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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     
Commission file number: 1-9494
TIFFANY & CO.
(Exact name of registrant as specified in its charter)
Delaware
 
13-3228013
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

200 Fifth Avenue, New York, NY 10010
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (212755-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value per share
TIF
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      No  
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 No  
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      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No  
As of July 31, 2019, the aggregate market value of the registrant's voting and non-voting stock held by non-affiliates of the registrant was approximately $11,273,922,094 using the closing sales price on July 31, 2019 of $93.92.
As of March 16, 2020, the registrant had outstanding 121,191,337 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 20, 2020 (Part III).

TIFFANY & CO.
K-1


Tiffany & Co.
Table of Contents
Form 10-K for the fiscal year ended January 31, 2020
 
 
Page
 
 
Item 1.
K-4
Item 1A.
K-13
Item 1B.
K-22
Item 2.
K-22
Item 3.
K-23
Item 4.
K-24
 
 
 
 
 
Item 5.
K-25
Item 6.
K-27
Item 7.
K-29
Item 7A.
K-46
Item 8.
K-47
Item 9.
K-97
Item 9A.
K-97
Item 9B.
K-98
 
 
 
 
 
Item 10.
K-99
Item 11.
K-99
Item 12.
K-99
Item 13.
K-99
Item 14.
K-99
 
 
 
 
 
Item 15.
K-100
Item 16.
K-100





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The historical trends and results reported in this annual report on Form 10-K should not be considered an indication of future performance. Further, statements contained in this annual report on Form 10-K that are not statements of historical fact, including those that refer to plans, assumptions and expectations for future periods, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, each as amended. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the consummation of the proposed Merger (as defined under "Item 1. Business - Entry into Merger Agreement") and the anticipated benefits thereof. Forward-looking statements include, but are not limited to, statements that can be identified by the use of words such as 'expects,' 'projects,' 'anticipates,' 'assumes,' 'forecasts,' 'plans,' 'believes,' 'intends,' 'estimates,' 'pursues,' 'scheduled,' 'continues,' 'outlook,' 'may,' 'will,' 'can,' 'should' and variations of such words and similar expressions. Examples of forward-looking statements include, but are not limited to, statements we make regarding the Company's plans, assumptions, expectations, beliefs and objectives with respect to the proposed Merger; store openings and closings; store productivity; the renovation of the Company's New York Flagship store, including the timing and cost thereof, and the temporary relocation of its retail operations to 6 East 57th Street; product introductions; sales; sales growth; sales trends; store traffic; the Company's strategy and initiatives and the pace of execution thereon; the amount and timing of investment spending; the Company's objectives to compete in the global luxury market and to improve financial performance; retail prices; gross margin; operating margin; expenses; interest expense and financing costs; effective income tax rate; the nature, amount or scope of charges resulting from recent revisions to the U.S. tax code; net earnings and net earnings per share; share count; inventories; capital expenditures; cash flow; liquidity; currency translation; macroeconomic and geopolitical conditions; growth opportunities; litigation outcomes and recovery related thereto; amounts recovered under Company insurance policies; contributions to Company pension plans; and certain ongoing or planned real estate, product, marketing, retail, customer experience, manufacturing, supply chain, information systems development, upgrades and replacement, and other operational initiatives and strategic priorities.

These forward-looking statements are not guarantees of future results and are based upon the current views, assumptions and plans of management, and speak only as of the date on which they are made and are subject to a number of factors, risks and uncertainties, many of which are outside of our control. You should not place undue reliance on such statements. Actual results could therefore differ materially from the planned, assumed or expected results expressed in, or implied by, these forward-looking statements. While we cannot predict all of the factors that could form the basis of such differences, key factors, risks and uncertainties include, but are not limited to: the recent outbreak of the novel coronavirus, and changes in financial, business, travel and tourism, political, public health and other conditions, circumstances, requirements and practices resulting therefrom; global macroeconomic and geopolitical developments; changes in interest and foreign currency rates; changes in taxation policies and regulations (including changes effected by the recent revisions to the U.S. tax code) or changes in the guidance related to, or interpretation of, such policies and regulations; shifting tourism trends; regional instability; violence (including terrorist activities); political activities or events (including the potential for rapid and unexpected changes in government, economic and political policies, the imposition of additional duties, tariffs, taxes and other charges or other barriers to trade, including as a result of changes in diplomatic and trade relations or agreements with other countries); weather conditions that may affect local and tourist consumer spending; changes in consumer confidence, preferences and shopping patterns, as well as our ability to accurately predict and timely respond to such changes; shifts in the Company's product and geographic sales mix; variations in the cost and availability of diamonds, gemstones and precious metals; adverse publicity regarding the Company and its products, the Company's third-party vendors or the diamond or jewelry industry more generally; any non-compliance by third-party vendors and suppliers with the Company's sourcing and quality standards, codes of conduct, or contractual requirements as well as applicable laws and regulations; changes in our competitive landscape; disruptions impacting the Company's business and operations; failure to successfully implement or make changes to the Company's information systems; changes in the cost and timing estimates associated with the renovation of the Company's New York Flagship store; delays caused by third parties involved in the aforementioned renovation; any casualty, damage or destruction to the Company's New York Flagship store or 6 East 57th Street location; the Company's ability to successfully control costs and execute on, and achieve the expected benefits from, the operational initiatives and strategic priorities referenced above; conditions to the completion of the proposed Merger may not be satisfied or the regulatory approvals required for the proposed Merger may not be obtained, in each case, on the terms expected or on the anticipated schedule which contemplates closing of the acquisition in the middle of 2020; the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement (as defined under "Item 1. Business – Entry into Merger Agreement") or affect the ability of the parties to recognize the benefits

TIFFANY & CO.
K-2


of the proposed Merger; the effect of the announcement or pendency of the proposed Merger on the Company's business relationships, operating results and business generally; risks that the proposed Merger disrupts the Company's current plans and operations and potential difficulties in the Company's employee retention as a result of the proposed Merger; potential litigation that may be instituted against the Company or its directors or officers related to the proposed Merger or the Merger Agreement and any adverse outcome of any such litigation; the amount of the costs, fees, expenses and other charges related to the proposed Merger, including in the event of any unexpected delays; other risks to consummation of the proposed Merger, including the risk that the proposed Merger will not be consummated within the expected time period, or at all, which may affect the Company's business and the price of the common stock of the Registrant; and any adverse effects on the Company by other general industry, economic, business and/or competitive factors. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks. Developments relating to these and other factors may also warrant changes to the Company's operating and strategic plans, including with respect to store openings, closings and renovations, capital expenditures, information systems development, inventory management, and continuing execution on, or timing of, the aforementioned initiatives and priorities. Such consequences and changes could also cause actual results to differ materially from the expected results expressed in, or implied by, the forward-looking statements.

Additional information about potential risks and uncertainties that could affect the Company's business and financial results is included under "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K for the fiscal year ended January 31, 2020, the definitive proxy statement on Schedule 14A that the Company filed on January 6, 2020, and in the Company's other filings made with the U.S. Securities and Exchange Commission ("SEC") from time to time, which are available via the SEC's website at www.sec.gov. Readers of this Annual Report on Form 10-K should consider the risks, uncertainties and factors outlined above and in this Form 10-K in evaluating, and are cautioned not to place undue reliance on, the forward-looking statements contained herein. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by applicable law or regulation.


TIFFANY & CO.
K-3


PART I

Item 1. Business.

GENERAL HISTORY AND NARRATIVE DESCRIPTION OF BUSINESS

Tiffany & Co. (the "Registrant") is a holding company that operates through Tiffany and Company ("Tiffany") and the Registrant's other subsidiary companies (collectively, the "Company"). Charles Lewis Tiffany founded Tiffany's business in 1837. He incorporated Tiffany in New York in 1868. The Registrant acquired Tiffany in 1984 and completed the initial public offering of the Registrant's Common Stock in 1987. The Registrant, through its subsidiaries, sells jewelry and other items that it manufactures or has made by others to its specifications.

All references to years relate to fiscal years that end on January 31 of the following calendar year.

ENTRY INTO MERGER AGREEMENT

On November 24, 2019, the Registrant entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Registrant, LVMH Moët Hennessy – Louis Vuitton SE, a societas Europaea (European company) organized under the laws of France ("Parent"), Breakfast Holdings Acquisition Corp., a Delaware corporation and an indirect wholly owned subsidiary of Parent ("Holding"), and Breakfast Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Holding ("Merger Sub"). Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Registrant (the "Merger"), with the Registrant continuing as the surviving company in the Merger and a wholly owned indirect subsidiary of Parent.

Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than shares of Common Stock owned by the Registrant, Parent or any of their respective wholly owned subsidiaries, and shares of Common Stock owned by stockholders of the Registrant who have properly demanded and not withdrawn a demand for appraisal rights under Delaware law) will be converted into the right to receive $135.00 in cash, without interest and less any required tax withholding.

The consummation of the proposed Merger is subject to various conditions, including, among others, customary conditions relating to (a) the adoption of the Merger Agreement by holders of a majority of the outstanding shares of the Registrant's Common Stock entitled to vote on such matter at the meeting of stockholders of the Registrant (the "Special Meeting") held to vote on the adoption of the Merger Agreement and (b) the expiration or earlier termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended, and all rules and regulations promulgated thereunder, collectively, the "HSR Act"). As previously announced, on February 3, 2020, the waiting period under the HSR Act in connection with the proposed Merger expired, and on February 4, 2020, the Company held the Special Meeting, at which the holders of shares of Common Stock issued and outstanding as of the close of business on the record date for the Special Meeting considered and voted to approve (i) the adoption of the Merger Agreement and (ii) by non-binding, advisory vote, certain compensation arrangements for the Company's named executive officers in connection with the proposed Merger. The proposed Merger remains subject to satisfaction or waiver of the remaining customary closing conditions, including, among others, (A) certain non-U.S. regulatory approvals, (B) clearance by the Committee on Foreign Investment in the United States ("CFIUS"), (C) the absence of a law or order in effect that enjoins, prevents or otherwise prohibits the consummation of the proposed Merger or any other transactions contemplated under the Merger Agreement issued by a governmental entity; (D) the absence of any legal proceeding seeking to enjoin, prevent or otherwise prohibit the consummation of the proposed Merger or any other transactions contemplated under the Merger Agreement instituted by a governmental entity of competent jurisdiction; and (E) the absence of a Material Adverse Effect (as defined in the Merger Agreement). The obligation of each party to consummate the proposed Merger is also conditioned on the accuracy of the other party's representations and warranties (subject to certain materiality exceptions) and the other party's compliance, in all material respects, with its covenants and agreements under the Merger Agreement.

The Merger Agreement provides for certain customary termination rights of the Registrant and Parent, including the right of either party to terminate the Merger Agreement if the Merger is not completed on or before August 24, 2020 (the "Outside Date"), provided that the Outside Date may be extended up to an additional 90 days by either party if all conditions are satisfied other than the receipt of regulatory approvals and CFIUS clearance or absence of legal

TIFFANY & CO.
K-4


restraints. The Merger Agreement also provides that the Registrant will be required to pay Parent a termination fee of $575.0 million in certain circumstances.

For additional information related to the Merger Agreement, please refer to the Company's Definitive Proxy Statement on Schedule 14A (the "Definitive Proxy Statement") filed with the U.S. Securities and Exchange Commission (the "SEC") on January 6, 2020.

MAINTENANCE OF THE TIFFANY & CO. BRAND

The TIFFANY & CO. brand (the "Brand") is the single most important asset of Tiffany and, indirectly, of the Company. The strength of the Brand goes beyond trademark rights (see "TRADEMARKS" below) and is derived from consumer perceptions of the Brand. Management monitors the strength of the Brand through focus groups and survey research.

Management believes that consumers associate the Brand with high-quality gemstone jewelry, particularly diamond jewelry; sophisticated style and romance; excellent customer service; an elegant store and online environment; upscale store locations; "classic" product positioning; and distinctive and high-quality packaging materials (most significantly, the TIFFANY & CO. blue box). Tiffany's business plan includes expenses to maintain the strength of the Brand, such as the following:
Maintaining its position within the high-end of the jewelry market requires Tiffany to invest significantly in diamond and gemstone inventory, as well as platinum and gold, which carry a lower overall gross margin; it also causes some consumers to view Tiffany as beyond their price range;
To provide excellent service, stores must be well staffed with knowledgeable professionals;
Elegant stores in the best "high street" and luxury mall locations are more expensive and difficult to secure and maintain, but reinforce the Brand's luxury connotations through association with other luxury brands;
While the "classic" positioning of much of Tiffany's product line supports the Brand and requires sufficient display space in its stores, management's strategic priorities also include the accelerated introduction of new design collections primarily in jewelry, but also in non-jewelry products, which could result in a necessary reallocation of product display space;
Tiffany's packaging supports consumer expectations with respect to the Brand but is expensive; and
A significant amount of marketing across print, digital and social media, as well as public relations events are required to both reinforce the Brand's association with luxury, sophistication, style and romance, as well as to market specific products.

All of the foregoing require that management make tradeoffs between business initiatives that might generate incremental sales and earnings and Brand maintenance objectives. This is a dynamic process. To the extent that management deems that product, marketing 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 any tradeoff between sales and earnings is truly worth the positive effect on the Brand. At times, management has determined, and may in the future determine, that the strength of the Brand warranted, or that it will permit, more aggressive and profitable product, marketing or distribution initiatives.

REPORTABLE SEGMENTS

The Company has four reportable segments: (i) Americas, (ii) Asia-Pacific, (iii) Japan and (iv) Europe. All non-reportable segments are included within Other. The Company transacts business within certain of its segments through the following channels: (i) retail, (ii) Internet, (iii) catalog, (iv) business-to-business (products drawn from the retail product line and items specially developed for the business market) and (v) wholesale distribution (merchandise sold to independent distributors for resale). The Company's segment information for the fiscal years ended January 31, 2020, 2019 and 2018 is reported in "Item 8. Financial Statements and Supplementary Data - Note Q. Segment Information."


TIFFANY & CO.
K-5


Americas

Sales in the Americas represented 43% of worldwide net sales in 2019, while sales in the United States ("U.S.") represented 86% of net sales in the Americas. Sales are transacted through the following channels: retail (in the U.S., Canada and Latin America), Internet and catalog (in the U.S. and Canada), business-to-business (in the U.S.) and wholesale distribution (in Latin America and the Caribbean).

Retail sales in the Americas are transacted in 124 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 2020 included in parentheses): the U.S. (94), Canada (13), Mexico (10), Brazil (6) and Chile (1). Included within these totals are 14 Company-operated stores located within various department stores in Canada and Mexico. Included in the U.S. retail stores is the New York Flagship store, which represented less than 10% of worldwide net sales in 2019.

Asia-Pacific

Sales in Asia-Pacific represented 28% of worldwide net sales in 2019, while sales in Greater China represented approximately 60% of net sales in Asia-Pacific. Sales are transacted through the following channels: retail, Internet (in Australia and China), business-to-business (in China) and wholesale distribution.

Retail sales in Asia-Pacific are transacted in 91 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 2020 included in parentheses): China (34), Korea (15), Australia (11), Hong Kong (10), Taiwan (7), Singapore (5), Macau (4), Malaysia (2), Thailand (2) and New Zealand (1). Included within these totals are 35 Company-operated stores located within various department stores.

Japan

Sales in Japan represented 15% of worldwide net sales in 2019. Sales are transacted through the following channels: retail, Internet, business-to-business and wholesale distribution.

Retail sales in Japan are transacted in 58 Company-operated TIFFANY & CO. stores. Included within this total are 53 stores located within department stores, generating approximately 75% of net sales in Japan. There are four large department store groups in Japan. The Company operates TIFFANY & CO. stores in locations controlled by these groups as follows (number of locations at January 31, 2020 included in parentheses): Isetan Mitsukoshi Ltd. (14), Takashimaya Co., Ltd. (9), J. Front Retailing Co., Ltd. (Daimaru and Matsuzakaya department stores) (8) and Seven & i Holding Co., Ltd. (Sogo and Seibu department stores) (4). The Company also operates 18 stores in other department stores.

Europe

Sales in Europe represented 11% of worldwide net sales in 2019, while sales in the United Kingdom ("U.K.") represented approximately 40% of net sales in Europe. Sales are transacted through the following channels: retail, Internet and wholesale distribution.

Retail sales in Europe are transacted in 48 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 2020 included in parentheses): the U.K. (12), Italy (9), Germany (7), France (5), Spain (3), Switzerland (3), the Netherlands (2), Russia (2), Austria (1), Belgium (1), the Czech Republic (1), Denmark (1) and Ireland (1). Included within these totals are 11 Company-operated stores located within various department stores. The Company currently operates e-commerce enabled websites within the following countries: U.K., Austria, Belgium, France, Germany, Ireland, Italy, the Netherlands and Spain.

Other

Other consists of all non-reportable segments, including: (i) retail sales transacted in five Company-operated TIFFANY & CO. stores in the United Arab Emirates ("U.A.E.") and wholesale distribution in the Emerging Markets region; (ii) wholesale sales of diamonds (see "PRODUCT SUPPLY CHAIN – Supply of Diamonds" below); and (iii) licensing agreements.


TIFFANY & CO.
K-6


Licensing Agreements. The Company receives earnings from a licensing agreement with Luxottica Group S.p.A., for the development, production and distribution of TIFFANY & CO. brand eyewear, and from a licensing agreement with Coty Inc., for the development, production and distribution of TIFFANY & CO. brand fragrance products. The earnings received from these licensing agreements represented less than 1% of worldwide net sales in 2019.

Retail Distribution Base

Management regularly evaluates opportunities to optimize its retail store base. This includes evaluating potential markets for new TIFFANY & CO. stores, as well as the renovation, relocation, or closure of existing stores. Considerations include the characteristics of the markets 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 Brand, but believes that there are a number of opportunities remaining in new and existing markets that will meet the requirements for a TIFFANY & CO. location in the future.

The following chart details the number of TIFFANY & CO. retail locations operated by the Company since 2015:
 
Americas
 
 
 
 
 
Year:
U.S.

Canada &
Latin America

Asia-Pacific

Japan

Europe

Emerging Markets

Total

2015
95

29

81

56

41

5

307

2016
95

30

85

55

43

5

313

2017
94

30

87

54

46

4

315

2018
93

31

90

55

47

5

321

2019
94

30

91

58

48

5

326


E-Commerce, Catalog and Phone Orders

The Company currently operates e-commerce enabled websites in 14 countries, as well as informational websites in several additional countries. To a lesser extent, sales are also generated through catalogs that the Company distributes in certain countries as well as orders placed via telephone in certain markets. Sales transacted on those websites, through catalogs or via telephone accounted for 7% of worldwide net sales in 2019, 2018 and 2017. Management believes that its websites serve an important marketing role in building brand awareness and attracting customers to the Company's stores. In addition, the Company offers a select assortment of its products through third party websites.

Products

The Company's principal product category is jewelry, which represented 92%, 92% and 91% of worldwide net sales in 2019, 2018 and 2017, respectively. The Company offers an extensive selection of TIFFANY & CO. brand jewelry at a wide range of prices. Designs are developed by employees, suppliers, independent designers and independent "named" designers (see "MATERIAL DESIGNER LICENSE" below).

The Company also sells watches, home and accessories products and fragrances, which represented, in total, 6%, 7% and 7% of worldwide net sales in 2019, 2018 and 2017, respectively. The remainder of worldwide net sales was attributable to wholesale sales of diamonds and earnings from third-party licensing agreements.


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Sales by Reportable Segment of TIFFANY & CO. Jewelry by Category
2019
% of total
Americas
 Sales

% of total
Asia-Pacific
Sales

% of total
Japan
Sales

% of total
Europe
Sales

% of total
Reportable
Segment
Sales

Jewelry collections a 
55
%
63
%
38
%
60
%
55
%
Engagement jewelry b 
21
%
29
%
38
%
24
%
26
%
Designer jewelry c
14
%
6
%
17
%
12
%
12
%
2018
 
 
 
 
 
Jewelry collections a
53
%
61
%
37
%
60
%
54
%
Engagement jewelry b 
21
%
31
%
37
%
23
%
26
%
Designer jewelry c
14
%
7
%
18
%
12
%
12
%
2017
 
 
 
 
 
Jewelry collections a 
53
%
59
%
30
%
60
%
52
%
Engagement jewelry b 
22
%
31
%
39
%
25
%
27
%
Designer jewelry c
14
%
8
%
22
%
12
%
13
%
a) This category includes jewelry in a wide range of prices within the Company's high jewelry and named jewelry collections such as Tiffany Paper Flowers®, Tiffany Victoria®, Tiffany Soleste®, Tiffany Keys, Tiffany T, Tiffany HardWear and Return to Tiffany®, among others. Jewelry in this category is primarily crafted using precious metals (platinum, gold or sterling silver) and may contain diamonds and/or other gemstones.
b) This category includes engagement rings and wedding bands. Most jewelry in this category contains diamonds and is constructed of platinum and/or gold.
c)
This category includes only jewelry that is attributed to one of the Company's "named" designers: Elsa Peretti (see "MATERIAL DESIGNER LICENSE" below), Paloma Picasso and Jean Schlumberger. Jewelry in this category is primarily crafted using precious metals (platinum, gold or sterling silver) and may contain diamonds and/or other gemstones.

ADVERTISING, MARKETING, PUBLIC AND MEDIA RELATIONS

The Company's strategy is to invest in marketing and public relations programs designed to build awareness of the Brand, its heritage and its products, as well as to enhance the Brand's relevance and association among consumers with quality and luxury. The Company regularly advertises in newspapers and magazines, as well as through digital and social media. Public and media relations activities are also significant to the Company's business. The Company engages in a program of media activities and marketing events to maintain consumer awareness of the Brand and TIFFANY & CO. products. It also publishes its well-known Blue Book to showcase its high-end jewelry. In 2019, 2018 and 2017, the Company spent $378.8 million, $394.1 million and $314.9 million, representing 8.6%, 8.9% and 7.6% of worldwide net sales in those respective years, on advertising, marketing and public and media relations, which include costs for media, production, catalogs, Internet, visual merchandising (in-store and window displays), marketing events and other related items.

In addition, management believes that the Brand is enhanced by philanthropic efforts, including charitable sponsorships and monetary and merchandise donations. The Company also periodically makes donations to The Tiffany & Co. Foundation, a private foundation established to support nonprofit organizations. The philanthropic efforts of this Foundation are primarily focused on environmental conservation.


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TRADEMARKS

The designations TIFFANY ® and TIFFANY & CO.® are the principal trademarks of Tiffany, and also serve as tradenames. Tiffany has obtained and is the proprietor of trademark registrations for TIFFANY and TIFFANY & CO., as well as the TIFFANY BLUE BOX ®, the TIFFANY BLUE BOX design, TIFFANY BLUE ® and the color Tiffany Blue for a variety of product categories and services in the U.S. 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 the Company's worldwide rights in its principal trademarks, TIFFANY and TIFFANY & CO., are strong. However, use of the designation TIFFANY by third parties on related or 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 produce 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 because it is not possible or cost-effective to eradicate the problem. 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, on the Internet and in various markets by street vendors and small retailers. Tiffany pursues infringers through leads generated internally and through a network of investigators, legal counsel, law enforcement and customs authorities worldwide. The Company responds to such infringing activity by taking various actions, including sending cease and desist letters, cooperating with law enforcement in criminal prosecutions, initiating civil proceedings and participating in joint actions and anti-counterfeiting programs with other like-minded third party rights holders.

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 of use in every country of the world; for example, in some countries, third parties have registered the name TIFFANY in connection with certain product categories (including, in the U.S., the category of bedding and, in certain foreign countries, the categories of food, cosmetics, clothing, paper goods 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 legal action.

MATERIAL DESIGNER LICENSE

Since 1974, Tiffany has been the sole licensee for the intellectual property rights necessary to make and sell jewelry and other products designed by Elsa Peretti and bearing her trademarks. The designs of Ms. Peretti accounted for 7%, 8% and 9% of the Company's worldwide net sales in 2019, 2018 and 2017, respectively.

Tiffany is party to an Amended and Restated Agreement (the "Peretti Agreement") with Ms. Peretti, which largely reflects the long-standing rights and marketing and royalty obligations of the parties. Pursuant to the Peretti Agreement, Ms. Peretti grants Tiffany an exclusive license, in all of the countries in which Peretti-designed jewelry and products are currently sold, to make, have made, advertise and sell these items. Ms. Peretti continues to retain ownership of the copyrights for her designs and her trademarks and remains entitled to exercise approval and consultation rights with respect to important aspects of the promotion, display, manufacture and merchandising of the products made in accordance with her designs. Under and in accordance with the terms set forth in the Peretti Agreement, Tiffany is required to display the licensed products in stores, to devote a portion of its advertising budget to the promotion of the licensed products, to pay royalties to Ms. Peretti for the licensed products sold, to maintain total on-hand and on-order inventory of non-jewelry licensed products (such as tabletop products) at approximately $8.0 million and to take certain actions to protect Ms. Peretti's intellectual property, including to maintain trademark registrations reasonably necessary to sell the licensed products in the markets in which the licensed products are sold by Tiffany.

The Peretti Agreement has a term that expires in 2032 and is binding upon Ms. Peretti, her heirs, estate, trustees and permitted assignees. During the term of the Peretti Agreement, Ms. Peretti may not sell, lease or otherwise dispose of her copyrights and trademarks unless the acquiring party expressly agrees with Tiffany to be bound by the

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K-9


provisions of the Peretti Agreement. The Peretti Agreement is terminable by Ms. Peretti in the event of a material breach by Tiffany (subject to a cure period) or upon a change of control of Tiffany or the Company. It is terminable by Tiffany only in the event of a material breach by Ms. Peretti or following an attempt by Ms. Peretti to revoke the exclusive license (subject, in each case, to a cure period).

PRODUCT SUPPLY CHAIN

The Company's strategic priorities include maintaining substantial control over its product supply chain through internal jewelry manufacturing and direct diamond sourcing. The Company manufactures jewelry in New York, Rhode Island and Kentucky, polishes and performs certain assembly work on jewelry in the Dominican Republic and crafts silver hollowware in Rhode Island. In total, these internal manufacturing facilities produce approximately 60% of the jewelry sold by the Company. The balance, and almost all non-jewelry items, is purchased from third parties. The Company may increase the percentage of internally-manufactured jewelry in the future, but management does not expect that the Company will ever manufacture all of its needs. Factors considered by management in its decision to use third-party manufacturers include access to or mastery of various product-making skills and technology, support for alternative capacity, product cost and the cost of capital investments. To supply its internal manufacturing facilities, the Company processes, cuts and polishes rough diamonds at its facilities outside the U.S. and sources precious metals, rough diamonds, polished diamonds and other gemstones, as well as certain fabricated components, from third parties.

Supply of Diamonds. The Company regularly purchases parcels of rough diamonds for polishing and further processing. The vast majority of diamonds acquired by the Company originate from Botswana, Canada, Namibia, Russia and South Africa. The Company has diamond processing operations in Belgium, Botswana, Cambodia, Mauritius and Vietnam that prepare and/or cut and polish rough diamonds for its use. The Company conducts operations in Botswana through a subsidiary in which local third parties own minority, non-controlling interests, allowing the Company to access rough diamond allocations reserved for local manufacturers. The Company maintains a relationship and has an arrangement with these local third parties; however, if circumstances warrant, the Company could seek to replace its existing local partners or operate without local partners.

The Company secures supplies of rough diamonds primarily through arrangements with diamond producers and, to a lesser extent, on the secondary market. Most of this supply comes from arrangements in which the Company accesses rough diamonds that are offered for sale (including as a sightholder), although with no contractual purchase obligation for such rough diamonds. A smaller portion of rough diamond purchases is made through agreements in which the Company is required to purchase a minimum volume of rough diamonds (anticipated to be approximately $30.0 million in 2020). All such supply arrangements are generally at the market price prevailing at the time of purchase.

As a result of the manner in which rough diamonds are typically assorted for sale, it is occasionally necessary for the Company to knowingly purchase, as part of a larger assortment, rough diamonds that do not meet the Company's quality standards or assortment needs. The Company seeks to recover its costs related to these diamonds by selling such diamonds to third parties (generally other diamond polishers), which has the effect of modestly reducing the Company's overall gross margins. Any such sales are included in the Other non-reportable segment.

In recent years, an average of approximately 75% (by volume) of the polished diamonds used in the Company's jewelry that are 0.18 carats and larger and individually registered ("individually registered diamonds") has been produced from rough diamonds that the Company has purchased. The balance of the Company's needs for individually registered diamonds is purchased from polishers or polished-diamond dealers generally through purchase orders for fixed quantities. The Company's relationships with polishers and polished-diamond dealers may be terminated at any time by either party, but such a termination would not discharge either party's obligations under unfulfilled purchase orders accepted prior to the termination. It is the Company's intention to continue to supply the substantial majority of its needs for individually registered diamonds, as well as a majority of its needs for melee diamonds of less than 0.18 carats used in the Company's jewelry, by purchasing rough diamonds.

Conflict Diamonds. Media attention has been drawn to the issue of "conflict" diamonds. This term is used to refer to diamonds extracted from war-torn geographic regions and sold by rebel forces to fund insurrection. Allegations have also been made that trading in such diamonds supports terrorist activities. Management believes that it is not possible in most purchasing scenarios to distinguish diamonds produced in conflict regions from diamonds produced in other regions once they have been polished. Therefore, concerned participants in the diamond trade, including the

TIFFANY & CO.
K-10


Company and nongovernment organizations, seek to exclude "conflict" diamonds, which represent a small fraction of the world's supply, from legitimate trade through an international system of certification and legislation known as the Kimberley Process Certification Scheme. All rough diamonds the Company buys, crossing an international border, must be accompanied by a Kimberley Process certificate and all trades of rough and polished diamonds must conform to a system of warranties that references the aforesaid scheme. It is not expected that such efforts will substantially affect the supply of diamonds. In addition, concerns over human rights abuses in Zimbabwe, Angola and the Democratic Republic of the Congo underscore that the aforementioned system has not deterred the production of diamonds in state-sanctioned mines under poor working conditions. The Company has informed its vendors that it does not intend to purchase Zimbabwean, Angolan or Congolese-produced diamonds. Accordingly, the Company has implemented the Diamond Source Warranty Protocol, which requires vendors to provide a warranty, and a qualified independent audit certificate, that loose polished diamonds were not obtained from Zimbabwean, Angolan or Congolese mines. As part of its diamond source initiative, the Company also requires its vendors to affirmatively state the region or country of origin of any polished diamonds sold to the Company that are 0.18 carats and larger and individually registered.

Worldwide Availability and Price of Diamonds. The availability and price of diamonds are dependent on a number of factors, including global consumer demand, the political situation in diamond-producing countries, the opening of new mines, the continuance of the prevailing supply and marketing arrangements for rough diamonds and levels of industry liquidity. In recent years, there has been substantial volatility in the prices of both rough and polished diamonds. Prices for rough diamonds do not necessarily reflect current demand for polished diamonds.

In addition, the supply and prices of rough and polished diamonds in the principal world markets have been and continue to be influenced by the Diamond Trading Company ("DTC"), an affiliate of the De Beers Group. Although the DTC's historical ability to control worldwide production has diminished due to its lower share of worldwide production and changing policies in diamond-producing countries, the DTC continues to supply a meaningful portion of the world market for rough, gem-quality diamonds and continues to impact diamond supply through its marketing and advertising initiatives. A significant portion of the diamonds that the Company purchased in 2019 had their source with the DTC.

Sustained interruption in the supply of diamonds, an overabundance of supply or a substantial change in the marketing arrangements described above could adversely affect the Company and the retail jewelry industry as a whole. Changes in the marketing and advertising spending of the DTC and its direct purchasers could affect consumer demand for diamonds.

The Company purchases conflict-free rough and polished diamonds, in highly graded color and clarity ranges. Management does not foresee a shortage of diamonds in these quality ranges in the short term but believes that, unless new mines are developed, rising demand will eventually create such a shortage and lead to higher prices.

Synthetic and Treated Diamonds. Synthetic diamonds (diamonds manufactured but not naturally occurring) and treated diamonds (naturally occurring diamonds subject to treatment processes, such as irradiation) are produced in growing quantities. Although significant questions remain as to the ability of producers to generate synthetic and/or treated diamonds economically within a full range of sizes and natural diamond colors, and as to consumer acceptance of these diamonds, such diamonds are becoming a larger factor in the market. Should synthetic and/or treated diamonds be offered in significant quantities, the supply of and prices for natural diamonds may be affected. The Company does not produce and does not intend to purchase or sell such diamonds.

Purchases of Precious Metals and Other Polished Gemstones. Precious metals and other polished gemstones used in making jewelry are purchased from a variety of sources for use in the Company's internal manufacturing operations and/or for use by third-party manufacturers contracted to supply Tiffany merchandise. The silver, gold and platinum sourced directly by the Company principally come from two sources: (i) in-ground, large-scale deposits of metals, primarily in the U.S., that meet the Company's standards for responsible mining and (ii) metals from recycled sources. While the Company may supply precious metals to a manufacturer, it cannot determine, in all circumstances, whether the finished goods provided by such manufacturer were actually produced with Company-supplied precious metals.

The Company generally enters into purchase orders for fixed quantities with precious metals and other polished gemstone vendors. Purchases are generally made at prevailing market prices, which have, with respect to precious metals, experienced substantial volatility in recent years. These relationships may be terminated at any time by

TIFFANY & CO.
K-11


either party; such termination would not discharge either party's obligations under unfulfilled purchase orders accepted prior to the termination. The Company believes that there are numerous alternative sources for other polished gemstones and precious metals and that the loss of any single supplier would not have a material adverse effect on its operations.

Finished Jewelry. Finished jewelry is purchased from approximately 50 manufacturers. However, the Company does not enter into long-term supply arrangements with its finished goods vendors. The Company does enter into merchandise vendor agreements with nearly all of its finished goods vendors. The merchandise vendor agreements establish non-price terms by which the Company may purchase and by which vendors may sell finished goods to the Company. These terms include payment terms, shipping procedures, product quality requirements, merchandise specifications and vendor social responsibility requirements. The Company generally enters into purchase orders for fixed quantities of merchandise with its vendors. These relationships may be terminated at any time by either party; such termination would not discharge either party's obligations under unfulfilled purchase orders accepted prior to termination. The Company actively seeks alternative sources for its best-selling jewelry items to mitigate any potential disruptions in supply. However, due to the craftsmanship involved in a small number of designs, the Company may have difficulty finding readily available alternative suppliers for those jewelry designs in the short term.

Watches. The Company sells TIFFANY & CO. brand watches, which are designed, produced, marketed and distributed through certain of the Company's subsidiaries. The Company has relationships with approximately 30 component and subassembly vendors to manufacture watches. The terms of the Company's contractual relationships with these vendors are substantially similar to those described under "Finished Jewelry" above. Sales of these TIFFANY & CO. brand watches represented approximately 1% of worldwide net sales in 2019, 2018 and 2017.

COMPETITION

The global jewelry industry is competitively fragmented. The Company encounters significant competition in all product categories. Some competitors specialize in just one area in which the Company is active. Many competitors have established worldwide, national or local reputations for style, quality, expertise and customer service similar to the Company and compete on the basis of that reputation. Certain other jewelers and retailers compete primarily through advertised price promotion. The Company competes on the basis of the Brand's reputation for high-quality products, customer service and distinctive merchandise and does not engage in price promotional advertising.

Competition for engagement jewelry sales is particularly and increasingly intense. The Company's retail prices for diamond jewelry reflect the rarity of the stones it offers and the rigid parameters it exercises with respect to the cut, clarity and other diamond quality factors which increase the beauty of the diamonds, but which also increase the Company's cost. The Company competes in this market by emphasizing quality.

SEASONALITY

As a jeweler and specialty retailer, the Company's business is seasonal in nature, with the fourth quarter typically representing approximately one-third of annual net sales and a higher percentage of annual net earnings. Management expects such seasonality to continue.

EMPLOYEES

As of January 31, 2020, the Company employed an aggregate of approximately 14,100 full-time and part-time persons. Of those employees, approximately 5,500 are employed in the United States.

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. Copies of these reports and statements may be obtained, free of charge, on the Company's website at https://investor.tiffany.com/financial-information.


TIFFANY & CO.
K-12


Item 1A. Risk Factors.

As is the case for any retailer, the Company'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 Company and/or the markets in which it operates. The following "risk factors" are specific to the Company; these risk factors affect the likelihood that the Company will achieve the objectives and expectations communicated by management. The risk factors described below are not the only ones faced by the Company and additional risks and uncertainties not presently known or that are currently deemed immaterial also may impair the Company's business operations. Management's strategies are subject to the risks described herein and may be subject to other risks that have not yet been identified.

(i) The announcement and pendency of the proposed Merger may adversely affect the Company's business, financial condition and results of operations.

Uncertainty about the effect of the proposed Merger on the Company's employees, customers, and other parties may have an adverse effect on the Company's business, financial condition and results of operations regardless of whether the proposed Merger is completed. These risks to the Company's business include, among others, the following, all of which may be exacerbated by a delay in the completion of the proposed Merger: (i) the impairment of the Company's ability to attract, retain, and motivate its employees; (ii) the diversion of significant management time and attention from ongoing business operations towards the completion of the proposed Merger; (iii) difficulties maintaining relationships with customers, suppliers and other business partners; (iv) delays or deferments of certain business decisions by the Company's customers, suppliers and other business partners; (v) the inability to pursue alternative business opportunities or make appropriate changes to the Company's business because the Merger Agreement requires the Company to, subject to certain exceptions, including as required by a Governmental Entity or by applicable Law (in each case as defined in the Merger Agreement), conduct its business in the ordinary course of business and to not engage in certain kinds of transactions prior to the completion of the proposed Merger without the prior written consent of Parent (such consent not to be unreasonably conditioned, withheld or delayed), even if such actions could prove beneficial; (vi) litigation relating to the proposed Merger and the costs related thereto; and (vii) the incurrence of significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Merger.

(ii) Failure to consummate the proposed Merger within the expected time frame or at all may have a material adverse impact on the Company's business, financial condition and results of operations.

There can be no assurance that the proposed Merger will be consummated. The consummation of the proposed Merger is subject to various conditions, including, among others, customary conditions relating to (i) the receipt of certain non-U.S. regulatory approvals; (ii) clearance by the CFIUS; (iii) the absence of a law or order in effect that enjoins, prevents or otherwise prohibits the consummation of the proposed Merger or any other transactions contemplated under the Merger Agreement issued by a governmental entity; (iv) the absence of any legal proceeding seeking to enjoin, prevent or otherwise prohibit the consummation of the proposed Merger or any other transactions contemplated under the Merger Agreement instituted by a governmental entity of competent jurisdiction; and (v) the absence of a Material Adverse Effect (as defined in the Merger Agreement). There can be no assurance that these and other conditions to closing will be satisfied in a timely manner or at all.

In connection with the proposed Merger, the Registrant and its directors were named as defendants in four lawsuits brought by purported stockholders challenging the proposed Merger and seeking various forms of injunctive relief and money damages. While the plaintiffs of these lawsuits have voluntarily dismissed their claims, the Registrant may be subject to additional future litigation challenging the proposed Merger. If any future plaintiffs are successful in obtaining an injunction prohibiting the consummation of the proposed Merger, then such injunction may prevent the Merger from becoming effective within the expected time frame or at all, either of which could have a material adverse impact on the Company's business, financial condition and results of operations.

The Merger Agreement also provides that the Merger Agreement may be terminated by the Company or Parent under certain circumstances, and in certain specified circumstances upon termination of the Merger Agreement, the Company will be required to pay Parent a termination fee of $575.0 million. Depending on the circumstances requiring the Company to make this payment, doing so may materially adversely affect its business, financial condition and results of operations.


TIFFANY & CO.
K-13


There can be no assurance that an adequate remedy will be available to the Company in the event of a breach of the Merger Agreement by Parent or its affiliates or that the Company will, wholly or partially, recover for any damages incurred by it in connection with the proposed Merger. A failed transaction may result in negative publicity and a negative impression of the Company among its customers or in the investment community or business community generally. Further, any disruptions to the Company's business resulting from the announcement and pendency of the proposed Merger, including any adverse changes in the Company's relationships with its customers, partners, suppliers and employees, may continue or accelerate in the event of a failed transaction. In addition, if the proposed Merger is not completed, and there are no other parties willing and able to acquire the Company at a price of $135.00 per share or higher, on terms acceptable to the Company, the share price of the Company's Common Stock will likely decline to the extent that the current market price of the Company's Common Stock reflects an assumption that the proposed Merger will be completed. Also, the Company has incurred, and will continue to incur, significant costs, expenses, and fees for professional services and other transaction costs in connection with the proposed Merger, for which it will have received little or no benefit if the proposed Merger is not completed. Many of these fees and costs will be payable by the Company if the proposed Merger is not completed and may relate to activities that the Company would not have undertaken other than to complete the proposed Merger.

(iii) The recent outbreak of the novel coronavirus has had a significant effect on the Company's sales results to date in fiscal 2020, and could have a significant negative impact on the Company's business, revenues, financial condition and results of operations in that year.

An outbreak of a novel strain of coronavirus, COVID-19, was identified in Wuhan, China in December 2019 and was subsequently recognized as a pandemic by the World Health Organization on March 11, 2020. This coronavirus outbreak has severely restricted the level of economic activity around the world. In response to this coronavirus outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily. Further, individuals' ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of travel-related businesses. These actions have expanded significantly in the past several weeks and are expected to continue to expand in scope, type and impact. For example, on March 15, 2020, following an unscheduled meeting of the Federal Open Market Committee, the United States Federal Reserve reduced the target range for the federal funds rate to 0 to 0.25 percent, down from a range of 1 to 1.25 percent, in connection with the coronavirus's impact on the United States' economy.

In recent weeks, this coronavirus outbreak and the related preventative and protective actions have impacted the Company's business globally, including through store closures, reductions in operating hours and/or decreased store traffic. For example, from January 24 through March 19, 2020, management estimates that this coronavirus outbreak contributed to the loss of approximately 30 out of 54 retail trading days (accounting for the effect of individual store closures as well as reductions in store operating hours) across all of the Company's stores in the Chinese Mainland. In addition, as of March 19, 2020, the Company has temporarily closed all of its stores in the United States and Canada, and has temporarily closed nearly all of its stores across Europe and the United Kingdom. The Company has also experienced significantly reduced customer traffic from January 24 through March 19 in its stores that have been open during such period, which management believes has resulted in part from a reduction in tourism as well as restrictions on travel and limitations affecting individuals' ability to spend time in public areas. All of the foregoing developments have had a significant effect on the Company's sales results to date in its fiscal year ending January 31, 2021 ("fiscal 2020") and are expected to continue to have a significant effect on its financial results. These developments and effects are expected to continue and may also significantly affect the Company's business in other geographic areas where this coronavirus has spread and may continue to spread.

The Company's business is particularly sensitive to reductions in discretionary consumer spending. The Company cannot predict the degree to, or the time period over, which its business will be affected by this coronavirus outbreak. For example, this coronavirus outbreak could continue to impede global economic activity, leading to a further decline in discretionary spending by local customers and tourists, and resulting in additional significant effects on the Company's business, revenues, financial condition and results of operations. There are numerous uncertainties associated with this coronavirus outbreak, including the number of individuals who will become infected, whether a vaccine or cure that mitigates the effect of the virus will be synthesized, and, if so, when such vaccine or cure will be ready to be used, the extent of the protective and preventative measures that have been put in place by both governmental entities and other businesses and those that may be put in place in the future,

TIFFANY & CO.
K-14


whether the virus's impact will be seasonal and numerous other uncertainties. The Company intends to continue to execute on its strategic plans and operational initiatives during the coronavirus outbreak. However, the aforementioned uncertainties may result in delays or modifications to these plans and initiatives.

This coronavirus outbreak has also impacted, and may continue to impact, the Company's office locations, manufacturing and servicing facilities and distribution centers, as well as those of its third party vendors, including through the effects of facility closures, reductions in operating hours, staggered shifts and other social distancing efforts, labor shortages, decreased productivity and unavailability of raw materials or components. For example, the Company has experienced reduced capacity in its manufacturing and servicing facilities in New York as a result of state-imposed temporary occupancy restrictions, as well as a government-mandated temporary closure of its diamond processing operation in Mauritius. This coronavirus outbreak may also impact distribution and logistics providers' ability to operate or increase their operating costs. These supply chain effects may negatively affect the Company's ability to meet consumer demand and may increase the Company's costs of production and distribution.

For the reasons set forth above and other reasons that may come to light if this coronavirus outbreak and any associated protective or preventative measures expand, as of the date hereof, the Company cannot reasonably estimate the impact to the Company's business, revenues, financial condition or results of operations; however, such impact could be significantly negative.

(iv) Challenging global economic conditions and related low levels of consumer confidence over a prolonged period of time could adversely affect the Company's sales and earnings.

As a retailer of goods which are discretionary purchases, the Company's sales results are particularly sensitive to changes in economic conditions and consumer confidence. Consumer confidence is affected by general business conditions; domestic and international political uncertainties and/or developments; changes in the market value of equity 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 negatively affects the Company's sales and earnings.

Certain competitors may react to such conditions by reducing retail prices and promoting such reductions; such reductions and/or inventory liquidations can have a short-term adverse effect on the Company's sales, especially given the Company's policy of not engaging in price promotional activity.

The Company has invested in and operates a significant number of stores in Greater China and anticipates continuing to do so. Any slowdown in the Chinese economy could have a negative impact on the sales and profitability of stores in Greater China as well as stores in other markets that serve Chinese tourists.

Uncertainty surrounding the current global economic environment makes it more difficult for the Company to forecast operating results. The Company's forecasts employ the use of estimates and assumptions. Actual results could differ from forecasts, and those differences could be material.

(v) Sales may decline or remain flat in the Company's fourth fiscal quarter, which includes the Holiday selling season.

The Company's business is seasonal in nature, with the fourth quarter typically representing approximately one-third of annual net sales and a higher percentage of annual net earnings. Poor sales results during the fourth quarter would have an adverse effect on annual earnings and inventories in the short term.

(vi) The Company conducts operations globally, the risks of which could increase its costs, reduce its profits or disrupt its business.

The Company operates globally and generates a majority of its worldwide net sales outside the United States. It also has both U.S. and foreign manufacturing operations, and relies on certain U.S. and foreign third-party vendors and suppliers. As a result, the Company is subject to the risks of doing business globally, including:
the laws, regulations and policies of governments relating to investments, loans and operations, the costs or desirability of complying with local practices and customs and the impact of various anti-corruption and other laws affecting the activities of U.S. companies abroad;

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K-15


uncertainties from changes in U.S. or foreign taxation policies;
compliance by third party vendors and suppliers with the Company's sourcing and quality standards, codes of conduct, or contractual requirements as well as applicable laws and regulations;
import and export licensing requirements and regulations, as well as unforeseen changes in regulatory requirements;
political or economic instability in foreign countries, including the potential for rapid and unexpected changes in government, economic and political policies, such as the U.K.'s recent exit from the European Union ("E.U."), as discussed below;
political or civil unrest, including protests and other civil disruption, such as the ongoing business disruption in Hong Kong;
acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation as a result of, for example, changes in government policies of foreign countries in response to actions taken by the U.S. government;
the imposition of additional duties, tariffs, taxes and other charges or other barriers to trade, including as a result of changes in diplomatic and trade relations or agreements with other countries;
challenges inherent in oversight of foreign operations, systems and controls;
potential negative consequences from foreign governments' currency management practices;
uncertainties as to enforcement of certain contract and other rights; and
inventory risk exposures.

Changes in these regulatory, political, economic, or monetary policies and other factors could require the Company to significantly modify its current business practices and may adversely affect its future financial results. For example, the Company could be adversely impacted by U.S. trade policies, legislation, treaties and tariffs, including trade policies and tariffs affecting China and, the E.U., as well as retaliatory tariffs by such countries. Such tariffs and, if enacted, any further legislation or actions taken by the U.S. government that restrict trade, such as additional tariffs or trade barriers, and other protectionist or retaliatory measures taken by governments in Europe, Asia and elsewhere, could have a negative effect on the Company's ability to sell products in those markets.

Additionally, in June 2016, voters in the U.K. approved an advisory referendum to withdraw from the E.U., commonly referred to as "Brexit." On January 31, 2020, the U.K. officially terminated its membership in the E.U. pursuant to the terms of a withdrawal agreement concluded between the U.K. and E.U. Among other terms, the withdrawal agreement provides for a transition period through December 31, 2020, during which the U.K.'s existing trade relationship with the E.U. will remain in place and the U.K. will continue to follow the E.U.'s rules. Negotiations during the transition period to determine the U.K.'s future relationship with the E.U., including the terms of a future trade deal, are expected to be complex and it is not clear at this time what, if any, agreements will be reached by the current December 31, 2020 transition period deadline. Changes related to Brexit could significantly disrupt the free movement of goods, services, and people between the U.K. and the E.U., and result in potential higher costs of conducting business in Europe. Brexit could also lead to legal uncertainty and potentially divergent national laws and regulations in the U.K. and the E.U. The Company may incur additional costs and expenses as it adapts to these potentially divergent regulatory frameworks, and may face additional complexity with regard to immigration and travel rights for its employees located in the U.K. and the E.U. There may also be similar referendums or votes in other European countries in which the Company does business. The U.K.'s withdrawal from the E.U. and the uncertainty surrounding the terms of this withdrawal, as well as the impact of any similar circumstances that may arise elsewhere in Europe, could increase the Company's costs and adversely impact consumer and investor confidence.

While these factors, and the effect thereof, are difficult to predict, any one or more of them could lower the Company's revenues, increase its costs, reduce its earnings or disrupt its business.


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(vii) Revisions to the U.S. tax code, including changes in the guidance related to, or interpretation and application of, such revisions could materially affect the Company's tax obligations, provision for income taxes and effective tax rate. 

On December 22, 2017, the U.S. enacted comprehensive tax legislation, commonly referred to as the 2017 U.S. Tax Cuts and Jobs Act (the "2017 Tax Act"), which significantly affected U.S. tax law by changing how the U.S. imposes income tax on U.S. taxpayers. In particular, these changes impact the U.S. taxation of earnings in the jurisdictions in which the Company operates, the measurement of its deferred tax assets and liabilities and the tax impact in the event the Company were to repatriate the earnings of its non-U.S. subsidiaries to the U.S. The provisions of the 2017 Tax Act may be subject to further interpretation by the U.S. Treasury Department and the Internal Revenue Service, which have broad authority to issue regulations and interpretative guidance that may significantly impact how the Company will apply such provisions. Further regulatory or accounting guidance regarding the 2017 Tax Act could materially affect the Company's future financial results.

(viii) A strengthening of the U.S. dollar against foreign currencies would negatively affect the Company's sales and profitability.

The Company operates retail stores in more than 20 markets outside of the U.S. and, as a result, is exposed to market risk from fluctuations in foreign currency exchange rates, including, among others, the Japanese Yen, Euro, British Pound and Chinese Yuan. In 2019, sales in countries outside of the U.S. in aggregate represented a substantial portion of the Company's net sales and earnings from operations. A strengthening of the U.S. dollar against foreign currencies would require the Company to raise its retail prices in various locations outside of the U.S. in order to maintain its worldwide relative pricing structure, or reduce its profit margins. Consumers in those markets may not accept significant price increases on the Company's goods; thus, there is a risk that a strengthening of the U.S. dollar would result in reduced sales and profitability. In addition, a weakening of any foreign currency relative to other currencies may negatively affect spending by foreign tourists in the various regions where the Company operates retail stores which would adversely affect its net sales and profitability.

The reported results of operations of the Company's international subsidiaries are exposed to foreign exchange rate fluctuations as the financial results of the applicable subsidiaries are translated from the local currency into U.S. dollars during the process of financial statement consolidation. If the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions would decrease consolidated net sales and profitability. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of such impacts.

(ix) Political activities, regional instability and/or conflict, public health crises or similar events could disrupt tourist travel and local consumer spending.

Regional and global conflicts or crises, such as military actions, terrorist activities and natural disasters, geopolitical or regulatory developments (and any related protests), public health crises and other similar events and conditions in the various regions and cities where the Company operates retail stores may negatively affect spending by both foreign tourists and local consumers. The Company's retail stores, many of which are located in major metropolitan areas globally, may in fact have close proximity to the locations of such events – for example, the Company's operations in Hong Kong have experienced significant business disruptions since the beginning of the protests in that market in 2019. The occurrence of the types of events or conditions described above, or the related effect of security measures implemented to address the possibility of such occurrences, could affect consumer traffic and/or spending in one or more of the Company's locations, which could adversely affect the Company's sales and earnings.

(x) Changes in the Company's product or geographic sales mix could affect the Company's profitability.

The Company sells an extensive selection of jewelry and other merchandise at a wide range of retail price points that yield different gross profit margins. Additionally, the Company's geographic regions achieve different operating profit margins due to a variety of factors including product mix, store size and occupancy costs, labor costs, retail pricing and fixed versus variable expenses. The increasing availability of, and ease of access to, retail price information across markets, primarily through the Internet, may affect consumers' decisions regarding in which geographies to shop. If the Company's sales mix were to shift toward products or geographic regions that are significantly different than the Company's plans, it could have an effect, either positively or negatively, on its expected profitability.


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(xi) Metrics the Company may report that are based on customer data it collects are subject to inherent challenges in measurement, and inaccuracies in that data or the resulting metrics could lead to decisions that adversely impact the Company's business.

The Company regularly reviews customer sales and similar data to evaluate retail sales trends, measure its performance and make strategic decisions. The Company reviews its sales data attributed to local customers, which the Company defines as sales to customers who identify themselves as being residents of the same country as the retail store in which the applicable sale was completed, and sales attributed to foreign tourists, which the Company defines as sales to customers who identify themselves as being residents of a different country than the country of the retail store in which the applicable sale was completed, to evaluate growth and other sales trends within the Company's global customer base. These metrics are calculated using internal Company data that reflects residency information self-reported by its customers at the time of sale, or, for customers who do not self-report, that is based on certain pre-established default assumptions. While the Company believes this to be a reasonable method for collecting the applicable data, there are inherent challenges in collecting such data and measuring these aspects of its sales performance across its global customer population. For example, the default assumptions referred to above could result in a significant understatement or overstatement of sales attributed to local customers or foreign tourists. In addition, the collected data has not been validated by an independent third party, and the resulting metrics may differ from similar estimates published by third parties or from similarly titled metrics of other retailers.

Errors or inaccuracies in the Company's data or metrics could result in incomplete or inaccurate internal analyses, which may compromise the validity and reliability of conclusions the Company draws from such analyses and may further result in ineffective decision-making. For instance, such inaccuracies could result in an overstatement of sales to foreign tourists, which could lead the Company to allocate sales and marketing resources in a manner that would not result in optimal retail sales performance. If these metrics or the underlying data are used to inform management's strategies or initiatives, but reflect material errors or inaccuracies, the Company's business may be negatively affected.

(xii) Increases in costs of diamonds, other gemstones and precious metals or reduced supply availability may adversely affect the Company's ability to produce and sell products at desired profit margins.

Most of the Company's jewelry offerings are made with diamonds, other gemstones and/or precious metals. A significant increase in the costs or change in the supply of these commodities could adversely affect the Company's business, which is vulnerable to the risks inherent in the trade for such commodities. A substantial increase or decrease in the cost or supply of precious metals, high-quality rough and polished diamonds (within the quality grades, colors and sizes that customers demand) and/or other gemstones could affect, negatively or positively, customer demand, sales and gross profit margins. Additionally, should synthetic diamonds (diamonds manufactured but not naturally occurring) and/or treated diamonds (naturally occurring diamonds subject to treatment processes, such as irradiation) be offered in significant quantities and gain consumer acceptance, the supply of, demand for and prices for natural diamonds may be affected.

(xiii) The Company may be unable to secure and retain sufficient space for its retail stores in prime locations, and maintaining the Company's brand image and desirability to consumers requires significant investment in store construction, maintenance and periodic renovation.

The Company, positioned as a luxury goods retailer, has established its retail presence in choice store locations. Management regularly evaluates opportunities to optimize its retail store base, including potential markets for new TIFFANY & CO. stores, as well as the renovation and relocation of its existing stores. Maintaining the Company's brand image and desirability to consumers requires that stores be constructed and maintained in a manner consistent with that brand image. This requires significant capital investment, including for periodic renovations of existing stores. Renovations of existing stores may also result in temporary disruptions to an individual store's business. If the Company cannot secure and retain store locations on suitable terms in prime and desired luxury shopping locations, or if its investments to construct and/or renovate existing stores do not generate sufficient incremental sales and/or profitability or significantly disrupt sales and/or profitability during renovations, the Company's sales and/or earnings performance could be jeopardized.

For example, in 2018, the Company announced its plans to undertake a complete renovation of the New York Flagship store. The New York Flagship store closed in January 2020, at which time the Company began its complete renovation and temporarily moved its operations to the "Tiffany Flagship Next Door" at 6 East 57th Street. This

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renovation is expected to be completed in the fourth quarter of 2021. The full renovation project will require significant capital investment and may result in business and/or consumer traffic disruptions. Significant delays or cost overruns are also possible during the construction period, which could significantly increase the cost of this renovation project and adversely impact the Company's future financial results. There can be no assurance that the results of this renovation project will appeal to the Company's customers or will increase the Company's sales or profitability.

(xiv) The value of the TIFFANY & CO. and TIFFANY trademarks could decline due to third-party use and infringement.

The TIFFANY & CO. and TIFFANY trademarks are assets that are essential to the competitiveness and success of the Company's business, and the Company takes appropriate action to protect them. The Company actively pursues those who produce or sell counterfeit TIFFANY & CO. goods through civil action and cooperation with criminal law enforcement agencies. However, use of the designation TIFFANY by third parties on related goods or services and the Company's failure or inability to protect against such use could adversely affect and dilute the value of the
TIFFANY & CO. brand.

Notwithstanding the general success of the Company's enforcement actions, such actions have not stopped the imitation and counterfeiting of the Company's merchandise or the infringement of the trademark, and counterfeit TIFFANY & CO. goods remain available in most markets. In recent years, there has been an increase in the availability of counterfeit goods, predominantly silver jewelry, on the Internet and in various markets by street vendors and small retailers. The continued sale of counterfeit merchandise or merchandise that infringes the Company's trademarks could have an adverse effect on the TIFFANY & CO. brand by undermining the Company's reputation for quality goods and making such goods appear less desirable to consumers of luxury goods. Damage to the TIFFANY & CO. brand could result in lost sales and earnings.

(xv) The Company's business is dependent upon the distinctive appeal of the TIFFANY & CO. brand.

The TIFFANY & CO. brand's association with quality and luxury is integral to the success of the Company's business. The Company's expansion plans for retail, e-commerce and other direct selling operations and merchandise development, production and management support the appeal of the TIFFANY & CO. brand. Consequently, poor maintenance, promotion and positioning of the TIFFANY & CO. brand, as well as market over-saturation, may adversely affect the business by diminishing the distinctive appeal of the TIFFANY & CO. brand and tarnishing its image. This could result in lower sales and earnings.

In addition, adverse publicity regarding TIFFANY & CO. and its products, as well as adverse publicity in respect of, or resulting from, the Company's third-party vendors or the diamond or jewelry industries more generally, could adversely affect the Company's business. For example, the Company sources from third-party vendors certain products that, from time to time, may not, or may contain raw materials that do not, meet the Company's sourcing and quality standards as well as applicable requirements and regulations. In such instances, although the Company may have recourse against such third-party vendors, the Company may self-report to the relevant regulatory agencies, recall affected products and/or pay potential fines.

Any of the above could harm the TIFFANY & CO. brand and reputation, cause a loss of consumer confidence in the TIFFANY & CO. brand, its products and the industry, and/or negatively affect the Company's results of operations.

The considerable expansion in the use of social media in recent years has compounded the potential scope of any negative publicity.

(xvi) Any material disruption of, or a failure to successfully implement or make changes to, information systems could negatively impact the Company's business.

The Company is increasingly dependent on its information systems to operate its business, including in designing, manufacturing, marketing and distributing its products, as well as processing transactions, managing inventory and accounting for and reporting its results. Given the complexity of the Company's global business, it is critical that the Company maintain the uninterrupted operation of its information systems. Despite the Company's preventative efforts, its information systems may be vulnerable to damage, disruption or shutdown due to power outages, computer and telecommunications failures, computer viruses, systems failures, security breaches or natural

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disasters. Damage, disruption or shutdown of the Company's information systems may require a significant investment to repair or replace them, and the Company could suffer interruptions in its operations in the interim.

In addition, in the ordinary course of business, the Company regularly evaluates and makes changes and upgrades to its information systems. The Company is in the process of executing its multi-year effort to evaluate and, where appropriate, to upgrade and/or replace certain of its information systems, including systems for global customer relationship management, order management and inventory management. These system changes and upgrades can require significant capital investments and dedication of resources. While the Company follows a disciplined methodology when evaluating and making such changes, there can be no assurances that the Company will successfully implement such changes, that such changes will be implemented without delays, that such changes will occur without disruptions to its operations or that the new or upgraded systems will achieve the desired business objectives.

Any damage, disruption or shutdown of the Company's information systems, or the failure to successfully implement new or upgraded systems, such as those referenced above, could have a direct material adverse effect on the Company's results of operations, could undermine the Company's ability to execute on its strategic and operational initiatives, and could also affect the Company's reputation, its ability to compete effectively, its relationship with customers and the TIFFANY & CO. brand, which could result in reduced sales and profitability.

(xvii) New and existing data privacy laws and/or a significant data security breach of the Company's information systems could increase the Company's operational costs, subject the Company to claims and otherwise adversely affect its business.

The protection of customer, employee and Company information is important to the Company, and its customers and employees expect that their personal data will be adequately protected. In addition, the regulatory environment surrounding information security and data privacy is becoming increasingly demanding, with evolving requirements in respect of personal data use and processing, including significant penalties for non-compliance, in the various jurisdictions in which the Company does business. For example, the E.U. General Data Protection Regulation that came into force in 2018, as well as the California Consumer Privacy Act that came into force on January 1, 2020, have caused, and will continue to cause, the Company to incur additional compliance costs related thereto. Although the Company has developed and implemented systems, policies, procedures and internal controls that are designed to protect personal data and Company information, prevent data loss and other security breaches, and otherwise identify, assess and analyze cybersecurity risks, such measures cannot provide absolute security. For example, the Company faces a complex and evolving threat landscape in which cybercriminals, nation-states and "hacktivists" employ a complex array of techniques designed to access personal data and other information, including the use of stolen access credentials, malware, ransomware, phishing, structured query language ("SQL") injection attacks and distributed denial-of-service attacks, which may penetrate the Company's systems despite its extensive and evolving protective information security measures. Further, the Company relies on its software and hardware providers to issue timely patches for known vulnerabilities; however, the failure of software and hardware companies to release or to timely release effective patching and the Company's reliance on patches or inability to patch software and hardware vulnerabilities, could expose it to increased risk of attack, data loss and data breach. The Company has experienced, and expects to continue to experience, attempts from cybercriminals and other third parties to gain unauthorized access to its information technology and other information systems. Although these attempts have not had a material impact on the Company to date, in the future the Company could experience attacks that could have a material adverse effect on its business, financial condition or results of operations.

Additionally, the Company's implementation of new information technology or information systems and/or increased use and reliance on web-based hosted (i.e., cloud computing) applications and systems for the storage, processing and transmission of information, including customer and employee personal data, could expose the Company, its employees and its customers to a risk of loss or misuse of such information. The Company's efforts to protect personal data and Company information may also be adversely impacted by data security or privacy breaches that occur at its third-party vendors. While the Company's contractual arrangements with such third-party vendors provide for the protection of personal data and Company information, the Company cannot control these vendors or their systems and cannot guarantee that a data security or privacy breach of their systems will not occur in the future.

A significant violation of applicable privacy laws or the occurrence of a cybersecurity incident resulting in breach of personal data or Company information could result in the temporary suspension of some or all of the Company's operating and/or information systems, damage the Company's reputation, its relationships with customers, vendors

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and service providers and the TIFFANY & CO. brand and could result in lost data, lost sales, sizable fines, increased insurance premiums, substantial breach-notification and other remediation costs and lawsuits as well as adversely affect results of operations. The Company may also incur additional costs in the future related to the implementation of additional security measures to protect against new or enhanced data security and privacy threats, to comply with state, federal and international laws that may be enacted to address personal data processing risks and data security threats or to investigate or address potential or actual data security or privacy breaches.

(xviii) The loss or a prolonged disruption in the operation of the Company's centralized distribution centers could adversely affect its business and operations.

The Company maintains two separate distribution centers in close proximity to one another in New Jersey. Both are dedicated to warehousing merchandise; one handles worldwide store replenishment and the other processes direct-to-customer orders. Although the Company believes that it has appropriate contingency plans, unforeseen disruptions impacting one or both locations for a prolonged period of time may result in delays in the delivery of merchandise to stores or in fulfilling customer orders.

(xix) The loss or a prolonged disruption in the operation of the Company's internal manufacturing facilities could adversely affect its business and operations.

The Company's internal manufacturing facilities produce approximately 60% of the jewelry sold by the Company. Any prolonged disruption to their operations would require the Company to seek alternate sources of production and could have a negative effect on inventory availability and sales until such sources are established.

(xx) If the Company is unable to effectively anticipate and respond to changes in consumer preferences and shopping patterns, or introduce new products or programs that appeal to new or existing customers, the Company's sales and profitability could be adversely affected.

The Company's continued success depends on its ability to anticipate and respond in a timely and cost-effective manner to changes in consumer preferences for jewelry and other luxury goods, attitudes towards the global jewelry industry as a whole, as well as the manner and locations in which consumers purchase such goods. The Company recognizes that consumer tastes cannot be predicted with certainty and are subject to change, which is compounded by the expanding use of digital and social media by consumers and the speed by which information and opinions are shared. The Company's product development strategy is to introduce new design collections, primarily jewelry, and/or expand certain existing collections annually. If the Company is unable to anticipate and respond in a timely and cost-effective manner to changes in consumer preferences and shopping patterns, including the development of an engaging omnichannel experience for its customers, the Company's sales and profitability could be adversely affected.

In addition, approximately 75% of the Company's stores are located within luxury department stores and shopping malls and benefit from the ability of those locations to generate consumer traffic. A substantial decline in department store and/or mall traffic may negatively impact the Company's ability to maintain or increase its sales in existing stores, as well as its ability to open new stores.

(xxi) Environmental and climate changes could affect the Company's business.

The Company operates retail stores in more than 20 markets and has both domestic and foreign manufacturing operations that are susceptible to the risks associated with climate change. Such risks include those related to the physical impacts of climate change, such as more frequent and severe weather events and/or long term shifts in climate patterns, and risks related to the transition to a lower-carbon economy, such as reputational, market and/or regulatory risks. Climate change and climate events could result in social, cultural and economic disruptions in these areas, including supply chain disruptions, the disruption of local infrastructure and transportation systems that could limit the ability of the Company's employees and/or its customers to access the Company's stores or manufacturing locations, damage to such stores or locations or reductions in material availability and quality. These events could also compound adverse economic conditions and impact consumer confidence and discretionary spending. Despite the fact that the Company is pursuing numerous initiatives to reduce its environmental footprint, including efforts related to energy efficiency, renewable energy use and carbon offsets, there remains the risk that insufficient global cooperation could lead to increased negative impacts from climate change. While the Company has an ongoing

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program for reviewing its vulnerability to the impacts of severe weather events and other risks associated with climate change, these events could nonetheless negatively affect the Company's business and operations.


Item 1B. Unresolved Staff Comments.

None


Item 2. Properties.

The Company leases its various store premises (other than the New York Flagship store, which is owned by the Company) under arrangements that generally range from 3 to 10 years. The following table provides information on the number of locations and square footage of Company-operated TIFFANY & CO. stores as of January 31, 2020:
 
Total Stores

Total Gross Retail Square Footage

Gross Retail Square Footage Range

Average Gross Retail Square Footage

Americas*:
 
 
 
 
New York Flagship
1

45,500

45,500

45,500

Other stores
123

690,000

1,100-17,600

5,600

Asia-Pacific
91

282,400

700-13,400

3,100

Japan:
 
 
 
 
Tokyo Ginza
1

13,300

13,300

13,300

Other stores
57

149,000

700-7,500

2,600

Europe:
 
 
 
 
London Old Bond Street
1

22,400

22,400

22,400

Other stores
47

165,700

400-18,200

3,500

Emerging Markets
5

9,200

400-3,600

1,800

Total
326

1,377,500

400-45,500

4,200

* The total gross retail square footage for the New York Flagship is through its closure for renovation in January 2020, and Other stores does not include the total gross retail square footage for the Tiffany Flagship Next Door.

Excluded from the store count and square footage amounts above are pop-up stores (stores with lease terms of 24 months or less).

NEW YORK FLAGSHIP STORE

The Company owns the building, but not the air rights above the building, housing its New York Flagship store at 727 Fifth Avenue, which was designed to be a retail store for Tiffany and is well located for this function. In 2018, the Company announced its plans to undertake a complete renovation of the New York Flagship store. The New York Flagship store closed in January 2020, at which time the Company began its complete renovation and temporarily moved its operations to the "Tiffany Flagship Next Door" at 6 East 57th Street. This renovation is expected to be completed in the fourth quarter of 2021. Sales in this store represented less than 10% of worldwide net sales in 2019, 2018 and 2017.

RETAIL SERVICE CENTER

The Company's Retail Service Center ("RSC"), located in Parsippany, New Jersey, comprises approximately 370,000 square feet. Approximately half of the building is devoted to office and information technology operations and half to warehousing, shipping, receiving, merchandise processing and other distribution functions. The RSC receives merchandise and replenishes retail stores. The Company has a 20-year lease for this facility, which expires in 2025, and has two 10-year renewal options.


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CUSTOMER FULFILLMENT CENTER

The Company owns the Customer Fulfillment Center ("CFC") in Whippany, New Jersey and leases the land on which the facility resides. The CFC is approximately 266,000 square feet and is primarily used for warehousing merchandise and processing direct-to-customer orders. The land lease expires in 2032 and the Company has the right to renew the lease for an additional 20-year term.

MANUFACTURING AND DESIGN FACILITIES

The Company owns and operates jewelry manufacturing facilities in Cumberland, Rhode Island and Lexington, Kentucky, leases a jewelry manufacturing facility in Pelham, New York, leases a facility in the Dominican Republic which performs certain functions such as jewelry polishing and assembly and leases a facility containing its Jewelry Design and Innovation Workshop in New York, New York. Lease expiration dates range from 2023 to 2029. The owned and leased facilities total approximately 244,000 square feet.

The Company leases a facility in Belgium and owns facilities in Botswana, Cambodia, Mauritius and Vietnam (although the land in Botswana, Cambodia and Vietnam is leased) that prepare, cut and/or polish rough diamonds for use by Tiffany. These facilities total approximately 277,000 square feet and the lease expiration dates range from 2020 to 2062.


Item 3. Legal Proceedings.

Litigation Matters. The Company is from time to time involved in routine litigation incidental to the conduct of its business, including proceedings to protect its trademark rights, litigation with parties claiming infringement of patents and other intellectual property rights by the Company, litigation instituted by persons alleged to have been injured upon premises under the Company's control and litigation with present and former employees and customers. Although litigation with present and former employees is routine and incidental to the conduct of the Company's business, as well as for any business employing significant numbers of employees, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages for actions such as those claiming discrimination on the basis of age, gender, race, religion, disability or other legally-protected characteristic or for termination of employment that is wrongful or in violation of implied contracts. However, the Company believes that all such litigation currently pending to which it is a party or to which its properties are subject will be resolved without any material adverse effect on the Company's financial position, earnings or cash flows.

Merger-related Litigation. As previously disclosed, on December 30, 2019 and January 3, 2020, purported stockholders of the Registrant filed complaints against the Registrant and the members of the Board of Directors of the Registrant in the United States District Court for the Southern District of New York and in the United States District Court for the District of Delaware, captioned Stein v. Tiffany & Co., et al., Case No. 1:19-cv-11926 (S.D.N.Y.), and Thompson v. Tiffany & Co., et al., Case No. 1:20-cv-00009 (D. Del.), respectively. The complaints alleged that a preliminary version of the proxy statement that the Registrant filed with the SEC on December 18, 2019 was materially incomplete, false or misleading in certain respects. On January 8, 2020, two additional complaints were filed against the Registrant and the members of the Board of Directors of the Registrant in the United States District Court for the Southern District of New York by purported stockholders of the Registrant, captioned Federman v. Tiffany & Co., et al., Case No. 1:20-cv-00159 (S.D.N.Y.), and Daka v. Tiffany & Co., et al., Case No. 1:20-cv-00170 (S.D.N.Y.), respectively. The complaints alleged that the Definitive Proxy Statement was materially incomplete, false or misleading in certain respects. Each of the four aforementioned Stein, Thompson, Federman and Daka actions purported to seek injunctive relief and money damages. The plaintiffs in all of the Stein, Thompson, Federman and Daka actions have since voluntarily dismissed their actions.

Gain Contingency. On February 14, 2013, Tiffany and Company and Tiffany (NJ) LLC (collectively, the "Tiffany plaintiffs") initiated a lawsuit against Costco Wholesale Corp. ("Costco") for trademark infringement, false designation of origin and unfair competition, trademark dilution and trademark counterfeiting (the "Costco Litigation"). The Tiffany plaintiffs sought injunctive relief, monetary recovery and statutory damages on account of Costco's use of "Tiffany" on signs in the jewelry cases at Costco stores used to describe certain diamond engagement rings that were not manufactured by Tiffany. Costco filed a counterclaim arguing that the TIFFANY trademark was a generic term for multi-pronged ring settings and seeking to have the trademark invalidated, modified or partially canceled in that respect. On September 8, 2015, the U.S. District Court for the Southern District of New York (the "Court") granted

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the Tiffany plaintiffs' motion for summary judgment of liability in its entirety, dismissing Costco's genericism counterclaim and finding that Costco was liable for trademark infringement, trademark counterfeiting and unfair competition under New York law in its use of "Tiffany" on the above-referenced signs. On September 29, 2016, a civil jury rendered its verdict, finding that Costco's profits on the sale of the infringing rings should be awarded at $5.5 million, and further finding that an award of punitive damages was warranted. On October 5, 2016, the jury awarded $8.25 million in punitive damages. The aggregate award of $13.75 million was not final, as it was subject to post-verdict motion practice and ultimately to adjustment by the Court. On August 14, 2017, the Court issued its ruling, finding that the Tiffany plaintiffs are entitled to recover (i) $11.1 million in respect of Costco's profits on the sale of the infringing rings (which amount is three times the amount of such profits, as determined by the Court), (ii) prejudgment interest on such amount (calculated at the applicable statutory rate) from February 15, 2013 through August 14, 2017, (iii) an additional $8.25 million in punitive damages, and (iv) Tiffany's reasonable attorneys' fees, and, on August 24, 2017, the Court entered judgment in the amount of $21.0 million in favor of the Tiffany plaintiffs (reflecting items (i) through (iii) above). On February 7, 2019, the Court awarded the Tiffany plaintiffs $5.9 million in respect of the aforementioned attorneys' fees and costs, bringing the total judgment to $26.9 million. The Court has denied a motion made by Costco for a new trial; however, Costco has also filed an appeal from the judgment before the Second Circuit Court of Appeals. A three-judge panel presided over an appellate hearing on January 23, 2020, and that panel's decision is pending. As the Tiffany plaintiffs may not enforce the Court's judgment during the appeals process, the Company has not recorded any amount in its consolidated financial statements related to this gain contingency as of January 31, 2020. The Company expects that this matter will not ultimately be resolved until, at the earliest, a future date during the Company's fiscal year ending January 31, 2021.


Item 4. Mine Safety Disclosures.

Not Applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

In calculating the aggregate market value of the voting stock held by non-affiliates of the Company shown on the cover page of this Annual Report on Form 10-K, 761,162 shares of Common Stock beneficially owned by the executive officers and directors of the Company (exclusive of shares which may be acquired on exercise of 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, as amended.

The Company's Common Stock is traded on the New York Stock Exchange under the symbol "TIF". On March 16, 2020, the high and low selling prices quoted on such exchange were $126.42 and $115.09. On March 16, 2020, there were 13,106 holders of record of the Company's Common Stock.

The following graph compares changes in the cumulative total shareholder return on the Company's Common Stock for the previous five fiscal years to returns for the same five-year period on (i) the Standard & Poor's 500 Stock Index and (ii) the Standard & Poor's 500 Consumer Discretionary Index. Cumulative shareholder return is defined as changes in the closing price of the stock and such indices, plus the reinvestment of any dividends paid. The graph assumes an investment of $100 on January 31, 2015 in the Company's Common Stock and in each of the two indices, as well as the reinvestment of any subsequent dividends. The increase in the cumulative shareholder return on the Company's Common Stock for the year ended January 31, 2020 primarily reflects the acquisition price of $135.00 per share of Common Stock related to the proposed Merger. See "Item 1. Business - Entry into Merger Agreement" for additional information regarding the proposed Merger.

Total returns are based on market capitalization; indices are weighted at the beginning of each period for which a return is indicated. The stock performance shown in the graph is not intended to forecast or to be indicative of future performance.

https://cdn.kscope.io/98bae5650224a1e87ebce18b0b0457b8-chart-48828c0dad855403af6.jpg

TIFFANY & CO.
K-25


 
1/31/15

1/31/16

1/31/17

1/31/18

1/31/19

1/31/20

Tiffany & Co.
$ 100.00

$ 75.10

$ 94.93

$ 131.35

$ 111.54

$ 172.32

S&P 500 Stock Index
100.00

99.33

119.24

150.73

147.24

179.17

S&P 500 Consumer Discretionary Index
100.00

107.77

125.53

161.93

164.71

192.26


Dividends

It is the Company's policy to pay a quarterly dividend on its Common Stock, subject to declaration by its Board of Directors. In 2018, a dividend of $0.50 per share of Common Stock was paid on April 10, 2018. On May 24, 2018, the Company announced a 10% increase in its regular quarterly dividend rate to a new rate of $0.55 per share of Common Stock, which was paid on July 10, 2018, October 10, 2018 and January 10, 2019.

A dividend of $0.55 per share of Common Stock was paid on April 10, 2019. On June 4, 2019, the Company announced a 5% increase in its regular quarterly dividend rate to a new rate of $0.58 per share of Common Stock, which was paid on July 10, 2019, October 10, 2019 and January 10, 2020.

Issuer Purchases of Equity Securities

In May 2018, the Registrant's Board of Directors approved a new share repurchase program (the "2018 Program"). The 2018 Program, which became effective June 1, 2018 and expires on January 31, 2022, authorizes the Company to repurchase up to $1.0 billion of its Common Stock through open market transactions, including through Rule 10b5-1 plans and one or more accelerated share repurchase ("ASR") or other structured repurchase transactions, and/or privately negotiated transactions. As of January 31, 2020, $471.6 million remained available under the 2018 Program; however, pursuant to the terms of the Merger Agreement, and subject to certain limited exceptions, the Company may not repurchase its Common Stock other than in connection with the forfeiture provisions of Company equity awards or the cashless exercise or tax withholding provisions of such Company equity awards, in each case, granted under the Company's stock-based compensation plans. Accordingly, the Company did not repurchase any shares of its Common Stock during the fourth quarter of 2019 pursuant to the 2018 Program, and does not expect to repurchase any shares of its Common Stock in connection with the 2018 Program prior to the Merger or earlier termination of the Merger Agreement.



TIFFANY & CO.
K-26


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 years 2015-2019, which ended on January 31 of the following calendar year:
(in millions, except per share amounts, percentages, ratios, stores and employees)
2019 b, c

2018 c

2017 d

2016 e

2015 f

EARNINGS DATA
 
 
 
 
 
Net sales
$
4,424.0

$
4,442.1

$
4,169.8

$
4,001.8

$
4,104.9

Gross profit
2,761.9

2,811.0

2,610.7

2,499.0

2,505.2

Selling, general & administrative expenses
2,029.3

2,020.7

1,801.3

1,752.6

1,706.1

Earnings from operations
732.6

790.3

809.4

746.4

799.1

Net earnings
541.1

586.4

370.1

446.1

463.9

Net earnings per diluted share
4.45

4.75

2.96

3.55

3.59

Weighted-average number of diluted common shares
121.6

123.5

125.1

125.5

129.1

BALANCE SHEET AND CASH FLOW DATA
 
 
 
 
 
Total assets a
$
6,660.1

$
5,333.0

$
5,468.1

$
5,097.6

$
5,121.6

Cash and cash equivalents
874.7

792.6

970.7

928.0

843.6

Inventories, net
2,463.9

2,428.0

2,253.5

2,157.6

2,225.0

Short-term borrowings and long-term debt (including current portion)
1,032.0

996.8

1,003.5

1,107.1

1,095.8

Stockholders' equity
3,335.4

3,130.9

3,248.2

3,028.4

2,929.5

Working capital a
2,905.1

3,041.4

3,258.5

2,940.8

2,778.5

Cash flows from operating activities
670.9

531.8

932.2

705.7

817.4

Capital expenditures
320.6

282.1

239.3

222.8

252.7

Stockholders' equity per share
27.53

25.77

26.10

24.33

23.10

Cash dividends paid per share
2.29

2.15

1.95

1.75

1.58

RATIO ANALYSIS AND OTHER DATA
 
 
 
 
 
As a percentage of net sales:
 
 
 
 
 
Gross profit
62.4
%
63.3
%
62.6
%
62.4
%
61.0
%
Selling, general & administrative expenses
45.9
%
45.5
%
43.2
%
43.8
%
41.6
%
Earnings from operations
16.6
%
17.8
%
19.4
%
18.7
%
19.5
%
Net earnings
12.2
%
13.2
%
8.9
%
11.1
%
11.3
%
Capital expenditures
7.2
%
6.4
%
5.7
%
5.6
%
6.2
%
Return on average assets a
9.0
%
10.9
%
7.0
%
8.7
%
9.0
%
Return on average stockholders' equity
16.7
%
18.4
%
11.8
%
15.0
%
16.1
%
Total debt-to-equity ratio
30.9
%
31.8
%
30.9
%
36.6
%
37.4
%
Dividends as a percentage of net earnings
51.1
%
45.0
%
65.5
%
49.0
%
43.8
%
Company-operated TIFFANY & CO. stores
326

321

315

313

307

Number of employees
14,100

14,200

13,100

11,900

12,200




TIFFANY & CO.
K-27


NOTES TO SELECTED FINANCIAL DATA

a.
In connection with the adoption of ASC 842 – Leases on February 1, 2019, the Company established a lease liability and corresponding right-of-use asset on the Consolidated Balance Sheet. The following amounts are recorded on the Consolidated Balance Sheet for operating leases as of January 31, 2020: (i) Operating lease right-of-use asset of $1.1 billion; (ii) Current portion of operating lease liabilities of $202.8 million and (iii) Long-term portion of operating lease liabilities of $1.0 billion. See "Item 8. Financial Statements and Supplementary Data - Note C. Summary of Significant Accounting Policies and Note K. Leases" for additional information.
b.
Financial information and ratios for 2019 include $21.2 million of pre-tax expense ($17.1 million after tax expense, or $0.14 per diluted share) related to the proposed Merger. See "Item 8. Financial Statements and Supplementary Data - Note B. Entry into Merger Agreement" for additional information.
c.
Financial information and ratios for 2019 and 2018 reflect a lower effective income tax rate, primarily resulting from the 2017 U.S. Tax Cuts and Jobs Act. See "Item 8. Financial Statements and Supplementary Data - Note P. Income Taxes" for additional information.
d.
Financial information and ratios for 2017 include $146.2 million, or $1.17 per diluted share, of net tax expense related to the enactment of the 2017 U.S. Tax Cuts and Jobs Act. See "Item 8. Financial Statements and Supplementary Data - Note P. Income Taxes" for additional information.
e.
Financial information and ratios for 2016 include the following amounts, totaling $38.0 million of pre-tax expense ($24.0 million after tax expense, or $0.19 per diluted share):
$25.4 million of pre-tax expense ($16.0 million after tax expense, or $0.13 per diluted share) associated with an asset impairment charge related to software costs capitalized in connection with the development of a finished goods inventory management and merchandising information system; and
$12.6 million of pre-tax expense ($8.0 million after tax expense, or $0.06 per diluted share) associated with impairment charges related to financing arrangements with diamond mining and exploration companies.
f.
Financial information and ratios for 2015 include the following amounts, totaling $46.7 million of pre-tax expense ($29.9 million after tax expense, or $0.24 per diluted share):
$37.9 million of pre-tax expense ($24.3 million after tax expense, or $0.19 per diluted share) associated with impairment charges related to a financing arrangement with Koidu Limited, a diamond mining and exploration company; and
$8.8 million of pre-tax expense ($5.6 million after tax expense, or $0.05 per diluted share) associated with severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations would be recovered.


TIFFANY & CO.
K-28


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 fiscal years which ended on January 31 of the following calendar year.

ENTRY INTO MERGER AGREEMENT

On November 24, 2019, Tiffany & Co. (the "Registrant") entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Registrant, LVMH Moët Hennessy - Louis Vuitton SE, a societas Europaea (European company) organized under the laws of France ("Parent"), Breakfast Holdings Acquisition Corp., a Delaware corporation and an indirect wholly owned subsidiary of Parent ("Holding"), and Breakfast Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Holding ("Merger Sub"). Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Registrant (the "Merger"), with the Registrant continuing as the surviving company in the Merger and a wholly owned indirect subsidiary of Parent.

For additional information related to the Merger Agreement, please refer to the Registrant's Definitive Proxy Statement on Schedule 14A filed with the U.S. Securities and Exchange Commission (the "SEC") on January 6, 2020 and "Item 1. Business – Entry into Merger Agreement."

KEY STRATEGIC PRIORITIES

The Company's key strategic priorities are to:

Amplify an evolved brand message.

The Brand is the single most important asset of Tiffany and, indirectly, of the Company. Management intends to increasingly invest in and evolve marketing and public relations programs through a variety of media designed to build awareness of the Brand, its heritage and its products, as well as to enhance the Brand's association with quality and luxury by consumers.

Renew the Company's product offerings and enhance in-store presentations.

The Company's product development strategy is to accelerate the introduction of new design collections, primarily in jewelry, but also in non-jewelry products, and/or expand certain existing collections annually, all of which are intended to appeal to existing and new customers.

To ensure a superior shopping experience, the Company is focused on enhancing the design of its stores, as well as the creative visual presentation of its merchandise, to provide an engaging luxury experience in both its new and existing stores.

Deliver an exciting omnichannel customer experience.

Management intends to continue to expand and optimize its global store base by evaluating potential markets for new TIFFANY & CO. stores, as well as through the renovation, relocation, or closing of existing stores. Management will also continue to pursue opportunities to grow sales through its e-commerce websites and utilize the websites to drive store traffic. In addition, the Company employs highly qualified sales and customer service professionals and is focused on developing effective omnichannel relationships with its customers.

Strengthen the Company's competitive position and lead in key markets.

The global jewelry industry is competitively fragmented. While the Company enjoys a strong reputation and large customer base, it encounters significant competition in all product categories and geographies. By focusing on enhanced marketing communications, product development and optimization of its store base and digital capabilities, the Company's objective is to be an industry leader in key markets.


TIFFANY & CO.
K-29


Cultivate a more efficient operating model.

The Company is focused on improving its business operations through new systems, more effective processes and cost restraint, to drive margin growth. This includes realizing greater efficiencies in its product supply chain and other operations, and enhancing its global procurement capabilities. The Company has developed a substantial product supply infrastructure for the procurement and processing of diamonds and the manufacturing of jewelry. This infrastructure is intended to ensure adequate product supply and favorable product costs while adhering to the Company's quality and ethical standards.

Inspire an aligned and agile organization to win.

The Company's success depends upon its people and their effective execution of the Company's strategic priorities. The Company's management strives to motivate and develop employees with the core competencies and adaptability needed to achieve its objectives.

By pursuing these key strategic priorities, management is committed to the following long-term financial objectives:

To achieve sustainable sales growth.

Management's objective is to generate mid-single-digit percentage worldwide sales increases, primarily through comparable sales growth, as well as through modest store square footage growth.

To increase retail productivity and profitability.

Management is focused on increasing the frequency of store and website visits and the percentage of store and website visitors who make a purchase, as well as optimizing utilization of store square footage, and growing sales, average price per unit sold and sales per square foot.

To achieve improved operating margins, through both improved gross margins and efficient expense management.

Management's long-term objective is to improve gross margins, including through controlling product input costs, realizing greater efficiencies in its product supply chain and adjusting retail prices when appropriate. Additionally, management is focused on efficient selling, general and administrative expense management, thereby generating sales leverage on fixed costs. These efforts are collectively intended to generate a higher rate of operating earnings growth relative to sales growth, and management targets an improvement in operating margin of 50 basis points per year over the long term.

To improve inventory and other asset productivity and cash flow.

Management's long-term objective is to maintain inventory growth at a rate less than sales growth, with greater focus on efficiencies in product sourcing and manufacturing as well as optimizing store inventory levels, all of which is intended to contribute to improvements in cash flow and return on assets.

To maintain a capital structure that provides financial strength and the ability to invest in strategic initiatives.

2019 SUMMARY

Worldwide net sales were approximately unchanged compared to the prior year. Comparable sales decreased 1% from the prior year. On a constant-exchange-rate basis (see "Non-GAAP Measures" below), worldwide net sales increased 1% and comparable sales were approximately unchanged.

The Company added a net of five TIFFANY & CO. stores (opening four in Japan, two in the Americas, two in Asia-Pacific and one in Europe, while closing two stores in the Americas, one store in Asia-Pacific and one store in Japan) and relocated or renovated 18 existing stores. Gross retail square footage increased 3%, net.


TIFFANY & CO.
K-30


Earnings from operations as a percentage of net sales ("operating margin") decreased 120 basis points, which included the impact of costs recorded in 2019 related to the proposed Merger, as described below under "Non-GAAP Measures." Excluding these costs, operating margin decreased 80 basis points due to a decrease in gross margin.

The Company's effective income tax rate increased to 21.6% in 2019 from 21.1% in 2018.

Net earnings decreased to $541.1 million, or $4.45 per diluted share, in 2019 from $586.4 million, or $4.75 per diluted share, in 2018. Net earnings in 2019 included the impact of costs related to the proposed Merger, as described below under "Non-GAAP Measures." Excluding these costs, net earnings decreased to $558.2 million, or $4.59 per diluted share.

Inventories, net did not change significantly from 2018.

Cash flow from operating activities was $670.9 million in 2019, compared with $531.8 million in 2018. Free cash flow (see "Non-GAAP Measures") was $350.3 million in 2019, compared with $249.7 million in 2018.

The Company returned capital to shareholders by paying regular quarterly dividends (which were increased 5% effective July 2019 to $0.58 per share, or an annualized rate of $2.32 per share) and by repurchasing 1.8 million shares of its Common Stock for $163.4 million.


NOVEL CORONAVIRUS

As discussed under "Item 1A. Risk Factors," an outbreak of a novel strain of the coronavirus, COVID-19, was recently identified in China and has subsequently been recognized as a pandemic by the World Health Organization. This coronavirus outbreak has severely restricted the level of economic activity around the world. In response to this coronavirus outbreak the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. Management expects that these actions could have a negative impact on local and tourist spending around the world. Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily. Further, individuals' ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of travel-related businesses. These actions have expanded significantly in the past several weeks and are expected to continue to expand. Given the uncertainty regarding the spread of this coronavirus, the related financial impact cannot be reasonably estimated at this time, although the aforementioned actions and related impacts are expected to continue and may also significantly affect the Company's business in other geographic areas in which the coronavirus has spread and may continue to spread. The Company intends to continue to execute on its strategic plans and operational initiatives during the coronavirus outbreak. However, the uncertainties associated with the protective and preventative measures being put in place or recommended by both governmental entities and other businesses, among other uncertainties, may result in delays or modifications to these plans and initiatives.

As a result, this coronavirus outbreak has had a significant effect on the Company's sales results to date in fiscal 2020 and is expected to continue to have a significant effect on its financial results during the current fiscal year. For example, from January 24 through March 19, 2020, management estimates that this coronavirus outbreak contributed to the loss of approximately 30 out of 54 retail trading days (accounting for the effect of individual store closures as well as reductions in store operating hours) across all of the Company's stores in the Chinese Mainland. In addition, as of March 19, 2020, the Company has temporarily closed all of its stores in the United States and Canada, and has temporarily closed nearly all of its stores across Europe and the United Kingdom. The Company has also experienced significantly reduced customer traffic from January 24 through March 19 in its stores that have been open during such period, which management believes has resulted in part from a reduction in tourism as well as restrictions on travel and limitations affecting individuals' ability to spend time in public areas, with attendant sales declines to date in fiscal 2020 in those stores.



TIFFANY & CO.
K-31


RESULTS OF OPERATIONS

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019 for a comparative discussion of the Company's operating results and financial condition for its fiscal years ended January 31, 2019 and 2018.

Non-GAAP Measures

The Company reports information in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). Internally, management also monitors and measures its performance using certain sales and earnings measures that include or exclude amounts, or are subject to adjustments that have the effect of including or excluding amounts, from the most directly comparable GAAP measure ("non-GAAP financial measures"). The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with useful supplemental information that will allow them to evaluate the Company's operating results using the same measures that management uses to monitor and measure its performance. The Company's management does not, nor does it suggest that investors should, consider non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP financial measures presented here may not be comparable to similarly-titled measures used by other companies.

Net Sales. The Company's reported net sales reflect either a translation-related benefit from strengthening foreign currencies or a detriment from a strengthening U.S. dollar. Internally, management monitors and measures its sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating sales made outside the U.S. into U.S. dollars ("constant-exchange-rate basis"). Sales on a constant-exchange-rate basis are calculated by taking the current year's sales in local currencies and translating them into U.S. dollars using the prior year's foreign currency exchange rates. Management believes this constant-exchange-rate basis provides a useful supplemental basis for the assessment of sales performance and of comparability between reporting periods. The following table reconciles the sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year.

 
2019
 
2018
 
GAAP 
Reported
 
Translation
Effect
 
Constant-
Exchange-
Rate Basis
 
GAAP 
Reported
 
Translation
Effect
 
Constant-
Exchange-
Rate Basis
Net Sales:
 
 
 
 
 
 
 
 
 
 
 
Worldwide
 %
 
(1
)%
 
1
 %
 
7
 %
 
1
%
 
6
 %
Americas
(2
)
 

 
(2
)
 
5

 

 
5

Asia-Pacific
2

 
(3
)
 
5

 
13

 

 
13

Japan
1

 
1

 

 
8

 
2

 
6

Europe
(1
)
 
(3
)
 
2

 
3

 
1

 
2

Other
(2
)
 

 
(2
)
 
(20
)
 

 
(20
)
 
 
 
 
 
 
 
 
 
 
 
 
Comparable Sales:
 
 
 
 
 
 
 
 
 
 
 
Worldwide
(1
)%
 
(1
)%
 
 %
 
4
 %
 
%
 
4
 %
Americas
(2
)
 

 
(2
)
 
5

 

 
5

Asia-Pacific
(1
)
 
(4
)
 
3

 
5

 

 
5

Japan

 
1

 
(1
)
 
7

 
2

 
5

Europe
(1
)
 
(3
)
 
2

 
(2
)
 
1

 
(3
)
Other
(9
)
 

 
(9
)
 
(15
)
 

 
(15
)


TIFFANY & CO.
K-32


 
2019
 
2018
 
GAAP 
Reported
 
Translation
Effect
 
Constant-
Exchange-
Rate Basis
 
GAAP 
Reported
 
Translation
Effect
 
Constant-
Exchange-
Rate Basis
Jewelry sales by product category:
 
 
 
 
 
 
 
 
 
 
 
Jewelry collections
2
 %
 
(1
)%
 
3
 %
 
11
 %
 
%
 
11
 %
Engagement jewelry
(2
)
 
(2
)
 

 
4

 

 
4

Designer jewelry
(6
)
 
(1
)
 
(5
)
 
(1
)
 

 
(1
)

Statements of Earnings. Internally, management monitors and measures its earnings performance excluding certain items listed below. Management believes excluding such items provides a useful supplemental basis for the assessment of the Company's results relative to the corresponding period in the prior year. The following tables reconcile certain GAAP amounts to non-GAAP amounts:
(in millions, except per share amounts)
GAAP
 
Charges related to the proposed Merger a
 
Non-GAAP
Year Ended January 31, 2020
 
 
 
 
 
Gross Profit
$
2,761.9

 
$
1.0

 
$
2,762.9

As a % of sales
62.4
%
 
0.1
 %
 
62.5
%
Selling, general & administrative expenses
2,029.3

 
(20.2
)
 
2,009.1

As a % of sales
45.9
%
 
(0.5
)%
 
45.4
%
Earnings from operations
732.6

 
$
21.2

 
753.8

As a % of sales
16.6
%
 
0.4
 %
 
17.0
%
Provision for income taxes
149.2

 
$
4.1

 
153.3

Effective income tax rate
21.6
%
 
(0.1
)
 
21.5
%
Net earnings
541.1

 
17.1

 
558.2

Diluted earnings per share
4.45

 
0.14

 
4.59


a 
Costs recorded in 2019 related to the proposed Merger. See "Item 8. Financial Statements and Supplementary Data - Note B. Entry into Merger Agreement" for additional information.

Free Cash Flow. Internally, management monitors its cash flow on a non-GAAP basis. Free cash flow is calculated by deducting capital expenditures from net cash provided by operating activities. The ability to generate free cash flow demonstrates how much cash the Company has available for discretionary and non-discretionary purposes after deduction of capital expenditures. The Company's operations require regular capital expenditures for the opening, renovation and expansion of stores and distribution and manufacturing facilities as well as ongoing investments in information technology. Management believes this provides a useful supplemental basis for assessing the Company's operating cash flows. The following table reconciles GAAP net cash provided by operating activities to non-GAAP free cash flow:
(in millions)
2019

2018

2017

Net cash provided by operating activities a
        $
670.9

        $
531.8

        $
932.2

Less: Capital expenditures a
(320.6
)
(282.1
)
(239.3
)
Free cash flow
        $
350.3

        $
249.7

        $
692.9

a 
See "Liquidity and Capital Resources" below for further information on the Company's cash flows.

TIFFANY & CO.
K-33


Comparable Sales

Comparable sales include sales transacted in Company-operated stores open for more than 12 months. Sales from e-commerce sites are included in comparable sales for those sites that have been operating for more than 12 months. Sales for relocated stores are included in comparable sales if the relocation occurs within the same geographical market. In all markets, the results of a store in which the square footage has been expanded or reduced remain in the comparable sales base.

Net Sales

The Company generates sales through its retail, Internet, wholesale, business-to-business and catalog channels (see "Item 1. Business - Reportable Segments").

Net sales by segment were as follows:
(in millions)
 
2019

% of Total Net Sales

 
2018

% of Total Net Sales

 
2017

% of Total Net Sales

 
2019 vs 2018
% Change in Net Sales

 
2018 vs 2017
% Change in Net Sales

Americas
 
$
1,924.0

43
%
 
$
1,960.3

44
%
 
$
1,870.9

45
%
 
(2
)%
 
5
 %
Asia-Pacific
 
1,258.2

28

 
1,239.0

28

 
1,095.0

26

 
2

 
13

Japan
 
649.8

15

 
643.0

15

 
596.3

14

 
1

 
8

Europe
 
498.3

11

 
504.4

11

 
489.0

12

 
(1
)
 
3

Other
 
93.7

2