10-K 1 tif-2016131x10k.htm 10-K 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the fiscal year ended January 31, 2016
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
(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.)
 
 
727 Fifth Avenue, New York, NY
 
10022
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (212) 755-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 par value per share

 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x    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 x 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨
(Do not check if a smaller reporting company)
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x 
As of July 31, 2015, the aggregate market value of the registrant's voting and non-voting stock held by non-affiliates of the registrant was approximately $12,261,388,517 using the closing sales price on this day of $95.70. See Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of March 23, 2016, the registrant had outstanding 126,039,812 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 8, 2016 (Part III).

TIFFANY & CO.
K-1


Tiffany & Co.
Table of Contents
Form 10-K for the fiscal year ended January 31, 2016
 
 
Page
 
 
Item 1.
K-3
Item 1A.
K-13
Item 1B.
K-20
Item 2.
K-20
Item 3.
K-21
Item 4.
K-23
 
 
 
 
 
Item 5.
K-24
Item 6.
K-27
Item 7.
K-29
Item 7A.
K-53
Item 8.
K-54
Item 9.
K-105
Item 9A.
K-105
Item 9B.
K-106
 
 
 
 
 
Item 10.
K-107
Item 11.
K-107
Item 12.
K-107
Item 13.
K-107
Item 14.
K-107
 
 
 
 
 
Item 15.
K-108






SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements in this Annual Report on Form 10-K, including documents incorporated herein by reference, that refer to plans and expectations for future periods are forward-looking statements that involve a number of risks and uncertainties. Words such as 'expects,' 'intends,' 'anticipates,' 'forecasts,' 'plans,' 'believes,' 'continues,' 'may,' 'will,' and variations of such words and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding the Company's objectives, expectations and beliefs with respect to store openings and closings, product introductions, sales, sales growth, retail prices, gross margin, expenses, operating margin, interest expense and financing costs, effective income tax rate, net earnings and net earnings per share, inventories, capital expenditures, cash flow, liquidity, currency translation and growth opportunities. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control, which could cause the Company's actual results to differ materially from those indicated in these forward-looking statements. Such factors include, but are not limited to, risks from global economic conditions, decreases in consumer confidence, the Company's significant operations outside of the United States, regional instability and conflict that could disrupt tourist travel and local consumer spending, weakening foreign currencies, changes in the Company's product or geographic sales mix and changes in costs or reduced supply availability of diamonds and precious metals. Please also see the Company's risk factors, as they may be amended from time to time, set forth in the Company's filings with the Securities and Exchange Commission, including in this Annual Report, particularly under "Item 1A. Risk Factors" for a discussion of these and other factors that could cause actual results to differ materially. 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-2


PART I

Item 1. Business.

GENERAL HISTORY OF BUSINESS

Tiffany & Co. (the "Registrant") is a holding company that operates through its subsidiary companies (collectively, the "Company"). The Registrant's principal subsidiary is Tiffany and Company ("Tiffany"). 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.


FINANCIAL INFORMATION ABOUT REPORTABLE SEGMENTS

The Company's segment information for the fiscal years ended January 31, 2016, 2015 and 2014 is reported in "Item 8. Financial Statements and Supplementary Data - Note P - Segment Information."


NARRATIVE DESCRIPTION OF BUSINESS

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


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 and to accept reduced overall gross margins; 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;
In-store display practices enable Tiffany to showcase fine jewelry in a manner consistent with the Brand's positioning but require sufficient space;
The classic positioning of much of Tiffany's product line supports the Brand, but limits the display space that can be allocated to new product introductions;
Tiffany's packaging supports consumer expectations with respect to the Brand but is expensive; and

TIFFANY & CO.
K-3


A significant amount of advertising is 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

Americas

Sales in the Americas were 47% of worldwide net sales in 2015, while sales in the U.S. represented 88% of net sales in the Americas.

Retail Sales. Retail sales in the Americas are transacted in 124 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 2016 included in parentheses): the U.S. (95), Canada (12), Mexico (11), Brazil (5) and Chile (1). Included within these totals are 12 Company-operated stores located within various department stores in Canada and Mexico.

Internet and Catalog Sales. The Company distributes a selection of its products in the U.S. and Canada through the websites at www.tiffany.com and www.tiffany.ca. To a lesser extent, sales are also generated through catalogs that the Company distributes to its proprietary list of customers in the U.S. and Canada.

Business-to-Business Sales. Sales executives call on business clients, primarily in the U.S., selling products drawn from the retail product line and items specially developed for the business market, including trophies and items designed for the particular customer. Such sales represent approximately 1% of worldwide net sales.

Wholesale Distribution. Selected TIFFANY & CO. merchandise is sold to independent distributors for resale in markets in the Central/South American and Caribbean regions. Such sales represent less than 1% of worldwide net sales.

Asia-Pacific

Sales in Asia-Pacific represented 24% of worldwide net sales in 2015, while sales in Greater China represented more than half of Asia-Pacific's net sales.

Retail Sales. Retail sales in Asia-Pacific are transacted in 81 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 2016 included in parentheses): China (30), Korea (14), Hong Kong (9), Taiwan (8), Australia (7), Singapore (6), Macau (4), Malaysia (2) and Thailand (1). Included within these totals are 29 Company-operated stores located within various department stores.

Internet Sales. The Company offers a selection of TIFFANY & CO. merchandise for purchase in Australia through its website at www.tiffany.com.au.

Wholesale Distribution. Selected TIFFANY & CO. merchandise is sold to independent distributors for resale in certain markets. Such sales represent approximately 2% of worldwide net sales.

TIFFANY & CO.
K-4


Japan

Sales in Japan represented 13% of worldwide net sales in 2015.

Retail Sales. Retail sales in Japan are transacted in 56 Company-operated TIFFANY & CO. stores. Included within this total are 51 stores located within department stores, generating approximately 70% of Japan's net sales. 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, 2016 included in parentheses): Isetan Mitsukoshi Ltd. (13), J. Front Retailing Co., Ltd. (Daimaru and Matsuzakaya department stores) (9), Takashimaya Co., Ltd. (9) and Seven & i Holding Co., Ltd. (Sogo and Seibu department stores) (5). The Company also operates 15 stores in other department stores.

Internet Sales. The Company offers a selection of TIFFANY & CO. merchandise for purchase in Japan through its website at www.tiffany.co.jp.

Business-to-Business Sales. Products drawn from the retail product line and items specially developed are sold to business customers. Such sales represent less than 1% of worldwide net sales.

Wholesale Distribution. Selected TIFFANY & CO. merchandise is sold to independent distributors for resale in Japan. Such sales represent less than 1% of worldwide net sales.

Europe

Sales in Europe represented 12% of worldwide net sales in 2015, while sales in the United Kingdom ("U.K.") represented approximately 40% of European net sales.

Retail Sales. Retail sales in Europe are transacted in 41 Company-operated TIFFANY & CO. stores in (number of stores at January 31, 2016 included in parentheses): the U.K. (10), Germany (7), Italy (7), France (5), Spain (3), Switzerland (3), Austria (1), Belgium (1), the Czech Republic (1), Ireland (1), the Netherlands (1) and Russia (1). Included within these totals are seven Company-operated stores located within various department stores.

Internet Sales. The Company offers a selection of TIFFANY & CO. merchandise for purchase in the U.K., Austria, Belgium, France, Germany, Ireland, Italy, the Netherlands and Spain through its websites, which are accessible through www.tiffany.com.

Other

Other consists of all non-reportable segments, including: (i) retail sales and wholesale distribution in the Emerging Markets region (which represented approximately 75% of Other net sales in 2015); (ii) wholesale sales of diamonds; and (iii) licensing agreements.

Emerging Markets region. Retail sales are transacted in five Company-operated TIFFANY & CO. stores in the United Arab Emirates ("U.A.E."). Additionally, selected TIFFANY & CO. merchandise is sold to independent distributors for resale in certain emerging markets (primarily in the Middle East). Such wholesale sales represent less than 1% of worldwide net sales.

Wholesale Sales of Diamonds. The Company regularly purchases parcels of rough diamonds for polishing and further processing. Some rough diamonds so purchased, and a small percentage of diamonds so polished, are found not to be suitable for the Company's needs; those diamonds are sold to third parties. Management's objective from such sales is to recoup its original costs, thereby earning minimal, if any, gross margin on those transactions.


TIFFANY & CO.
K-5


Licensing Agreement. The Company receives earnings from a licensing agreement with Luxottica Group for the distribution of TIFFANY & CO. brand eyewear. The earnings received from this licensing agreement represented less than 1% of worldwide net sales in 2015.

In 2015, the Company entered into a licensing agreement with Coty Inc. regarding the development, production and distribution of a new line of TIFFANY & CO. brand fragrances. The Company did not receive any earnings from this agreement in 2015, and does not expect to receive any such earnings in 2016.

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, in certain instances, 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 2005:
 
Americas
 
 
 
 
 
Year:
U.S.

Canada &
Latin America

Asia-Pacific

Japan

Europe

Emerging Markets

Total

2005
59

7

25

50

13


154

2006
64

9

28

52

14


167

2007
70

10

34

53

17


184

2008
76

10

39

57

24


206

2009
79

12

45

57

27


220

2010
84

12

52

56

29


233

2011
87

15

58

55

32


247

2012
91

24

66

55

34

5

275

2013
94

27

72

54

37

5

289

2014
95

27

73

56

39

5

295

2015
95

29

81

56

41

5

307


As part of the Company's real estate strategy, management plans to increase gross retail square footage by approximately 2%, net through the addition of new stores, relocations, renovations and closings in 2016. For a summary of the Company's existing retail square footage, see "Item 2. Properties".

As noted above, the Company currently operates e-commerce enabled websites in 13 countries as well as informational websites in several additional countries. Sales transacted on those websites accounted for 6% of worldwide net sales in 2015, 2014 and 2013. The Company invests in ongoing website enhancements and is evaluating opportunities to expand its e-commerce sites to additional countries in the future. In addition, management believes that these websites serve a role as marketing tools to attract customers to the Company's stores.

Products

The Company's principal product category is jewelry, which represented 93%, 92%, and 92% of worldwide net sales in 2015, 2014 and 2013. The Company offers an extensive selection of TIFFANY &

TIFFANY & CO.
K-6


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 timepieces, leather goods, sterling silver goods (other than jewelry), china, crystal, stationery, fragrances and accessories, which represented, in total, 7% of worldwide net sales in 2015, 2014 and 2013. The remaining approximately 1% of worldwide net sales were attributable to wholesale sales of diamonds and earnings received from a third-party licensing agreement.

Sales by Reportable Segment of TIFFANY & CO. Jewelry by Category
2015
% of total
Americas
 Sales

% of total
Asia-Pacific
Sales

% of total
Japan
Sales

% of total
Europe
Sales

% of total
Reportable
Segment Sales

Statement, fine & solitaire jewelry a 
23
%
25
%
19
%
17
%
22
%
Engagement jewelry & wedding bands b 
23
%
35
%
43
%
25
%
29
%
Fashion jewelry c 
43
%
38
%
31
%
54
%
42
%
2014
 
 
 
 
 
Statement, fine & solitaire jewelry a 
23
%
24
%
20
%
17
%
22
%
Engagement jewelry & wedding bands b 
23
%
38
%
46
%
24
%
30
%
Fashion jewelry c 
44
%
37
%
27
%
56
%
41
%
2013
 
 
 
 
 
Statement, fine & solitaire jewelry a 
23
%
27
%
20
%
19
%
23
%
Engagement jewelry & wedding bands b 
23
%
36
%
47
%
25
%
30
%
Fashion jewelry c 
44
%
36
%
26
%
53
%
40
%
a) This category includes statement, fine and solitaire jewelry (other than engagement jewelry). Most sales in this category are of items containing diamonds, other gemstones or both. Most jewelry in this category is constructed of platinum, although gold was used as the primary metal in approximately 15% of sales in 2015. The average price of merchandise sold in 2015, 2014 and 2013 in this category was approximately $5,700, $5,400 and $5,300 for total reportable segments.
b) This category includes engagement rings (approximately 60% of the category) and wedding bands. Most sales in this category are of items containing diamonds. Most jewelry in this category is constructed of platinum, although gold was used as the primary metal in approximately 9% of sales in 2015. The average price of merchandise sold in 2015, 2014 and 2013 in this category was approximately $3,300, $3,600 and $3,600 for total reportable segments.
c) This category generally consists of non-gemstone jewelry, divided approximately equally between sterling silver and gold jewelry, although small gemstones are used as accents in some pieces. The average price of merchandise sold in 2015, 2014 and 2013 in this category was approximately $355, $335 and $300 for total reportable segments.


TIFFANY & CO.
K-7


ADVERTISING, MARKETING, PUBLIC AND MEDIA RELATIONS

The Company regularly advertises in newspapers, magazines and through digital 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 2015, 2014 and 2013, the Company spent $302.0 million, $284.0 million and $253.2 million, representing 7.4%, 6.7% and 6.3% 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 a program of charitable sponsorships, grants and merchandise donations. The Company also periodically makes donations to The Tiffany & Co. Foundation, a private foundation organized to support 501(c)(3) charitable organizations. The efforts of this Foundation are primarily focused on environmental conservation and urban parks.


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

TIFFANY & CO.
K-8


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 8%, 8% and 9% of the Company's worldwide net sales in 2015, 2014 and 2013.

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 provisions of the Peretti Agreement. The Peretti Agreement is terminable by Ms. Peretti only 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 manufactures jewelry in New York, Rhode Island, Kentucky and Thailand, polishes jewelry in the Dominican Republic and crafts silver hollowware in Rhode Island. The Company processes, cuts and polishes diamonds at other facilities outside the U.S. In total, these internal manufacturing facilities produce approximately 60% of the merchandise sold by the Company. The balance, including 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 product quality, product cost, access to or mastery of various jewelry-making skills and technology, support for alternative capacity and the cost of capital investments. To supply its internal manufacturing facilities, the Company sources precious metals, rough diamonds (which it processes in its own facilities), polished diamonds and other gemstones.

Supply of Diamonds. The vast majority of diamonds acquired by the Company originate from Botswana, Canada, Namibia, Russia, Sierra Leone and South Africa. The Company regularly purchases parcels of rough diamonds for polishing and further processing. The Company has diamond processing operations in Belgium, Botswana, Cambodia, Mauritius and Vietnam that prepare, cut and/or polish rough diamonds for its use. The Company's operation in Botswana allows it to access rough diamond allocations reserved for

TIFFANY & CO.
K-9


local manufacturers. The Company conducts that operation through a subsidiary in which local third-parties own minority, non-controlling interests. 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, from time to time, secures supplies of rough diamonds by agreeing to purchase a defined portion of a mine's output at the market price prevailing at the time of production. Under such agreements, management anticipates that it will purchase approximately $100.0 million of rough diamonds in 2016. However, the Company will also purchase rough diamonds from other suppliers, although it has no contractual obligations to do so. In certain instances, the Company has provided loans to, or made equity investments in, mining projects in order to secure diamond supplies.

It is occasionally necessary to knowingly purchase mixed assortments of rough diamonds that contain a limited quantity of rough diamonds that cannot be cut and polished to meet the Company's quality standards or assortment needs. Rough diamonds so purchased, as well as a small percentage of such diamonds that have been polished, are sold to third parties when they are found not to be suitable for the Company's needs. Management's objective from such sales, included in the Other non-reportable segment, is to recoup its original costs, thereby earning minimal, if any, gross margin on those transactions. As a result, these sales have had, and are expected to continue to have, the effect of modestly reducing the Company's overall gross margins.

In recent years, approximately 70% - 80% (by dollar value) of the polished diamonds used in jewelry have been produced from rough diamonds that the Company has purchased. The balance of the Company's needs for polished diamonds is purchased from polishers or polished-diamond dealers generally through purchase orders for fixed quantities. These relationships 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 majority of its needs for diamonds by purchasing and polishing rough diamonds.

Products containing one or more diamonds of varying sizes, including diamonds used as accents, side-stones and center-stones, accounted for 59%, 58% and 58% of worldwide net sales in 2015, 2014 and 2013. Products containing one or more diamonds of one carat or larger accounted for 14%, 14% and 15% of worldwide net sales in each of those years.

Conflict Diamonds. Media attention has been drawn to the issue of "conflict" or "blood" diamonds. These terms are 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 Company and nongovernment organizations, seek to exclude "conflict" or "blood" 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 and Angola underscore that the aforementioned system does not control diamonds produced in state-sanctioned mines under poor working conditions. The Company has informed its vendors that it does not intend to purchase Zimbabwean or Angolan-produced diamonds. Accordingly, the Company has implemented the Diamond Source Warranty Protocol, which requires vendors to provide a warranty that loose polished diamonds were not obtained from Zimbabwean or Angolan mines.


TIFFANY & CO.
K-10


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 2015 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 colorless diamonds, in high 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 produce 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 Other Polished Gemstones and Precious Metals. Other polished gemstones and precious metals used in making jewelry are purchased from a variety of sources. Most purchases are from suppliers with which Tiffany has maintained long-standing relationships.

The Company generally enters into purchase orders for fixed quantities with other polished gemstone and precious metals 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 the termination.

The Company purchases precious metals from several suppliers for use in its internal manufacturing operations and for use by third-party manufacturers contracted to supply Tiffany merchandise. The silver, gold and platinum sourced directly by the Company principally comes from two sources: in-ground, large-scale deposits of metals, primarily in the U.S., that meet the Company's standards for responsible mining and 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 Tiffany-supplied precious metals.

In recent years, there has been substantial volatility in the prices of precious metals.


TIFFANY & CO.
K-11


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 55 manufacturers, most of which have long-standing relationships with the Company. 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. For many years prior to 2007, the Company had arranged for the production of TIFFANY & CO. brand watches with various third-party Swiss component manufacturers and assemblers. In 2007, the Company entered into a 20-year license and distribution agreement (the "Agreement") with the Swatch Group for the manufacture and distribution of TIFFANY & CO. brand watches. In December 2013, an arbitral panel deemed the Agreement terminated at the request of the parties. The arbitration award stated that the effective date of termination was March 1, 2013. See "Item 3. Legal Proceedings" for additional information regarding the arbitration proceeding and the subsequent annulment action. Royalties payable to the Company under the Agreement were not significant in any year, and watches manufactured under the Agreement and sold in TIFFANY & CO. stores constituted 1% of worldwide net sales in 2013.

In April 2015, management introduced new TIFFANY & CO. brand watches, which have been designed, produced, marketed and distributed through certain of the Company's Swiss subsidiaries. In support of this introduction, 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 new TIFFANY & CO. brand watches represented approximately 1% of worldwide net sales in 2015. While management anticipates an increase in these sales in 2016, it does not expect this new watch business to increase the Company's profitability in 2016, as the Company expects to continue to invest significant resources in marketing to continue to build customer awareness and further establish product differentiation.

The effective development and growth of this watch business involves risks and uncertainties. Under the Agreement, the Swatch Group retained the right to sell watches marked with the TIFFANY & CO. trademark for a period of time subsequent to the termination of the Agreement and had no obligation to reacquire any inventory sold to retailers during this period. As such, the continued presence in the retail market of those TIFFANY & CO. brand watches produced under the Agreement may negatively impact the Company’s sales and marketing efforts for its new collection of watches.


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

TIFFANY & CO.
K-12


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 price for diamond jewelry reflects 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, 2016, the Company employed an aggregate of approximately 12,200 full-time and part-time persons. Of those employees, approximately 5,400 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. The public may read and copy these materials at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding Tiffany & Co. and other companies that electronically file materials with the SEC. Copies of the Company's reports on Form 10-K, Forms 10-Q and Forms 8-K may be obtained, free of charge, on the Company's website at http://investor.tiffany.com/financials.cfm.


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:

(i) 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; changes in the market value of securities and real estate; inflation; interest rates and the availability of consumer credit; tax rates; and expectations of future economic conditions and employment prospects.

TIFFANY & CO.
K-13


Consumer spending for discretionary goods generally declines during times of falling consumer confidence, which negatively affects the Company's sales and earnings because of its cost base and inventory investment.

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.

(ii) 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 would result in higher inventories in the short-term.

(iii) The Company conducts significant operations outside the United States, and the risks of doing business internationally could increase its costs, reduce its profits or disrupt its business.

The Company generates a majority of its worldwide net sales outside the United States. It also has foreign manufacturing operations, and relies on certain foreign third-party vendors and suppliers. In addition, the Company maintains investments in, and has provided loans to, certain foreign suppliers. As a result, the Company is subject to the risks of doing business outside the United States, including:
the laws, regulations and policies of foreign 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;
potential negative consequences from changes in taxation policies or currency restructurings;
import and export licensing requirements and regulations, as well as unforeseen changes in regulatory requirements;
economic instability in foreign countries;
challenges inherent in oversight of foreign operations, systems and controls; for example, in the fourth quarter of 2015, management identified inaccuracies in our Japan segment relating to the timing of recognizing sales and related costs, as well as inventory, at period-ends. Management determined these inaccuracies did not materially affect our annual or quarterly financial statements, including the reported financial information for our Japan segment. Management is continuing to review the processes and personnel involved and related remediation;
uncertainties as to enforcement of certain contract and other rights;
the potential for rapid and unexpected changes in government, economic and political policies, political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation; and

TIFFANY & CO.
K-14


inventory risk exposures.

While these factors and the effect of these factors 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.

(iv) Weakening foreign currencies would negatively affect the Company's sales and profitability.

The Company operates retail stores in more than 20 countries 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 and British Pound. In 2015, sales in countries outside of the U.S. in aggregate represented more than half of the Company's net sales and earnings from operations. A continued weakening of foreign currencies against the U.S. dollar would require the Company to raise its retail prices in order to maintain its worldwide relative pricing structure, or reduce its profit margins in various locations outside of the U.S. Consumers in those markets may not accept significant price increases on the Company's goods; thus, there is a risk that a continued weakening of foreign currencies would result in reduced sales and profitability. In addition, a continued weakening in foreign currency exchange rates 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 continues to strengthen 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.

(v) Regional instability and conflict could disrupt tourist travel and local consumer spending.

Unsettled regional and global conflicts or crises such as military actions, terrorist activities, natural disasters, government regulations or other conditions may negatively affect spending by foreign tourists and local consumers in the various regions where the Company operates retail stores which would adversely affect its sales and earnings. For example, management believes that a significant reduction in tourist travel and spending in France and other markets within Europe in the fourth quarter of 2015 were a result of the tragic terrorist attacks that occurred in Paris, France during that quarter.

(vi) 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. 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.

(vii) Increases in costs of diamonds 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 and non-jewelry offerings are made with diamonds, 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 and/or high-quality rough and polished diamonds within the quality grades, colors and sizes that customers demand

TIFFANY & CO.
K-15


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 and prices for natural diamonds may be affected.

(viii) Volatile global economic conditions may have a material adverse effect on the Company's liquidity and capital resources.

The global economy and the credit and equity markets have undergone significant disruption in recent years. Any prolonged economic weakness could have an adverse effect on the Company's cost of borrowing, could diminish its ability to service or maintain existing financing and could make it more difficult for the Company to obtain additional financing or to refinance existing long-term obligations. In addition, any significant deterioration in the equity markets could negatively affect the valuation of pension plan assets and result in increased minimum funding requirements.

(ix) The Company may be unable to lease sufficient space for its retail stores in prime locations.

The Company, positioned as a luxury goods retailer, has established its retail presence in choice store locations. If the Company cannot secure and retain locations on suitable terms in prime and desired luxury shopping locations, its expansion plans, sales and earnings could be jeopardized.

In Japan, many of the TIFFANY & CO. stores are located in department stores generating approximately 70% of the net sales in Japan, or 9% of worldwide net sales, in 2015. The Company also has TIFFANY & CO. stores located in department stores in other markets. Should one or more department store operators elect or be required to close one or more stores now housing a TIFFANY & CO. store, the Company's sales and earnings would be reduced while alternative premises were being obtained. The Company's commercial relationships with department stores, and their respective abilities to continue as leading department store operators, have been and will continue to affect the Company's business in Japan and the other markets.

(x) 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 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.

(xi) 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 and direct selling operations and merchandise

TIFFANY & CO.
K-16


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. products or in respect of the Company's third-party vendors or the diamond or jewelry industry, and any media coverage resulting therefrom, may harm the TIFFANY & CO. brand and reputation, cause a loss of consumer confidence in the TIFFANY & CO. brand and the industry, and negatively affect the Company's results of operations. The considerable expansion in the use of social media over recent years has compounded the potential scope of the negative publicity that could be generated by such incidents.

(xii) A significant data security or privacy breach of the Company's information systems could affect
its business.

The protection of customer, employee and Company data is important to the Company, and the Company's customers and employees expect that their personal information will be adequately protected. In addition, the regulatory environment surrounding information security and privacy is becoming increasingly demanding, with evolving requirements in the various jurisdictions in which the Company does business. Although the Company has developed and implemented systems and processes that are designed to protect personal and Company information and prevent data loss and other security breaches, such measures cannot provide absolute security. Additionally, the Company’s 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 information, 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 and Company information may also be adversely impacted by data security or privacy breaches that occur at its third-party vendors. The Company cannot control these vendors and therefore cannot guarantee that a data security or privacy breach of their systems will not occur in the future. A significant breach of customer, employee or Company data could damage the Company's reputation, its relationship with customers and the TIFFANY & CO. brand and could result in lost sales, sizable fines, significant breach-notification 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 those threats or to investigate or address potential or actual data security or privacy breaches.

(xiii) 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, security breaches or natural disasters. Damage, disruption or shutdown of the Company’s information systems may require a significant investment to fix 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 has commenced a 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

TIFFANY & CO.
K-17


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 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 and could also affect the Company's reputation, its relationship with customers and the TIFFANY & CO. brand, which could result in reduced sales and profitability.

(xiv) 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.

(xv) 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 merchandise 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.

(xvi) There is no assurance that the Company will be able to effectively and successfully develop its new watch business.

In April 2015, management introduced new TIFFANY & CO. brand watches, which have been designed, produced, marketed and distributed through certain of the Company's Swiss subsidiaries. The effective development and growth of a watch business has required and will continue to require additional resources and involves risks and uncertainties, including: (i) significant ongoing expenditures; (ii) the need to employ highly specialized and experienced personnel; (iii) new regulatory requirements; (iv) dependence on relatively small supply partners; (v) production and distribution inefficiencies; and (vi) the need to efficiently integrate operations with the Company’s existing business models. Sales of these new TIFFANY & CO. brand watches represented approximately 1% of worldwide net sales in 2015. While management anticipates an increase in these sales in 2016, it does not expect this new watch business to increase the Company's profitability in 2016. As with any new business, the Company is competing with businesses with stronger market positions and has invested and will continue to invest significant resources in marketing to build customer awareness and to establish product differentiation. Despite the Company's efforts, there is, however, no assurance that the Company will be able to effectively grow its new watch business or that such business will be successful in growing the Company's revenues or enhancing its profitability.


TIFFANY & CO.
K-18


(xvii) If diamond mining and exploration companies to which the Company or its subsidiaries have provided financing were to experience financial difficulties, those funds might not be recovered, which would reduce the Company's earnings and could result in losing access to the mine's output.

The Company and its subsidiaries may, from time to time, provide financing to diamond mining and exploration companies in order to obtain rights to purchase mining output. Mining operations are inherently risky, and often occur in regions subject to additional political, social and environmental risks, such as the resurgence of the Ebola virus in 2014 in certain regions of Africa. Given these risks, there is no assurance that the diamond mining and exploration companies subject to these arrangements will be able to meet their obligations to the Company under their financing agreements or related diamond supply agreements. If a diamond mining or exploration company defaults under its financing agreement, the Company would be required to evaluate whether it should take a period charge in respect of all or a portion of the financing, which would affect the Company's earnings. Additionally, the circumstances leading to a default under a diamond financing agreement could also result in the Company losing access to the mine's output under the related supply agreements.

In 2015, the Company recorded $37.9 million of impairment charges, and related valuation allowances, associated with a $43.8 million financing arrangement with Koidu Limited (previously Koidu Holdings S.A.). Management will continue to evaluate the collectability of the financing arrangement, and it is possible that such ongoing evaluation may result in additional changes to management's assessment of collectability. While such changes in management's assessment would not have a material adverse effect on the Company's financial position or cash flows, it is possible that such a change in assessment could affect the Company's earnings in the period in which such a change were to occur.

(xviii) The price of the Company’s common stock may periodically rise or fall based on the Company's achievement of earnings forecasts and investors' expectations.

The Company's strategic planning process is designed to maximize its long-term strength, growth, and profitability, and not to achieve an earnings target in any particular fiscal period. Management believes that this longer-term focus is in the best interests of the Company and its stockholders. At the same time, however, the Company recognizes that, from time to time, it may be helpful to provide investors with guidance as to management's annual earnings forecast. If, or when, the Company announces actual results that differ from those that have been forecast by management or others, the market price of the Company's common stock could be adversely affected.

The Company periodically returns value to its stockholders through common stock share repurchases and payment of quarterly cash dividends. The market price of the Company's common stock could be adversely affected if the Company’s share repurchase activity and/or cash dividend rate differs from investors' expectations.

(xix) If the Company is unable to effectively anticipate and respond to changes in consumer preferences and shopping patterns, 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. 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. If the Company is unable to anticipate and respond in a

TIFFANY & CO.
K-19


timely and cost-effective manner to changes in consumer preferences and shopping patterns, the Company’s sales and profitability could be adversely impacted.


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, 2016:
 
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

674,100

1,000 - 17,600

5,500

Asia-Pacific
81

215,600

400 - 12,800

2,700

Japan:
 
 
 
 
Tokyo Ginza
1

12,000

12,000

12,000

Other stores
55

142,400

1,500 - 7,500

2,600

Europe:
 
 
 
 
London Old Bond Street
1

22,400

22,400

22,400

Other stores
40

129,400

600 - 9,600

3,200

Emerging Markets
5

7,900

400 - 3,600

1,600

Total
307

1,249,300

400 - 45,500

4,100


NEW YORK FLAGSHIP STORE

The Company owns 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. Approximately 45,500 gross square feet of this 124,000 square foot building are devoted to retail sales, with the balance devoted to administrative offices, certain product services, jewelry manufacturing and storage. The New York Flagship store is also the focal point for marketing and public relations efforts. Sales in this store represent less than 10% of worldwide net sales.

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.


TIFFANY & CO.
K-20


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 FACILITIES

The Company owns and operates jewelry manufacturing facilities in Cumberland, Rhode Island and Lexington, Kentucky, and leases jewelry manufacturing facilities in Pelham, New York and Bangkok, Thailand as well as a jewelry polishing facility in the Dominican Republic. Lease expiration dates range from 2017 to 2023. The owned and leased facilities total approximately 230,000 square feet.

The Company leases a facility in Belgium and owns facilities in Botswana, Cambodia, Mauritius and Vietnam (although the land in Cambodia and Vietnam is leased) that prepare, cut and/or polish rough diamonds for use by Tiffany. These facilities total approximately 280,000 square feet and the lease expiration dates range from 2021 to 2062.


Item 3. Legal Proceedings.

Arbitration Award. On December 21, 2013, an award was issued (the "Arbitration Award") in favor of The Swatch Group Ltd. ("Swatch") and its wholly-owned subsidiary Tiffany Watch Co. ("Watch Company"; Swatch and Watch Company, together, the "Swatch Parties") in an arbitration proceeding (the "Arbitration") between the Registrant and its wholly-owned subsidiaries, Tiffany and Company and Tiffany (NJ) Inc. (the Registrant and such subsidiaries, together, the "Tiffany Parties") and the Swatch Parties.

The Arbitration was initiated in June 2011 by the Swatch Parties, who sought damages for alleged breach of agreements entered into by and among the Swatch Parties and the Tiffany Parties in December 2007 (the "Agreements"). The Agreements pertained to the development and commercialization of a watch business and, among other things, contained various licensing and governance provisions and approval requirements relating to business, marketing and branding plans and provisions allocating profits relating to sales of the watch business between the Swatch Parties and the Tiffany Parties.

In general terms, the Swatch Parties alleged that the Tiffany Parties breached the Agreements by obstructing and delaying development of Watch Company’s business and otherwise failing to proceed in good faith. The Swatch Parties sought damages based on alternate theories ranging from CHF 73.0 million (or approximately $72.0 million at January 31, 2016) (based on its alleged wasted investment) to CHF 3.8 billion (or approximately $3.7 billion at January 31, 2016) (calculated based on alleged future lost profits of the Swatch Parties and their affiliates over the entire term of the Agreements).

The Registrant believes that the claims of the Swatch Parties are without merit. In the Arbitration, the Tiffany Parties defended against the Swatch Parties’ claims vigorously, disputing both the merits of the claims and the calculation of the alleged damages. The Tiffany Parties also asserted counterclaims for damages attributable to breach by the Swatch Parties, stemming from the Swatch Parties’ September 12, 2011 public issuance of a Notice of Termination purporting to terminate the Agreements due to alleged material breach by the Tiffany Parties, and for termination due to such breach. In general terms, the Tiffany Parties alleged that the Swatch Parties did not have grounds for termination, failed to meet the high standard for proving material breach set forth in the Agreements and failed to provide appropriate management, distribution, marketing and other resources for TIFFANY & CO. brand watches and to honor their contractual obligations to the Tiffany Parties regarding brand management. The Tiffany Parties’ counterclaims sought damages based on alternate theories ranging from CHF 120.0 million (or approximately $118.0 million at January 31, 2016) (based on its wasted investment) to approximately

TIFFANY & CO.
K-21


CHF 540.0 million (or approximately $533.0 million at January 31, 2016) (calculated based on alleged future lost profits of the Tiffany Parties).

The Arbitration hearing was held in October 2012 before a three-member arbitral panel convened in the Netherlands pursuant to the Arbitration Rules of the Netherlands Arbitration Institute (the "Rules"), and the Arbitration record was completed in February 2013.

Under the terms of the Arbitration Award, and at the request of the Swatch Parties and the Tiffany Parties, the Agreements were deemed terminated. The Arbitration Award stated that the effective date of termination was March 1, 2013. Pursuant to the Arbitration Award, the Tiffany Parties were ordered to pay the Swatch Parties damages of CHF 402.7 million (the "Arbitration Damages"), as well as interest from June 30, 2012 to the date of payment, two-thirds of the cost of the Arbitration and two-thirds of the Swatch Parties' legal fees, expenses and costs. These amounts were paid in full in January 2014.

Prior to the ruling of the arbitral panel, no accrual was established in the Company's consolidated financial statements because management did not believe the likelihood of an award of damages to the Swatch Parties was probable. As a result of the ruling, in the fourth quarter of 2013, the Company recorded a charge of $480.2 million, which included the damages, interest, and other costs associated with the ruling and which was classified as Arbitration award expense in the consolidated statement of earnings.

On March 31, 2014, the Tiffany Parties took action in the District Court of Amsterdam to annul the Arbitration Award. Generally, arbitration awards are final; however, Dutch law does provide for limited grounds on which arbitral awards may be set aside. The Tiffany Parties petitioned to annul the Arbitration Award on these statutory grounds. These grounds include, for example, that the arbitral tribunal violated its mandate by changing the express terms of the Agreements.

A three-judge panel presided over the annulment hearing on January 19, 2015, and, on March 4, 2015, issued a decision in favor of the Tiffany Parties. Under this decision, the Arbitration Award is set aside. However, the Swatch Parties have taken action in the Dutch courts to appeal the District Court's decision, and the Arbitration Award may ultimately be upheld by the courts of the Netherlands. Registrant’s management expects that the annulment action will not be ultimately resolved until, at the earliest, Registrant's fiscal year ending January 31, 2017.

If the Arbitration Award is finally annulled, management anticipates that the claims and counterclaims that formed the basis of the Arbitration, and potentially additional claims and counterclaims, will be litigated in court proceedings between and among the Swatch Parties and the Tiffany Parties. The identity and location of the courts that would hear such actions have not been determined at this time. Management also anticipates that the Tiffany Parties would seek the return of the amounts paid by them under the Arbitration Award in court proceedings.

In any litigation regarding the claims and counterclaims that formed the basis of the arbitration, issues of liability and damages will be pled and determined without regard to the findings of the arbitral panel. As such, it is possible that the court could find that the Swatch Parties were in material breach of their obligations under the Agreements, that the Tiffany Parties were in material breach of their obligations under the Agreements or that neither the Swatch Parties nor the Tiffany Parties were in material breach. If the Swatch Parties’ claims of liability were accepted by the court, the damages award cannot be reasonably estimated at this time, but could exceed the Arbitration Damages and could have a material adverse effect on the Registrant’s consolidated financial statements or liquidity.

Although the District Court has issued a decision in favor of the Tiffany Parties, an amount will only be recorded for any return of amounts paid under the Arbitration Award when the District’s Court decision is final (i.e., after all rights of appeal have been exhausted) and return of these amounts is deemed probable

TIFFANY & CO.
K-22


and collection is reasonably assured. As such, the Company has not recorded any amounts in its consolidated financial statements related to the District Court’s decision.

Additionally, management has not established any accrual in the Company's consolidated financial statements for the year ended January 31, 2016 related to the annulment process or any potential subsequent litigation because it does not believe that the final annulment of the Arbitration Award and a subsequent award of damages exceeding the Arbitration Damages is probable.
Royalties payable to the Tiffany Parties by Watch Company under the Agreements were not significant in any year and watches manufactured by Watch Company and sold in TIFFANY & CO. stores constituted 1% of worldwide net sales in 2013.

In April 2015, management introduced new TIFFANY & CO. brand watches, which have been designed, produced, marketed and distributed through certain of the Company's Swiss subsidiaries. The effective development and growth of this watch business has required and will continue to require additional resources and involves risks and uncertainties.

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


Item 4. Mine Safety Disclosures.

Not Applicable.

TIFFANY & CO.
K-23


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, 823,651 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 employee stock options) were excluded, on the assumption that certain of those persons could be considered "affiliates" under the provisions of Rule 405 promulgated under the Securities Act of 1933.

Performance of Company Stock

The Registrant's Common Stock is traded on the New York Stock Exchange. In consolidated trading, the high and low selling prices per share for shares of such Common Stock for 2015 were:
 
High

Low

First Quarter
$ 90.83

$ 82.64

Second Quarter
$ 96.33

$ 84.83

Third Quarter 
$ 96.43

$ 74.28

Fourth Quarter 
$ 84.19

$ 59.73


On March 23, 2016, the high and low selling prices quoted on such exchange were $72.62 and $71.80. On March 23, 2016, there were 14,640 holders of record of the Registrant's Common Stock.

In consolidated trading, the high and low selling prices per share for shares of such Common Stock for 2014 were:
 
High

Low

First Quarter
$ 94.88

$ 80.38

Second Quarter
$ 103.38

$ 85.75

Third Quarter 
$ 105.66

$ 85.69

Fourth Quarter 
$ 110.60

$ 85.15


TIFFANY & CO.
K-24


The following graph compares changes in the cumulative total shareholder return on the Company’s 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 on the New York Stock Exchange, plus the reinvestment of any dividends paid on the stock. The graph assumes an investment of $100 on January 31, 2011 in the Company's common stock and in each of the two indices as well as the reinvestment of any subsequent dividends.
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 be indicative of future performance.
 
1/31/11

1/31/12

1/31/13

1/31/14

1/31/15

1/31/16

Tiffany & Co.
$ 100.00

$ 111.62

$ 117.47

$ 151.22

$ 159.91

$ 120.09

S&P 500 Stock Index
100.00

104.22

121.71

147.89

168.93

167.81

S&P 500 Consumer Discretionary Index
100.00

113.15

139.92

178.22

201.41

217.06



TIFFANY & CO.
K-25


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 2014, a dividend of $0.34 per share of Common Stock was paid on April 10, 2014. On May 22, 2014, the Company announced a 12% increase in its regular quarterly dividend rate to a new rate of $0.38 per share of Common Stock which was paid on July 10, 2014, October 10, 2014 and January 12, 2015.

In 2015, a dividend of $0.38 per share of Common Stock was paid on April 10, 2015. On May 28, 2015, the Company announced a 5% increase in its regular quarterly dividend rate to a new rate of $0.40 per share of Common Stock which was paid on July 10, 2015, October 13, 2015 and January 11, 2016.

Issuer Purchases of Equity Securities

In March 2014, the Company's Board of Directors approved a share repurchase program ("2014 Program") which authorized the Company to repurchase up to $300.0 million of its Common Stock through open market transactions. The program had an expiration date of March 31, 2017, but was terminated in January 2016 in connection with the authorization of a new program with increased repurchase capacity (as described in more detail below). Approximately $58.6 million remained available for repurchase under the 2014 Program at the time of its termination.

In January 2016, the Company's Board of Directors approved a new share repurchase program ("2016 Program") which authorizes the Company to repurchase up to $500.0 million of its Common Stock through open market transactions, block trades or privately negotiated transactions and terminated the 2014 Program. Purchases under the 2014 Program were, and purchases under the 2016 Program have been, executed under a written plan for trading securities as specified under Rule 10b5-1 promulgated under the Securities and Exchange Act of 1934, as amended, the terms of which are within the Company's discretion, subject to applicable securities laws, and are based on market conditions and the Company's liquidity needs. The 2016 Program will expire on January 31, 2019. Approximately $494.0 million remained available for repurchase under the 2016 Program at January 31, 2016.

The following table contains the Company's purchases of equity securities in the fourth quarter of 2015:
Period
(a) Total Number of Shares (or Units) Purchased

(b) Average Price Paid per Share (or Unit)

(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs

(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
(in millions)

November 1, 2015 to November 30, 2015
362,224

$ 77.72

362,224

$ 128.6

December 1, 2015 to December 31, 2015
459,573

$ 76.17

459,573

$ 93.6

January 1, 2016 to January 31, 2016 a
605,919

$ 67.68

605,919

$ 494.0

TOTAL
1,427,716

$ 72.96

1,427,716

$ 494.0


a
Shares were repurchased under the 2014 Program through January 21, 2016. Beginning on January 22, 2016, shares were repurchased under the 2016 Program.


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 2011-2015, which ended on January 31 of the following calendar year:
(in millions, except per share amounts, percentages, ratios, stores and employees)
2015 a

2014 b

2013 c

2012

2011 d

EARNINGS DATA
 
 
 
 
 
Net sales
$
4,104.9

$
4,249.9

$
4,031.1

$
3,794.2

$
3,642.9

Gross profit
2,491.3

2,537.2

2,340.4

2,163.3

2,151.2

Selling, general & administrative expenses
1,731.2

1,645.8

1,555.9

1,466.1

1,442.7

Net earnings
463.9

484.2

181.4

416.2

439.2

Net earnings per diluted share
3.59

3.73

1.41

3.25

3.40

Weighted-average number of diluted common shares
129.1

129.9

128.9

127.9

129.1

BALANCE SHEET AND CASH FLOW DATA
 
 
 
 
 
Total assets
$
5,129.7

$
5,180.6

$
4,752.4

$
4,630.9

$
4,159.0

Cash and cash equivalents
843.6

730.0

345.8

504.8

434.0

Inventories, net
2,225.0

2,362.1

2,326.6

2,234.3

2,073.2

Short-term borrowings and long-term debt (including current portion)
1,103.9

1,116.5

1,003.5

959.3

712.1

Stockholders' equity
2,929.5

2,850.7

2,734.0

2,611.3

2,348.9

Working capital *
2,778.6

2,850.8

2,431.1

2,485.5

2,180.0

Cash flows from operating activities
813.6

615.1

154.7

328.3

210.6

Capital expenditures
252.7

247.4

221.4

219.5

239.4

Stockholders' equity per share
23.10

22.04

21.31

20.57

18.54

Cash dividends paid per share
1.58

1.48

1.34

1.25

1.12

RATIO ANALYSIS AND OTHER DATA
 
 
 
 
 
As a percentage of net sales:
 
 
 
 
 
Gross profit
60.7
%
59.7
%
58.1
%
57.0
%
59.0
%
Selling, general & administrative expenses
42.2
%
38.7
%
38.6
%
38.6
%
39.6
%
Earnings from operations
18.5
%
21.0
%
7.5
%
18.4
%
19.4
%
Net earnings
11.3
%
11.4
%
4.5
%
11.0
%
12.1
%
Capital expenditures
6.2
%
5.8
%
5.5
%
5.8
%
6.6
%
Return on average assets
9.0
%
9.7
%
3.9
%
9.5
%
11.1
%
Return on average stockholders' equity
16.1
%
17.3
%
6.8
%
16.8
%
19.4
%
Total debt-to-equity ratio
37.7
%
39.2
%
36.7
%
36.7
%
30.3
%
Dividends as a percentage of net earnings
43.8
%
39.5
%
93.9
%
38.1
%
32.5
%
Company-operated TIFFANY & CO. stores
307

295

289

275

247

Number of employees
12,200

12,000

10,600

9,900

9,800


* The Company adopted ASU No. 2015-17 – Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes retrospectively as of January 31, 2016. Accordingly, current deferred taxes were reclassified to noncurrent in each of the years presented. See "Item 8. Financial Statements and Supplementary Data - Note B - Summary of Significant Accounting Policies" for additional information.

TIFFANY & CO.
K-27


NOTES TO SELECTED FINANCIAL DATA

a.
Financial information and ratios for 2015 include the following amounts, totaling $46.7 million of net pre-tax expense ($29.9 million net after tax expense, or $0.24 per diluted share):
$37.9 million of net pre-tax expense ($24.3 million net after tax expense, or $0.19 per diluted share) associated with impairment charges related to a financing arrangement with Koidu Limited. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" for additional information; and
$8.8 million of net pre-tax expense ($5.6 million net 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 will be recovered.
b.
Financial information and ratios for 2014 include $93.8 million of net pre-tax expense ($60.9 million net after tax expense, or $0.47 per diluted share) associated with the redemption of $400.0 million in aggregate principal amount of certain senior notes prior to their scheduled maturities. See "Item 8. Financial Statements and Supplementary Data - Note G - Debt" for additional information.
c.
Financial information and ratios for 2013 include the following amounts, totaling $482.1 million of net pre-tax expense ($299.2 million net after-tax expense, or $2.32 per diluted share):
$480.2 million pre-tax expense associated with the Swatch arbitration award and $7.5 million pre-tax income associated with a foreign currency transaction gain on this expense. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" for additional information regarding the arbitration proceeding; and
$9.4 million pre-tax expense associated with severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations will be recovered.
d.
Financial information and ratios for 2011 include $42.7 million of net pre-tax expense ($26.0 million net after-tax expense, or $0.20 per diluted share) associated with the relocation of Tiffany's New York headquarters staff to a single location. This expense is primarily related to the fair value of the remaining non-cancelable lease obligations reduced by the estimated sublease rental income as well as the acceleration of the useful lives of certain property and equipment, incremental rent during the transition period and lease termination payments.

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.


KEY STRATEGIES

The Company's key strategies are:

To enhance customer awareness of the TIFFANY & CO. trademark (the “Brand”), its heritage, its products and its association with quality and luxury.

The Brand is the single most important asset of Tiffany and, indirectly, of the Company. Management intends to continue 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 association among consumers with quality and luxury. Management monitors these efforts and the strength of the Brand through market research.

To maintain an active product development program.

The Company's product development strategy is to introduce new design collections periodically and expand certain existing collections annually, both of which are intended to appeal to the Company’s existing customer base as well as to new customers. The Company is also investing in the watch category, which it deems appropriate for the Brand and which presents an incremental long-term growth opportunity.

To enhance the customer experience through engaging service and store environments.

To ensure a superior shopping experience, the Company employs highly-qualified sales and customer service professionals, focuses on enhancing sales and product training programs, and is investing in enhancing its information systems for customer relationship management. The Company also focuses 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.

To expand and optimize its global distribution base.

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, in certain cases, the closure of existing stores. Management will also continue to evaluate opportunities for the growth of its e-commerce websites. Management recognizes that over-saturation of any market could diminish the distinctive appeal of the Brand, but believes that there are a number of potential worldwide locations remaining that meet financial and Brand requirements.

To maintain substantial control over product supply through direct diamond sourcing and internal jewelry manufacturing.

The Company has developed substantial product supply infrastructure related to the procurement and processing of diamonds and to the manufacturing of jewelry. This infrastructure is intended to ensure adequate product supply and favorable product costs while maintaining the Company's

TIFFANY & CO.
K-29


quality standards. The Company will continue to supplement its internal capabilities through its network of external suppliers.

Through the efforts above, management is committed to the following long-term financial objectives:

To achieve improved operating margins.

Management's long-term objective is to improve operating margin through gross margin improvement, which includes controlling product input costs, realizing greater efficiencies in its product supply chain and adjusting retail prices when appropriate. Additionally, management is focused on enhancing profitability by controlling selling, general and administrative expenses, including by enhancing its global procurement capabilities, thereby generating sales leverage on fixed costs. These efforts are intended to generate a higher rate of operating earnings growth relative to sales growth.

To increase store productivity.

Management is committed to growing sales per square foot by increasing consumer traffic and by enhancing the store environment and customer experience, increasing the percentage of store visitors who make a purchase.

To improve 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 flexibility to pursue strategic initiatives and allows for the return of excess capital to shareholders.


2015 SUMMARY

On a constant-exchange-rate basis (see "Non-GAAP Measures" below), worldwide net sales increased 2% due to growth in Europe, Japan and Asia-Pacific, while sales in the Americas decreased modestly from the prior year; comparable store sales were approximately equal to the prior year. The increase in sales was attributed to price increases and a shift in sales mix toward higher-priced products while there were unit declines across most categories and regions.

As reported, worldwide net sales decreased 3% to $4.1 billion due to lower sales in all regions and product categories, which management attributed in part to the negative effect of currency translation and, in the Americas, to lower foreign tourist spending.

The Company added a net of 12 TIFFANY & CO. stores (opening 11 in Asia-Pacific, three in the Americas and two in Europe, while closing three in Asia-Pacific and one in the Americas).

The Company expanded its offerings within several existing jewelry collections and introduced its new TIFFANY & CO. brand watch collections.

Excluding certain expenses in 2015 and 2014 (see "Non-GAAP Measures" below), earnings from operations as a percentage of net sales ("operating margin") decreased 1.3 percentage points due to higher SG&A expenses and the resulting sales deleveraging of SG&A expenses, which was only

TIFFANY & CO.
K-30


partly offset by a higher gross margin. As reported, operating margin decreased 2.5 percentage points.

Net earnings decreased 9% in 2015 excluding certain expenses recorded in 2015 and 2014 (see "Non-GAAP Measures" below). As reported, net earnings of $463.9 million, or $3.59 per diluted share, were 4% below the prior year.

Inventories, net decreased 6% as reported, or 4% when excluding the translation effect of the strengthening U.S. dollar.

Free cash flow (see "Non-GAAP Measures" below) was an inflow of $560.9 million in 2015, compared with $367.7 million in 2014.

The Company returned cash to shareholders by continuing to pay regular quarterly dividends (which were increased 5% during the year to $0.40 per quarter, or an annualized rate of $1.60 per share) and spending $220.4 million to repurchase 2.8 million shares of its Common Stock.


RESULTS OF OPERATIONS

Non-GAAP Measures

The Company reports information in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). 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. The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate the Company's operating results. These non-GAAP financial measures presented here may not be comparable to similarly-titled measures used by other companies.


TIFFANY & CO.
K-31


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"). Management believes this constant-exchange-rate basis provides a more representative assessment of sales performance and provides better 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:
 
2015
 
2014
 
GAAP 
Reported

 
Translation
Effect

 
Constant-
Exchange-
Rate Basis

 
GAAP 
Reported

 
Translation
Effect

 
Constant-
Exchange-
Rate Basis

Net Sales:
 
 
 
 
 
 
 
 
 
 
 
Worldwide
(3
)%
 
(5
)%
 
2
 %
 
5
 %
 
(2
)%
 
7
 %
Americas
(4
)
 
(2
)
 
(2
)
 
6

 

 
6

Asia-Pacific
(2
)
 
(5
)
 
3

 
9

 
(1
)
 
10

Japan
(2
)
 
(12
)
 
10

 
(4
)
 
(8
)
 
4

Europe
(1
)
 
(13
)
 
12

 
8

 

 
8

Other
(13
)
 

 
(13
)
 
18

 

 
18

 
 
 
 
 
 
 
 
 
 
 
 
Comparable Store Sales:
 
 
 
 
 
 
 
 
 
 
 
Worldwide
(6
)%
 
(6
)%
 
 %
 
2
 %
 
(2
)%
 
4
 %
Americas
(6
)
 
(2
)
 
(4
)
 
5

 
(1
)
 
6

Asia-Pacific
(5
)
 
(5
)
 

 
3

 
(1
)
 
4

Japan
(7
)
 
(12
)
 
5

 
(7
)
 
(8
)
 
1

Europe
(5
)
 
(14
)
 
9

 
(1
)
 

 
(1
)
Other
(15
)
 

 
(15
)
 
8

 

 
8


Comparable Store Sales. Comparable store sales include only sales transacted in Company-operated stores open for more than 12 months. Sales for relocated stores are included in comparable store sales if the relocation occurs within the same geographical market. Sales for a new store are not included in comparable store sales if that store resulted from a relocation from one department store to another or from a department store to a free-standing location. In all markets, the results of a store in which the square footage has been expanded or reduced remain in the comparable store base.


TIFFANY & CO.
K-32


Statements of Earnings. Internally, management monitors and measures its earnings performance excluding certain items listed below. Management believes excluding such items presents the Company's results on a more comparable basis to the corresponding period in the prior year, thereby providing investors with an additional perspective to analyze the results of operations of the Company. The following tables reconcile certain GAAP amounts to non-GAAP amounts:
(in millions, except per share amounts)
GAAP
 
Impairment charges a
 
Specific cost-reduction initiatives b
 
Non-GAAP
Year Ended January 31, 2016
 
 
 
 
 
 
 
Selling, general and administrative expenses
$
1,731.2

 
$
(37.9
)
 
$
(8.8
)
 
$
1,684.5

As a % of sales
42.2
%
 
 
 
 
 
41.0
%
Earnings from operations
760.1

 
37.9

 
8.8

 
806.8

As a % of sales
18.5
%
 
 
 
 
 
19.7
%
Net earnings
463.9

 
24.3

 
5.6

 
493.8

Diluted earnings per share
3.59

 
0.19

 
0.05

 
3.83

a 
Expenses associated with impairment charges related to a financing arrangement with Koidu Limited (see "Financing Arrangements with Diamond Mining and Exploration Companies").
b 
Expenses associated with specific cost-reduction initiatives which included severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations will be recovered.
(in millions, except per share amounts)
GAAP
 
Debt extinguishment c
 
Non-GAAP
Year Ended January 31, 2015
 
 
 
 
 
Loss on extinguishment of debt
$
93.8

 
$
(93.8
)
 
$

Provision for income taxes
253.4

 
32.8

 
286.2

Net earnings
484.2

 
60.9

 
545.1

Diluted earnings per share
3.73

 
0.47

 
4.20

c 
Expenses associated with the redemption of $400.0 million in aggregate principal amount of certain senior notes prior to their scheduled maturities (see "Loss on Extinguishment of Debt").

TIFFANY & CO.
K-33


(in millions, except per share amounts)
GAAP
 
Arbitration award d
 
Specific cost-reduction initiatives e
 
Non-GAAP
Year Ended January 31, 2014
 
 
 
 
 
 
 
Selling, general and administrative expenses
$
1,555.9

 
$

 
$
(9.4
)
 
$
1,546.5

Earnings from operations
304.3

 
480.2

 
9.4

 
793.9

As a % of sales
7.5
%
 
 
 
 
 
19.7
%
Other expense (income), net
(13.2
)
 
7.5

 

 
(5.7
)
Provision for income taxes
73.5

 
179.3

 
3.6

 
256.4

Effective tax rate
28.8
%
 
 
 
 
 
34.8
%
Net earnings
181.4

 
293.4

 
5.8

 
480.6

As a % of sales
4.5
%
 
 
 
 
 
11.9
%
Diluted earnings per share
1.41

 
2.28

 
0.04

 
3.73

d 
Amounts associated with the award issued in arbitration between the Swatch Group Ltd. and the Company. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" for further information.
e 
Expenses associated with specific cost-reduction initiatives which included severance related to staffing reductions and subleasing of certain office space for which only a portion of the Company's future rent obligations will be recovered.

Free Cash Flow. Internally, management monitors its cash flow on a non-GAAP basis. 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 more representative assessment of operating cash flows. The following table reconciles GAAP net cash provided by operating activities to non-GAAP free cash flow:
 
Years Ended January 31,
 
(in millions)
2016

2015

Net cash provided by operating activities
        $
813.6

        $
615.1

Less: Capital expenditures
(252.7
)
(247.4
)
Free cash inflow
        $
560.9

        $
367.7




TIFFANY & CO.
K-34


Net Sales

Net sales by segment were as follows: 
(in millions)
2015

 
2014

 
2013

 
2015 vs 2014 % Change

 
2014 vs 2013 % Change

Americas
$
1,947.0

 
$
2,033.5

 
$
1,926.9

 
(4
)%
 
6
 %
Asia-Pacific
1,003.1

 
1,025.2

 
944.7

 
(2
)
 
9

Japan
541.3

 
554.3

 
578.6

 
(2
)
 
(4
)
Europe
505.7

 
513.3

 
476.2

 
(1
)
 
8

Other
107.8

 
123.6

 
104.7

 
(13
)
 
18

 
$
4,104.9

 
$
4,249.9

 
$
4,031.1

 
(3
)%
 
5
 %

Americas includes sales in 124 Company-operated TIFFANY & CO. stores in the United States, Canada and Latin America, as well as sales of TIFFANY & CO. products in certain of those markets through business-to-business, Internet, catalog and wholesale operations. Americas represented 47% of worldwide net sales in 2015 and 48% in both 2014 and 2013, while sales in the U.S. represented 88% of net sales in the Americas in 2015, 2014 and 2013.

Asia-Pacific includes sales in 81 Company-operated TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products in certain markets through Internet and wholesale operations. Asia-Pacific represented 24%, 24% and 23% of worldwide net sales in 2015, 2014 and 2013. Sales in Greater China represented more than half of Asia-Pacific's net sales in those same periods.

Japan includes sales in 56 Company-operated TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products through business-to-business, Internet and wholesale operations. Japan represented 13%, 13% and 14% of worldwide net sales in 2015, 2014 and 2013.

Europe includes sales in 41 Company-operated TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products in certain markets through the Internet. Europe represented 12% of worldwide net sales in 2015, 2014 and 2013. Sales in the United Kingdom ("U.K.") represent approximately 40% of European net sales.

Other consists of all non-reportable segments, including the Emerging Markets region, which consists of retail sales in five TIFFANY & CO. stores in the U.A.E. and wholesale sales of TIFFANY & CO. merchandise to independent distributors for resale in certain emerging markets (primarily in the Middle East). In addition, Other includes wholesale sales of diamonds obtained through bulk purchases that were subsequently deemed not suitable for the Company's needs as well as earnings received from a third-party licensing agreement.

Net Sales — 2015 compared with 2014. In 2015, worldwide net sales decreased $145.0 million, or 3%, due to lower sales in all regions. The strengthening of the U.S. dollar versus other currencies had the translation effect of reducing worldwide net sales growth by 5%, with net sales on a constant-exchange-rate basis increasing 2% (due to growth in Europe, Japan and Asia-Pacific, while sales in the Americas decreased modestly from the prior year).

In 2015, by product category, as reported in U.S. dollars on a GAAP basis, the engagement jewelry & wedding bands category decreased $74.9 million, or 6% (reflecting decreases in both solitaire diamond rings and wedding bands); the fashion jewelry category decreased $39.1 million, or 2% (reflecting a decline in sales of entry-level price point jewelry, largely in silver, partly offset by growth in gold jewelry

TIFFANY & CO.
K-35


sales); and the statement, fine & solitaire jewelry category decreased $19.4 million, or 2% (reflecting lower sales of fine jewelry partly offset by higher statement jewelry sales).

Changes in net sales by reportable segment were as follows:
(in millions)
Comparable Store Sales

 
Non-comparable Store Sales

 
Wholesale/Other

 
Total

Americas
$
(103.5
)
 
$
12.9

 
$
4.1

 
$
(86.5
)
Asia-Pacific
(46.0
)
 
32.7

 
(8.8
)
 
(22.1
)
Japan
(36.4
)
 
9.6

 
13.8

 
(13.0
)
Europe
(24.0
)
 
11.7

 
4.7

 
(7.6
)

Americas. In 2015, total sales decreased $86.5 million, or 4%, while on a constant-exchange-rate basis, total sales decreased 2% and comparable store sales decreased 4%. Management attributed the decrease in total sales and comparable store sales on a constant-exchange-rate basis to lower foreign tourist spending in the U.S. (which management believes was the result of a strong U.S. dollar) as well as to lower sales to U.S. customers. There was strong sales growth in Canada and Latin America.

Changes in jewelry sales (which represent 89% of America's total sales) relative to the prior year were as follows:
 
Average Price per Unit Sold, as reported

 
Currency Translation

 
Average Price per Unit Sold, constant-exchange-rate basis

 
Number of
Units Sold

Change in Jewelry Sales
6
%
 
(2
)%
 
8
%
 
(11
)%

The decrease in the number of jewelry units sold reflected decreases across all categories, especially in entry-level price point silver jewelry. On a constant-exchange-rate basis, management attributed the increase in the average price per jewelry unit sold to price increases and a shift in sales mix toward higher-priced products within the fashion jewelry category and toward statement jewelry.

Asia-Pacific. In 2015, total sales decreased $22.1 million, or 2%, while on a constant-exchange-rate basis, total sales increased 3%. The increase in total sales on a constant-exchange-rate basis was primarily due to sales growth in China and Australia partly offset by declines in Hong Kong; comparable store sales were unchanged.

Changes in jewelry sales (which represent 98% of Asia-Pacific's total sales) relative to the prior year were as follows:
 
Average Price per Unit Sold, as reported

 
Currency Translation

 
Average Price per Unit Sold, constant-exchange-rate basis

 
Number of
Units Sold

Change in Jewelry Sales
4
%
 
(5
)%
 
9
%
 
(6
)%

The decrease in the number of jewelry units sold occurred in entry-level price point silver jewelry and fine jewelry. On a constant-exchange-rate basis, management attributed the increase in the average price per jewelry unit sold to price increases and a shift in sales mix toward higher-priced products within the fashion jewelry category and toward statement jewelry.


TIFFANY & CO.
K-36


Japan. In 2015, total sales decreased $13.0 million, or 2%, while on a constant-exchange-rate basis, total sales increased 10% and comparable store sales increased 5%. Management attributed the increase in total sales and comparable store sales on a constant-exchange-rate basis primarily to higher spending by foreign tourists.

Changes in jewelry sales (which represent 93% of Japan's total sales) relative to the prior year were as follows:
 
Average Price per Unit Sold, as reported

 
Currency Translation

 
Average Price per Unit Sold, constant-exchange-rate basis

 
Number of
Units Sold

Change in Jewelry Sales
(2
)%
 
(12
)%
 
10
%
 
%

On a constant-exchange-rate basis, management attributed the increase in the average price per jewelry unit sold to price increases and a shift in sales mix toward higher-priced products.

Europe. In 2015, total sales decreased $7.6 million, or 1%, while on a constant-exchange-rate basis, total sales increased 12% and comparable store sales increased 9%. The increase in total sales and comparable store sales on a constant-exchange-rate basis was due to growth across the region, which management attributed to higher spending by foreign tourists and, to a lesser extent, higher sales to local customers.

Changes in jewelry sales (which represent 96% of Europe's total sales) relative to the prior year were as follows:
 
Average Price per Unit Sold, as reported

 
Currency Translation

 
Average Price per Unit Sold, constant-exchange-rate basis

 
Number of
Units Sold

Change in Jewelry Sales
%
 
(14
)%
 
14
%
 
(2
)%

The decrease in the number of jewelry units sold was attributed to soft demand for silver jewelry. On a constant-exchange-rate basis, management attributed the increase in average price per jewelry unit sold to price increases and a shift in sales mix toward higher-priced products.

Other. In 2015, total sales decreased $15.8 million, or 13%, partly due to a $9.2 million, or 11%, sales decline in the Emerging Markets region that largely reflected lower comparable store sales. The remainder of the decrease was related to lower wholesale sales of diamonds.

Net Sales — 2014 compared with 2013. In 2014, worldwide net sales increased $218.8 million, or 5%, due to growth in most regions. The strengthening of the U.S. dollar versus other currencies had the translation effect of reducing worldwide net sales growth by 2%, with net sales on a constant-exchange-rate basis increasing 7% (due to growth in all regions).

In 2014, by product category, as reported in U.S. dollars on a GAAP basis, the fashion jewelry category increased $137.0 million, or 8% (reflecting growth in gold jewelry); the engagement jewelry & wedding bands category increased $62.9 million, or 5% (reflecting growth in solitaire diamond rings and wedding bands); and the statement, fine & solitaire jewelry category increased $13.4 million, or 1%.

Americas. In 2014, total sales increased $106.6 million, or 6%, due to an 11% increase in the average price per jewelry unit sold, which management attributed to price increases and a shift in sales mix

TIFFANY & CO.
K-37


toward higher-priced products. A 5% decline in the number of jewelry units sold was entirely due to soft demand for entry-level price point silver jewelry. Included in the $106.6 million increase is an $80.9 million, or 5%, increase in comparable store sales due to geographically broad-based growth across most of the region and a $27.8 million increase in non-comparable store sales. On a constant-exchange-rate basis, both total sales and comparable store sales increased 6%.

Asia-Pacific. In 2014, total sales increased $80.5 million, or 9%, due to a 5% increase in the average price per jewelry unit sold as well as a 4% increase in the number of jewelry units sold. Management attributed the increase in the average price to price increases and a shift in sales mix toward higher-priced products. The increase in the number of jewelry units sold reflected growth in all product categories. The $80.5 million increase reflected a $39.7 million increase in non-comparable store sales, a $24.0 million, or 3%, increase in comparable store sales and a $17.4 million increase in wholesale sales of TIFFANY & CO. merchandise to independent distributors. On a constant-exchange-rate basis, total sales increased 10% and comparable store sales increased 4% due to growth in most markets.

Japan. In 2014, total sales decreased $24.3 million, or 4%, and comparable store sales decreased $35.2 million, or 7%, due to the negative effects of currency translation. On a constant-exchange-rate basis, total sales increased 4% due to a 9% increase in the average price per jewelry unit sold partly offset by a 5% decrease in the number of jewelry units sold across all categories. Management attributed the increase in average price to price increases and a shift in sales mix toward higher-priced products within the fashion jewelry category. Comparable store sales on a constant-exchange-rate basis increased 1%. The overall sales performance reflected significant sales growth in the first quarter prior to an increase in the consumption tax in April 2014, offset by softness in sales in the remaining quarters.

Europe. In 2014, total sales increased $37.1 million, or 8%, due to a 4% increase in both the number of jewelry units sold and in the average price per jewelry unit sold. Management attributed the increase in the number of jewelry units sold to fashion jewelry, and the increase in average price to price increases and a shift in sales mix toward higher-priced products within the fashion jewelry category. The $37.1 million increase was driven by a $43.0 million increase in non-comparable store sales. On a constant-exchange-rate basis, total sales increased 8% due to strength in continental Europe and comparable store sales decreased 1%.

Other. In 2014, total sales increased $18.9 million, or 18%, primarily due to a $10.9 million, or 14%, sales increase in the Emerging Markets region that partly reflected comparable store sales growth. The remainder of the increase was primarily related to higher wholesale sales of diamonds.

Store Data. In 2015, the Company opened 16 stores and closed four: opening three in the Americas (in the U.S., Canada and Chile), 11 in Asia-Pacific (five in China, two in Macau and one each in Korea, Singapore, Taiwan and Thailand) and two in Europe (in Spain and Switzerland) while closing one store in the Americas and three stores in Asia-Pacific. In addition, the Company relocated nine existing stores.

In 2014, the Company added a net of 6 stores: three in the Americas (two in the U.S. and one in Mexico), two in Japan, one in Asia-Pacific (in Australia) and two in Europe (in France and Russia) while closing two stores in the Americas.

Sales per gross square foot generated by all company-operated stores were approximately $2,900 in 2015, $3,100 in 2014 and $3,100 in 2013. The decline in 2015 reflected growth in retail square footage exceeding sales growth (which was negatively affected by currency translation).


TIFFANY & CO.
K-38


Gross Margin
(dollars in millions)
2015

 
2014

 
2013

Gross profit
$
2,491.3

 
$
2,537.2

 
$
2,340.4

Gross profit as a percentage of net sales
60.7
%
 
59.7
%
 
58.1
%

Gross margin (gross profit as a percentage of net sales) increased 1.0 percentage point in 2015 reflecting favorable product input costs that were partly offset by a shift in sales mix to higher-priced, lower-margin products. In addition, the benefit from retail price increases was partly offset by the negative effect from the strong U.S. dollar.

Gross margin increased 1.6 percentage points in 2014 largely benefiting from favorable product input costs and price increases, and, to some extent, a shift in sales mix to higher-margin products, especially in the fashion jewelry category.

Management periodically reviews and adjusts its retail prices when appropriate to address product input cost increases, specific market conditions and changes in foreign currencies/U.S. dollar relationships. Its long-term strategy is to continue that approach, although significant increases in product input costs or weakening foreign currencies can affect gross margin negatively over the short-term until management makes necessary price adjustments. Among the market conditions that management considers are consumer demand for the product category involved, which may be influenced by consumer confidence, and competitive pricing conditions. Management uses derivative instruments to mitigate certain foreign exchange and precious metal price exposures (see "Item 8. Financial Statements and Supplementary Data – Note H - Hedging Instruments"). Management increased retail prices in both 2015 and 2014 across all geographic regions and product categories.

Selling, General and Administrative Expenses
(dollars in millions)
2015

 
2014

 
2013

As reported:
 
 
 
 
 
SG&A expenses
$
1,731.2

 
$
1,645.8

 
$
1,555.9

SG&A expenses as a percentage of net sales
42.2
%
 
38.7
%
 
38.6
%
Excluding items in "Non-GAAP Measures":
 
 
 
 
 
SG&A expenses
$
1,684.5

 
$
1,645.8

 
$
1,546.5

SG&A expenses as a percentage of net sales
41.0
%
 
38.7
%
 
38.4
%
SG&A expenses increased $85.4 million, or 5%, in 2015 and $89.8 million, or 6%, in 2014. SG&A expenses in those years are not comparable due to the inclusion of loan impairment charges in 2015 and the inclusion of certain expenses associated with specific cost-reduction initiatives in 2015 and 2013. See "Non-GAAP Measures" for further details.

SG&A expenses in 2015 (excluding the 2015 items noted in "Non-GAAP Measures") increased $38.7 million, or 2%, largely reflecting (i) increased marketing expenses of $18.0 million, (ii) increased store occupancy and depreciation expenses of $16.5 million (related to new and existing stores) and (iii) decreased labor costs of $7.1 million (primarily lower variable labor costs for incentive compensation and sales commissions partly offset by increased costs for U.S. pension and postretirement benefit plans). The strengthening of the U.S. dollar had the effect of decreasing SG&A expense growth by 4%, and therefore, excluding this effect, SG&A expenses would have increased 6%.

SG&A expenses in 2014 (excluding the 2013 items noted in "Non-GAAP Measures") increased $99.2 million, or 6%, largely reflecting (i) increased marketing expenses of $30.5 million, (ii) increased fixed

TIFFANY & CO.
K-39


labor costs of $26.0 million (primarily increased store-related labor costs) and (iii) increased store occupancy and depreciation expenses of $22.6 million (related to new and existing stores). There was no significant translation effect on expense growth from changes in foreign currencies.

The Company's SG&A expenses are largely fixed in nature. Variable costs (which include items such as variable store rent, sales commissions and fees paid to credit card companies) typically represent approximately 15 - 20% of total SG&A expenses.

Arbitration Award Expense

In the fourth quarter of 2013, the Company recorded a charge of $480.2 million, related to the adverse arbitration ruling between The Swatch Group Ltd. and the Company, which includes the damages, interest and other costs associated with the ruling. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" for additional information.

Earnings from Operations
(dollars in millions)
2015

 
2014

 
2013

As reported:
 
 
 
 
 
Earnings from operations
$
760.1

 
$
891.4

 
$
304.3

Operating margin
18.5
 %
 
21.0
%
 
7.5
 %
Percentage point change from prior year
(2.5
)
 
13.5

 
(10.9
)
Excluding other operating expenses:
 
 
 
 
 
Earnings from operations
$
806.8

 
$
891.4

 
$
793.9

Operating margin
19.7
 %
 
21.0
%
 
19.7
 %
Percentage point change from prior year
(1.3
)
 
1.3

 
1.3


The change in 2015, excluding other operating expenses in 2015, reflected higher SG&A expenses and the resulting sales deleveraging of SG&A expenses, which was only partly offset by higher gross margin. The change in 2014, excluding other operating expenses in 2013, was due to an increase in gross margin.


TIFFANY & CO.
K-40


Results by segment are as follows:
(in millions)
2015

 
% of Net
Sales

 
2014

 
% of Net
Sales

 
2013

 
% of Net
Sales

Earnings (losses) from operations*:
 
 
 
 
 
 
 
 
 
 
Americas
$
390.8

 
20.1
 %
 
$
435.5

 
21.4
 %
 
$
374.3

 
19.4
 %
Asia-Pacific
264.4

 
26.4

 
281.6

 
27.5

 
244.1

 
25.8

Japan
199.9

 
36.9

 
196.0

 
35.4

 
215.6

 
37.3

Europe
97.4

 
19.3

 
110.5

 
21.5

 
102.4

 
21.5

Other
6.4

 
6.0

 
4.9

 
4.0

 
(1.8
)
 
(1.8
)
 
958.9

 
 
 
1,028.5

 
 
 
934.6

 
 
Unallocated corporate
expenses
(152.1
)
 
(3.7
)%
 
(137.1
)
 
(3.2
)%
 
(140.7
)
 
(3.5
)%
Earnings from operations before other operating expenses
806.8

 
19.7
 %
 
891.4

 
21.0
 %
 
793.9

 
19.7
 %
Other operating expenses
(46.7
)
 
 
 

 
 
 
(489.6
)
 
 
Earnings from operations
$
760.1

 
18.5
 %
 
$
891.4

 
21.0
 %
 
$
304.3

 
7.5
 %
*
Percentages represent earnings (losses) from operations as a percentage of each segment's net sales.
On a segment basis, the ratio of earnings (losses) from operations to each segment's net sales in 2015 compared with 2014 was as follows:
Americas – the ratio decreased 1.3 percentage points due to a decrease in net sales resulting in sales deleveraging of operating expenses partly offset by an improvement in gross margin;
Asia-Pacific – the ratio decreased 1.1 percentage points due to increased store-related operating expenses and marketing spending partly offset by an improvement in gross margin;
Japan – the ratio increased 1.5 percentage points due to leveraging of operating expenses (as operating expenses decreased at a higher rate than sales) partly offset by a decrease in gross margin attributable to currency translation;
Europe – the ratio decreased 2.2 percentage points resulting from increased store-related operating expenses and marketing spending, partly offset by an improvement in gross margin; and
Other – the ratio increased 2.0 percentage points primarily due to an improvement in gross margin offset by the deleveraging of operating expenses both of which were affected by the decrease in wholesale sales of diamonds. To a lesser extent, contributing to the increase is the improvement in the performance of retail operations in the Emerging Markets region.

On a segment basis, the ratio of earnings (losses) from operations to each segment's net sales in 2014 compared with 2013 was as follows:
Americas – the ratio increased 2.0 percentage points resulting from an improvement in gross margin;
Asia-Pacific – the ratio increased 1.7 percentage points primarily due to an improvement in gross margin partly offset by increased spending for new and existing stores;

TIFFANY & CO.
K-41


Japan – the ratio decreased 1.9 percentage points due to a decrease in gross margin (primarily resulting from a reduced benefit from the Company's ongoing program to utilize Yen forward contracts for a portion of forecasted merchandise purchases);
Europe – the ratio was unchanged due to an improvement in gross margin offset by increased spending for new and existing stores; and
Other – the ratio increased 5.8 percentage points due to an improvement in the performance of retail operations in the Emerging Markets region and lower charges associated with the write-down of wholesale diamond inventory deemed not suitable for the Company's needs.

Unallocated corporate expenses include costs related to administrative support functions which the Company does not allocate to its segments. Such unallocated costs include those for centralized information technology, finance, legal and human resources departments. Unallocated corporate expenses increased by $15.0 million in 2015, primarily due to increased costs associated with upgrades to the Company's information technology systems. Unallocated corporate expenses decreased by $3.6 million in 2014.

Included in other operating expenses in the table above, the 2015 amount represented $37.9 million associated with impairment charges related to a financing arrangement with Koidu and $8.8 million of expenses associated with specific cost-reduction initiatives. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies."

Included in other operating expenses in the table above, the 2013 amount represented $480.2 million of expenses associated with the adverse arbitration ruling between the Swatch Group Ltd. and the Company and $9.4 million of expenses associated with specific cost-reduction initiatives. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies."

Interest Expense and Financing Costs

Interest expense and financing costs decreased $13.9 million, or 22%, in 2015 as a result of lower interest expense on long-term debt (reflecting the October 2014 redemption of long-term debt using proceeds from the issuance of lower-rate long-term debt in September 2014) as well as lower average credit facility borrowings. Interest expense and financing costs in 2014 were approximately equal to 2013.

Other Expense (Income), Net

Other expense (income), net includes interest income as well as gains/losses on investment activities and foreign currency transactions. Net expense of $1.2 million in 2015 compared with net income of $2.8 million in 2014. The $4.0 million change was primarily due to foreign currency transaction losses. Other expense (income), net in 2014 decreased $10.4 million, or 79%, reflecting $7.5 million of foreign currency transaction gains related to the Arbitration Award expense that had been recorded in 2013, with the remaining $2.9 million primarily due to other foreign currency transaction losses. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitments and Contingencies" and "Non-GAAP Measures" for further information.

Loss on Extinguishment of Debt

In 2014, the Company recorded a loss on extinguishment of debt of $93.8 million associated with the redemption of all of the aggregate principal amount outstanding of the Company's (i) $100.0 million principal amount of 9.05% Series A Senior Notes due December 23, 2015; (ii) $125.0 million principal amount of 10.0% Series A-2009 Senior Notes due February 13, 2017; (iii) $50.0 million principal amount of 10.0% Series A Senior Notes due April 9, 2018; and (iv) $125.0 million principal amount of

TIFFANY & CO.
K-42


10.0% Series B-2009 Senior Notes due February 13, 2019 (collectively, the "Private Placement Notes") prior to maturity in accordance with the respective note purchase agreements governing each series of Private Placement Notes, which included provisions for make-whole payments in the event of early repayment.

Provision for Income Taxes

The effective income tax rate was 34.7% in 2015 compared with 34.4% in 2014 and 28.8% in 2013. In 2013, the effective income tax rate would have been 34.8% when excluding the effects of certain expenses noted in "Non-GAAP Measures".


LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity needs have been, and are expected to remain, primarily a function of its ongoing, seasonal and expansion-related working capital requirements and capital expenditure needs. Over the long term, the Company manages its cash and capital structure to maintain a strong financial position that provides flexibility to pursue strategic initiatives. Management regularly assesses its working capital needs, capital expenditure requirements, debt service, dividend payouts, share repurchases and future investments. Management believes that cash on hand, internally-generated cash flows, the funds available under its revolving credit facilities and the ability to access the debt and capital markets are sufficient to support the Company's liquidity and capital requirements for the foreseeable future.

As of January 31, 2016, the Company’s cash and cash equivalents totaled $843.6 million, of which approximately one-third was held in locations outside the U.S. where the Company has the intention to indefinitely reinvest any undistributed earnings to support its continued expansion and investments outside of the U.S. Such cash balances are not available to fund U.S. cash requirements unless the Company were to decide to repatriate such funds and incur applicable income tax charges. The Company has sufficient sources of cash in the U.S. to fund its U.S. operations without the need to repatriate any of those funds held outside the U.S.

The following table summarizes cash flows from operating, investing and financing activities:
(in millions)
2015

 
2014

 
2013

Net cash provided by (used in):
 
 
 
 
 
Operating activities
$
813.6

 
$
615.1

 
$
154.7

Investing activities
(278.2
)
 
(217.0
)
 
(246.8
)
Financing activities
(422.3
)
 
(23.4
)
 
(65.4
)
Effect of exchange rates on cash and cash equivalents
0.5

 
9.5

 
(1.5
)
Net increase (decrease) in cash and cash equivalents
$
113.6

 
$
384.2

 
$
(159.0
)

Operating Activities

The Company had a net cash inflow from operating activities of $813.6 million in 2015, $615.1 million in 2014 and $154.7 million in 2013. The year-over-year improvement from 2014 to 2015 was primarily due to reduced inventory purchases. The change from 2013 to 2014 was primarily due to the improvement in operating performance and the timing of income tax payments and other payables.

Working Capital. Working capital (current assets less current liabilities) and the corresponding current ratio (current assets divided by current liabilities) were $2.8 billion and 4.8 at January 31, 2016 compared with $2.9 billion and 5.3 at January 31, 2015.

TIFFANY & CO.
K-43


Accounts receivable, less allowances at January 31, 2016 were 6% higher than at January 31, 2015. The strengthening of the U.S. dollar had the effect of decreasing accounts receivable, less allowances by 2%. Therefore, excluding that effect, accounts receivable, less allowances would have increased 8% from January 31, 2015 largely reflecting in-house credit tied to strong sales of statement jewelry (see "Item 8. Financial Statements and Supplementary Data - Note B - Summary of Significant Accounting Policies"). On a 12-month rolling basis, accounts receivable turnover was 21 times in 2015 and 2014.

Inventories, net at January 31, 2016 were 6% lower than at January 31, 2015. Finished goods inventories decreased 7%, while combined raw material and work-in-process inventories decreased 4%. The strengthening of the U.S. dollar had the effect of decreasing inventories by 2%. Therefore, excluding that effect, inventories would have declined 4% from January 31, 2015 due to improved inventory management and reduced inventory purchases.

Investing Activities

The Company had a net cash outflow from investing activities of $278.2 million in 2015, $217.0 million in 2014 and $246.8 million in 2013. The increased outflow in 2015 was primarily due to increased purchases of marketable securities and short-term investments. The decreased outflow in 2014 was due to net proceeds received from the sale of marketable securities and short-term investments partly offset by increased capital expenditures.

Marketable Securities and Short-Term Investments. The Company invests a portion of its cash in marketable securities and short-term investments. The Company had net purchases of marketable securities and short-term investments of $26.4 million during 2015, net proceeds received from the sale of marketable securities and short-term investments of $15.2 million during 2014 and purchases of marketable securities and short-term investments of $23.5 million during 2013.

Capital Expenditures. Capital expenditures are typically related to the opening, renovation and/or relocation of stores (which represented approximately half of capital expenditures in 2015, 2014 and 2013), distribution and manufacturing facilities and ongoing investments in information technology. Capital expenditures were $252.7 million in 2015, $247.4 million in 2014 and $221.4 million in 2013, representing 6%, 6% and 5% of worldwide net sales in those respective years. The increase in 2014 reflected incremental spending for information technology systems and internal manufacturing capacity.

Notes Receivable Funded. The Company has extended loans to diamond mining and exploration companies in order to obtain rights to purchase the mine's output. The Company loaned $3.1 million in 2013.

Proceeds from Notes Receivable Funded. In 2014 and 2013, the Company received $15.2 million and $1.2 million of repayments associated with loans extended to diamond mining and exploration companies discussed in Notes Receivable Funded above. No such proceeds were received in 2015.

Financing Activities

The Company had net cash outflows from financing activities of $422.3 million in 2015, $23.4 million in 2014 and $65.4 million in 2013. Year-over-year changes in cash flows from financing activities are largely driven by borrowings. Additionally, the Company resumed repurchasing its Common Stock in 2014 under a new share repurchase program after it did not repurchase any of its Common Stock in 2013.


TIFFANY & CO.
K-44


Recent Borrowings. The Company had net (repayments of) proceeds from short-term and long-term borrowings as follows:
(in millions)
2015

 
2014

 
2013

Short-term borrowings:
 
 
 
 
 
(Repayments of) proceeds from credit facility borrowings, net
$
(11.3
)
 
$
(12.5
)
 
$
49.9

Proceeds from other credit facility borrowings
24.8

 
19.8

 
89.8

Repayments of other credit facility borrowings
(16.0
)
 
(3.4
)
 
(69.7
)
Net (repayments of) proceeds from short-term borrowings
(2.5
)
 
3.9

 
70.0

Long-term borrowings:
 
 
 
 
 
Proceeds from issuances

 
548.0

 

Repayments

 
(400.0
)
 

Net proceeds from long-term borrowings

 
148.0

 

Net (repayments of) proceeds from total borrowings
(2.5
)
 
151.9

 
70.0

Payments of debt extinguishment costs (included in operating activities)

 
(93.4
)
 

Net (repayments) proceeds
$
(2.5
)
 
$
58.5

 
$
70.0


Credit Facilities. In 2014, Tiffany & Co. entered into a four-year $375.0 million and a five-year $375.0 million multi-bank, multi-currency, committed unsecured revolving credit facility, including letter of credit subfacilities (collectively, the "New Credit Facilities"), resulting in a total borrowing capacity of $750.0 million. The New Credit Facilities replaced the previously existing $275.0 million three-year unsecured revolving credit facility and $275.0 million five-year unsecured revolving credit facility, which were terminated and repaid concurrently with Tiffany & Co.'s entry into the New Credit Facilities. See "Item 8. Financial Statements and Supplementary Data - Note G - Debt" for additional information.

Other Credit Facilities. In 2013, Tiffany & Co.'s wholly-owned subsidiary, Tiffany & Co. (Shanghai) Commercial Company Limited ("Tiffany-Shanghai"), entered into a three-year multi-bank revolving credit agreement (the "Tiffany-Shanghai Credit Agreement"). The Tiffany-Shanghai Credit Agreement has an aggregate borrowing limit of RMB 930.0 million ($141.4 million at January 31, 2016). The Tiffany-Shanghai Credit Agreement is available for Tiffany-Shanghai's general working capital requirements, which included repayment of a portion of the indebtedness under Tiffany-Shanghai's existing bank loan facilities. The six lenders that are party to the Tiffany-Shanghai Credit Agreement will make loans, upon Tiffany-Shanghai's request, for periods of up to 12 months at the applicable interest rates as announced by the People's Bank of China. The Tiffany-Shanghai Credit Agreement matures in July 2016. See "Item 8. Financial Statements and Supplementary Data - Note G - Debt" for additional information.

Under all of the Company's credit facilities, at January 31, 2016, there were $221.6 million of borrowings, $5.6 million of letters of credit issued but not outstanding and $790.8 million available for borrowing. At January 31, 2015, there were $234.0 million of borrowings, $5.7 million of letters of credit issued but not outstanding and $772.2 million available for borrowing. The weighted-average interest rate for borrowings outstanding was 2.90% at January 31, 2016 and 3.28% at January 31, 2015.

Senior Notes. In 2014, Tiffany & Co. issued $250.0 million aggregate principal amount of 3.80% Senior Notes due 2024 (the "2024 Notes") and $300.0 million aggregate principal amount of 4.90% Senior Notes due 2044 (the "2044 Notes" and, together with the 2024 Notes, the "Senior Notes"). The Senior Notes were issued at a discount with aggregate net proceeds of $548.0 million (with an effective yield of 3.836% for the 2024 Notes and an effective yield of 4.926% for the 2044 Notes). Tiffany & Co. used the

TIFFANY & CO.
K-45


net proceeds from the issuance of the Senior Notes to redeem $400.0 million in aggregate principal amount of long-term debt prior to their scheduled maturities which ranged from 2015 to 2019 and paid $93.4 million of debt extinguishment costs associated with the redemption. The Company used the remaining net proceeds from the sale of the Senior Notes for general corporate purposes. See "Item 8. Financial Statements and Supplementary Data - Note G - Debt" for additional information.

The ratio of total debt (short-term borrowings, current portion of long-term debt and long-term debt) to stockholders' equity was 38% at January 31, 2016 and 39% at January 31, 2015.

At January 31, 2016, the Company was in compliance with all debt covenants.

Share Repurchases. In January 2011, the Company's Board of Directors approved a stock repurchase program ("2011 Program") and terminated a previously-existing program. The 2011 Program authorized the Company to repurchase up to $400.0 million of its Common Stock through open market or private transactions. The timing of repurchases and the actual number of shares to be repurchased depended on a variety of discretionary factors such as stock price, cash-flow forecasts and other market conditions. The Company suspended share repurchases during the second quarter of 2012 in order to allow for a more effective allocation of resources consistent with the Company's growth strategies. In January 2013, the Board of Directors extended the expiration date of the 2011 Program to January 31, 2014. The 2011 Program expired on January 31, 2014 with $163.8 million of unused capacity.

In March 2014, the Company's Board of Directors approved a share repurchase program ("2014 Program") which authorized the Company to repurchase up to $300.0 million of its Common Stock through open market transactions. The program had an expiration date of March 31, 2017, but was terminated in January 2016 in connection with the authorization of a new program with increased repurchase capacity (as described in more detail below). Approximately $58.6 million remained available for repurchase under the 2014 Program at the time of its termination.

In January 2016, the Company's Board of Directors approved a new share repurchase program ("2016 Program") which authorizes the Company to repurchase up to $500.0 million of its Common Stock through open market transactions, block trades or privately negotiated transactions and terminated the 2014 Program. Purchases under the 2014 Program were, and purchases under the 2016 Program have been, executed under a written plan for trading securities as specified under Rule 10b5-1 promulgated under the Securities and Exchange Act of 1934, as amended, the terms of which are within the Company's discretion, subject to applicable securities laws, and are based on market conditions and the Company's liquidity needs. The 2016 Program will expire on January 31, 2019. Approximately $494.0 million remained available for repurchase under the 2016 Program at January 31, 2016.

The Company's share repurchase activity was as follows:
 
(in millions, except per share amounts)
2015

 
2014

 
2013

Cost of repurchases
$
220.4

 
$
27.0

 
$

Shares repurchased and retired
2.8

 
0.3

 

Average cost per share
$
78.40

 
$
89.91

 
$


Dividends. The cash dividend on the Company's Common Stock was increased once in each of 2015, 2014 and 2013. The Company's Board of Directors declared quarterly dividends which totaled $1.58, $1.48 and $1.34 per common share in 2015, 2014 and 2013 with cash dividends paid of $203.4 million, $191.2 million and $170.2 million in those respective years. The dividend payout ratio (dividends as a percentage of net earnings) was 44%, 39% and 94% in 2015, 2014 and 2013. Dividends as a percentage of adjusted net earnings (see "Non-GAAP Measures") were 41% in 2015 and 35% in both 2014 and 2013.

TIFFANY & CO.
K-46


At least annually, the Company's Board of Directors reviews its policies with respect to dividends and share repurchases with a view to actual and projected earnings, cash flows and capital requirements.

Financing Arrangements with Diamond Mining and Exploration Companies

The Company has provided financing to diamond mining and exploration companies in order to obtain rights to purchase the output from mines owned by these companies. At January 31, 2016, there was $43.8 million of principal outstanding under a financing arrangement (the "Loan") with Koidu Limited (previously Koidu Holdings S.A.) ("Koidu"). The Loan, which was entered into between Koidu and Laurelton Diamonds, Inc., a wholly owned subsidiary of the Company, in March 2011, originally provided that repayments of principal would begin in March 2013. However, in March 2013, the Company agreed to Koidu's request to defer the principal and interest payments due in 2013 to subsequent years and, in March 2014, the Company agreed to Koidu's request to provide for monthly rather than semi-annual payments of the principal payments due in 2014. The Company received such scheduled monthly payments from Koidu in 2014. On April 30, 2015, the Company also agreed to defer Koidu's principal payment due on March 30, 2015 ("2015 Amendment"), subject to certain conditions set forth in the 2015 Amendment, which were met in June 2015.

In August 2015, Koidu requested that its interest payment due in July 2015 be deferred until a future date to be determined, and it advised the Company that it was likely to request a deferral of interest payments due in August and September of 2015. Based on these requests and other discussions with Koidu, in which Koidu had informed the Company that it was seeking additional sources of capital to fund ongoing operations of the mine, and with consideration given to the fact that Koidu did not respond to the Company's request for a proposed revised payment schedule for its obligations under the Loan, management believed that it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the Loan, and recorded an impairment charge, and related valuation allowance, of $9.6 million in the second quarter of 2015. Additionally, the Company ceased accruing interest income on the outstanding Loan balance as of July 31, 2015.

As of January 31, 2016, Koidu has not made any of its interest payments due in July 2015 and thereafter, nor its principal payment due in September 2015. The missed payments constitute events of default under the Loan. Koidu has yet to provide a proposed revised payment schedule for its obligations under the Loan. In February 2016, the Company received the results from two separate and independent reviews of Koidu's operational plans, forecasts, and cash flow projections for the mine, which were commissioned by the Company and by Koidu's largest creditor, respectively. Based on these factors, ongoing discussions with Koidu, and consideration of the possible actions that all parties, including the Government of Sierra Leone and Koidu's largest creditor, may take under the circumstances, management believes that it is probable that the portion of the amounts due under the contractual terms of the Loan that the Company will be unable to collect will be greater than originally estimated, and recorded an additional impairment charge, and related valuation allowance, of $28.3 million in the fourth quarter of 2015. The carrying amount of the Company’s loan receivable from Koidu, net of the valuation allowance, is $5.9 million at January 31, 2016.

The Company intends to continue to participate in discussions with Koidu regarding operational plans, forecasts and cash flow projections for the mine, as well as revisions to the payment schedule for the Loan. The Company also intends to continue to participate in discussions with certain of Koidu's stakeholders, including its largest creditor and the Government of Sierra Leone. The outcome of these discussions, as well as any other developments, will inform management's ongoing evaluation of the collectability of the Loan and the accrual of interest income. It is possible that such ongoing evaluation may result in additional changes to management's assessment of collectability. While such changes in management's assessment would not have a material adverse effect on the Company's financial position or cash flows, it is possible that such a change in assessment could affect the Company's earnings in the period in which such a change were to occur. Additionally, future developments may result in Koidu

TIFFANY & CO.
K-47


defaulting under its diamond supply agreement with the Company, in which case the Company would lose access to the mine's output, although management believes this would not have a material impact on the Company's operations. See "Item 8. Financial Statements and Supplementary Data - Note B - Summary of Significant Accounting Policies and Note J - Commitments and Contingencies" for additional information on this financing arrangement.

Contractual Cash Obligations and Commercial Commitments

The following is a summary of the Company's contractual cash obligations at January 31, 2016:
(in millions)
Total

2016

2017-2018

2019-2020

Thereafter

Unrecorded contractual obligations:
 
 
 
 
Operating leases a
$
1,585.8

$
273.6

$
416.8

$
297.7

$
597.7

Inventory purchase obligations b
319.1

319.1

 
 
 
Interest on debt c
729.3

36.0

70.4

70.4

552.5

Other contractual obligations d
91.7

68.9

14.2

2.0

6.6

Recorded contractual obligations:
 
 
 
 
 
Short-term borrowings
221.6

221.6




Current portion of long-term debt
84.2

84.2




Long-term debt e
800.0




800.0

 
$
3,831.7

$
1,003.4

$
501.4

$
370.1

$
1,956.8


a)
Operating lease obligations do not include obligations for contingent rent, property taxes, insurance and maintenance that are required by most lease agreements. Contingent rent for the year ended January 31, 2016 totaled $34.9 million. See "Item 8. Financial Statements and Supplementary Data - Note J - Commitment and Contingencies" for a discussion of the Company’s operating leases.
b)
The Company will, from time to time, secure supplies of rough diamonds by agreeing to purchase a defined portion of a mine's output. Inventory purchase obligations associated with these agreements have been estimated at approximately $100.0 million for 2016 and included in this table. Purchases beyond 2016 that are contingent upon mine production have been excluded as they cannot be reasonably estimated.
c)
Excludes interest payments on amounts outstanding under available lines of credit, as the outstanding amounts fluctuate based on the Company's working capital needs.
d)
Consists primarily of technology licensing and service contracts, fixed royalty commitments, construction-in-progress and packaging supplies.
e)
Amounts exclude any unamortized discount or premium.

The summary above does not include the following items:

Cash contributions to the Company's pension plan and cash payments for other postretirement obligations. The Company funds the Qualified Plan's trust in accordance with regulatory limits to provide for current service and for the unfunded benefit obligation over a reasonable period and for current service benefit accruals. To the extent that these requirements are fully covered by assets in the Qualified Plan, the Company may elect not to make any contribution in a particular year. No cash contribution was required in 2015, and none is required in 2016, to meet the minimum funding requirements of the Employee Retirement Income Security Act ("ERISA"). The Company

TIFFANY & CO.
K-48


periodically evaluates whether to make discretionary cash contributions to the Qualified Plan, and currently does not anticipate making such contributions in 2016. This expectation is subject to change based on management's assessment of a variety of factors, including, but not limited to, asset performance, interest rates and changes in actuarial assumptions. The Company estimates cash payments for postretirement health-care and life insurance benefit obligations to be $1.7 million in 2016.

Unrecognized tax benefits at January 31, 2016 of $10.2 million and accrued interest and penalties of $7.8 million. The final outcome of tax uncertainties is dependent upon various matters including tax examinations, interpretation of the applicable tax laws or expiration of statutes of limitations. The Company believes that its tax positions comply with applicable tax law and that it has adequately provided for these matters. However, the examinations may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. At January 31, 2016, approximately $9.1 million of total unrecognized tax benefits, if recognized, would affect the effective income tax rate. Management believes it is reasonably possible that a majority of the total gross amount provided for unrecognized tax benefits will decrease in the next 12 months. Future developments may result in a change in this assessment.

The following is a summary of the Company's outstanding borrowings and available capacity under its credit facilities at January 31, 2016:
(in millions)
Total
Capacity

Borrowings Outstanding

Letters of Credit Issued

Available
Capacity

Four-year revolving credit facility a 
$
375.0

$
22.1

$

$
352.9

Five-year revolving credit facility b
375.0

54.5

5.6

314.9

Other credit facilities c
268.0

145.0


123.0

 
$
1,018.0

$
221.6

$
5.6

$
790.8

a Matures in October 2018.
b Matures in October 2019.
c Maturities throughout 2016.

In addition, the Company has other available letters of credit and financial guarantees of $75.0 million of which $26.6 million was outstanding at January 31, 2016. Of those available letters of credit and financial guarantees, $60.2 million expires within one year.

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.