UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

X

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

For the quarterly period ended April 30, 2010

OR

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

For the transition period from _________ to ____________

Commission file number: 1-9494

TIFFANY & CO.
(Exact name of registrant as specified in its charter)

Delaware		13-3228013
(State of incorporation)		(I.R.S. Employer Identification No.)
727 Fifth Ave. New York, NY		10022
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:                                                                (212) 755-8000

Former name, former address and former fiscal year, if changed since last report                     

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 ___  No ___

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  

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: Common Stock, $.01 par value, 127,154,368 shares outstanding at the close of business on May 31, 2010.

TIFFANY & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 2010

PART I – FINANCIAL INFORMATION				PAGE
Item 1.		Financial Statements
		Condensed Consolidated Balance Sheets – April 30, 2010, January 31, 2010 and April 30, 2009 (Unaudited)			3
		Condensed Consolidated Statements of Earnings – for the three months ended April 30, 2010 and 2009 (Unaudited)			4
		Condensed Consolidated Statements of Stockholders’ Equity – for the three months ended April 30, 2010 and Comprehensive Earnings – for the three months ended April 30, 2010 and 2009 (Unaudited)			5
		Condensed Consolidated Statements of Cash Flows – for the three months ended April 30, 2010 and 2009 (Unaudited)			6
		Notes to Condensed Consolidated Financial Statements (Unaudited)			7-16
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			17-24
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			25
Item 4.		Controls and Procedures			26
PART II – OTHER INFORMATION
Item 1A.		Risk Factors			27-29
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			30
Item 6.		Exhibits			31
		(a)    Exhibits
EX-10.106
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I.        Financial Information

Item 1.          Financial Statements

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)

		April 30, 2010				January 31, 2010				April 30, 2009
ASSETS
Current assets:
Cash and cash equivalents		$	673,750			$	785,702			$	303,729
Accounts receivable, less allowances   of $11,482, $12,892 and $8,837			139,879				158,706				135,437
Inventories, net			1,473,730				1,427,855				1,553,717
Deferred income taxes			6,514				6,651				12,130
Prepaid expenses and other current assets			87,586				66,752				120,772
Total current assets			2,381,459				2,445,666				2,125,785
Property, plant and equipment, net			673,786				685,101				721,452
Deferred income taxes			185,952				183,825				165,482
Other assets, net			177,510				173,768				149,533
		$	3,418,707			$	3,488,360			$	3,162,252
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings		$	42,865			$	27,642			$	74,199
Current portion of long-term debt			252,720				206,815				40,170
Accounts payable and accrued liabilities			164,665				231,913				163,102
Income taxes payable			29,256				67,513				25,324
Merchandise and other customer credits			64,486				66,390				64,239
Total current liabilities			553,992				600,273				367,034
Long-term debt			464,170				519,592				707,477
Pension/postretirement benefit obligations			184,427				219,276				203,550
Deferred gains on sale-leasebacks			120,554				128,649				125,555
Other long-term liabilities			139,162				137,331				151,977
Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $0.01 par value; authorized 2,000 shares, none   issued and outstanding			—				—				—
Common Stock, $0.01 par value; authorized 240,000 shares,   issued and outstanding 127,208, 126,326 and 124,047			1,272				1,263				1,240
Additional paid-in capital			808,189				764,132				691,977
Retained earnings			1,177,027				1,151,109				974,535
Accumulated other comprehensive loss, net of tax			(30,086	)			(33,265	)			(61,093	)
Total stockholders’ equity			1,956,402				1,883,239				1,606,659
		$	3,418,707			$	3,488,360			$	3,162,252

See notes to condensed consolidated financial statements.

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands except per share amounts)

		Three Months Ended
		April 30,
		2010				2009
Net sales		$	633,586			$	517,615
Cost of sales			267,608				228,396
Gross profit			365,978				289,219
Selling, general and administrative expenses			260,561				229,705
Earnings from continuing operations			105,417				59,514
Interest and other expenses, net			12,138				12,440
Earnings from continuing operations before income taxes			93,279				47,074
Provision for income taxes			28,854				19,631
Net earnings from continuing operations			64,425				27,443
Net loss from discontinued operations			—				3,102
Net earnings		$	64,425			$	24,341
Net earnings per share:
Basic
Net earnings from continuing operations		$	0.51			$	0.22
Net loss from discontinued operations			—				0.02
Net earnings		$	0.51			$	0.20
Diluted
Net earnings from continuing operations		$	0.50			$	0.22
Net loss from discontinued operations			—				0.02
Net earnings		$	0.50			$	0.20
Weighted-average number of common shares:
Basic			126,699				124,001
Diluted			128,543				124,164

See notes to condensed consolidated financial statements.

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE EARNINGS
(Unaudited)
(in thousands)

										Accumulated
		Total								Other				Common Stock								Additional
		Stockholders’				Retained				Comprehensive												Paid-In
		Equity				Earnings				Gain (Loss)				Shares				Amount				Capital
Balances, January 31, 2010		$	1,883,239			$	1,151,109			$	(33,265	)			126,326			$	1,263			$	764,132
Exercise of stock options and vesting of restricted stock units (“RSUs”)			30,196				—				—				1,098				11				30,185
Tax effect of exercise of stock options and vesting of RSUs			3,850				—				—				—				—				3,850
Share-based compensation expense			6,090				—				—				—				—				6,090
Issuance of Common Stock under the Employee Profit Sharing and Retirement Savings Plan			5,000				—				—				104				1				4,999
Purchase and retirement of Common Stock			(14,257	)			(13,187	)			—				(320	)			(3	)			(1,067	)
Cash dividends on Common Stock			(25,320	)			(25,320	)			—				—				—				—
Deferred hedging gain, net of tax			4,808				—				4,808				—				—				—
Unrealized gain on marketable securities, net of tax			1,083				—				1,083				—				—				—
Foreign currency translation adjustments, net of tax			(3,260	)			—				(3,260	)			—				—				—
Net unrealized gain on benefit plans, net of tax			548				—				548				—				—				—
Net earnings			64,425				64,425				—				—				—				—
Balances, April 30, 2010		$	1,956,402			$	1,177,027			$	(30,086	)			127,208			$	1,272			$	808,189

		Three Months Ended
		April 30,
		2010				2009
Comprehensive earnings are as follows:
Net earnings		$	64,425			$	24,341
Other comprehensive gain (loss), net of tax:
Deferred hedging gain			4,808				2,382
Foreign currency translation adjustments			(3,260	)			7,249
Unrealized gain on marketable securities			1,083				662
Net unrealized gain on benefit plans			548				47
Comprehensive earnings		$	67,604			$	34,681

See notes to condensed consolidated financial statements.

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

		Three Months Ended
		April 30,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	64,425			$	24,341
Loss from discontinued operations, net of tax			—				3,102
Net earnings from continuing operations			64,425				27,443
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization			34,091				32,963
Amortization of gain on sale-leaseback			(2,464	)			(2,335	)
Excess tax benefits from share-based payment arrangements			(3,452	)			(4	)
Provision for inventories			6,454				7,150
Deferred income taxes			(7,720	)			5,990
Provision for pension/postretirement benefits			6,718				5,845
Share-based compensation expense			6,002				5,523
Changes in assets and liabilities:
Accounts receivable			19,213				26,227
Inventories			(61,698	)			22,472
Prepaid expenses and other current assets			(14,660	)			(9,931	)
Accounts payable and accrued liabilities			(61,561	)			(64,758	)
Income taxes payable			(35,055	)			(7,837	)
Merchandise and other customer credits			(1,960	)			(3,242	)
Other, net			(40,349	)			(4,783	)
Net cash (used in) provided by operating activities			(92,016	)			40,723
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(25,513	)			(14,685	)
Other			(248	)			(1,264	)
Net cash used in investing activities			(25,761	)			(15,949	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) credit facility borrowings, net			15,291				(70,289	)
Repayment of other short-term borrowings			—				(93,000	)
Proceeds from issuance of long-term debt			—				300,000
Repurchase of Common Stock			(14,257	)			—
Proceeds from exercise of stock options			30,196				224
Excess tax benefits from share-based payment arrangements			3,452				4
Cash dividends on Common Stock			(25,320	)			(21,105	)
Other			—				(764	)
Net cash provided by financing activities			9,362				115,070
Effect of exchange rate changes on cash and cash equivalents			(3,537	)			3,017
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities			—				423
Net cash provided by discontinued operations			—				423
Net (decrease) increase in cash and cash equivalents			(111,952	)			143,284
Cash and cash equivalents at beginning of year			785,702				160,445
Cash and cash equivalents at end of three months		$	673,750			$	303,729

See notes to condensed consolidated financial statements.

TIFFANY & CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.		CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
		The accompanying condensed consolidated financial statements include the accounts of Tiffany & Co. (the “Company”) and its subsidiaries in which a controlling interest is maintained. Controlling interest is determined by majority ownership interest and the absence of substantive third-party participating rights or, in the case of variable interest entities (“VIE”s), if the Company has the power to significantly direct the activities of a VIE, as well as the obligation to absorb significant losses of or the right to receive significant benefits from the VIE. Intercompany accounts, transactions and profits have been eliminated in consolidation. The interim statements are unaudited and, in the opinion of management, include all adjustments (which represent normal recurring adjustments) necessary to fairly state the Company’s financial position as of April 30, 2010 and 2009 and the results of its operations and cash flows for the interim periods presented. The condensed consolidated balance sheet data for January 31, 2010 is derived from the audited financial statements, which are included in the Company’s Annual Report on Form 10-K and should be read in connection with these financial statements. As permitted by the rules of the Securities and Exchange Commission, these financial statements do not include all disclosures required by generally accepted accounting principles.
		The Company’s business is seasonal in nature, with the fourth quarter typically representing at least one-third of annual net sales and approximately one-half of annual net earnings. Therefore, the results of its operations for the three months ended April 30, 2010 and 2009 are not necessarily indicative of the results of the entire fiscal year.

2.		DISCONTINUED OPERATIONS
		In the fourth quarter of 2008, management concluded that it would no longer invest in its IRIDESSE business due to its ongoing operating losses and insufficient near-term growth prospects, especially in the economic environment at the time the decision was made. All IRIDESSE stores were closed in 2009. These amounts have been reclassified to discontinued operations for all periods presented. Prior to the reclassification, IRIDESSE results had been included within the Other non-reportable segment.
		Summarized statement of earnings data for IRIDESSE is as follows:

		Three Months Ended
(in thousands)		April 30, 2009
Net sales		$	5,444
Loss before income taxes			5,077
Benefit from income taxes			(1,975	)
Net loss from discontinued operations		$	3,102

3.

INVENTORIES

		April 30,				January 31,				April 30,
(in thousands)		2010				2010				2009
Finished goods		$	943,527			$	904,523			$	1,082,029
Raw materials			435,456				450,966				413,159
Work-in-process			94,747				72,366				58,529
Inventories, net		$	1,473,730			$	1,427,855			$	1,553,717

4.		INCOME TAXES
		The effective income tax rate for the first quarter of 2010 was 30.9% versus 41.7% in the prior year. The decrease in the effective income tax rate in 2010 was due to an unfavorable geographical mix of earnings in the prior year and non-recurring items recorded in the first quarter ended April 30, 2010. In the first quarter of 2010, the Company recorded a non-recurring benefit of $5,006,000 due to a change in tax status of certain subsidiaries associated with the acquisition in 2009 of additional equity interests in diamond sourcing and polishing operations. This was partially offset by a $1,910,000 charge as a result of recent healthcare reform legislation, which eliminated the tax benefit associated with the Medicare Part D subsidy.
		In the first quarter ended April 30, 2010, the change in the gross amount of unrecognized tax benefits and accrued interest and penalties was not significant.
		The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. As a matter of course, various taxing authorities regularly audit the Company. The Company’s tax filings are currently being examined by tax authorities in jurisdictions where its subsidiaries have a material presence, including New York state (tax years 2004-2007), Japan (tax years 2003-2008) and by the Internal Revenue Service (tax years 2007-2008). Tax years from 2001-present are open to examination in U.S. Federal and various state, local and foreign jurisdictions. The Company believes that its tax positions comply with applicable tax laws and that it has adequately provided for these matters. However, the audits may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. The Company does not anticipate any material changes to the total gross amount of unrecognized tax benefits over the next 12 months. Future developments may result in a change in this assessment.
5.		EARNINGS PER SHARE
		Basic earnings per share (“EPS”) is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the dilutive effect of the assumed exercise of stock options and unvested restricted stock units.
		The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted EPS computations:

	Three Months Ended April 30,
(in thousands)		2010				2009
Net earnings for basic and diluted EPS		$	64,425			$	24,341
Weighted-average shares for basic EPS			126,699				124,001
Incremental shares based upon the assumed exercise of stock   options and unvested restricted stock units			1,844				163
Weighted-average shares for diluted EPS			128,543				124,164

For the three months ended April 30, 2010 and 2009, there were 431,000 and 8,485,000 stock options and restricted stock units excluded from the computations of earnings per diluted share due to their antidilutive effect.

6.

HEDGING INSTRUMENTS

Background Information

The Company uses derivative financial instruments, including interest rate swap agreements, forward contracts, put option contracts and net-zero-cost collar arrangements (combination of call and put option contracts) to mitigate its exposures to changes in interest rates, foreign currency and precious metal prices. Derivative instruments are recorded on the consolidated balance sheet at their fair values, as either assets or liabilities, with an offset to current or comprehensive earnings, depending on whether the derivative is designated as part of an effective hedge transaction and, if it is, the type of hedge transaction. If a derivative instrument meets certain hedge accounting criteria, the derivative instrument is designated as one of the

following on the date the derivative is entered into:

	•		Fair Value Hedge – A hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment. For fair value hedge transactions, both the effective and ineffective portions of the changes in the fair value of the derivative and changes in the fair value of the item being hedged are recorded in current earnings.
	•		Cash Flow Hedge – A hedge of the exposure to variability in the cash flows of a recognized asset, liability or a forecasted transaction. For cash flow hedge transactions, the effective portion of the changes in fair value of derivatives are reported as other comprehensive income (“OCI”) and are recognized in current earnings in the period or periods during which the hedged transaction affects current earnings. Amounts excluded from the effectiveness calculation and any ineffective portions of the change in fair value of the derivative are recognized in current earnings.

		The Company formally documents the nature and relationships between the hedging instruments and hedged items for a derivative to qualify as a hedge at inception and throughout the hedged period. The Company also documents its risk management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed no longer probable that the forecasted transaction would occur, the gain or loss on the derivative financial instrument would be recognized in current earnings. Derivative financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.
		The Company does not use derivative financial instruments for trading or speculative purposes.

Types of Derivative Instruments

		Interest Rate Swap Agreements – In the second quarter of 2009, the Company entered into interest rate swap agreements to effectively convert its fixed rate 2002 Series D and 2008 Series A obligations to floating rate obligations. Since the fair value of the Company’s fixed rate long-term debt is sensitive to interest rate changes, the interest rate swap agreements serve as a hedge to changes in the fair value of these debt instruments. The Company is hedging its exposure to changes in interest rates over the remaining maturities of the debt agreements being hedged. The Company accounts for the interest rate swaps as fair value hedges. As of April 30, 2010, the notional amount of interest rate swap agreements outstanding was $160,000,000.
		Foreign Exchange Forward Contracts – The Company uses foreign exchange forward contracts to offset the foreign currency exchange risks associated with foreign currency-denominated liabilities and intercompany transactions between entities with differing functional currencies. These foreign exchange forward contracts are designated and accounted for as either cash flow hedges or economic hedges that are not designated as hedging instruments. As of April 30, 2010, the notional amount of foreign exchange forward contracts accounted for as cash flow hedges was $42,501,000 and the notional amount of foreign exchange forward contracts accounted for as undesignated hedges was $12,568,000. The term of all outstanding foreign exchange forward contracts as of April 30, 2010 ranged from one to 10 months.
		Put Option Contracts – The Company’s wholly-owned subsidiary in Japan satisfies nearly all of its inventory requirements by purchasing merchandise, payable in U.S. dollars, from the Company’s principal subsidiary. To minimize the potentially negative effect of a significant strengthening of the U.S. dollar against the Japanese yen, the Company purchases put option contracts as hedges of forecasted purchases of merchandise over a maximum term of 13 months. If the market yen exchange rate at the time of the put option contract’s expiration is stronger than the contracted exchange rate, the Company allows the put option contract to expire, limiting its loss to the cost of the put option contract. The Company accounts for its put option contracts as cash flow hedges. The Company assesses hedge effectiveness based on the total changes in the put option contracts’ cash flows. As of April 30, 2010, the notional amount of put option contracts accounted for as cash flow hedges was $76,100,000. During October 2009, the Company de-designated several of its outstanding put option contracts (notional amount of $38,000,000 outstanding at April 30, 2010) and entered into offsetting call option contracts. These put and call option contracts are accounted for as undesignated

		hedges. Any gains or losses on these de-designated put option contracts are substantially offset by losses or gains on the call option contracts.
		Precious Metal Collars & Forward Contracts – The Company periodically hedges a portion of its forecasted purchases of precious metals for use in its internal manufacturing operations in order to minimize the effect of volatility in precious metal prices. The Company may use either a combination of call and put option contracts in net-zero-cost collar arrangements (“precious metal collars”) or forward contracts. For precious metal collars, if the price of the precious metal at the time of the expiration of the precious metal collar is within the call and put price, the precious metal collar would expire at no cost to the Company. The Company accounts for its precious metal collars and forward contracts as cash flow hedges. The Company assesses hedge effectiveness based on the total changes in the precious metal collars and forward contracts’ cash flows. The maximum term over which the Company is hedging its exposure to the variability of future cash flows for all forecasted transactions is 13 months. As of April 30, 2010, there were approximately 12,500 ounces of platinum and 295,300 ounces of silver precious metal derivative instruments outstanding.
		Information on the location and amounts of derivative gains and losses in the Condensed Consolidated Statements of Earnings is as follows:

	Three Months Ended April 30, 2010
		Pre-Tax Gain				Pre-Tax Loss
		Recognized in Earnings				Recognized in Earnings
(in thousands)		on Derivatives				on Hedged Item
Derivatives in Fair Value Hedging Relationships:
Interest rate swap agreements a		$	465			$	(398	)
	Three Months Ended April 30, 2010
						Amount of Gain (Loss)
						Reclassified from
		Pre-Tax Gain				Accumulated OCI
		Recognized in OCI				into Earnings
(in thousands)		(Effective Portion)				(Effective Portion)
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange forward contracts a		$	2,611			$	(229	)
Put option contracts b			353				(815	)
Precious metal collars b			277				(712	)
Precious metal forward contracts b			2,805				138
		$	6,046			$	(1,618	)

	Three Months Ended April 30, 2009
						Amount of Gain (Loss)
						Reclassified from
		Pre-Tax Gain				Accumulated OCI
		Recognized in OCI				into Earnings
(in thousands)		(Effective Portion)				(Effective Portion)
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange forward contracts a		$	115			$	(352	)
Put option contracts b			657				(988	)
Precious metal collars b			1,830				161
		$	2,602			$	(1,179	)
		Pre-Tax Gain (Loss) Recognized in Earnings
	on Derivative
		Three Months Ended				Three Months Ended
(in thousands)		April 30, 2010				April 30, 2009
Derivatives Not Designated as Hedging Instruments:
Foreign exchange forward contracts a		$	(515	) c		$	21	c
Call option contracts b			66				—
Put option contracts b			(66	)			—
		$	(515	)		$	21

		There was no material ineffectiveness related to the Company’s hedging instruments for the periods ended April 30, 2010 and 2009. The Company expects approximately $944,000 of net pre-tax derivative losses included in accumulated other comprehensive income at April 30, 2010 will be reclassified into earnings within the next 12 months. This amount will vary due to fluctuations in foreign currency exchange rates and precious metal prices.
		For information regarding the location and amount of the derivative instruments in the Condensed Consolidated Balance Sheet, refer to “Note 7. Fair Value of Financial Instruments.”

Concentration of Credit Risk

A number of major international financial institutions are counterparties to the Company’s derivative financial instruments. The Company enters into derivative financial instrument agreements only with counterparties meeting certain credit standards (a credit rating of A/A2 or better at the time of the agreement), limiting the amount of agreements or contracts it enters into with any one party. The Company may be exposed to credit losses in the event of nonperformance by individual counterparties or the entire group of counterparties.

7.

FAIR VALUE OF FINANCIAL INSTRUMENTS

		Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. U.S. GAAP prescribes three levels of inputs that may be used to measure fair value:
		Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 1 inputs are considered to carry the most weight within the fair value hierarchy due to the low levels of judgment required in determining fair values.
		Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data.
		Level 3 – Unobservable inputs reflecting the reporting entity’s own assumptions. Level 3 inputs are considered to carry the least weight within the fair value hierarchy due to substantial levels of judgment required in determining fair values.
		The Company uses the market approach to measure fair value for its mutual funds and derivative instruments. The Company’s interest rate swap agreements are valued using the 3-month LIBOR rate. The Company’s put and call option contracts, as well as its foreign exchange forward contracts, are valued using the appropriate foreign exchange spot rates. The Company’s precious metal collars and precious metal forward contracts are valued using the relevant precious metal spot rate. For further information on the Company’s hedging instruments and program, see “Note 6. Hedging Instruments.”
		Financial assets and liabilities carried at fair value at April 30, 2010 are classified in the table below in one of the three categories described above:

						Estimated Fair Value
		Carrying																Total Fair
(in thousands)		Value				Level 1				Level 2				Level 3				Value
Financial Assets
Mutual funds a		$	41,823			$	41,823			$	—			$	—			$	41,823
Derivatives designated as hedging instruments:
Interest rate swap agreements a			2,461				—				2,461				—				2,461
Put option contracts b			1,815				—				1,815				—				1,815
Precious metal forward contracts b			3,602				—				3,602				—				3,602
Precious metal collars b			277				—				277				—				277
Foreign exchange forward contracts b			1,683				—				1,683				—				1,683
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts b			24				—				24				—				24
Put option contracts b			80				—				80				—				80
Total assets		$	51,765			$	41,823			$	9,942			$	—			$	51,765

		Carrying				Estimated Fair Value												Total Fair
(in thousands)		Value				Level 1				Level 2				Level 3				Value
Financial Liabilities
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts c		$	86			$	—			$	86			$	—			$	86
Call option contracts c			80				—				80				—				80
Total liabilities		$	166			$	—			$	166			$	—			$	166

Financial assets and liabilities carried at fair value at April 30, 2009 are classified in the table below in one of the three categories described above:

						Estimated Fair Value
		Carrying																Total Fair
(in thousands)		Value				Level 1				Level 2				Level 3				Value
Financial Assets
Mutual funds a		$	21,523			$	21,523			$	—			$	—			$	21,523
Derivatives designated as hedging instruments:
Put option contracts b			1,853				—				1,853				—				1,853
Precious metal collars b			362				—				362				—				362
Foreign exchange forward contracts b			291				—				291				—				291
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts b			17				—				17				—				17
Total assets		$	24,046			$	21,523			$	2,523			$	—			$	24,046
Financial Liabilities
Derivatives designated as hedging instruments:
Put option contracts c		$	57			$	—			$	57			$	—			$	57
Precious metal collars c			1,951				—				1,951				—				1,951
Foreign exchange forward contracts c			893				—				893				—				893
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts c			164				—				164				—				164
Total liabilities		$	3,065			$	—			$	3,065			$	—			$	3,065

a		This amount is included within Other assets, net on the Company’s Condensed Consolidated Balance Sheet.
b		This amount is included within Prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheet.
c		This amount is included within Accounts payable and accrued liabilities on the Company’s Condensed Consolidated Balance Sheet.

		The fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates carrying value due to the short-term maturities of these assets and liabilities. The fair value of debt with variable interest rates approximates carrying value. The fair value of debt with fixed interest rates was determined using the quoted market prices of debt instruments with similar terms and maturities. The total carrying value of short-term borrowings and long-term debt was $759,755,000 and $821,846,000 and the corresponding fair value was approximately $800,000,000 at both April 30, 2010 and April 30, 2009.
8.		COMMITMENTS & CONTINGENCIES
		In April 2010, Tiffany and Company, the Company’s principal operating subsidiary (“Tiffany”) committed to a plan to consolidate its New York headquarters’ staff within one location in New York City from three separate locations currently leased in midtown Manhattan. The move, expected to occur in spring 2011, will enable Tiffany to consolidate all headquarters’ staff in one location and generate occupancy savings. Tiffany intends to sublease its existing properties through the end of their lease terms which run through 2015, but expects to recover only a portion of its rent obligations due to current market conditions. Accordingly, Tiffany anticipates recording expenses of approximately $30,000,000 primarily within selling, general and administrative expenses in the consolidated statement of earnings in the fiscal year ending January 31, 2012; this expense is related to the fair value of the remaining non-cancelable lease obligations reduced by the estimated sublease rental income. Additionally, Tiffany will incur expenses of approximately $20,000,000 in the fiscal year ending January 31, 2011 and $5,000,000 in the fiscal year ending January 31, 2012 related to the acceleration of the useful lives of certain property and equipment and incremental rents during the transition period. Changes in market conditions may affect the total expenses ultimately recorded. The expenses recorded during the three months ended April 30, 2010 were not significant. This new lease, which expires in 2026, will increase total minimum annual rental payments as disclosed in the January 31, 2010 Annual Report on Form 10-K by the following amounts:

(in thousands)		Total				2010				2011-2012				2013-2014				Thereafter
Unrecorded contractual obligations:
Operating leases		$	226,462			$	—			$	25,068			$	27,347			$	174,047

9.

STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive Loss

		April 30,				January 31,				April 30,
(in thousands)		2010				2010				2009
Accumulated other comprehensive (loss) gain, net of tax:
Foreign currency translation adjustments		$	13,252			$	16,512			$	(18,989	)
Deferred hedging gain (loss)			2,201				(2,607	)			(6,602	)
Unrealized loss on marketable securities			(816	)			(1,899	)			(5,478	)
Net unrealized loss on benefit plans			(44,723	)			(45,271	)			(30,024	)
		$	(30,086	)		$	(33,265	)		$	(61,093	)

10.		EMPLOYEE BENEFIT PLANS
		The Company maintains several pension and retirement plans, as well as provides certain health-care and life insurance benefits.
		Net periodic pension and other postretirement benefit expense included the following components:

		Three Months Ended April 30,
										Other
		Pension Benefits								Postretirement Benefits
(in thousands)		2010				2009				2010				2009
Net Periodic Benefit Cost:
Service cost		$	3,269			$	2,948			$	347			$	268
Interest cost			5,997				5,681				696				646
Expected return on plan assets			(4,455	)			(3,726	)			—				—
Amortization of prior service cost			269				268				(165	)			(165	)
Amortization of net loss (gain)			760				(74	)			—				(1	)
Net expense		$	5,840			$	5,097			$	878			$	748

11.

SEGMENT INFORMATION

Effective with the first quarter of 2010, management has changed the Company’s segment reporting in order to align with a change in its organizational and management reporting structure. Specifically, the Company is now reporting results in Japan separately from the rest of the Asia-Pacific region, and results for certain “emerging market” countries that were previously included in the Europe and Asia-Pacific segments are now included in the “Other” non-reportable segment. Prior year results have been revised to reflect this change. The Company’s reportable segments are as follows:

	•		Americas includes sales in TIFFANY & CO. stores in the United States, Canada and Latin/South America, as well as sales of TIFFANY & CO. products in certain markets through business-to-business, Internet, catalog and wholesale operations;
	•		Japan includes sales in TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products through business-to-business, Internet and wholesale operations;
	•		Asia-Pacific includes sales in TIFFANY & CO. stores in Asia-Pacific markets (excluding Japan), as well as sales of TIFFANY & CO. products in certain markets through Internet and wholesale operations;
	•		Europe includes sales in TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products in certain markets through Internet and wholesale operations; and
	•		Other consists of all non-reportable segments. Other consists primarily of wholesale sales of TIFFANY & CO. merchandise to independent distributors for resale in certain emerging markets (such as the Middle East and Russia) and wholesale sales of diamonds obtained through bulk purchases that were subsequently deemed not suitable for the Company’s needs. In addition, Other includes earnings received from a third-party licensing agreement.

The results of IRIDESSE are presented as a discontinued operation in the condensed consolidated financial statements for all periods presented. Prior to the reclassification, IRIDESSE results had been included within the Other non-reportable segment. Refer to “Note 2. Discontinued Operations.”

Certain information relating to the Company’s segments is set forth below:

		Three Months Ended April 30,
(in thousands)		2010				2009
Net sales:
Americas		$	315,258			$	258,994
Japan			115,049				117,029
Asia-Pacific			122,336				81,696
Europe			68,628				54,956
Total reportable segments			621,271				512,675
Other			12,315				4,940
		$	633,586			$	517,615

		Three Months Ended April 30,
(in thousands)		2010				2009
Earnings (losses) from continuing operations*:
Americas		$	54,922			$	29,469
Japan			30,996				30,964
Asia-Pacific			32,174				17,262
Europe			14,628				7,530
Total reportable segments			132,720				85,225
Other			248				(1,224	)
		$	132,968			$	84,001

*Represents earnings (losses) from continuing operations before unallocated corporate expenses and interest and other expenses, net.

The following table sets forth a reconciliation of the segments’ earnings from continuing operations to the Company’s consolidated earnings from continuing operations before income taxes:

		Three Months Ended April 30,
(in thousands)		2010				2009
Earnings from continuing operations for   segments		$	132,968			$	84,001
Unallocated corporate expenses			(27,551	)			(24,487	)
Interest and other expenses, net			(12,138	)			(12,440	)
Earnings from continuing operations before   income taxes		$	93,279			$	47,074

Unallocated corporate expenses includes certain costs related to administrative support functions which the Company does not allocate to its segments. Such unallocated costs include those for information technology, finance, legal and human resources.

12.		SUBSEQUENT EVENT
		On May 20, 2010, the Company’s Board of Directors declared a 25% increase in the quarterly dividend rate on its Common Stock, increasing it from $0.20 per share to $0.25 per share. A quarterly dividend of $0.25 per share will be paid on July 12, 2010 to stockholders of record on June 21, 2010.

PART I.		Financial Information

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

OVERVIEW

Tiffany & Co. (the “Company”) is a holding company that operates through its subsidiary companies. The Company’s principal subsidiary, Tiffany and Company (“Tiffany”), is a jeweler and specialty retailer whose principal merchandise offering is fine jewelry. The Company also sells timepieces, sterling silverware, china, crystal, stationery, fragrances and accessories. Through Tiffany and Company and other subsidiaries, the Company is engaged in product design, manufacturing and retailing activities.

Effective with the first quarter of 2010, management has changed the Company’s segment reporting in order to align with a change in its organizational and management reporting structure. Specifically, the Company is now reporting results in Japan separately from the rest of the Asia-Pacific region, and results for certain “emerging market” countries that were previously included in the Europe and Asia-Pacific segments are now included in the “Other” non-reportable segment. Prior year results have been revised to reflect this change. The Company’s reportable segments are as follows:

	•		Americas includes sales in TIFFANY & CO. stores in the United States, Canada and Latin/South America, as well as sales of TIFFANY & CO. products in certain markets through business-to-business, Internet, catalog and wholesale operations;
	•		Japan includes sales in TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products through business-to-business, Internet and wholesale operations;
	•		Asia-Pacific includes sales in TIFFANY & CO. stores in Asia-Pacific markets (excluding Japan), as well as sales of TIFFANY & CO. products in certain markets through Internet and wholesale operations;
	•		Europe includes sales in TIFFANY & CO. stores, as well as sales of TIFFANY & CO. products in certain markets through Internet and wholesale operations; and
	•		Other consists of all non-reportable segments. Other consists primarily of wholesale sales of TIFFANY & CO. merchandise to independent distributors for resale in certain emerging markets (such as the Middle East and Russia) and wholesale sales of diamonds obtained through bulk purchases that were subsequently deemed not suitable for the Company’s needs. In addition, Other includes earnings received from a third-party licensing agreement.

The results of IRIDESSE, a business that was closed in 2009, are presented as a discontinued operation in the condensed consolidated financial statements for all periods presented. Prior to the reclassification, IRIDESSE results had been included within the Other non-reportable segment. Refer to “Item 1. Notes to Condensed Consolidated Financial Statements – Note 2. Discontinued Operations.”

All references to years relate to fiscal years ended or ending on January 31 of the following calendar year.

HIGHLIGHTS

	•		Worldwide net sales increased 22% in the three months (“first quarter”) ended April 30, 2010. Sales in the Americas, Asia-Pacific and Europe increased in the quarter, while sales in Japan declined slightly in the same period.
	•		On a constant-exchange-rate basis (see “Non-GAAP Measures” below), worldwide net sales increased 18% and comparable store sales increased 10% in the first quarter.
	•		The Company opened one store, in China, in the first quarter of 2010. Management’s current objective is to open 16 stores in 2010.
	•		Operating margin increased 5.1 percentage points due to a higher gross margin and a lower ratio of selling, general and administrative expenses to net sales.

•

Net earnings from continuing operations increased to $64,425,000 in the first quarter of 2010. Net earnings from continuing operations per diluted share of $0.50 increased 127% in the same period.

NON-GAAP MEASURES

The Company’s reported sales reflect either a translation-related benefit from strengthening foreign currencies or a detriment from a strengthening U.S. dollar.

The Company reports information in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). Internally, management monitors its sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars (“constant-exchange-rate basis”). Management believes this constant-exchange-rate basis provides a more representative assessment of sales performance and provides better comparability between reporting periods.

The Company’s management does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate the Company’s operating results. The following table reconciles sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year:

		First Quarter 2010 vs. 2009
										Constant-Exchange-
		GAAP Reported				Translation Effect				Rate Basis
Net Sales:
Worldwide			22%				4%				18%
Americas			22%				2%				20%
Japan			(2)%				5%				(7)%
Asia-Pacific			50%				13%				37%
Europe			25%				6%				19%
Comparable Store Sales:
Worldwide			14%				4%				10%
Americas			17%				2%				15%
Japan			(5)%				5%				(10)%
Asia-Pacific			33%				12%				21%
Europe			20%				6%				14%

RESULTS OF OPERATIONS

Net Sales
Net sales by segment were as follows:

			First Quarter
	(in thousands)		2010				2009				Increase (Decrease)
	Americas		$	315,258			$	258,994				22%
	Japan			115,049				117,029				(2)%
	Asia-Pacific			122,336				81,696				50%
	Europe			68,628				54,956				25%
	Other			12,315				4,940				149%
			$	633,586			$	517,615				22%

Comparable Store Sales. Reference will be made to comparable store sales below. Comparable store sales include only sales transacted in company-operated stores and boutiques. A store’s sales are included in comparable store sales when the store has been open for more than 12 months. In markets other than Japan, sales for relocated stores are included in comparable store sales if the relocation occurs within the same geographical market. In Japan, sales for a new store or boutique are not included if the store or boutique was relocated from one department store to another or from a department store to a free-standing location. In all markets, the results of a store in which the square footage has been expanded or reduced remain in the comparable store base.

Americas. Total sales in the Americas increased $56,264,000, or 22%, in the first quarter of 2010 primarily due to an increase in the number of units sold. Comparable store sales increased $36,852,000, or 17%, in the first quarter, consisting of increases in both comparable branch store sales of 15% and New York Flagship store sales of 26%. Non-comparable store sales grew $9,615,000. On a constant-exchange-rate basis, Americas sales increased 20% and comparable store sales increased 15%. Combined Internet and catalog sales in the Americas increased $6,520,000, or 23%, in the first quarter due to increases in both the number of orders and the average price per order.

Japan. Total sales in Japan decreased $1,980,000, or 2%, in the first quarter of 2010 equally due to decreases in the average price per unit sold and in the number of units sold. This decrease included a comparable store sales decline of $5,105,000, or 5%, partly offset by non-comparable store sales growth of $1,174,000. On a constant-exchange-rate basis, Japan sales decreased 7% and comparable store sales decreased 10% in the first quarter.

Asia-Pacific. Total sales in Asia-Pacific increased $40,640,000, or 50%, in the first quarter of 2010 primarily due to an increase in the number of units sold. This included increased comparable store sales of $24,393,000, or 33%, and non-comparable store sales growth of $14,492,000. On a constant-exchange-rate basis, Asia-Pacific sales increased 37% and comparable store sales increased 21% in the first quarter due to growth in most markets.

Europe. Total sales in Europe increased $13,672,000, or 25%, in the first quarter of 2010 primarily due to an increase in the number of units sold. This included increased comparable store sales of $9,753,000, or 20%, and non-comparable store sales growth of $4,288,000. On a constant-exchange-rate basis, sales increased 19% and comparable store sales increased 14% in the first quarter, reflecting broad-based geographical growth in Continental Europe.

Other. Other sales increased $7,375,000, or 149%, in the first quarter of 2010 primarily due to higher wholesale sales of diamonds that were deemed not suitable for the Company’s needs, as well as an increase in wholesale sales of TIFFANY & CO. merchandise to independent distributors.

Store Data. Management currently expects to open 16 Company-operated TIFFANY & CO. stores and boutiques in 2010, increasing the store base by approximately 7%, which includes the following locations which have already been opened and/or where plans have been finalized:

			Openings as of				Remaining Openings
	Location		April 30, 2010				2010
	Americas:
	Baltimore, Maryland						Third Quarter
	Santa Monica, California						Third Quarter
	Jacksonville, Florida						Fourth Quarter
	Houston – Woodlands, Texas						Fourth Quarter
	Asia-Pacific:
	Shanghai – Hong Kong Plaza, China		First Quarter
	Shanghai – IFC Mall, China						Second Quarter
	Marina Bay, Singapore						Second Quarter
	Europe:
	London – Canary Wharf, England						Third Quarter
	Barcelona, Spain						Fourth Quarter

Gross Margin

		First Quarter
		2010				2009
Gross profit as a percentage of net sales			57.8%				55.9%

Gross margin (gross profit as a percentage of net sales) increased in the first quarter of 2010 by 1.9 percentage points primarily due to sales leverage on fixed costs and manufacturing efficiencies.

Management periodically reviews and may adjust its retail prices, as it did in the first quarter of 2010, to address specific market conditions, product cost increases and longer-term changes in foreign currencies/U.S. dollar relationships. Among the market conditions that the Company addresses is consumer demand for the product category involved, which may be influenced by consumer confidence and competitive pricing conditions. The Company uses derivative instruments to mitigate foreign exchange and precious metal price exposures (see “Item 1. Notes to Condensed Consolidated Financial Statements – Note 6. Hedging Instruments”).

Selling, General and Administrative (“SG&A”) Expenses

		First Quarter
		2010				2009
SG&A expenses as a percentage of net sales			41.1%				44.4%

SG&A expenses increased $30,856,000, or 13%, in the first quarter of 2010, primarily due to increased labor and benefit costs of $9,298,000, increased depreciation and store occupancy expenses of $7,756,000 due to new and existing stores and increased marketing expenses of $4,685,000. Changes in foreign currency exchange rates had an insignificant effect on overall SG&A expenses in the first quarter compared to the prior year. SG&A expenses as a percentage of net sales decreased by 3.3 percentage points in the first quarter due to sales leverage on fixed costs.

Earnings from Continuing Operations

			First Quarter				% of Net				First Quarter				% of Net
	(in thousands)		2010				Sales*				2009				Sales*
	Earnings (losses) from continuing operations:
	Americas		$	54,922				17.4	%		$	29,469				11.4	%
	Japan			30,996				26.9	%			30,964				26.5	%
	Asia-Pacific			32,174				26.3	%			17,262				21.1	%
	Europe			14,628				21.3	%			7,530				13.7	%
	Other			248				2.0	%			(1,224	)			(24.8)	%
				132,968								84,001
	Unallocated corporate expenses			(27,551	)			(4.3)	%			(24,487	)			(4.7)	%
	Earnings from continuing operations		$	105,417				16.6	%		$	59,514				11.5	%

* Percentages represent earnings (losses) from continuing operations as a percentage of each segment’s net sales.

Earnings from continuing operations increased 77% in the first quarter. On a segment basis, the ratio of earnings (losses) from continuing operations (before the effect of unallocated corporate expenses) to each segment’s net sales in the first quarter of 2010 and 2009 was as follows:

	•		Americas – the ratio increased 6.0 percentage points primarily resulting from an increase in gross margin, as well as the leveraging of operating expenses;
	•		Japan – the ratio increased 0.4 percentage point;
	•		Asia-Pacific – the ratio increased 5.2 percentage points primarily due to an increase in gross margin, as well as the leveraging of operating expenses;
	•		Europe – the ratio increased 7.6 percentage points primarily due to an increase in gross margin, as well as the leveraging of operating expenses; and

•

Other – the ratio increased 26.8 percentage points primarily due to sales growth.

Unallocated corporate expenses includes certain costs related to administrative support functions which the Company does not allocate to its segments. Such unallocated costs include those for information technology, finance, legal and human resources. Total unallocated corporate expenses increased in the first quarter of 2010. However, as a percentage of net sales, unallocated corporate expenses decreased 0.4 percentage point in the first quarter of 2010.

Interest and Other Expenses, net
Interest and other expenses, net decreased $302,000 in the first quarter of 2010.

Provision for Income Taxes
The effective income tax rate for the first quarter of 2010 was 30.9% versus 41.7% in the prior year. The decrease in the effective income tax rate in 2010 was due to an unfavorable geographical mix of earnings in the prior year and non-recurring items recorded in the first quarter ended April 30, 2010. In the first quarter of 2010, the Company recorded a non-recurring benefit of $5,006,000 due to a change in tax status of certain subsidiaries associated with the acquisition in 2009 of additional equity interests in diamond sourcing and polishing operations. This was partially offset by a $1,910,000 charge as a result of recent healthcare reform legislation, which eliminated the tax benefit associated with the Medicare Part D subsidy.

Net Loss from Discontinued Operations
The loss from discontinued operations related to the Company’s IRIDESSE business was $5,077,000 pre-tax ($3,102,000 after tax) for the first quarter of 2009. See “Item 1. Notes to Condensed Consolidated Financial Statements – Note 2. Discontinued Operations.”

2010 Outlook
Management’s outlook for full year 2010 is based on the following assumptions, which may or may not prove valid, and should be read in conjunction with “Item 1A. Risk Factors” on page 27:

	•		A worldwide net sales increase of approximately 11%. By region, sales are expected to increase by a low double-digit percentage in the Americas, to increase by a mid-twenties percentage in Asia-Pacific, to decline by a low single-digit percentage in Japan and to increase by a high single-digit percentage in Europe. Other sales are expected to be equal to the prior year.
	•		The opening of 16 new Company-operated stores (six in the Americas, eight in Asia-Pacific and two in Europe).
	•		An increase in operating margin primarily due to a higher gross margin, as well as an improved ratio of SG&A expenses to net sales.
	•		Interest and other expenses, net of approximately $50,000,000.
	•		An effective income tax rate of approximately 35%.
	•		Net earnings from continuing operations per diluted share of $2.55 - $2.60.
	•		A high single-digit percentage increase in net inventories.
	•		Capital expenditures of approximately $200,000,000.

Note that the items listed above exclude i) approximately $20,000,000 of accelerated depreciation charges and incremental rent related to the Company’s recently announced plans and signed lease for office space to relocate and house Tiffany’s New York headquarters’ staff and ii) $3,096,000 net tax benefit (see “Item 1. Notes to Condensed Consolidated Financial Statements – Note 4. Income Taxes”). In total, these items will reduce earnings in 2010 by approximately $0.09 per diluted share. See “Item 1. Notes to Condensed Consolidated Financial Statements – Note 8. Commitments & Contingencies.”

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity needs have been, and are expected to remain, primarily a function of its seasonal and expansion-related working capital requirements and capital expenditures needs. Over the long term, the Company manages its cash and capital structure to maintain a strong financial position and provide flexibility for future strategic initiatives. Management continuously 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 and the funds available under its revolving Credit Facility are sufficient to support the Company’s liquidity and capital requirements for the foreseeable future. Within the next 12 months, $252,720,000 of the Company’s long-term debt will reach maturity. Management currently anticipates refinancing ¥10 billion, or approximately $110,000,000, and will repay the remaining amount coming due in the next 12 months with internally-generated cash flows.

The following table summarizes cash flows from operating, investing and financing activities:

		First Quarter
(in thousands)		2010				2009
Net cash (used in) provided by:
Operating activities		$	(92,016	)		$	40,723
Investing activities			(25,761	)			(15,949	)
Financing activities			9,362				115,070
Effect of exchange rates on cash and cash equivalents			(3,537	)			3,017
Net cash provided by discontinued operations			—				423
Net (decrease) increase in cash and cash equivalents		$	(111,952	)		$	143,284

Operating Activities
The Company’s net cash outflow from operating activities of $92,016,000 in the first quarter of 2010 compared with an inflow of $40,723,000 in the same period in 2009. The cash outflow in the first quarter of 2010 is primarily due to an increase in inventories. In addition, in the first quarter of 2010, the Company contributed $40,000,000 to its pension plan (reflected in Other, net on the Condensed Consolidated Statements of Cash Flows).

Working Capital. Working capital (current assets less current liabilities) and the corresponding current ratio (current assets divided by current liabilities) were $1,827,467,000 and 4.3 at April 30, 2010, compared with $1,845,393,000 and 4.1 at January 31, 2010 and $1,758,751,000 and 5.8 at April 30, 2009. The decrease in the ratio from April 30, 2009 was primarily due to an increase in the current portion of long-term debt.

Accounts receivable, less allowances at April 30, 2010 were 12% lower than January 31, 2010 due to the seasonality of the Company’s business. Accounts receivable, less allowances at April 30, 2010 was 3% higher than April 30, 2009 due to sales growth. Changes in foreign currency exchange rates had an insignificant effect on the change in accounts receivable balances.

Inventories, net at April 30, 2010 were 3% higher than January 31, 2010 and were 5% lower than April 30, 2009. The changes in inventories, net have been affected by sales growth and management’s objective in 2009 to reduce inventory levels. Changes in foreign currency exchange rates had an insignificant effect on the change in inventories, net compared to January 31, 2010 and increased inventories, net by 2% compared to April 30, 2009.

Investing Activities
The Company’s net cash outflow from investing activities of $25,761,000 in the first quarter of 2010 compared with an outflow of $15,949,000 in the first quarter of 2009. The increased outflow in the current year is primarily due to higher capital expenditures.

Financing Activities
The Company’s net cash inflow from financing activities of $9,362,000 in the first quarter of 2010 compared with an inflow of $115,070,000 in the first quarter of 2009. The variance between 2010 and 2009 was primarily due to the decrease in net proceeds received from borrowings.

Share Repurchases. The Company’s share repurchase activity was as follows:

		First Quarter
(in thousands, except per share amounts)		2010				2009
Cost of repurchases		$	14,257			$	—
Shares repurchased and retired			320				—
Average cost per share		$	44.62			$	—

The Company suspended share repurchases during the third quarter of 2008 in order to conserve cash. In January 2010, the Company resumed repurchasing its shares of Common Stock on the open market. The Company’s stock repurchase program expires in January 2011. 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. At April 30, 2010, there remained $387,703,000 of authorization for future repurchases.

Recent Borrowings. The Company had net repayments of or net proceeds from short-term and long-term borrowings as follows:

		First Quarter
(in thousands)		2010				2009
Proceeds from (repayment of) credit facility borrowings, net		$	15,291			$	(70,289	)
Short-term borrowings:
Repayments of short-term borrowings			—				(93,000	)
Long-term borrowings:
Proceeds from long-term borrowings			—				300,000
Net proceeds from total borrowings		$	15,291			$	136,711

In addition, there was $32,155,000 outstanding and $367,845,000 available under the revolving credit facility at April 30, 2010. The weighted average interest rate at April 30, 2010 was 3.65%. The Credit Facility will expire in July 2012.

The ratio of total debt (short-term borrowings, current portion of long-term debt and long-term debt) to stockholders’ equity was 39% at April 30, 2010, 40% at January 31, 2010 and 51% at April 30, 2009. The decrease in the ratio as of April 30, 2010 largely reflects increased stockholders’ equity.

At April 30, 2010, the Company was in compliance with all debt covenants.

Contractual Obligations
In April 2010, Tiffany committed to a plan to consolidate its New York headquarters’ staff within one location in New York City from three separate locations currently leased in midtown Manhattan. The move, expected to occur in spring 2011, will enable Tiffany to consolidate all headquarters’ staff in one location and generate occupancy savings. Tiffany intends to sublease its existing properties through the end of their lease terms which run through 2015, but expects to recover only a portion of its rent obligations due to current market conditions. Accordingly, Tiffany anticipates recording expenses of approximately $30,000,000 primarily within selling, general and administrative expenses in the consolidated statement of earnings in the fiscal year ending January 31, 2012; this expense is related to the fair value of the remaining non-cancelable lease obligations reduced by the estimated sublease rental income. Additionally, Tiffany will incur expenses of approximately $20,000,000 in the fiscal year ending January 31, 2011 and $5,000,000 in the fiscal year ending January 31, 2012 related to the acceleration of the useful lives of certain property and equipment and incremental rents during the transition period. Changes in market conditions may affect the total expenses ultimately recorded. The expenses recorded during the three months ended April 30, 2010 were not significant. Tiffany expects overall savings of approximately $125,000,000 over the lease term as a result of an overall reduction in rent expense; these estimated savings are based on current rental costs and assumptions made regarding future potential rent increases at the existing locations. This new lease, which expires in 2026, will increase total minimum annual rental payments as disclosed in the January 31, 2010 Annual Report on Form 10-K by the following amounts: