of plan assets at end of year
    238,732       211,020              
     
Funded status at end of year
  $ (34,832 )   $ (54,462 )   $ (29,291 )   $ (31,819 )
     
 
*   The benefit obligation for Pension Benefits is the projected benefit obligation and for Other Postretirement Benefits is the accumulated postretirement benefit obligation.
TIFFANY & CO.
K - 76


 

The following tables provide additional information regarding the Company’s pension plans’ projected benefit obligations and assets (included in pension benefits in the table above) and accumulated benefit obligation:
                                         
    January 31, 2008  
(in thousands)   Qualified     Excess     SRIP     Japan     Total  
 
Projected benefit obligation
  $ 221,595     $ 29,622     $ 13,791     $ 8,556     $ 273,564  
Fair value of plan assets
    238,732                         238,732  
     
Funded status
  $ 17,137     $ (29,622 )   $ (13,791 )   $ (8,556 )   $ (34,832 )
     
Accumulated benefit obligation
  $ 180,380     $ 14,374     $ 6,127     $ 6,085     $ 206,966  
     
                                         
    January 31, 2007  
(in thousands)   Qualified     Excess     SRIP     Japan     Total  
 
Projected benefit obligation
  $ 214,292     $ 29,438     $ 14,331     $ 7,421     $ 265,482  
Fair value of plan assets
    211,020                         211,020  
     
Funded status
  $ (3,272 )   $ (29,438 )   $ (14,331 )   $ (7,421 )   $ (54,462 )
     
Accumulated benefit obligation
  $ 176,951     $ 10,483     $ 4,660     $ 4,879     $ 196,973  
     
At January 31, 2008, the Company had a non-current asset of $17,137,000, a current liability of $2,006,000 and a non-current liability of $79,254,000 for pension and other postretirement benefits. At January 31, 2007, the Company had a current liability of $1,815,000 and a non-current liability of $84,466,000 for pension and other postretirement benefits.
Amounts recognized in accumulated other comprehensive income consist of:
                                 
    January 31,  
    Pension Benefits   Other Postretirement
Benefits
 
(in thousands)   2008     2007     2008     2007  
 
Net actuarial loss (gain)
  $ 1,112     $ 28,703     $ (1,269 )   $ 3,794  
Prior service cost (credit)
    8,623       9,899       (10,004 )     (10,794 )
Deferred income taxes
    (3,854 )     (15,416 )     3,264       474  
     
 
  $ 5,881     $ 23,186     $ (8,009 )   $ (6,526 )
     
The estimated pre-tax amount that will be amortized from accumulated other comprehensive income into net periodic benefit cost within the next 12 months is as follows:
                 
(in thousands)   Pension Benefits     Other Postretirement
Benefits
 
 
Net actuarial loss
  $ 349     $  
Prior service cost (credit)
    1,282       (790 )
     
 
  $ 1,631     $ (790 )
     
TIFFANY & CO.
K - 77


 

Net Periodic Benefit Cost
Net periodic pension and other postretirement benefit expense included the following components:
                                                 
    Years Ended January 31,  
    Pension Benefits   Other Postretirement Benefits  
(in thousands)   2008     2007     2006     2008     2007     2006  
 
Net Periodic Benefit Cost:
                                               
Service cost
  $ 17,796     $ 16,643     $ 13,802     $ 1,513     $ 900     $ 1,697  
Interest cost
    15,932       13,739       12,118       1,671       1,417       1,780  
Expected return on plan
assets
    (13,704 )     (11,699 )     (10,052 )                  
Amortization of prior service
cost
    1,281       712       815       (790 )     (1,291 )     (856 )
Amortization of net loss
    2,957       4,186       2,956       10       144       74  
     
Net expense
  $ 24,262     $ 23,581     $ 19,639     $ 2,404     $ 1,170     $ 2,695  
     
Other Amounts Recognized in Other Comprehensive Income
Other changes in plan assets and benefit obligations recognized in other comprehensive income are as follows:
                 
    Year Ended January 31,  
            Other Postretirement  
    Pension Benefits   Benefits  
(in thousands)   2008     2008  
 
Net expense
  $ 24,262     $ 2,404  
     
Net actuarial gain
  $ (24,629 )   $ (5,053 )
Recognized actuarial loss
    (2,957 )     (10 )
Recognized prior service (cost) credit
    (1,281 )     790  
     
Total recognized in other comprehensive
income
  $ (28,867 )   $ (4,273 )
     
Total recognized in net periodic benefit
cost and other comprehensive income
  $ (4,605 )   $ (1,869 )
     
TIFFANY & CO.
K - 78


 

Assumptions
Weighted-average assumptions used to determine benefit obligations:
                 
    January 31,  
    Pension Benefits  
    2008     2007  
     
Discount rate:
               
Qualified Plan/ Excess Plan/ SRIP
    6.50 %     6.00 %
Japan Plan
    2.75 %     2.75 %
Rate of increase in compensation:
               
Qualified Plan
    4.00 %     3.50 %
Excess Plan
    5.50 %     5.00 %
SRIP
    8.50 %     8.00 %
Japan Plan
    2.25 %     2.25 %
The discount rate for Other Postretirement Benefits was 6.50% and 6.00% for January 31, 2008 and 2007.
Weighted-average assumptions used to determine net periodic benefit cost:
                         
    January 31,  
    Pension Benefits  
    2008     2007     2006  
     
Discount rate:
                       
Qualified Plan/ Excess Plan/ SRIP
    6.00 %     5.75 %     6.00 %
Japan Plan
    2.75 %     2.75 %     2.50 %
Expected return on plan assets
    7.50 %     7.50 %     7.50 %
Rate of increase in compensation:
                       
Qualified Plan
    3.50 %     3.50 %     3.50 %
Excess Plan
    5.00 %     5.00 %     3.50 %
SRIP
    8.00 %     8.00 %     8.00 %
Japan Plan
    2.25 %     2.25 %     2.00 %
The discount rate for Other Postretirement Benefits was 6.00%, 5.75% and 6.00% for January 31, 2008, 2007 and 2006.
The expected long-term rate of return on Qualified Plan assets is selected by taking into account the average rate of return expected on the funds invested or to be invested to provide for benefits included in the projected benefit obligation. More specifically, consideration is given to the expected rates of return (including reinvestment asset return rates) based upon the plan’s current asset mix, investment strategy and the historical performance of plan assets.
For postretirement benefit measurement purposes, 9.00% (for pre-age 65 retirees) and 10.00% (for post-age 65 retirees) annual rates of increase in the per capita cost of covered health care were assumed for 2008. The rate was assumed to decrease gradually to 5.00% by 2016 (for pre-age 65 retirees) and by 2018 (for post-age 65 retirees) and remain at that level thereafter.
Assumed health-care cost trend rates have a significant effect on the amounts reported for the Company’s postretirement health-care benefits plan. A one-percentage-point increase in the assumed
TIFFANY & CO.
K - 79


 

health-care cost trend rate would increase the Company’s accumulated postretirement benefit obligation by $455,000 and the aggregate service and interest cost components of net periodic postretirement benefits by $28,000 for the year ended January 31, 2008. Decreasing the assumed health-care cost trend rate by one-percentage-point would decrease the Company’s accumulated postretirement benefit obligation by $416,000 and the aggregate service and interest cost components of net periodic postretirement benefits by $25,000 for the year ended January 31, 2008.
Plan Assets
     The Company’s Qualified Plan asset allocation at the measurement date and target asset allocation by asset category are as follows:
                         
            Percentage of Qualified Plan Assets  
            at December 31,  
Asset Category   Target Asset Allocation     2007     2006  
 
Equity securities
    60% — 70 %     66 %     67 %
Debt securities
    20% — 30 %     24       26  
Other
    5 % — 15 %     10       7  
             
 
            100 %     100 %
             
Qualified Plan assets include investments in the Company’s Common Stock, representing 1% of plan assets at December 31, 2006. At December 31, 2007, the Qualified Plan did not include any investments in the Company’s Common Stock.
The Company’s investment objectives, related to Qualified Plan assets, are the preservation of principal and the achievement of a reasonable rate of return over time. As a result, the Qualified Plan’s assets are allocated based on an expectation that equity securities will outperform debt securities over the long term. Assets of the Qualified Plan are broadly diversified. Equity securities include U.S. large, middle and small capitalization equities and international equities. Debt securities include U.S. government, corporate and mortgage obligations. The Company attempts to mitigate investment risk by rebalancing asset allocation periodically.
Benefit Payments
The Company expects the following future benefit payments to be paid:
                 
    Pension Benefits     Other Postretirement
Benefits
 
Years Ending January 31,   (in thousands)     (in thousands)  
 
2009
  $ 5,702     $ 955  
2010
    6,403       1,012  
2011
    7,288       1,076  
2012
    8,125       1,149  
2013
    9,029       1,226  
2014-2018
    67,957       7,590  
Profit Sharing and Retirement Savings Plan
The Company maintains an Employee Profit Sharing and Retirement Savings Plan (“EPSRS Plan”) that covers substantially all U.S.-based employees. Under the profit-sharing feature of the EPSRS Plan, the Company makes contributions, in the form of newly-issued Company Common Stock, to the employees’
TIFFANY & CO.
K - 80


 

accounts based on the achievement of certain targeted earnings objectives established by, or as otherwise determined by, the Company’s Board of Directors. The Company recorded expense of $4,750,000, $2,450,000 and $4,550,000 in 2007, 2006 and 2005. Under the retirement savings feature of the EPSRS Plan, employees who meet certain eligibility requirements may participate by contributing up to 15% of their annual compensation, and the Company provides a 50% matching cash contribution up to 6% of each participant’s total compensation. The Company recorded expense of $6,940,000, $6,409,000 and $5,674,000 in 2007, 2006 and 2005. Contributions to both features of the EPSRS Plan are made in the following year.
Under the profit-sharing feature of the EPSRS Plan, the Company’s stock contribution is required to be maintained in such stock until the employee has two or more years of service, at which time the employee may diversify his or her Company stock account into other investment options provided under the plan. Under the retirement savings portion of the EPSRS Plan, the employees have the ability to elect to invest their contribution and the matching contribution in Company stock. At January 31, 2008, investments in Company stock represented 28% of total EPSRS Plan assets.
Effective as of February 1, 2006, the EPSRS Plan was amended to provide a defined contribution retirement benefit (the “DCRB”) to eligible employees hired on or after January 1, 2006 (see Pensions and Other Postretirement Benefits above). Under the DCRB, the Company will make contributions each year to each employee’s account at a rate based upon age and years of service. These contributions will be deposited into individual accounts set up in each employee’s name to be invested in a manner similar to the retirement savings portion of the EPSRS Plan. The Company recorded expense of $1,032,000 and $330,000 in 2007 and 2006.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan for directors, executives and certain management employees, whereby eligible participants may defer a portion of their compensation for payment at specified future dates, upon retirement, death or termination of employment. The deferred compensation is adjusted to reflect performance, whether positive or negative, of selected investment options, chosen by each participant, during the deferral period. The amounts accrued under the plans were $19,795,000 and $16,972,000 at January 31, 2008 and 2007 and are reflected in other long-term liabilities.
O. INCOME TAXES
Earnings from continuing operations before income taxes consisted of the following:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
United States
  $ 343,439     $ 253,573     $ 247,192  
Foreign
    178,763       166,735       125,862  
     
 
  $ 522,202     $ 420,308     $ 373,054  
     
TIFFANY & CO.
K - 81


 

Components of the provision for income taxes were as follows:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Current:
                       
Federal
  $ 145,985     $ 84,477     $ 94,167  
State
    26,174       17,893       24,883  
Foreign
    149,975       48,755       40,042  
     
 
    322,134       151,125       159,092  
     
 
                       
Deferred:
                       
Federal
    (84,690 )     (1,133 )     (42,574 )
State
    (10,776 )     1,572       (4,417 )
Foreign
    (35,785 )     51       670  
     
 
    (131,251 )     490       (46,321 )
     
 
  $ 190,883     $ 151,615     $ 112,771  
     
Deferred tax assets (liabilities) consisted of the following:
                 
    January 31,  
(in thousands)   2008     2007  
 
Deferred tax assets:
               
Pension/postretirement benefits
  $ 21,654     $ 35,309  
Inventory
    31,195       36,643  
Accrued expenses
    13,125       10,430  
Share-based compensation
    28,020       25,403  
Depreciation
    16,780       7,198  
Foreign net operating losses
    23,171       19,626  
Notes receivable
    20,045        
Sale-leaseback
    86,866        
Other
    31,969       9,348  
     
 
    272,825       143,957  
Valuation allowance
    (21,035 )     (19,626 )
     
 
    251,790       124,331  
     
 
               
Deferred tax liabilities:
               
State tax
    (10,646 )     (7,590 )
Foreign tax credit
    (8,741 )      
Other
    (3,051 )     (4,759 )
     
 
    (22,438 )     (12,349 )
     
Net deferred tax asset
  $ 229,352     $ 111,982  
     
The Company has recorded a valuation allowance against certain deferred tax assets related to Federal, state and foreign net operating loss carryforwards where recovery is uncertain. The overall valuation allowance relates to tax loss carryforwards and temporary differences for which no benefit is expected to be realized. Tax loss carryforwards of approximately $27,000,000 and $77,000,000 exist in certain state and foreign jurisdictions, respectively. Whereas some of these tax loss carryforwards do not have an expiration date, others expire at various times from January 2009 through January 2028.
TIFFANY & CO.
K - 82


 

Reconciliations of the provision for income taxes at the statutory Federal income tax rate to the Company’s effective tax rate were as follows:
                         
    Years Ended January 31,
    2008     2007     2006  
 
Statutory Federal income tax rate
    35.0 %     35.0 %     35.0 %
State income taxes, net of Federal benefit
    2.8       3.0       4.0  
Foreign losses with no tax benefit
    0.8       1.0       0.3  
American Jobs Creation Act of 2004
                (6.1 )
Extraterritorial income exclusion
          (0.7 )     (1.9 )
Undistributed foreign earnings
    (0.9 )     (1.6 )     (1.0 )
Domestic manufacturing deduction
    (0.8 )     (0.3 )     (0.5 )
Other
    (0.3 )     (0.3 )     0.4  
     
 
    36.6 %     36.1 %     30.2 %
     
The American Jobs Creation Act of 2004 (“AJCA”), which was signed into law on October 22, 2004, created a temporary incentive for U.S. companies to repatriate accumulated foreign earnings by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. The incentive effectively reduced the amount of U.S. Federal income tax due on repatriation. Taking advantage of the AJCA, the Company recorded an income tax benefit of $22,588,000 in 2005 associated with the repatriation of foreign earnings. The tax benefit to the Company occurred because the Company had previously accrued income taxes on un-repatriated foreign earnings at statutory tax rates. In total, the Company repatriated $178,245,000 of accumulated foreign earnings.
The Company determined that it has the intent to indefinitely reinvest any undistributed earnings of foreign subsidiaries which were not repatriated under the AJCA. As of January 31, 2008 and 2007, the Company has not provided deferred taxes on approximately $85,000,000 and $62,000,000 of undistributed earnings. U.S. Federal income taxes of approximately $16,600,000 and $11,300,000 would be incurred, respectively, if these earnings were distributed.
The Company adopted FIN No. 48 on February 1, 2007. As a result, the Company recorded a non-cash cumulative transition charge of $4,299,000 as a reduction to the opening retained earnings balance. As of February 1, 2007, the gross amount of unrecognized tax benefits was approximately $40,000,000, including interest and penalties of approximately $8,000,000. As of that date, the total amount of unrecognized tax benefits that, if recognized, would have affected the effective tax rate was approximately $22,500,000. The Company recognizes interest expense and penalties related to unrecognized tax benefits within income tax expense.
TIFFANY & CO.
K - 83


 

The following table reconciles the unrecognized tax benefits from the beginning of the period to the end of the period:
         
(in thousands)        
 
Unrecognized tax benefits at February 1, 2007
  $ 32,118  
Gross increases – tax positions in prior period
    13,413  
Gross decreases – tax positions in prior period
    (16,030 )
Gross increases – current period tax positions
    6,654  
Settlements
    (4,805 )
Lapse of statute of limitations
    (1,044 )
 
   
Unrecognized tax benefits at January 31, 2008
  $ 30,306  
 
   
As of January 31, 2008, the gross amount of unrecognized tax benefits was $33,701,000, including interest and penalties of $3,395,000. As of that date, the total amount of unrecognized tax benefits that, if recognized, would have affected the effective tax rate was $14,292,000.
The Company files income tax returns in the U.S. federal jurisdiction as well as various state and foreign locations. As a matter of course, various taxing authorities regularly audit the Company. The Company’s tax filings are currently being examined by tax authorities in jurisdictions where its subsidiaries have a material presence, including Japan (tax years 2003-2005) and New York City (tax year 2002). Tax years from 2005-present are open to examination in the U.S. and tax years 2003-present are open to examination in various other state and foreign taxing jurisdictions. The Company believes that its tax positions comply with applicable tax law and that it has adequately provided for these matters. However, the audits may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. Ongoing audits are in various stages of completion and while the Company does not anticipate any material changes in unrecognized income tax benefits over the next 12 months, future developments in the audit process may result in a change in this assessment.
P. SEGMENT INFORMATION
The Company’s reportable segments are: U.S. Retail, International Retail and Direct Marketing (see Note A). These reportable segments represent channels of distribution that offer similar merchandise and service and have similar marketing and distribution strategies. The Other channel of distribution includes all non-reportable segments which consist of worldwide sales of businesses operated under trademarks or tradenames other than TIFFANY & CO. Sales in the Other channel primarily represents wholesale sales of diamonds obtained through bulk purchases that are subsequently deemed not suitable for the Company’s needs.
The Company’s products are primarily sold in TIFFANY & CO. retail locations around the world. Net sales by geographic area are presented by attributing revenues from external customers on the basis of the country in which the merchandise is sold.
In deciding how to allocate resources and assess performance, the Company’s Executive Officers regularly evaluate the performance of its reportable segments on the basis of net sales and earnings from operations, after the elimination of inter-segment sales and transfers. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
Reclassifications were made to prior years’ segment amounts to conform to the current year presentation and to reflect the revised manner in which management evaluates the performance of segments. Effective with the first quarter of 2007, the Company revised certain allocations of operating
TIFFANY & CO.
K - 84


 

expenses between unallocated corporate expenses and earnings (losses) from continuing operations for segments.
Certain information relating to the Company’s segments is set forth below:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Net sales:
                       
U.S. Retail
  $ 1,474,637     $ 1,326,441     $ 1,220,683  
International Retail
    1,200,442       1,010,627       900,689  
Direct Marketing
    182,127       174,078       157,483  
     
Total reportable segments
    2,857,206       2,511,146       2,278,855  
Other
    81,565       49,588       33,937  
     
 
  $ 2,938,771     $ 2,560,734     $ 2,312,792  
     
 
                       
Earnings (losses) from continuing operations:*
                       
U.S. Retail
  $ 288,030     $ 243,258     $ 248,129  
International Retail
    301,957       253,835       211,164  
Direct Marketing
    62,533       58,046       53,681  
     
Total reportable segments
    652,520       555,139       512,974  
Other
    (33,038 )     (14,379 )     (14,525 )
     
 
  $ 619,482     $ 540,760     $ 498,449  
     
*   Represents earnings (losses) from continuing operations before unallocated corporate expenses, other operating income and interest expense, financing costs and other income, net.
The Company’s Executive Officers do not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented.
The following table sets forth reconciliations of the segments’ earnings from operations to the Company’s consolidated earnings from continuing operations before income taxes:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Earnings from continuing operations for
segments
  $ 619,482     $ 540,760     $ 498,449  
Unallocated corporate expenses
    (127,007 )     (109,964 )     (110,824 )
Other operating income
    105,051              
Other operating expenses
    (67,193 )            
Interest expense, financing costs and
other income, net
    (8,131 )     (10,488 )     (14,571 )
     
Earnings from continuing operations
before income taxes
  $ 522,202     $ 420,308     $ 373,054  
     
Unallocated corporate expenses include certain costs related to administrative support functions which the Company does not allocate to its segments. Such unallocated costs include those for information technology, finance, legal and human resources. In addition, unallocated corporate expenses for the year ended January 31, 2008 included a $10,000,000 contribution to The Tiffany & Co. Foundation, a private charitable foundation established by the Company.
TIFFANY & CO.
K - 85


 

Other operating income represents the $105,051,000 pre-tax gain on the sale-leaseback of the land and building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district. Other operating expenses includes the $47,981,000 pre-tax impairment charge on the note receivable from Tahera and the $19,212,000 pre-tax charge related to the discontinuance of certain watch models as a result of the Company’s agreement by which The Swatch Group Ltd. will design, manufacture, distribute and market TIFFANY & CO. brand watches worldwide.
Sales to unaffiliated customers and long-lived assets by geographic areas were as follows:
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Net sales:
                       
United States
  $ 1,734,139     $ 1,560,930     $ 1,427,710  
Japan
    498,501       491,312       490,834  
Other countries
    706,131       508,492       394,248  
     
 
  $ 2,938,771     $ 2,560,734     $ 2,312,792  
     
Long-lived assets:
                       
United States
  $ 658,141     $ 626,262     $ 583,920  
Japan
    15,427       152,791       157,218  
Other countries
    104,329       159,857       133,798  
     
 
  $ 777,897     $ 938,910     $ 874,936  
     
Classes of Similar Products
                         
    Years Ended January 31,  
(in thousands)   2008     2007     2006  
 
Net sales:
                       
Jewelry
  $ 2,535,553     $ 2,201,206     $ 1,969,264  
Tableware, timepieces and other
    403,218       359,528       343,528  
     
 
  $ 2,938,771     $ 2,560,734     $ 2,312,792  
     
TIFFANY & CO.
K - 86


 

Q. QUARTERLY FINANCIAL DATA (UNAUDITED)
                                 
    2007 Quarters Ended  
(in thousands, except per share amounts)   April 30     July 31a     October 31a,b     January 31c  
 
Net sales
  $ 595,729     $ 662,562     $ 627,323     $ 1,053,157  
Gross profit
    327,328       366,113       337,137       599,694  
Earnings from continuing operations
    81,287       106,994       153,785       188,267  
Net earnings from continuing operations
    49,405       63,219       100,445       118,250  
Net earnings
    49,659       36,973       98,890       118,250  
Earnings from continuing operations per
share:
                               
Basic
  $ 0.36     $ 0.46     $ 0.74     $ 0.91  
     
Diluted
  $ 0.35     $ 0.45     $ 0.72     $ 0.89  
     
 
                               
Net earnings per share:
                               
Basic
  $ 0.36     $ 0.27     $ 0.73     $ 0.91  
     
Diluted
  $ 0.36     $ 0.26     $ 0.71     $ 0.89  
     
a   Includes a pre-tax charge of $54,861,000, or $0.17 per diluted share after-tax, in the quarter ended July 31 and pre-tax income of $601,000, or $0.01 per diluted share after-tax, in the quarter ended October 31, both due to the sale of Little Switzerland (see Note C).
 
b   Includes a pre-tax gain of $105,051,000, or $0.48 per diluted share after-tax, due to the sale-leaseback of the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district (see Note J).
 
c   Includes (i) a pre-tax charge of $47,981,000, or $0.22 per diluted share after-tax, related to the impairment of the Tahera note receivable (see Note J); (ii) a pre-tax charge of $19,212,000, or $0.09 per diluted share after-tax, related to the discontinuance of certain watches as a result of the Company’s recent agreement with The Swatch Group Ltd. (see Note E); and (iii) a pre-tax charge of $15,532,000, or $0.07 per diluted share after-tax, related to impairment losses associated with the Company’s IRIDESSE business (see Note B).
                                 
    2006 Quarters Ended  
(in thousands, except per share amounts)   April 30     July 31     October 31     January 31  
 
Net sales
  $ 515,356     $ 554,657     $ 531,834     $ 958,887  
Gross profit
    291,127       310,443       287,351       552,629  
Earnings from continuing operations
    74,933       76,878       47,655       231,330  
Net earnings from continuing operations
    43,483       44,714       32,625       147,871  
Net earnings
    43,142       41,144       29,142       140,499  
Earnings from continuing operations per
share:
                               
Basic
  $ 0.31     $ 0.32     $ 0.24     $ 1.09  
     
Diluted
  $ 0.30     $ 0.32     $ 0.23     $ 1.07  
     
Net earnings per share:
                               
Basic
  $ 0.30     $ 0.30     $ 0.21     $ 1.04  
     
Diluted
  $ 0.30     $ 0.29     $ 0.21     $ 1.02  
     
The sum of the quarterly net earnings per share amounts in the above tables may not equal the full-year amount since the computations of the weighted-average number of common-equivalent shares outstanding for each quarter and the full year are made independently.
TIFFANY & CO.
K - 87


 

R. SUBSEQUENT EVENT
In March 2008, the Audit Committee of the Company’s Board of Directors approved management’s proposal to change the method of costing inventories held by U.S. and foreign branches from the last-in, first-out (“LIFO”) method to the average cost method. Inventories held by Japan and foreign subsidiaries are already valued using the average cost method. The Company believes that the average cost method is preferable on the basis that it conforms to the manner in which the Company operationally manages its inventories and evaluates retail pricing and it makes the Company’s inventory reporting consistent with many peer retailers. This change will be effective beginning in the first fiscal quarter of 2008 and will be applied retrospectively. Accounts affected by this change are: cost of sales; provision for income taxes; inventories, net; deferred income taxes; and retained earnings.
Components of the Company’s consolidated statements of earnings adjusted for the effect of changing from LIFO to average cost are as follows:
                         
    Year Ended January 31, 2008  
(in thousands, except per share data)   As Reported     Adjustment     As Adjusted  
 
Cost of sales
  $ 1,308,499     $ (26,993 )   $ 1,281,506  
Provision for income taxes
    190,883       7,287       198,170  
Net earnings from continuing operations
    331,319       19,706       351,025  
Net earnings
    303,772       19,706       323,478  
 
                       
Net earnings from continuing operations
per share:
                       
Basic
  $ 2.46     $ 0.15     $ 2.61  
     
Diluted
  $ 2.40     $ 0.14     $ 2.54  
     
 
                       
Net earnings per share:
                       
Basic
  $ 2.25     $ 0.15     $ 2.40  
     
Diluted
  $ 2.20     $ 0.14     $ 2.34  
     
                         
    Year Ended January 31, 2007  
(in thousands, except per share data)   As Reported     Adjustment     As Adjusted  
 
Cost of sales
  $ 1,119,184     $ (31,270 )   $ 1,087,914  
Provision for income taxes
    151,615       12,300       163,915  
Net earnings from continuing operations
    268,693       18,970       287,663  
Net earnings
    253,927       18,970       272,897  
 
                       
Net earnings from continuing operations
per share:
                       
Basic
  $ 1.94     $ 0.14     $ 2.08  
     
Diluted
  $ 1.91     $ 0.13     $ 2.04  
     
 
                       
Net earnings per share:
                       
Basic
  $ 1.84     $ 0.14     $ 1.97  
     
Diluted
  $ 1.80     $ 0.13     $ 1.94  
     
TIFFANY & CO.
K - 88


 

                         
    Year Ended January 31, 2006  
(in thousands, except per share data)   As Reported     Adjustment     As Adjusted  
 
Cost of sales
  $ 1,005,014     $ (11,322 )   $ 993,692  
Provision for income taxes
    112,771       4,581       117,352  
Net earnings from continuing operations
    260,283       6,741       267,024  
Net earnings
    254,655       6,741       261,396  
 
                       
Net earnings from continuing operations
per share:
                       
Basic
  $ 1.82     $ 0.05     $ 1.87  
     
Diluted
  $ 1.79     $ 0.05     $ 1.83  
     
 
                       
Net earnings per share:
                       
Basic
  $ 1.78     $ 0.05     $ 1.83  
     
Diluted
  $ 1.75     $ 0.05     $ 1.80  
     
Quarterly financial data for the year ended January 31, 2008 adjusted for the effect of changing from LIFO to average cost is as follows:
                                 
    2007 Quarters Ended*  
(in thousands, except per share amounts)   April 30     July 31     October 31     January 31  
 
Net sales
  $ 595,729     $ 662,562     $ 627,323     $ 1,053,157  
Gross profit
    333,958       371,906       341,547       609,854  
Earnings from continuing operations
    87,917       112,787       158,195       198,427  
Net earnings from continuing operations
    53,827       66,709       103,102       127,387  
Net earnings
    54,081       40,463       101,547       127,387  
 
                               
Earnings from continuing operations
per share:
                               
Basic
  $ 0.39     $ 0.49     $ 0.76     $ 0.98  
     
Diluted
  $ 0.39     $ 0.48     $ 0.74     $ 0.96  
     
 
                               
Net earnings per share:
                               
Basic
  $ 0.40     $ 0.30     $ 0.75     $ 0.98  
     
Diluted
  $ 0.39     $ 0.29     $ 0.73     $ 0.96  
     
     
*   See Note Q for amounts reported prior to the change from LIFO to average cost.
The sum of the quarterly net earnings per share amounts in the above table may not equal the full-year amount since the computations of the weighted-average number of common-equivalent shares outstanding for each quarter and the full year are made independently.
TIFFANY & CO.
K - 89


 

Components of the Company’s consolidated balance sheets adjusted for the effect of changing from LIFO to average cost are as follows:
                         
    January 31, 2008  
(in thousands)   As Reported     Adjustment     As Adjusted  
 
Assets:
                       
Inventories, net
  $ 1,242,465     $ 129,932     $ 1,372,397  
Deferred income taxes – current
    71,402       (51,184 )     20,218  
Total Assets
    2,922,156       78,748       3,000,904  
 
                       
Liabilities and Stockholders’ Equity:
                       
Retained earnings
    958,915       78,748       1,037,663  
Total Liabilities and Stockholders’ Equity
    2,922,156       78,748       3,000,904  
                         
    January 31, 2007  
(in thousands)   As Reported     Adjustment     As Adjusted  
 
Assets:
                       
Inventories, net
  $ 1,146,674     $ 102,939     $ 1,249,613  
Deferred income taxes – current
    72,934       (43,897 )     29,037  
Total Assets
    2,845,510       59,042       2,904,552  
 
                       
Liabilities and Stockholders’ Equity:
                       
Retained earnings
    1,269,940       59,042       1,328,982  
Total Liabilities and Stockholders’ Equity
    2,845,510       59,042       2,904,552  
The cumulative effect on retained earnings at January 31, 2006 is an increase of $40,072,000.
The adjustment from LIFO to average cost will have no effect on the net cash provided by/used in operating, investing and financing activities for the years ended January 31, 2008, 2007 and 2006.
TIFFANY & CO.
K - 90


 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
NONE
Item 9A. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), Registrant’s chief executive officer and chief financial officer concluded that, as of the end of the period covered by this report, Registrant’s disclosure controls and procedures are effective to ensure that information required to be disclosed by Registrant in the reports that it files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
In addition, Registrant’s chief executive officer and chief financial officer have determined that there have been no changes in Registrant’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Registrant’s internal control over financial reporting.
Registrant’s management, including its chief executive officer and chief financial officer, necessarily applied their judgment in assessing the costs and benefits of such controls and procedures. By their nature, such controls and procedures cannot provide absolute certainty, but can provide reasonable assurance regarding management’s control objectives. Our chief executive officer and our chief financial officer have concluded that Registrant’s disclosure controls and procedures are (i) designed to provide such reasonable assurance and (ii) are effective at that reasonable assurance level.
Report of Management
Management’s Responsibility for Financial Information. The Company’s consolidated financial statements were prepared by management, who are responsible for their integrity and objectivity. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, as such, include amounts based on management’s best estimates and judgments.
Management is further responsible for maintaining a system of internal accounting control designed to provide reasonable assurance that the Company’s assets are adequately safeguarded, and that the accounting records reflect transactions executed in accordance with management’s authorization. The system of internal control is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel and a program of internal audit.
The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Their report is shown on page K-49-50.
The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with financial management and the independent registered public accounting firm to discuss specific accounting, financial reporting and internal control matters. Both the independent registered public accounting firm and the internal auditors have full and free access to the Audit
TIFFANY & CO.
K - 91


 

Committee. Each year the Audit Committee selects the firm that is to perform audit services for the Company.
Management’s Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that internal control over financial reporting was effective as of January 31, 2008 based on criteria in Internal Control – Integrated Framework issued by the COSO. The effectiveness of the Company’s internal control over financial reporting as of January 31, 2008 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is shown on page K-49-50.
/s/ Michael J. Kowalski
Chairman of the Board and Chief Executive Officer
/s/ James N. Fernandez
Executive Vice President and Chief Financial Officer
Item 9B. Other Information.
NONE
[Remainder of this page is intentionally left blank]
TIFFANY & CO.
K - 92


 

PART III
Item 10. Directors and Executive Officers and Corporate Governance.
Incorporated by reference from the sections titled “Ownership by Directors, Director Nominees and Executive Officers,” “Compliance of Directors, Executive Officers and Greater-Than-Ten-Percent Stockholders with Section 16(a) Beneficial Ownership Reporting Requirements” and “DISCUSSION OF PROPOSALS PRESENTED BY THE BOARD. Item 1. Election of Directors” in Registrant’s Proxy Statement dated April 10, 2008.
CODE OF ETHICS AND OTHER CORPORATE GOVERNANCE DISCLOSURES
Registrant has adopted a Code of Business and Ethical Conduct for its Directors, Chief Executive Officer, Chief Financial Officer and all other officers of Registrant. A copy of this Code is posted on the corporate governance section of the Registrant’s website, http://investor.tiffany.com/governance.cfm; go to “Code of Conduct”. The Registrant will also provide a copy of the Code of Business and Ethical Conduct to stockholders upon request.
See Registrant’s Proxy Statement dated April 10, 2008, for information within the section titled “Business Conduct Policy and Code of Ethics.”
Item 11. Executive Compensation.
Incorporated by reference from the section titled “COMPENSATION OF THE CEO AND OTHER EXECUTIVE OFFICERS” in Registrant’s Proxy Statement dated April 10, 2008.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Incorporated by reference from the section titled “OWNERSHIP OF THE COMPANY” in Registrant’s Proxy Statement dated April 10, 2008.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
See Executive Officers of the Registrant and Board of Directors information incorporated by reference from the sections titled “Independent Directors Constitute a Majority of the Board,” “TRANSACTIONS WITH RELATED PERSONS” and “EXECUTIVE OFFICERS OF THE COMPANY” in Registrant’s Proxy Statement dated April 10, 2008.
Item 14. Principal Accountant Fees and Services.
Incorporated by reference from the section titled “Fees and Services of PricewaterhouseCoopers LLP” in Registrant’s Proxy Statement dated April 10, 2008.
TIFFANY & CO.
K - 93


 

PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) List of Documents Filed As Part of This Report:
1. Financial Statements
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of January 31, 2008 and 2007.
Consolidated Statements of Earnings for the years ended January 31, 2008, 2007 and 2006.
Consolidated Statements of Stockholders’ Equity and Comprehensive Earnings for the years ended January 31, 2008, 2007 and 2006.
Consolidated Statements of Cash Flows for the years ended January 31, 2008, 2007 and 2006.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
The following financial statement schedule should be read in conjunction with the Consolidated Financial Statements:
          Schedule II — Valuation and Qualifying Accounts and Reserves.
All other schedules have been omitted since they are neither applicable nor required, or because the information required is included in the consolidated financial statements and notes thereto.
3. Exhibits
The following exhibits have been filed with the Securities and Exchange Commission, but are not attached to copies of this Annual Report on Form 10-K other than complete copies filed with said Commission and the New York Stock Exchange:
     
Exhibit   Description
 
 
   
3.1
  Restated Certificate of Incorporation of Registrant. Incorporated by reference from Exhibit 3.1 to Registrant’s Report on Form 8-K dated May 16, 1996, as amended by the Certificate of Amendment of Certificate of Incorporation dated May 20, 1999. Incorporated by reference from Exhibit 3.1 to Registrant’s Report on Form 10-Q for the Fiscal Quarter ended July 31, 1999.
 
   
3.1a
  Amendment to Certificate of Incorporation of Registrant dated May 18, 2000. Previously filed as Exhibit 3.1b to Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2001.
 
   
3.2
  Restated By-Laws of Registrant, as last amended July 19, 2007. Incorporated by reference from Exhibit 3.2 to Registrant’s Report on Form 8-K dated July 20, 2007.
TIFFANY & CO.
K - 94


 

     
Exhibit   Description
 
 
   
10.5
  Designer Agreement between Tiffany and Paloma Picasso dated April 4, 1985. Incorporated by reference from Exhibit 10.5 filed with Registrant’s Registration Statement on Form S-1, Registration No. 33-12818 (the “Registration Statement”).
 
   
10.122
  Agreement dated as of April 3, 1996 among American Family Life Assurance Company of Columbus, Japan Branch, Tiffany & Co. Japan, Inc., Japan Branch, and Registrant, as Guarantor, for yen 5,000,000,000 Loan Due 2011. Incorporated by reference from Exhibit 10.122 filed with Registrant’s Report on Form 10-Q for the Fiscal quarter ended April 30, 1996.
 
   
10.122a
  Amendment No. 1 to the Agreement referred to in Exhibit 10.122 above dated November 18, 1998. Incorporated by reference from Exhibit 10.122a filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 1999.
 
   
10.122b
  Guarantee by Tiffany & Co. of the obligations under the Agreement referred to in Exhibit 10.122 above dated April 3, 1996. Incorporated by reference from Exhibit 10.122b filed with Registrant’s Report on Form 8-K dated August 2, 2002.
 
   
10.122c
  Amendment No. 2 to Guarantee referred to in Exhibit 10.122b above, dated October 15, 1999. Incorporated by reference from Exhibit 10.122c filed with Registrant’s Report on Form 8-K dated August 2, 2002.
 
   
10.122d
  Amendment No. 3 to Guarantee referred to in Exhibit 10.122b above, dated July 16, 2002. Incorporated by reference from Exhibit 10.122d filed with Registrant’s Report on Form 8-K dated August 2, 2002.
 
   
10.122e
  Amendment No. 4 to Guarantee referred to in Exhibit 10.122b above, dated December 9, 2005. Incorporated by reference from Exhibit 10.122e filed with Registrant’s Report on Form 10-K for the Fiscal Year ended January 31, 2006.
 
   
10.122f
  Amendment No. 5 to Guarantee referred to in Exhibit 10.122b above, dated May 31, 2006.
 
   
10.123
  Agreement made effective as of February 1, 1997 by and between Tiffany and Elsa Peretti. Incorporated by reference from Exhibit 10.123 to Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 1997.
 
   
10.126
  Form of Note Purchase Agreement between Registrant and various institutional note purchasers with Schedules B, 5.14 and 5.15 and Exhibits 1A, 1B, and 4.7 thereto, dated as of December 30, 1998 in respect of Registrant’s $60 million principal amount 6.90% Series A Senior Notes due December 30, 2008 and $40 million principal amount 7.05% Series B Senior Notes due December 30, 2010. Incorporated by reference from Exhibit 10.126 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 1999.
 
   
10.126a
  First Amendment and Waiver Agreement to Form of Note Purchase Agreement referred to in previously filed Exhibit 10.126, dated May 16, 2002. Incorporated by reference from Exhibit 10.126a filed with Registrant’s Report on Form 8-K dated June 10, 2002.
TIFFANY & CO.
K - 95


 

     
Exhibit   Description
 
 
   
10.128
  Agreement made the 1st day of August 2001 by and between Tiffany & Co. Japan Inc. and Mitsukoshi Ltd. of Japan. Incorporated by reference from Exhibit 10.128 filed with Registrant’s Report on Form 8-K dated August 1, 2001.
 
   
10.128a
  Memorandum of Agreement Regarding Extension and Amendment of 2001 Agreement dated May 16, 2007 by and between Tiffany & Co. Japan, Inc. and Mitsukoshi Limited. Incorporated by reference from Exhibit 10.128a filed with Registrant’s Report on Form 8-K dated June 6, 2007.
 
   
10.128b
  Memorandum of Agreement Regarding Extension and Amendment of 2001 Agreement dated January 25, 2008 by and between Tiffany & Co. Japan, Inc. and Mitsukoshi Limited. Incorporated by reference from Exhibit 10.128b filed with Registrant’s Report on Form 8-K dated February 1, 2008.
 
   
10.132
  Form of Note Purchase Agreement between Registrant and various institutional note purchasers with Schedules B, 5.14 and 5.15 and Exhibits 1A, 1B and 4.7 thereto, dated as of July 18, 2002 in respect of Registrant’s $40,000,000 principal amount 6.15% Series C Notes due July 18, 2009 and $60,000,000 principal amount 6.56% Series D Notes due July 18, 2012. Incorporated by reference from Exhibit 10.132 filed with Registrant’s Report on Form 8-K dated August 2, 2002.
 
   
10.133
  Guaranty Agreement dated July 18, 2002 with respect to the Note Purchase Agreements (see Exhibit 10.132 above) by Tiffany and Company, Tiffany & Co. International and Tiffany & Co. Japan Inc. in favor of each of the note purchasers. Incorporated by reference from Exhibit 10.133 filed with Registrant’s Report on Form 8-K dated August 2, 2002.
 
   
10.134
  Translation of Condition of Bonds applied to Tiffany & Co. Japan Inc. First Series Yen Bonds due 2010 in the aggregate principal amount of 15,000,000,000 yen issued September 30, 2003 (for Qualified Investors Only). Incorporated by reference from Exhibit 10.134 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2004.
 
   
10.135
  Translation of Application of Bonds for Tiffany & Co. Japan Inc. First Series Yen Bonds due 2010 in the aggregate principal amount of 15,000,000,000 yen issued September 30, 2003 (for Qualified Investors Only). Incorporated by reference from Exhibit 10.135 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2004.
 
   
10.135a
  Translation of Amendment of Application of Bonds referred to in Exhibit 10.135. Incorporated by reference from Exhibit 10.135a filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2004.
 
   
10.136
  Payment Guarantee dated September 30, 2003 made by Tiffany & Co. for the benefit of the Qualified Investors of the Bonds referred to in Exhibit 10.134. Incorporated by reference from Exhibit 10.136 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2004.
TIFFANY & CO.
K - 96


 

     
Exhibit   Description
 
 
   
10.145
  Ground Lease between Tiffany and Company and River Park Business Center, Inc., dated November 29, 2000. Incorporated by reference from Exhibit 10.145 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2005.
 
   
10.145a
  First Addendum to the Ground Lease between Tiffany and Company and River Park Business Center, Inc., dated November 29, 2000. Incorporated by reference from Exhibit 10.145a filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2005.
 
   
10.146
  Credit Agreement dated as of July 20, 2005 by and among Registrant, Tiffany and Company, Tiffany & Co. International, each other Subsidiary of Registrant that is a Borrower and is a signatory thereto and The Bank of New York, as Administrative Agent, and various lenders party thereto. Incorporated by reference from Exhibit 10.146 filed with Registrant’s Report on Form 8-K dated July 20, 2005.
 
   
10.146a
  Increase Supplement dated as of October 27, 2006 to the Credit Agreement dated July 20, 2005 by and among Registrant, Tiffany and Company, Tiffany & Co. International, each other Subsidiary of Registrant that is Borrower and is a signatory thereto and The Bank of New York, as Administrative Agent, and various lenders party thereto.
 
   
10.147
  Guaranty Agreement dated as of July 20, 2005, with respect to the Credit Agreement (see Exhibit 10.146 above) by and among Registrant, Tiffany and Company, Tiffany & Co. International, and Tiffany & Co. Japan Inc. and The Bank of New York, as Administrative Agent. Incorporated by reference from Exhibit 10.147 filed with Registrant’s Report on Form 8-K dated July 20, 2005.
 
   
10.149
  Lease Agreement made as of September 28, 2005 between CLF Sylvan Way LLC and Tiffany and Company, and form of Registrant’s guaranty of such lease. Incorporated by reference from Exhibit 10.149 filed with Registrant’s Report on Form 8-K dated September 23, 2005.
 
   
14.1
  Code of Business and Ethical Conduct and Business Conduct Policy. Incorporated by reference from Exhibit 14.1 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2004.
 
   
21.1
  Subsidiaries of Registrant.
 
   
23.1
  Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
 
   
31.1
  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
TIFFANY & CO.
K - 97


 

     
Exhibit   Description
 
 
   
32.2
  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Executive Compensation Plans and Arrangements
     
Exhibit   Description
 
 
   
4.3
  Registrant’s 1998 Directors Option Plan. Incorporated by reference from Exhibit 4.3 to Registrant’s Registration Statement on Form S-8, file number 333-67725, filed November 23, 1998.
 
   
4.4
  Registrant’s Amended and Restated 1998 Employee Incentive Plan effective May 19, 2005. Previously filed as Exhibit 4.3 with Registrant’s Report on Form 8-K dated May 23, 2005.
 
   
10.3
  Registrant’s 1986 Stock Option Plan and terms of stock option agreement, as last amended on July 16, 1998. Incorporated by reference from Exhibit 10.3 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 1999.
 
   
10.49
  Form of Indemnity Agreement, approved by the Board of Directors on March 11, 2005 for use with all directors and executive officers. Incorporated by reference from Exhibit 10.49 filed with Registrant’s Report on Form 8-K dated March 16, 2005.
 
   
10.49a
  Form of Indemnity Agreement, approved by the Board of Directors on March 11, 2005 for use with all directors and executive officers (Corrected Version). Incorporated by reference from Exhibit 10.49a filed with Registrant’s Report on Form 8-K dated May 23, 2005.
 
   
10.60
  Registrant’s 1988 Director Stock Option Plan and form of stock option agreement, as last amended on November 21, 1996. Incorporated by reference from Exhibit 10.60 to Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 1997.
 
   
10.106
  Amended and Restated Tiffany and Company Executive Deferral Plan originally made effective October 1, 1989, as amended effective November 23, 2005. Incorporated by reference from Exhibit 10.106 to Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2006.
 
   
10.108
  Registrant’s Amended and Restated Retirement Plan for Non-Employee Directors originally made effective January 1, 1989, as amended through January 21, 1999. Incorporated by reference from Exhibit 10.108 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 1999.
 
   
10.109
  Summary of informal incentive cash bonus plan for managerial employees. Incorporated by reference from Exhibit 10.109 filed with Registrant’s Report on Form 8-K dated March 16, 2005.
 
   
TIFFANY & CO.
K - 98


 

     
Exhibit   Description
 
 
   
10.114
  1994 Tiffany and Company Supplemental Retirement Income Plan, Amended and Restated as of February 1, 2007. Incorporated by reference from Exhibit 10.114 filed with Registrant’s Report on Form 8-K/A dated February 12, 2007.
 
   
10.127b
  Form of Retention Agreement between and among Registrant and Tiffany and each of its executive officers and Appendices I to III to the Agreement. Incorporated by reference from Exhibit 10.127b filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2003.
 
   
10.128
  Group Long Term Disability Insurance Policy issued by UnumProvident, Policy No. 533717 001. Incorporated by reference from Exhibit 10.128 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2003.
 
   
10.137
  Summary of arrangements for the payment of premiums on life insurance policies owned by executive officers. Incorporated by reference from Exhibit 10.137 filed with Registrant’s Annual Report on Form 10-K for the Fiscal Year ended January 31, 2004.
 
   
10.138
  2004 Tiffany and Company Un-funded Retirement Income Plan to Recognize Compensation in Excess of Internal Revenue Code Limits, Amended and Restated as of February 1, 2007. Incorporated by reference from Exhibit 10.138 filed with Registrant’s Report on Form 8-K dated February 8, 2007.
 
   
10.139a
  Form of Fiscal 2006 Cash Incentive Award Agreement for certain executive officers under Registrant’s 2005 Employee Incentive Plan. Incorporated by reference from Exhibit 10.139a filed with Registrant’s Report on Form 8-K dated March 24, 2006.
 
   
10.139b
  Form of Fiscal 2007 Cash Incentive Award Agreement for certain executive officers under Registrant’s 2005 Employee Incentive Plan as Amended and Adopted as of May 18, 2006. Incorporated by reference from Exhibit 10.139b filed with Registrant’s Report on Form 8-K dated March 26, 2007.
 
   
10.139c
  Form of Fiscal 2008 Cash Incentive Award Agreement for certain executive officers under Registrant’s 2005 Employee Incentive Plan as Amended and Adopted as of May 18, 2006.
 
   
10.140
  Form of Terms of Performance-Based Restricted Stock Unit Grants to Executive Officers under Registrant’s 2005 Employee Incentive Plan. Incorporated by reference from Exhibit 10.140 filed with Registrant’s Report on Form 8-K dated March 16, 2005.
 
   
10.140a
  Form of Non-Competition and Confidentiality Covenants for use in connection with Performance-Based Restricted Stock Unit Grants to Registrant’s Executive Officers and Time-Vested Restricted Unit Awards made to other officers of Registrant’s affiliated companies pursuant to the Registrant’s 2005 Employee Incentive Plan and pursuant to the Tiffany and Company Un-funded Retirement Income Plan to Recognize Compensation in Excess of Internal Revenue Code Limits. Incorporated by reference from Exhibit 10.140a filed with Registrant’s Report on Form 8-K dated May 23, 2005.
 
   
10.142
  Terms of Stock Option Award (Transferable Non-Qualified Option) under Registrant’s 2005 Directors Option Plan as revised March 7, 2005. Incorporated by reference from Exhibit 10.142 filed with Registrant’s Report on Form 8-K dated March 16, 2005.
 
   
TIFFANY & CO.
K - 99


 

     
Exhibit   Description
 
 
   
10.143
  Terms of Stock Option Award (Standard Non-Qualified Option) under Registrant’s 2005 Employee Incentive Plan as revised March 7, 2005. Incorporated by reference from Exhibit 10.143 filed with Registrant’s Report on Form 8-K dated March 16, 2005.
 
   
10.143a
  Terms of Stock Option Award (Standard Non-Qualified Option) under Registrant’s 2005 Employee Incentive Plan as revised May 19, 2005. Incorporated by reference from Exhibit 10.143a filed with Registrant’s Report on Form 8-K dated May 23, 2005.
 
   
10.144
  Terms of Stock Option Award (Transferable Non-Qualified Option) under Registrant’s 2005 Employee Incentive Plan as revised March 7, 2005 (form used for Executive Officers). Incorporated by reference from Exhibit 10.144 filed with Registrant’s Report on Form 8-K dated March 16, 2005.
 
   
10.144a
  Terms of Stock Option Award (Transferable Non-Qualified Option) under Registrant’s 2005 Employee Incentive Plan as revised May 19, 2005 (form used for Executive Officers). Incorporated by reference from Exhibit 10.144a filed with Registrant’s Report on Form 8-K dated May 23, 2005.
 
   
10.150
  Form of Terms of Time-Vested Restricted Stock Unit Grants under Registrant’s 1998 Employee Incentive Plan and 2005 Employee Incentive Plan. Incorporated by reference as previously filed as Exhibit 10.146 with Registrant’s Report on Form 8-K dated May 23, 2005.
 
   
10.151
  Registrant’s 2005 Employee Incentive Plan as adopted May 19, 2005. Incorporated by reference as previously filed as Exhibit 10.145 with Registrant’s Report on Form 8-K dated May 23, 2005.
 
   
10.151a
  Registrant’s 2005 Employee Incentive Plan Amended and Adopted as of May 18, 2006. Incorporated by reference from Exhibit 10.151a with Registrant’s Report on Form 8-K dated March 26, 2007.
 
   
10.152
  Share Ownership Policy for Executive Officers and Directors, Amended and Restated as of March 15, 2007. Incorporated by reference from Exhibit 10.152 filed with Registrant’s Report on Form 8-K dated March 22, 2007.
 
   
10.153
  Corporate Governance Principles, Amended and Restated as of March 15, 2007. Incorporated by reference from Exhibit 10.153 filed with Registrant’s Report on Form 8-K dated March 22, 2007.
TIFFANY & CO.
K - 100


 

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
             
Date: March 28, 2008   Tiffany & Co.    
    (Registrant)    
 
           
 
  By:   /s/ Michael J. Kowalski    
 
           
 
      Michael J. Kowalski    
 
      Chief Executive Officer    
TIFFANY & CO.
K - 101


 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
                 
By:
  /s/ Michael J. Kowalski       By:   /s/ James N. Fernandez
 
               
 
  Michael J. Kowalski           James N. Fernandez
 
  Chairman of the Board and Chief Executive Officer           Executive Vice President and Chief
 
  (principal executive officer) (director)           Financial Officer
(principal financial officer)
 
 
 
           
By:
  /s/ James E. Quinn       By:   /s/ Henry Iglesias
 
               
 
  James E. Quinn           Henry Iglesias
 
  President           Vice President and Controller
 
  (director)           (principal accounting officer)
 
 
 
           
By:
  /s/ William R. Chaney       By:   /s/ Rose Marie Bravo
 
               
 
  William R. Chaney           Rose Marie Bravo
 
  Director           Director
 
 
 
           
By:
  /s/ Gary E. Costley       By:   /s/ Abby F. Kohnstamm
 
               
 
  Gary E. Costley           Abby F. Kohnstamm
 
  Director           Director
 
 
 
           
By:
  /s/ Charles K. Marquis       By:   /s/ J. Thomas Presby
 
               
 
  Charles K. Marquis           J. Thomas Presby
 
  Director           Director
 
 
 
           
By:
  /s/ William A. Shutzer            
 
               
 
  William A. Shutzer            
 
  Director            
March 28, 2008
TIFFANY & CO.
K - 102


 

Tiffany & Co. and Subsidiaries
Schedule II — Valuation and Qualifying Accounts and Reserves
(in thousands)
                                         
Column A   Column B     Column C     Column D     Column E  
            Additions                
    Balance at     Charged to     Charged to             Balance at  
    beginning     costs and     other             end of  
Description   of period     expenses     accounts     Deductions     period  
 
Year Ended January 31, 2008:
                                       
Reserves deducted from assets:
                                       
Accounts receivable allowances:
                                       
Doubtful accounts
  $ 2,445     $ 3,801     $     $ 2,891 a   $ 3,355  
Sales returns
    5,455       1,380             478 b     6,357  
Allowance for inventory
liquidation and obsolescence
    20,778       33,701             12,473 c     42,006  
Allowance for inventory shrinkage
    384       2,960             2,660 d     684  
LIFO reserve
    108,501       28,651                   137,152  
Deferred tax valuation allowance
    19,626       1,811             402 e     21,035  
 
a)   Uncollectible accounts written off.
b)   Adjustment related to sales returns previously provided for and changes in estimate.
c)   Liquidation of inventory previously written down to market.
d)   Physical inventory losses.
e)   Utilization of deferred tax loss carryforward.
TIFFANY & CO.
K - 103


 

Tiffany & Co. and Subsidiaries
Schedule II — Valuation and Qualifying Accounts and Reserves
(in thousands)
                                         
Column A   Column B     Column C     Column D     Column E  
            Additions                
    Balance at     Charged to     Charged to             Balance at  
    beginning     costs and     other             end of  
Description   of period     expenses     accounts     Deductions     period  
 
Year Ended January 31, 2007:
                                       
Reserves deducted from assets:
                                       
Accounts receivable allowances:
                                       
Doubtful accounts
  $ 2,118     $ 1,922     $     $ 1,595 a   $ 2,445  
Sales returns
    5,884                   429 b     5,455  
Allowance for inventory
liquidation and obsolescence
    21,050       8,273             8,545 c     20,778  
Allowance for inventory shrinkage
    1,001       2,227             2,844 d     384  
LIFO reserve
    75,624       32,877                   108,501  
Deferred tax valuation allowance
    10,080       9,546                   19,626  
 
a)   Uncollectible accounts written off.
b)   Adjustment related to returns previously provided for and changes in estimate.
c)   Liquidation of inventory previously written down to market.
d)   Physical inventory losses and changes in estimate.
TIFFANY & CO.
K - 104


 

Tiffany & Co. and Subsidiaries
Schedule II — Valuation and Qualifying Accounts and Reserves
(in thousands)
                                         
Column A   Column B     Column C     Column D     Column E  
            Additions                
    Balance at     Charged to     Charged to             Balance at  
    beginning     costs and     other             end of  
Description   of period     expenses     accounts     Deductions     period  
 
Year Ended January 31, 2006:
                                       
Reserves deducted from assets:
                                       
Accounts receivable allowances:
                                       
Doubtful accounts
  $ 2,075     $ 1,605     $     $ 1,562 a   $ 2,118  
Sales returns
    5,416       908             440 b     5,884  
Allowance for inventory
liquidation and obsolescence
    20,053       10,108             9,111 c     21,050  
Allowance for inventory shrinkage
    4,644       2,355             5,998 d     1,001  
LIFO reserve
    64,058       11,566                   75,624  
Deferred tax valuation allowance
    9,826       1,379             1,125 e     10,080  
 
a)   Uncollectible accounts written off.
b)   Adjustment related to sales returns previously provided for.
c)   Liquidation of inventory previously written down to market.
d)   Physical inventory losses and changes in estimate.
e)   Utilization of deferred tax loss carryforward.
TIFFANY & CO.
K - 105
EX-21.1
 

Tiffany & Co.
Subsidiaries
(Note: Omitted from this list are certain
subsidiaries that do not constitute Significant
Subsidiaries (see Reg. S-X))
  Exhibit 21.1
Tiffany & Co.
Report on Form 10-K
Page 1 of 2
(GRAPHIC)
Tiffany & Co. TIFFANY & CO. Exhibit 21.1 Subsidiaries Tiffany & Co. (Note: Omitted from this list are certain Delaware Report on Form 10-K subsidiaries that do not constitute Significant Subsidiaries (see Reg. S-X)) August 16, 1984 Page 1 of 2 (13-3228013) TIFFANY & CO. TIFFANY & CO. LAURELTON DIAMONDS, INC. EAST POND HOLDINGS, INC. LCT INSURANCE TIFFANY AND COMPANY LUXEMBOURG S.A.R.L INTERNATIONAL (Formerly FHH Diamonds, Inc.) COMPANY T. RISK HOLDINGS INC. New York Luxembourg November15, 2007 Delaware Delaware Delaware New York New Jersey May 30, 1868 Tiffany (NY) 50% October 11, 1984 June 13, 2002 August 23, 2002 January 30, 2004 January 29, 2004 (13-1387680) Tiffany Int’l (DE) 50% (06-1121421) (01-0715717) (47-0886504) (20-0660065) (20-0664607) TIFFANY & CO. Domestic Subsidiaries            International Subsidiaries ICT, INC. IRIDESSE, INC. TIFFANY & CO. LAURELTON DIAMONDS INC. TIFFANY-BRASIL LTDA. (Formerly TCOPJ, Inc.) Delaware JAPAN INC. TRM INVESTMENTS L.L.C. July 1, 1992 Northwest Territories, Canada [LCT 99% - TIFFCO 1%] See Next Page Brazil Delaware (22-3180443) Delaware September 17, 2002 New Jersey October 23, 2000 January 12, 2004 June 11, 1992 (20-0585554) January 29, 2004 (04.104.676/0001-86) (22-3176944) (20-0670060) GLASSWARE ACQUISITION INC. (Formerly Judel Products Corp.) TGB Y.K. TIFFANY IMPORTAÇÂO E West Virginia COMÉRCIO DE JÓIAS LTDA. September 16, 1992 Japan (22-3192254) Brazil June 19, 2003 (0104-02-025719) July 1, 2003 (05.755.253/0001-99) TIFFANY ATLANTIC CITY, INC. TIFFANY & CO. MEXICO, TIFFANY & CO. TAIWAN S.A. de C.V. New Jersey HOLDING LLC April 18, 2005 Mexico Delaware June 20, 1997 February 5, 2008 (TME970620DA9) TIFFANY (NJ) LLC DPFH CO. LTD. TIFF SWISS HOLDINGS Delaware GmbH British Vigin Islands January 11, 2008 December 20, 2004 (37-1558953) Switzerland-Canton Zurich January 16, 2006 LAURELTON DIAMONDS TIFFCO INVESTMENT LAURELTON DIAMONDS VIETNAM LTD. TIFFANY & CO. VEHICLE, INC. (XI’AN) LTD. (Formerly Hai Duong D.C.V.T. WATCH CENTER A.G. Limited Company) British Virgin Islands China Vietnam Switzerland-Canton Zurich December 21, 2004 November 7, 2007 April 4, 1995 October 11, 1995 NHC, LLC BWHC, LLC [TIFFCO 51%] [TIFFCO 75%] Delaware Delaware November 13, 2006 December 17, 2004 (32-0189671) RAND PRECISION CUT RAND DIAMONDS DIAMONDS (PTY) LTD. (BOTSWANA) [NHC, LLC 85%] (PROPRIETARY) LTD. [BWHC 80%] South Africa Botswana November 30, 1976 August 10, 2005
 


 

Tiffany & Co.
Subsidiaries
(Note: Omitted from this list are certain
subsidiaries that do not constitute Significant
Subsidiaries (see Reg. S-X))
  Exhibit 21.1
Tiffany & Co.
Report on Form 10-K
Page 2 of 2
(GRAPHIC)
Tiffany & Co. Exhibit 21.1 Subsidiaries Tiffany & Co. (Note: Omitted from this list are certain Report on Form 10-K subsidiaries that do not constitute Significant Subsidiaries (see Reg. S-X)) Page 2 of 2 TIFFANY& CO. Delaware TIFFANY & CO. TIFFANY AND COMPANY INTERNATIONAL New York Delaware TIFFANY & CO. LUXEMBOURG S .A.R.L Luxembourg November 15, 2007 Tiffany (NY) 50% Tiffany Int’l (DE) 50% TIFFANY & CO. HOLDING TCO NETHERLANDS I I LLC C.V. Netherlands Delaware December 18, 2007 November 19, 2007 GP — LLC I (DE) 0.10% Luxembourg 100% LP — Luxembourg 99.90% TIFFANY & CO (NL) II TIFFANY & CO. HOLDING TIFFANY & CO. TIFFANY & CO. (BVI) C.V. II LLC OVERSEAS FINANCE B.V. LTD. Netherlands December 19 2007 Delaware Netherlands GP — LLC I (DE) 0.10% December 20, 2007 September 27, 1991 British Virgin Islands LP — CV I 99.90% CV I 100% (231.395) March 20, 2008 TIFFANY & CO (CANADA) TIFFANY & CO. TIFFANY & CO. ASIA TIFFANY & CO. (GB) * LP (Formerly Societe Francaise HOLDINGS LLC Canada (ULC) (Formerly Tiffany & Co.) Pour Le Developpement De December 21, 2007 United Kingdom La Porcelaine D’art) Delaware GP — CV I 0.10% March 7, 1986 France January 30, 2008 December 31, 1991 LP — CV II 99.90% (1997250) (Paris 383965175 ) TCO MACAU LIMITED POWBRIDGE SOCIETE EUROPEENNE DE TIFFANY & CO. CANADA PORTFOLIO INC. PORCELAINE INDUSTRIELLE ET Canada Macau Bahamas ARTISANALE October 30, 2007 February 21, 2006 November4, 1999 France (98,300B) August 30, 2002 (Paris 443245097) TIFFANY & CO. HONG TIFFANY & CO. PTE. LTD. TIFFANY & CO. LIMITED KONG HOLDING LLC TIFFANY & CO. (Formerly Tiffany & Co. (GB) (JEWELLERS) LIMITED Singapore Ltd.) Delaware September 1, 1989 United Kingdom Ireland February 5, 2008 (1989/03693N) October 30, 2007 May 11, 2007 TIFFANY & CO. UPTOWN ALLIANCE TIFFANY & CO. ITALIA TIFFANY & CO. (UK) OF NEW YORK LIMITED (M) Sdn. Bhd. S.p.A. Malaysia HOLDINGS LIMITED (Formerly Tiffany-Faraone January 10, 1997 Hong Kong S.p.A.) 416315 -K United Kingdom March 18, 1988 Italy February 11, 2008 October4, 1985 TIFFANY OF NEW YORK TIFFANY & CO. TIFFANY & CO. TIFFANY & CO. KOREA (SPAIN) S.L. (AUSTRALIA) PTY. LTD. (SHANGHAI ) HOLDING LLC COMMERCIAL COMPANY Spain Australia LIMITED Delaware December 20, 2007 October 29, 2007 China January 15, 2008 (B-85.310.381) June 6, 2006 TIFFANY & CO. TIFFANY & CO. TAIWAN AUSTRALIAN HOLDINGS LIMITED TIFFANY KOREA LTD. SINDAT LIMITED PTY . LTD. (Formerly Tiffco Korea Ltd.) Taiwan Hong Kong Australia January 30, 2008 Republic of Korea August 30, 2000 November 30, 2007 April 25, 1996 TIFFANY & CO. BELGIUM SPRL Belgium December 14, 2007 * Ownership (BE-894.285.362) Tiffany & Co. Overseas Finance B.V. — 99.999% Tiffany & Co. Holding II LLC -         .001%
* Ownership

Tiffany & Co. Overseas Finance B.V. - 99.999%
Tiffany & Co. Holding II LLC - .001%

 

EX-23.1
 

Exhibit 23.1
Tiffany & Co.
Report on Form 10-K
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-82653) and Form S-8 (File Nos. 333-132947, 333-43978, 333-85195, 333-85197, 333-85199, 333-85201, 033-54847, 333-111258, 333-67723, and 333-67725) of Tiffany & Co. of our report dated March 27, 2008 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 27, 2008

EX-31.1
 

Exhibit 31.1
Tiffany & Co.
Report on Form 10-K
CERTIFICATION
I, Michael J. Kowalski, certify that:
1.   I have reviewed this report on Form 10-K of Tiffany & Co.;
 
2.   Based on my knowledge, this 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 report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this 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 report;
 
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
 
  b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 28, 2008
         
     
  /s/ Michael J. Kowalski    
  Chairman and Chief Executive Officer   
  (principal executive officer)   
 

 

EX-31.2
 

Exhibit 31.2
Tiffany & Co.
Report on Form 10-K
CERTIFICATION
I, James N. Fernandez, certify that:
1.   I have reviewed this report on Form 10-K of Tiffany & Co.;
 
2.   Based on my knowledge, this 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 report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this 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 report;
 
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
 
  b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 28, 2008
         
     
  /s/ James N. Fernandez    
  Executive Vice President and Chief Financial   
  Officer (principal financial officer)   
 

 

EX-32.1
 

Exhibit 32.1
Tiffany & Co.
Report on Form 10-K
CERTIFICATION
Pursuant to 18 U.S.C. 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
     In connection with the Annual Report of Tiffany & Co. (the “Company”) on Form 10-K for the period ended January 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael J. Kowalski, as Chairman of the Board of Directors and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 28, 2008
         
     
  /s/ Michael J. Kowalski    
  Michael J. Kowalski   
  Chairman and Chief Executive Officer   
 

 

EX-32.2
 

Exhibit 32.2
Tiffany & Co.
Report on Form 10-K
CERTIFICATION
Pursuant to 18 U.S.C. 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
     In connection with the Annual Report of Tiffany & Co. (the “Company”) on Form 10-K for the period ended January 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James N. Fernandez, as Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 28, 2008
         
     
  /s/ James. N. Fernandez    
  James N. Fernandez   
  Executive Vice President and
Chief Financial Officer 
 
 

 

EX-10.139.C
 

Exhibit 10.139c
CASH INCENTIVE AWARD AGREEMENT
          AGREEMENT made effective February 1, 2008 by and among Tiffany & Co., a Delaware corporation (the “Company”), Tiffany and Company, the New York subsidiary corporation of the Company (“Tiffany”) and (“Executive”).
          Whereas, on March 17, 2005 the Board of Directors of the Company adopted, and on May 19, 2005 the stockholders of the Company duly approved, the Company’s 2005 Employee Incentive Plan, as subsequently amended (the “Plan”); and
          Whereas, the Stock Option Subcommittee of the Compensation Committee of the Company was appointed the “Committee” under the Plan by said Board of Directors; and
          NOW THEREFORE, based upon the foregoing and in consideration of the mutual promises hereinafter set forth, it is hereby AGREED as follows:
     1. This Agreement is intended to be an Award Agreement under the Plan and is subject to all terms and conditions set forth in such Plan, including the Plan provisions limiting implied rights.
     2. Executive agrees that he/she shall not be entitled to any cash bonus in respect of the fiscal year ending January 31, 2009 except as provided in this Agreement.
     3. Tiffany agrees to pay, or, failing that, the Company shall pay, a cash Incentive Award to Executive in respect of the fiscal year ending January 31, 2009 only as follows:
  (a)   Such award shall be paid, if at all, following the close of such fiscal year and after financial results have been determined and publicly announced, provided that Executive remains employed with Tiffany through the end of such fiscal year;
 
  (b)   No award shall be payable unless the following Performance Measure is achieved: the Company’s consolidated net earnings for such fiscal year (as adjusted by the Committee pursuant to Section 9.1 of the Plan) equal or exceed $243,000,000;
 
  (c)   If the condition stated in subparagraph (b) is satisfied, a maximum Incentive Award of $[see Schedule I attached] will be payable to you, subject to the discretion of the Committee to reduce such award; the Committee will not be limited in the exercise of such discretion.
(Continued)

I


 

     4. This Agreement shall be governed by the law of the State of New York applicable to agreements made and to be performed within said state.
     IN WITNESS WHEREOF, parties hereto have entered into this Agreement effective as of the date first stated above.
         
 
      Tiffany & Co.
 
      (the “Company”)
 
       
 
       
 
       
[Name of Executive]
       
 
       
 
      Tiffany and Company
 
      (“Tiffany”)
 
       
 
       
 
       
Schedule I
         
Michael J. Kowalski
  $ 2,000,000  
James E. Quinn
  $ 1,036,000  
James N. Fernandez
  $ 1,036,000  
Beth O. Canavan
  $ 840,000  
Jon M. King
  $ 840,000  

II