SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including information incorporated herein by reference, contains certain “forward-looking statements” concerning the Registrant’s objectives and expectations with respect to store openings, sales, retail prices, gross profit, expenses, earnings per share, inventory performance, capital expenditures and cash flow. In addition, management makes other forward-looking statements from time to time concerning objectives and expectations. Statements beginning with such words as “believes”, “intends”, “plans”, and “expects” include forward-looking statements that are based on management’s expectations given facts as currently known by management on the date this Annual Report on Form 10-K was first filed with the Securities and Exchange Commission. All forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

The statements in this Annual Report on Form 10-K are made as of the date this Annual Report on Form 10-K was first filed with the Securities and Exchange Commission and the Registrant undertakes no obligation to update any of the forward-looking information included in this document, whether as a result of new information, future events, changes in expectations or otherwise.

PART I

Item 1.    Business.

a) General history of business.

Registrant (also referred to as the “Company”) is the parent corporation of Tiffany and Company (“Tiffany”). Charles Lewis Tiffany founded Tiffany’s business in 1837. He incorporated Tiffany in New York in 1868. Registrant acquired Tiffany in 1984 and completed the initial public offering of Registrant’s Common Stock in 1987.

b) Financial information about industry segments.

Registrant’s segment information for the fiscal years ended January 31, 2006, 2005 and 2004 is stated in Item 8. Financial Statements and Supplementary Data (Note R. “Segment Information”).

c) Narrative description of business.

As used below, the terms “Fiscal 2005”, “Fiscal 2004” and “Fiscal 2003” refer to the fiscal years ended on January 31, 2006, 2005 and 2004, respectively. Registrant is a holding company, and conducts all business through its subsidiary corporations.

DISTRIBUTION AND MARKETING

Channels of Distribution

For financial reporting purposes, Registrant categorizes its sales as follows:

U.S. Retail consists of retail sales transacted in Tiffany-operated stores in the United States and non-Internet, business-to-business sales within the United States (see U.S. Retail below);

International Retail consists of both retail and wholesale sales of TIFFANY & CO. merchandise to customers located outside the United States, as well as a limited amount of business-to-business and Internet sales (see International Retail below);

Direct Marketing consists of U.S. Internet, direct mail catalog and business-to-business Internet sales transacted by Tiffany (see Direct Marketing below); and

Other consists of sales transacted under trademarks and tradenames other than TIFFANY & CO. (i.e., LITTLE SWITZERLAND and IRIDESSE). Other also includes wholesale sales of diamonds that were found unsuitable for Tiffany’s production by Tiffany’s diamond sourcing and manufacturing operations (see Other below).

Products

Registrant’s principal product category is jewelry. It also sells timepieces, sterling silver goods (other than jewelry), china, crystal, stationery, fragrances and personal accessories.

Tiffany offers an extensive selection of TIFFANY & CO. brand jewelry at a wide range of prices. In Fiscal 2005, 2004 and 2003 approximately 82%, 82% and 81%, respectively, of Registrant’s net sales were

attributable to TIFFANY & CO. brand jewelry. Designs are developed by employees, suppliers, independent designers and independent “name” designers. See Designer Licenses below.

Retail Sales of TIFFANY & CO. Jewelry by Category*

		% to total				% to total				% to total				% to total				% to total				% to total
		U.S. Retail				U.S. Retail				U.S. Retail				Japan Retail				Japan Retail				Japan Retail
Category		Sales 2005				Sales 2004				Sales 2003				Sales 2005				Sales 2004				Sales 2003
A			30	%			28	%			25	%			26	%			24	%			23	%
B			15	%			14	%			13	%			30	%			29	%			28	%
C			9	%			10	%			9	%			12	%			13	%			13	%
D			29	%			29	%			30	%			22	%			24	%			26	%

A)		This category includes most gemstone jewelry and gemstone band rings, other than engagement jewelry. Most jewelry in this category is constructed of platinum, although gold was used in approximately 18% of pieces in the U.S. and approximately 9% of pieces in Japan in 2005. Most items in this category contain diamonds, other gems or both. The average U.S. price-point for goods sold in 2005 for merchandise in this category was $3,692 in the U.S. and $2,105 in Japan.
B)		This category includes diamond rings and wedding bands marketed to brides and grooms. Most jewelry in this category is constructed of platinum, although gold was used in approximately 5% of pieces in the U.S. and approximately 1% of pieces in Japan in 2005. Most sales in this category are of items containing diamonds. The average U.S. price-point for goods sold in 2005 for merchandise in this category was $4,214 in the U.S. and $1,625 in Japan.
C)		This category generally consists of non-gemstone, gold or platinum jewelry, although small gems are used as accents in some pieces. The average U.S. price-point for goods sold in 2005 for merchandise in this category was $953 in the U.S. and $945 in Japan.
D)		This category generally consists of non-gemstone, sterling silver jewelry, although small gems are used as accents in some pieces. The average U.S. price-point for goods sold in 2005 for merchandise in this category was $187 in the U.S. and $215 in Japan.

* Men’s jewelry is not included in any category discussed above. Certain reclassifications have been made to conform to current-year presentations.

In addition to jewelry, the Company sells TIFFANY & CO. brand merchandise in the following categories: timepieces and clocks; sterling silver merchandise, including flatware, hollowware (tea and coffee services, bowls, cups and trays), trophies, key holders, picture frames and desk accessories; stainless steel flatware; crystal, glassware, china and other tableware; custom engraved stationery; writing instruments; and fashion accessories. Fragrance products are sold under the trademarks TIFFANY, PURE TIFFANY and TIFFANY FOR MEN. Tiffany also sells other brands of timepieces and tableware in its U.S. stores.

Products sold by Registrant in the Other channel of distribution include jewelry, timepieces and clocks and decorative items sold under trademarks and tradenames other than TIFFANY & CO., although a small amount of TIFFANY & CO. brand merchandise is sold through Little Switzerland.

U.S. Retail

New York Flagship Store.  Tiffany’s New York Flagship store on Fifth Avenue accounts for a significant portion of the Company’s sales and is the focal point for marketing and public relations efforts. Approximately 10% of total Company net sales for Fiscal 2005, 2004 and 2003 were attributable to the New York Flagship store’s retail sales.

U.S. Branch Stores.  On January 31, 2006, in addition to its New York Flagship store, Tiffany had 58 branch stores in the United States. Most of Tiffany’s U.S. branch stores display a representative selection of merchandise, but none of them maintains the extensive selection carried by the New York Flagship store.

		Fiscal						Fiscal
		Year						Year
Store Locations		Opened				Store Locations		Opened
San Francisco, California			1963			Seattle, Washington			1998
Houston, Texas			1963			Scottsdale, Arizona			1998
Beverly Hills, California			1964			Century City, California			1999
Chicago, Illinois			1966			Dallas (NorthPark), Texas			1999
Atlanta, Georgia			1969			Boca Raton, Florida			1999
Dallas, Texas			1982			Tamuning, Guam			1999
Boston, Massachusetts			1984			Old Orchard (Skokie), Illinois			2000
Costa Mesa, California			1988			Maui (Wailea), Hawaii			2000
Philadelphia, Pennsylvania			1990			Greenwich, Connecticut			2000
Vienna, Virginia			1990			Portland, Oregon			2000
Palm Beach, Florida			1991			Tampa, Florida			2001
Honolulu (Ala Moana), Hawaii			1992			Santa Clara (San Jose), California			2001
San Diego, California			1992			Honolulu (Waikiki), Hawaii			2002
Troy, Michigan			1992			Bellevue, Washington			2002
Bal Harbour, Florida			1993			East Hampton, New York			2002
Maui, Hawaii			1994			St. Louis, Missouri			2002
Oak Brook, Illinois			1994			Orlando, Florida			2002
King of Prussia, Pennsylvania			1995			Coral Gables, Florida			2003
Short Hills, New Jersey			1995			Tumon Bay (DFS), Guam			2003
White Plains, New York			1995			Palm Desert, California			2003
Hackensack, New Jersey			1996			Walnut Creek, California			2003
Chevy Chase, Maryland			1996			Edina, Minnesota			2004
Charlotte, North Carolina			1997			Kansas City, Missouri			2004
Chestnut Hill, Massachusetts			1997			Palm Beach Gardens, Florida			2004
Cincinnati, Ohio			1997			Westport, Connecticut			2004
Palo Alto, California			1997			Carmel, California			2005
Denver, Colorado			1998			Naples, Florida			2005
Las Vegas, Nevada			1998			Pasadena, California			2005
Manhasset, New York			1998			San Antonio, Texas			2005

Expansion of U.S. Retail Operations.  Management currently contemplates opening new TIFFANY & CO. branch stores in the United States at the rate of approximately three to five per year. Management regularly evaluates potential markets for new TIFFANY & CO. stores with a view to the demographics of the area to be served, consumer demand and the proximity of other luxury brands and existing TIFFANY & CO. locations. Management recognizes that over-saturation of any market could diminish the distinctive appeal of the TIFFANY & CO. brand, but believes that there are a significant number of locations remaining in the United States that meet the requirements of a TIFFANY & CO. location, particularly for 5,000 square foot format stores. See Item 2. Properties below for further information concerning U.S. Retail store leases.

Business-to-Business Sales Division¹.  Tiffany’s Business Sales Division sales executives call on business clients throughout the United States, selling products drawn from the retail product line and items specially developed or sourced for the business market, including trophies and items designed for the particular customer. Price allowances are given to business account holders for certain purchases. Business Sales Division customers have typically purchased for business gift giving, employee service and achievement recognition awards, customer incentives and other purposes. Products and services are marketed through an organization of approximately 115 persons, through advertising in newspapers and business periodicals and through the publication of special catalogs.

International Retail

The following tables set forth locations operated by Registrant’s subsidiaries.

Europe
England: London, Old Bond Street		Germany: Frankfurt
England: London, Royal Exchange		Germany: Munich
England: London, Harrods Department Store		Italy: Florence
England: London, Sloane Street		Italy: Milan
France: Paris, Rue de la Paix		Italy: Rome
France: Paris, Printemps Department Store		Switzerland: Zurich
France: Paris, Galeries Lafayette

Canada and Central/South America
Canada: Toronto		Mexico: Puebla, Palacio Store
Brazil: Sao Paulo, Jardins		Mexico: Mexico City, Palacio Store, Polanco
Brazil: Sao Paulo, Iguatemi Shopping Center		Mexico: Mexico City, Masaryk
Mexico: Mexico City, Palacio Store, Perisur		Mexico: Monterrey (open 2/06)

¹ In the second quarter of 2005, the Company placed responsibility for U.S. non-Internet business-to-business sales within the U.S. Retail channel and, consequently, now reports non-Internet business-to-business sales in the U.S. Retail channel. In the past, such sales were reported in the Direct Marketing channel, which will continue to report Internet business-to-business transactions.

Japan
Abeno, Kintetsu Department Store		Okinawa, Mitsukoshi Department Store *
Chiba, Mitsukoshi Department Store *		Osaka, Takashimaya Department Store
Fukuoka, Mitsukoshi Department Store *		Osaka, Umeda
Ginza, Mitsukoshi Department Store *		Sagamihara, Isetan Department Store
Hiroshima, Mitsukoshi Department Store *		Sapporo, Mitsukoshi Department Store *
Ikebukuro, Mitsukoshi Department Store *		Sapporo, Daimaru Department Store
Ikebukuro, Tobu Department Store		Sendai, Mitsukoshi Department Store *
Kagoshima, Mitsukoshi Department Store *		Shinjuku, Isetan Department Store
Kanazawa, Mitsukoshi *		Shinjuku, Mitsukoshi Department Store *
Kashiwa, Takashimaya Department Store		Shinsaibashi, Sogo Department Store
Kawasaki, Saikaya Department Store		Shizuoka, Matsuzakaya Department Store
Kobe, Daimaru Department Store		Tachikawa, Isetan Department Store
Kochi, Daimaru Department Store		Takamatsu, Mitsukoshi Department Store *
Kokura, Izutsuya Department Store		Takasaki, Takashimaya Department Store
Koriyama, Usui Department Store		Tamagawa, Takashimaya Department Store
Kumamoto, Tsuruya Department Store		Tokyo Bay, Ikspiari *
Kyoto, Daimaru Department Store		Tokyo, Ginza Flagship Store *
Kyoto, Takashimaya Department Store		Tokyo, Marunouchi
Matsuyama, Mitsukoshi Department Store *		Tottori, Daimaru Department Store
Mito, Keisei Department Store (open 3/06)		Umeda, Daimaru Department Store
Nagoya Hoshigaoka, Mitsukoshi Dept. Store *		Utsunomiya, Tobu Department Store
Nagoya, Mitsukoshi *		Wakayama, Kintetsu Department Store
Nagoya, Takashimaya Department Store		Yokohama, Landmark Plaza, Mitsukoshi *
Nihonbashi, Mitsukoshi Department Store *		Yokohama, Takashimaya Department Store
Niigata, Mitsukoshi Department Store *		Yonago, Takashimaya Dept. Store (open 3/06)
Oita, Tokiwa Department Store
Okayama, Tenmaya Department Store

*Operated by Registrant’s Subsidiaries with Mitsukoshi Ltd.

Asia-Pacific Excluding Japan
Australia: Brisbane, Queensplaza		Korea: Seoul, Hyundai Department Store
Australia: Melbourne, Collins Street		Korea: Seoul, Hyundai Coex Department Store
Australia: Sydney, Castlereagh Street		Korea: Seoul, Lotte Downtown Department Store
China: Beijing, The Peninsula Palace Hotel		Korea: Seoul, Lotte World
China: Shanghai, Jiu Guang City Plaza		Malaysia: Suria KLCC
Hong Kong: Hong Kong International Airport		Singapore: Ngee Ann City
Hong Kong: International Finance Center		Singapore: Raffles Hotel
Hong Kong: The Landmark Center		Taiwan: Kaohsiung, Hanshin Department Store
Hong Kong: Pacific Place		Taiwan: Taipei, The Regent Hotel
Hong Kong: The Peninsula Hotel		Taiwan: Taipei, Sogo Department Store
Hong Kong: Sogo Department Store		Taiwan: Taichung, Sogo Department Store
Korea: Busan, Paradise Hotel		Taiwan: Taipei, Taipei Financial Center
Korea: Seoul, Galleria Luxury Hall East Dept. Store

Business with Mitsukoshi.  On August 1, 2001, Registrant’s wholly-owned subsidiary, Tiffany & Co. Japan Inc. (“Tiffany-Japan”), entered into agreements with Mitsukoshi Ltd. of Japan (“Mitsukoshi”). These agreements continued long-standing commercial relationships that Registrant and its affiliated companies had with Mitsukoshi. These agreements will expire on January 31, 2007.

In Fiscal 2005, 2004 and 2003, respectively, total sales in Japan of TIFFANY & CO. merchandise represented 20%, 22% and 24% of Registrant’s net sales. Sales recorded in retail locations operated in connection with Mitsukoshi accounted for 10%, 12% and 14% of Registrant’s net sales in those years.

Tiffany-Japan has merchandising and marketing responsibilities in the operation of TIFFANY & CO. boutiques in Mitsukoshi’s stores and other locations throughout Japan. Mitsukoshi acts for Tiffany-Japan in the sale of merchandise. Tiffany-Japan owns the merchandise and recognizes as revenues the retail price charged to the ultimate consumer in Japan. Tiffany-Japan establishes retail prices, bears the risk of currency fluctuation, provides one or more brand managers in each boutique, controls merchandising and display within the boutiques, manages inventory and controls and funds all advertising and publicity programs with respect to TIFFANY & CO. merchandise. Mitsukoshi provides and maintains boutique facilities and assumes retail credit and certain other risks.

Mitsukoshi provides retail staff in “Standard Boutiques” and Tiffany-Japan provides retail staff in “Concession Boutiques.” At present, there are 9 Standard Boutiques, 10 Concession Boutiques and the Tokyo Flagship store, which is operated with Mitsukoshi. See below for further information about the Tokyo Flagship store. Risk of inventory loss varies depending on whether the boutique is a Standard Boutique or a Concession Boutique. Mitsukoshi bears responsibility for loss or damage to the merchandise in Standard Boutiques and Tiffany-Japan bears the risk in Concession Boutiques.

Mitsukoshi retains a portion (the “basic portion”) of the net retail sales made in TIFFANY & CO. Boutiques. The basic portion varies depending on the type of Boutique and the retail price of the merchandise involved. From February 1, 2003 through the expiration of the 2001 Agreement, the highest basic portion available to Mitsukoshi will be 23% in any Standard Boutique and not less than 16% for any Concession Boutique.

Tiffany-Japan also pays Mitsukoshi an incentive fee of 5% of the amount by which boutique sales increase above “Target Sales” calculated on a per-boutique basis. Target Sales means a year-to-year increase that is greater than the lesser of (i) 10% or (ii) a sales goal set by Tiffany-Japan.

In June 2003, through its purchase of a trust beneficiary interest, Registrant’s Japanese affiliate acquired the land and building housing the 12,000 gross square foot TIFFANY & CO. store located in Tokyo’s Ginza shopping district (the “Tokyo Flagship store”). The Tokyo Flagship store is leased by Tiffany-Japan to Mitsukoshi. Tiffany-Japan bears all costs of operating the premises. Tiffany-Japan selects and furnishes merchandise for display in the Tokyo Flagship store, prices the merchandise for retail sale, bears all risk of loss until the merchandise is sold to a customer and determines all issues of display, packaging, signage and advertising. Mitsukoshi acts for Tiffany-Japan in the sale of the merchandise, collects and holds the sales proceeds, makes credit available to customers, bears all credit losses and provides its point-of-sale transaction processing system (the “POS System”). Tiffany-Japan provides all necessary staff other than employees provided by Mitsukoshi in connection with the POS System. Management of the Tokyo Flagship store, other than with respect to the POS System, is the responsibility of Tiffany-Japan. After compensating Tiffany-Japan on a percentage-of-sales basis for rent and staffing, Mitsukoshi is allocated 3% of net sales made in the Tokyo Flagship store.

International Internet Sales.  In Fiscal 2001, the Company launched its U.K. website at www.tiffany.com/uk to allow for purchases of TIFFANY & CO. merchandise in England, Wales, Northern Ireland and Scotland. In Fiscal 2005, the Company extended e-commerce purchase capabilities for such merchandise to Japan and Canada through websites at www.tiffany.co.jp and www.tiffany.ca. The scope and selection of merchandise offered for purchase on these International websites is comparable to the selection offered on the U.S. website. See U.S. Internet Sales below.

International Wholesale Distribution.  Selected TIFFANY & CO. merchandise is sold to independent distributors for resale in markets in the Central/Latin/South American, Caribbean, Canadian, Asia-Pacific, Russian and Middle Eastern regions. Such sales represented approximately 2% of net sales in Fiscal 2005. Management anticipates continued expansion of international wholesale distribution in Central/Latin/South American, Caribbean and Asia-Pacific regions as markets are developed.

Expansion of International Retail Operations.  Registrant expects to continue to open TIFFANY & CO. stores in locations outside the United States and to selectively expand its channels of distribution in important markets around the world without compromising the long-term value of the TIFFANY & CO. trademark. However, the timing and success of this program will depend upon many factors, including Registrant’s ability to obtain suitable retail space on satisfactory economic terms and the extent of consumer demand for TIFFANY & CO. products in overseas markets. Such demand varies from market to market.

The Company’s commercial relationship with Mitsukoshi and Mitsukoshi’s ability to continue as a leading department store operator have been and will continue to be substantial factors in the Company’s continued success in Japan. Presently, TIFFANY & CO. boutiques are located in 20 Mitsukoshi department stores and other retail locations operated with Mitsukoshi in Japan. The Company also operates 30 locations primarily in department stores other than Mitsukoshi, within Japan.

The arrangements with other Japanese department stores are substantially similar to the Company’s relationship with Mitsukoshi, with varying fees from store to store. In recent years, the Japanese department store industry has, in general, suffered declining sales. There is a risk that such financial difficulties will force consolidations or store closings. Should one or more Japanese department store operators elect or be required to close one or more stores now housing a TIFFANY & CO. boutique, the Company’s sales and earnings would be reduced while alternate premises were being obtained.

Tiffany began its ongoing program of international expansion through proprietary retail stores in 1986 with the establishment of the London Flagship store.

The chart on the following page details the growth in TIFFANY & CO. stores and boutiques since Fiscal 1987 on a worldwide basis:

Worldwide TIFFANY & CO. Retail Locations Operated by Registrant’s Subsidiary Companies

						Canada,
						Central/Latin/
End of						South												Other
Fiscal:		U.S.				Americas				Europe				Japan				Asia-Pacific				Total
1987			8				0				2				0				0				10
1988			9				0				3				0				1				13
1989			9				0				5				0				2				16
1990			12				0				5				0				3				20
1991			13				1				7				0				4				25
1992			16				1				7				7				4				35
1993			16				1				6				37	*			5				65
1994			18				1				6				37				7				69
1995			21				1				6				38				9				75
1996			23				1				6				39				12				81
1997			28				2				7				42				17				96
1998			34				2				7				44				17				104
1999			38				3				8				44				17				110
2000			42				4				8				44				21				119
2001			44				5				10				47				20				126
2002			47				5				11				48				20				131
2003			51				7				11				50				22				141
2004			55				7				12				53				24				151
2005			59				7				13				50				25				154

*Prior to July 1993 many TIFFANY & CO. boutiques in Japan were operated by Mitsukoshi (ranging from 21 in 1987 to 29 in 1993). See Business with Mitsukoshi above.

Direct Marketing

U.S. Internet Sales.  Tiffany distributes a selection of more than 2,800 products through its website at www.tiffany.com for purchase in the United States. Sales for transactions made on websites outside the U.S. are reported in the International Retail channel of distribution. Business account holders may make gift purchases through the Company’s website at www.tiffanyforbusiness.com. Price allowances are given to eligible business account holders for certain purchases on the Tiffany for Business website.

Catalogs.  Tiffany also distributes catalogs of selected merchandise to its proprietary list of customers and to mailing lists rented from third parties. SELECTIONS^® catalogs are published, supplemented by COLLECTIONS and other catalogs.

The following table sets forth certain data with respect to mail, telephone and Internet order operations for the periods indicated:

		2005				2004				2003
Number of names on U.S. catalog mailing and U.S. Internet lists at fiscal year-end (consists of U.S. customers who purchased by mail, telephone or Internet prior to the applicable date):			2,821,638				2,440,622				2,237,349
Total U.S. catalog mailings during fiscal year (in millions):			24.4				26.3				24.9
Total U.S. mail, telephone or Internet orders received during fiscal year:			704,221				672,325				728,525

Other

This channel of distribution includes the consolidated results of existing businesses that sell merchandise under trademarks and tradenames other than TIFFANY & CO. In Fiscal 2004, the Company also initiated, through this channel of distribution, wholesale sales of diamonds that were found to be unsuitable for Tiffany’s needs.

Registrant believes that the sale of merchandise, under trademarks and tradenames other than TIFFANY & CO., offers an opportunity to achieve incremental growth in sales and earnings without diminishing the distinctive appeal of the TIFFANY & CO. brand. Businesses to be developed or acquired for this channel have been and will be chosen with a view to more fully exploit Registrant’s established infrastructure for distribution and manufacturing of luxury products, store development and brand management.

Little Switzerland, Inc.  In October 2002, the Company, through a subsidiary, completed the acquisition of all the shares of Little Switzerland, Inc., a specialty retailer of brand name watches, jewelry, china, crystal and giftware. LITTLE SWITZERLAND stores are located on nine Caribbean islands (Bahamas (2); Cayman Islands (1); Puerto Rico (1); St. Thomas (3); St. Maarten/St. Martin (3); St. John (1); Aruba (6); Curacao (1); and Barbados (1)) and in Florida (Key West (3); and Sunrise (1)) and Alaska (Skagway (1); Juneau (1); and Ketchikan (1)), and appeal primarily to tourists from the United States. Little Switzerland sells primarily non-TIFFANY brand products, but certain stores carry selected TIFFANY & CO. merchandise. See Item 2. Properties under LITTLE SWITZERLAND Retail Store Leases below for further information concerning LITTLE SWITZERLAND retail store leases.

Iridesse, Inc.  In Fiscal 2004, the Company organized a new retail subsidiary, under the name Iridesse, Inc., to engage exclusively in the design and retail sale of pearl jewelry in the United States. In Fiscal 2004, Iridesse opened its first retail boutiques in Short Hills, New Jersey and McLean, Virginia. In Fiscal 2005, Iridesse opened stores in Schaumburg, Illinois; King of Prussia, Pennsylvania; White Plains, New York and Boca Raton, Florida. See Item 2. Properties under IRIDESSE Retail Store Leases below for further information concerning IRIDESSE retail store leases.

Wholesale Diamond Sales.  In Fiscal 2004, the Company commenced the sale of diamonds that were found unsuitable for Tiffany’s needs. Diamonds that do not meet Tiffany’s quality standards are sold to third parties through the Other channel of distribution. The Company’s objective from such sales is to recoup its original costs, thereby earning minimal, if any, gross margin on those transactions.

ADVERTISING AND PROMOTION

Registrant regularly advertises, primarily in newspapers and magazines, and periodically conducts product promotional events. In Fiscal 2005, 2004 and 2003, Registrant spent approximately $137.5 million, $135.0 million and $122.4 million, respectively, on worldwide advertising, which include costs for media, production, catalogs, promotional events and other related items.

Public Relations (promotional) activity is a significant aspect of Registrant’s business. Management believes that Tiffany’s image is enhanced by a program of charity sponsorships, grants and merchandise donations. Donations are also made to The Tiffany & Co. Foundation, a private foundation organized to support 501(c)(3) charitable organizations with efforts concentrated in arts education and preservation and environmental conservation. Tiffany also engages in a program of retail promotions and media activities to maintain consumer awareness of the Company and its products. Each year, Tiffany publishes its well-known Blue Book which showcases jewelry and other merchandise. John Loring, Tiffany’s Design Director, is the author of numerous books featuring TIFFANY & CO. products. Registrant considers these and other promotional efforts important in maintaining Tiffany’s image.

TRADEMARKS

The designations TIFFANY^® and TIFFANY & CO.^® are the principal trademarks of Tiffany, as well as serving as tradenames. Through its subsidiaries, the Company has obtained and is the proprietor of trademark registrations for TIFFANY and TIFFANY & CO., as well as the TIFFANY BLUE BOX^® and the color TIFFANY BLUE^® for a variety of product categories in the United States and in other countries.

Tiffany maintains a program to protect its trademarks and institutes legal action where necessary to prevent others either from registering or using marks which are considered to create a likelihood of confusion with the Company or its products.

Tiffany has been generally successful in such actions and management considers that its United States trademark rights in TIFFANY and TIFFANY & CO. are strong. However, use of the designation TIFFANY by third parties (often small companies) on unrelated goods or services, frequently transient in nature, may not come to the attention of Tiffany or may not rise to a level of concern warranting legal action.

Tiffany actively pursues those who counterfeit or sell counterfeit TIFFANY & CO. goods through civil action and cooperation with criminal law enforcement agencies. However, counterfeit TIFFANY & CO. goods remain available in many markets and the cost of enforcement is expected to continue to rise. In the past two years, there has been an increase in the availability of counterfeit goods, predominantly silver jewelry, in various markets by street vendors and small retailers and on the Internet.

The continued availability of counterfeit goods within these various markets has the potential, in the long term, to devalue the TIFFANY brand.

In July 2004, Tiffany initiated a civil proceeding against eBay, Inc. in the Federal District Court for the Southern District of New York, alleging direct and contributory trademark infringement, unfair competition, false advertising and trademark dilution. Tiffany seeks damages and injunctive relief stemming from eBay’s alleged assistance and contribution to the offering for sale, advertising and promotion, in the United States, of counterfeit TIFFANY jewelry and any other jewelry or merchandise which bears the TIFFANY trademark and is dilutive or confusingly similar to the TIFFANY trademarks.

Despite the general fame of the TIFFANY and TIFFANY & CO. name and mark for the Company’s products and services, Tiffany is not the sole person entitled to use the name TIFFANY in every category in every

country of the world; third parties have registered the name TIFFANY in the United States in the food services category, and in a number of foreign countries in respect of certain product categories (including, in a few countries, the categories of fragrance, cosmetics, jewelry, clothing and tobacco products) under circumstances where Tiffany’s rights were not sufficiently clear under local law, and/or where management concluded that Tiffany’s foreseeable business interests did not warrant the expense of litigation.

DESIGNER LICENSES

Tiffany has been the sole licensee for jewelry designed by Elsa Peretti, Paloma Picasso and the late Jean Schlumberger since Fiscal 1974, 1980 and 1956, respectively.

In Fiscal 2005, Tiffany became the sole licensee for jewelry designed by the architect, Frank Gehry. The Gehry collection will be made available for retail sale in the first quarter of Fiscal 2006.

Ms. Peretti and Ms. Picasso retain ownership of copyrights for their designs and of their trademarks and exercise approval rights with respect to important aspects of the promotion, display, manufacture and merchandising of their designs. Tiffany is required by contract to devote a portion of its advertising budget to the promotion of their respective products; each is paid a royalty by Tiffany for jewelry and other items designed by them and sold under their respective names. Written agreements exist between Ms. Peretti and Tiffany and between Ms. Picasso and Tiffany but may be terminated by either party following six months notice to the other party. Tiffany is the sole retail source for merchandise designed by Ms. Peretti worldwide; however, she has reserved by contract the right to appoint other distributors in markets outside the United States, Canada, Japan, Singapore, Australia, Italy, the United Kingdom, Switzerland and Germany. In Fiscal 1992, Tiffany acquired trademark and other rights necessary to sell the designs of the late Mr. Schlumberger under the TIFFANY-SCHLUMBERGER trademark.

The designs of Ms. Peretti accounted for 13%, 14% and 15% of the Company’s net sales in Fiscal 2005, 2004 and 2003, respectively. Merchandise designed by Ms. Picasso accounted for 4% of the Company’s net sales in Fiscal 2005, 2004 and 2003. Registrant’s operating results could be adversely affected were it to cease to be a licensee of either of these designers or should its degree of exclusivity in respect of their designs be diminished.

MERCHANDISE PURCHASING, MANUFACTURING AND RAW MATERIALS

Merchandise offered for sale by the Company is supplied from Tiffany’s jewelry and silver goods manufacturing facilities in Cumberland, Rhode Island; Cranston, Rhode Island; Pelham and Mount Vernon, New York; the hollowware manufacturing facility in Tiffany’s Retail Service Center and through purchases and consignments from others. It is Registrant’s long-term objective to continue its expansion of Tiffany’s internal manufacturing operations. However, it is not expected that Tiffany will ever manufacture all of its needs. Factors to be considered in its decision to outsource manufacturing include product quality, gross margin improvement, access to or mastery of various jewelry-making skills and technology, support for alternative capacity and the cost of capital investments.

The following table shows Tiffany’s sources of jewelry merchandise, based on cost, for the periods indicated:

						2005				2004				2003
Finished Goods produced by Tiffany*							65	%			63	%			57	%
Finished Goods purchased from others							35	%			37	%			43	%
							100	%			100	%			100	%

*Includes raw materials provided by Tiffany to subcontractors.

Almost all non-jewelry items are purchased from third-party vendors.

Purchases of Polished Gemstones. Gems and precious metals used in making Tiffany’s jewelry may be purchased from a variety of sources. Most purchases of such materials are from suppliers with which Tiffany enjoys long-standing relationships.

Products containing one or more diamonds of varying sizes, including diamonds used as accents, side-stones and center-stones, accounted for approximately 46%, 43% and 40% of Tiffany’s net sales in Fiscal 2005, 2004 and 2003, respectively. Products containing one or more diamonds of one carat or larger accounted for 10%, 8% and 8% of net sales in each of those years, respectively.

Tiffany purchases cut diamonds principally from seven key vendors. Were trade relations between Tiffany and one or more of these vendors to be disrupted, the Company’s sales would be adversely affected in the short term until alternative supply arrangements could be established. Diamonds of one carat or greater that meet the quality demands of the Company, on a relative basis, are more difficult to acquire than smaller diamonds. Established sources for smaller stones would be more easily replaced in the event of a disruption in supply than could sources for larger stones.

Sourcing diamonds for the engagement business is increasingly difficult because of supply limitations; at times, Tiffany is not able to maintain a comprehensive assortment of diamonds in each retail location due to the broad assortment of sizes, colors, clarity grades and cuts demanded by customers.

Except as noted above, Tiffany believes that there are numerous alternative sources for gems and precious metals and that the loss of any single supplier would not have a material adverse effect on its operations.

Purchases of Rough Diamonds. Until Fiscal 2003, the Company did not purchase rough diamonds. In Fiscal 1999, the Company made a 14.7% equity investment ($70,636,000) in Aber Diamond Corporation (“Aber”), a publicly-traded company headquartered in Canada, by purchasing 8 million unregistered shares of its common stock. In Fiscal 2004, the Company sold this investment. Aber holds a 40% interest in the Diavik Diamond Mine in Northwest Canada. Under the Company’s continuing diamond purchase agreement with Aber, Tiffany is obligated to purchase at least $50 million in diamonds annually, if available, (in assortments of diamonds expected to cut/polish to Tiffany’s quality standards) during the next eight years.

The supply and price of rough (uncut and unpolished) diamonds in the principal world markets have been and continue to be significantly influenced by a single entity, the Diamond Trading Company (the “DTC”), an affiliate of De Beers S.A., the Luxembourg-based holding company of the De Beers Group. However, the role of the DTC is rapidly changing and that change has greatly affected, and will continue to affect, traditional channels of supply in the markets for rough and cut diamonds. The DTC continues to supply a significant portion of the world market for rough, gem-quality diamonds, notwithstanding

that its historical ability to control worldwide production supplies has been significantly diminished due to changing politics in diamond-producing countries and revised contractual arrangements with other diamond mine operators. Responding to pressure from the European Commission, in Fiscal 2005 the DTC entered into commitments for a three-year phase-out of purchases of rough diamonds from the world’s second largest producer, ALROSA Company Limited, which accounts for over 98% of Russian diamond production. Russia is the second largest diamond producing country in the world, in value, after Botswana. The DTC maintains separate arrangements to purchase and distribute diamonds produced in Botswana. The DTC’s three-year phase-out commitments with ALROSA are anticipated to make additional rough diamonds available for competitive bid. There is no assurance that Tiffany will be able to purchase such diamonds. The DTC no longer maintains a reserve of diamonds as a mechanism to control available supplies. Nonetheless, the DTC continues to exert a significant influence on the demand for polished diamonds through advertising and marketing efforts throughout the world and through the requirements it imposes on those who purchase rough diamonds from the DTC (“sight-holders”).

In Fiscal 2004, the Company made an investment in a joint venture that owns and operates a diamond polishing facility in South Africa and is a sight-holder. Some, but not all, of Tiffany’s suppliers are DTC sight-holders, and it is estimated that a significant portion of the diamonds that Tiffany has purchased have had their source with the DTC.

The Company expects to continue to purchase rough diamonds from Aber, the DTC and other sellers through its affiliated companies. The Company sorts, processes, and cuts/polishes some diamonds purchased from Aber and other sellers. Other diamonds are provided to contractors for cutting/polishing and return. In conducting these activities, it is the Company’s intention to supply Tiffany’s needs for cut/polished diamonds to as great an extent as possible. The Company will strive to minimize the number of rough or cut stones that do not meet Tiffany’s quality standards and must be sold to third parties; however, some such sales are inevitable and have been conducted through Registrant’s Other channel of distribution. The Company’s objective from such sales is to recoup its original costs, thereby earning minimal, if any, gross margin on those transactions.

Worldwide Availability of Diamonds. The availability and price of diamonds to the DTC, Tiffany and Tiffany’s suppliers may be, to some extent, dependent on the political situation in diamond-producing countries, the opening of new mines and the continuance of the prevailing supply and marketing arrangements for rough diamonds. As a consequence of changes in the sight-holder system and increased competition in the retail diamond trade, substantial competition exists for rough diamonds, which resulted in significant increases in diamond prices in Fiscal 2004 and 2005. Sustained interruption in the supply of rough diamonds, an over-abundance of supply or a substantial change in the marketing arrangements described above could adversely affect Tiffany and the retail jewelry industry as a whole. Changes in the marketing and advertising policies of the DTC and its direct purchasers could affect consumer demand for diamonds. Additionally, an affiliate of the DTC has formed a joint venture with an affiliate of a major luxury goods retailer for the purpose of retailing diamond jewelry. This joint venture has become a competitor of Tiffany. Further, the DTC has encouraged its sight-holders to engage in diamond brand development, which may also increase demand for diamonds and affect the supply of diamonds in certain categories.

Increasing attention has been focused within the last few years on the issue of “conflict” diamonds. Conflict diamonds are extracted from war-torn geographic regions and sold by rebel forces to fund insurrection. Allegations have been made in the press that diamond trading is used as a source of funds to further terrorist activities. Concerned participants in the diamond trade, including Tiffany and non-government organizations, seek to exclude such diamonds, which represent a small fraction of the

world’s supply, from legitimate trade through an international system of certification and legislation. It is expected that such efforts will not substantially affect the supply of diamonds.

Manufactured diamonds have become available in small quantities. Although significant questions remain as to the ability of producers to produce manufactured diamonds economically within a full range of sizes and natural diamond colors, and as to consumer acceptance of manufactured diamonds, it is possible that manufactured diamonds may become a factor in the market. Should manufactured diamonds come into the market in significant quantities at prices significantly below those for natural diamonds of comparable quality, the price for natural diamonds may fall unless consumers are willing to pay a premium for natural diamonds. Such a price decline could affect the price that Tiffany is able to obtain for its products. Also, a significant decline in the price of natural diamonds may affect the economics of diamond mining, causing some mining operations to become uneconomic; this, in turn, could lead to shortages in natural diamonds.

Finished Jewelry. Finished jewelry is purchased from approximately 85 manufacturers, most of which have long-standing relationships with Tiffany. Tiffany believes that there are alternative sources for most jewelry items; however, due to the craftsmanship involved in certain designs, Tiffany would have difficulty in finding readily available alternatives in the short term.

Watch Components. Components for TIFFANY & CO. brand timepieces are manufactured and assembled by third parties. Approximately half of net watch sales during Fiscal 2005 were attributable to a single manufacturer. Nearly all movements for Tiffany’s new MARK line of watches are purchased from a single manufacturer. The loss of this manufacturer could result in the unavailability of timepieces during the period necessary for Tiffany to arrange for new production.

COMPETITION

TIFFANY & CO. stores encounter significant competition in all product lines. Some competitors specialize in just one area in which Tiffany is active. Many competitors have established worldwide, national or local reputations for style, quality, expertise and customer service similar to Tiffany and compete on the basis of that reputation. Other jewelers and retailers compete primarily through advertised price promotion. Tiffany competes on the basis of its reputation for high quality products, brand recognition, customer service and distinctive value-priced merchandise and does not engage in price promotional advertising. See Merchandise Purchasing, Manufacturing and Raw Materials above.

Competition for engagement jewelry sales is particularly fierce and becoming more so. The rise of the Internet and increased use of diamond condition reports issued by independent gemological associations have given rise to the mistaken impression amongst certain consumers that diamonds are commodity items and that significant quality differences do not exist. Tiffany’s price for diamonds reflects the rarity of the stones it offers and the rigid parameters it exercises with respect to the cut, clarity and other quality factors which increase the beauty of Tiffany diamonds, but also increase Tiffany’s cost. Tiffany competes in this market by stressing quality, while some competitors offer inferior diamonds claiming they are comparable, but at lesser prices.

The international marketplace for Tiffany’s products is highly competitive. Although the Company believes that the name TIFFANY & CO. is known internationally, and although Tiffany did operate retail stores in London and Paris prior to World War II, Tiffany did not have a retail presence in Europe in the post-war era until 1986. Accordingly, consumer awareness of Tiffany and its products is not as strong in Europe as in the U.S. or in Japan, where Tiffany has distributed its products for many years. Management expects that TIFFANY & CO. stores in overseas markets will continue to experience intense competition from established retailers.

Registrant also faces increasing competition in the area of direct marketing. A growing number of direct sellers compete for access to the same mailing lists of known purchasers of luxury goods. Tiffany currently distributes selected merchandise through its websites and anticipates continuing competition in this area as the technology evolves. Tiffany does not offer diamond engagement jewelry through its website, while certain of Tiffany’s competitors do. Nonetheless, Tiffany will seek to maintain and improve its position in the Internet marketplace by refining and expanding its merchandise selection and services.

SEASONALITY

As a jeweler and specialty retailer, the Company’s business is seasonal in nature, with the fourth quarter typically representing a proportionally greater percentage of annual sales, earnings from operations and cash flow. Management expects such seasonality to continue.

EMPLOYEES

As of January 31, 2006, the Registrant’s subsidiary corporations employed an aggregate of approximately 8,100 full-time and part-time persons. Of those employees, approximately 5,700 are employed in the United States. Of the total number of employees, approximately 2,800 persons are salaried employees, approximately 1,300 are engaged in manufacturing and approximately 4,000 are retail store personnel. Approximately 20 of the total number of Registrant’s subsidiary’s employees in the Caribbean are represented by unions, approximately 45 of the total number of Registrant’s subsidiary’s employees in South Africa are represented by unions and approximately 340 of the total number of Registrant’s subsidiaries’ employees in Vietnam are represented by unions. None of Registrant’s unionized employees are employed in the U.S. Registrant believes that relations with its employees and these unions are good.

AVAILABLE INFORMATION

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy these materials at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding Tiffany & Co. and other companies that file materials with the SEC electronically. You may also obtain copies of the Company’s annual reports on Form 10-K, Forms 10-Q and Forms 8-K, free of charge on the Company’s website at www.tiffany.com.

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Item 1A.    Risk Factors.

As a jeweler and specialty retailer, the Registrant’s success in achieving its objectives and expectations is partially dependent upon economic conditions, competitive developments and consumer attitudes, including changes in consumer preferences for certain jewelry styles and materials. However, certain assumptions are specific to the Registrant and/or the markets in which it operates.

The following assumptions, among others, are “risk factors” which could affect the likelihood that the Registrant will achieve the objectives and expectations communicated by management:

(i) that low or negative growth in the economy or in the financial markets, particularly in the U.S. and Japan, will not occur and reduce discretionary spending on goods that are, or are perceived to be, “luxuries”;

(ii) that consumer spending does not decline substantially during the fourth quarter of any year;

(iii) that unsettled regional and/or global conflicts or crises do not result in military, terrorist or other conditions creating disruptions or disincentives to, or changes in the pattern, practice or frequency of tourist travel to the various regions where the Registrant operates retail stores nor to the Registrant’s continuing ability to operate in those regions;

(iv) that sales in Japan will not decline substantially;

(v) that there will not be a substantial adverse change in the exchange relationship between the Japanese yen and the U.S. dollar;

(vi) that Mitsukoshi and other department store operators in Japan, in the face of declining or stagnant department store sales, will not close or consolidate stores which have TIFFANY & CO. retail locations;

(vii) that Mitsukoshi will continue as a leading department store operator in Japan;

(viii) that existing product supply arrangements, including license arrangements with third-party designers Elsa Peretti and Paloma Picasso, will continue;

(ix) that the wholesale and retail market for high-quality rough and cut diamonds will provide continuity of supply and pricing within the quality grades, colors and sizes that customers demand;

(x) that the Registrant’s diamond supply initiatives achieve their financial and strategic objectives;

(xi) that the Registrant’s gross margins in Japan and for diamond products can be maintained in the face of increased competition from traditional and e-commerce retailers;

(xii) that the Registrant is able to pass on higher costs of raw materials to consumers through price increases;

(xiii) that the sale of counterfeit products does not significantly undermine the value of the Registrant’s trademarks and demand for the Registrant’s products;

(xiv) that new and existing stores and other sales locations can be leased, re-leased or otherwise obtained on suitable terms in desired markets and that construction can be completed on a timely basis;

(xv) that the Registrant can achieve satisfactory results from any current and future businesses into which it enters that are operated under trademarks or tradenames other than TIFFANY & CO.; and

(xvi) that the Registrant’s expansion plans for retail and direct selling operations and merchandise development, production and management can continue to be executed without meaningfully diminishing the distinctive appeal of the TIFFANY & CO. brand.

Item 1B.    Unresolved Staff Comments.

NONE

Item 2.    Properties.

Registrant both owns and leases its principal operating facilities and occupies its various store premises under lease arrangements that are generally on a two to ten-year basis.

NEW YORK FLAGSHIP STORE

In November 1999, Tiffany purchased the land and building housing its Flagship store at 727 Fifth Avenue in New York City which it had leased since 1984. The building was originally constructed for Tiffany in 1940 but was later sold by Tiffany and leased back. It was designed to be a retail store for Tiffany and is believed to be well located for this function. Currently, approximately 40,000 gross square feet of this 124,000 square foot building are devoted to retail sales, with the balance devoted to administrative offices, certain product services, jewelry manufacturing and storage. In Fiscal 2000, Tiffany commenced a multi-year renovation and reconfiguration project to increase the store’s selling space and provide additional floor space for customer service and special exhibitions. An additional selling floor was opened in November 2001 and renovations of three other floors were completed by the end of Fiscal 2004. Tiffany anticipates completion of its renovation plans during Fiscal 2006.

LONDON FLAGSHIP STORE

In October 2002, Registrant purchased a corporation owning the building housing its Flagship TIFFANY & CO. store at 25/25A Old Bond Street in London and the adjacent building at 15 Albermarle Street. The London store had been leased since Fiscal 1986 and was expanded to its current 15,200 gross square feet in 1991. In Fiscal 2004, a renovation and reconfiguration plan commenced to increase the store’s interior selling space by approximately 60%. The renovation plan will occur in several phases through Fiscal 2006.

TOKYO FLAGSHIP STORE

In June 2003, through its purchase of a trust beneficiary interest, Registrant’s Japanese affiliate acquired the land and building housing the TIFFANY & CO. Flagship store in Tokyo’s Ginza shopping district. The 61,000 square foot, nine-story building houses retail, restaurant and office tenants, including the TIFFANY & CO. store located on the street level, second and third floors. Prior to its purchase, the Tokyo Flagship store had been leased. It is subleased by Tiffany-Japan to Mitsukoshi. The store was expanded to its current 12,000 gross square feet in Fiscal 1999.

RETAIL SERVICE CENTER

In April 1997, construction of the Retail Service Center (“RSC”) in the Township of Parsippany-Troy Hills in New Jersey was completed and Tiffany commenced operations. The RSC comprises approximately 370,000 square feet, of which approximately 186,000 square feet are devoted to office and computer operations use, with the balance devoted to warehousing, shipping, receiving, light manufacturing, merchandise processing and other distribution functions. The RSC specializes in receipt of merchandise from around the world and replenishment of retail stores. Registrant believes that the RSC has been properly designed to handle worldwide distribution functions and that it is suitable for that purpose.

In September 2005, Tiffany entered into a purchase and sale agreement pursuant to which it sold and conveyed the RSC. Under the terms of the agreement, the purchaser paid Tiffany $75,000,000 and entered into a long term lease with Tiffany for the RSC. The Lease expires in 2025, subject to Tiffany’s option to extend the term of the Lease for two 10-year renewal periods.

CUSTOMER FULFILLMENT CENTER

In Fiscal 2001 Tiffany entered into a ground lease of undeveloped property in Hanover Township, New Jersey in order to construct and occupy a Customer Fulfillment Center (“CFC”) to manage the warehousing and processing of direct-to-customer orders and to perform other distribution functions. Construction of the CFC was completed and Tiffany commenced operations at this facility in September 2003 under a temporary certificate of occupancy. A permanent certificate of occupancy is anticipated when the landlord completes certain corrective work to the property to the satisfaction of the Township. Tiffany and the landlord have a dispute over the landlord’s entitlement to reimbursement of certain costs associated with the landlord’s site work and landlord’s performance of such work. The CFC is approximately 266,000 square feet; an area of approximately 34,500 square feet that is devoted to office use and the balance of which is devoted to warehousing, shipping, receiving, merchandise processing and other warehouse functions.

MANUFACTURING FACILITY – CUMBERLAND, RHODE ISLAND

Tiffany’s manufacturing facility in Cumberland, Rhode Island commenced operations in May 2001. It is a 100,000 square foot facility that was specially designed and constructed for Tiffany for the manufacture of jewelry. It produces a significant portion of the silver, gold and platinum jewelry and silver accessory items sold under the TIFFANY & CO. trademark.

MANUFACTURING FACILITY – CRANSTON, RHODE ISLAND

On January 31, 2003, Tiffany purchased a warehouse facility and land located in Cranston, Rhode Island. During Fiscal 2003, Tiffany renovated the 75,000 square foot building to process metals for use in jewelry manufacturing.

MANUFACTURING FACILITIES – WESTCHESTER COUNTY, NEW YORK

On July 1, 1997, Tiffany entered into a lease for a 34,280 square foot manufacturing facility in Pelham, New York, to expire on June 30, 2008. In Fiscal 2004, Tiffany modified the lease to add an additional 10,200 square feet to the lease, subject to the original expiration date.

On February 16, 2005, Tiffany purchased approximately 22,000 square feet of space to be used as a manufacturing facility for jewelry setting in Mount Vernon, New York.

										Other
2004		United States				Japan				Countries				Total
Beginning of year			51				50				40				141
Opened, net of relocations			4				4				3				11
Closed			—				(1	)			—				(1	)
End of year			55				53				43				151

U.S. TIFFANY & CO. Retail Branch Store Leases

In Fiscal 2005, Tiffany leased and operated 58 retail branch locations in the U.S. totaling 427,000 gross square feet devoted to retail selling and operations (not including the New York Flagship store). Tiffany retail branch stores range from approximately 1,300 to 18,000 gross square feet with an average retail store size of approximately 7,400 gross square feet. Management currently contemplates the opening of new TIFFANY & CO. branch stores in the United States at the rate of approximately three to five per year. Prior to Fiscal 1993, an average of approximately 45% of the floor space in each branch store was devoted to retail selling. Stores opened between Fiscal 1993 and Fiscal 2001 generally range from approximately 4,000 to 7,000 gross square feet and are designed to devote approximately 60-70% of total floor space to retail selling. Branch stores opened after Fiscal 2001 are generally smaller, approximately 5,000 gross square feet, and display primarily jewelry and timepieces, with a select assortment of china and crystal giftware. The East Hampton, Palm Desert and Carmel locations, ranging from approximately 3,000 to 4,000 gross square feet in size, represent the first three “resort” stores.

New U.S. TIFFANY & CO. Retail Branch Store Leases.  In addition to the U.S. leases described above, Registrant has entered into the following new leases for domestic stores expected to open in Fiscal 2006: a 10-year lease for a 5,200 gross square foot store in Nashville, Tennessee, a 10-year lease for a 4,900 gross square foot store in Indianapolis, Indiana, a 10-year lease for a 3,000 gross square foot store in Atlantic City, New Jersey, and a 10-year lease for a 3,900 gross square foot store in Tucson, Arizona.

International TIFFANY & CO. Retail Branch Store Leases

In Fiscal 2005, Registrant operated 95 retail locations internationally totaling approximately 278,000 gross square feet devoted to retail selling and operations. Outside of Japan, Registrant operates 45 international retail stores ranging from approximately 500 to 15,000 gross square feet with an average retail store size of approximately 3,200 gross square feet. In Fiscal 2005 Registrant operated 50 retail locations in Japan ranging from approximately 800 to 12,000 gross square feet with an average retail store size of approximately 2,700 gross square feet.

New International TIFFANY & CO. Retail Branch Store Leases.  In addition to the International locations listed above, Registrant has entered into the following new leases for International branch stores expected to open in Fiscal 2006: a 5-year lease for a 2,100 gross square foot store in Macau, a 4-year lease for a 1,900 gross square foot store in Beijing, China, a 3-year lease for a 700 gross square foot store in Shanghai, China, a 3-year lease for a 1,500 gross square foot store in Monterrey, Mexico, a 10-year lease for a 4,700 gross square foot store in Vancouver, British Columbia, and a 10-year lease for a 2,400 gross square foot store in Vienna, Austria.

In Fiscal 2006, Registrant’s Japanese affiliate entered into contractual obligations with the Takashimaya and Keisei Department stores in Yonago and Mito, Japan, respectively, for the operation of concession boutiques within said department stores of an area comprising approximately 1,500 gross square feet in Yonago, Japan and 3,000 gross square feet in Mito, Japan.

LITTLE SWITZERLAND Retail Store Leases

In Fiscal 2005, Little Switzerland leased and operated 26 retail locations in the U.S. and Caribbean totaling approximately 67,000 gross square feet devoted to retail selling and operations. Little Switzerland’s retail store leases range from approximately 250 to 6,000 gross square feet of selling space with an average retail store size of approximately 2,600 gross square feet. Little Switzerland leases most of its retail store locations for an average of five years, with two exercisable five-year renewal options. Little Switzerland has four pending lease renewals in 2006.

IRIDESSE Retail Store Leases

In Fiscal 2005, Iridesse leased and operated six retail locations in the U.S. totaling approximately 9,000 gross square feet devoted to retail selling and operations. Iridesse retail stores range from approximately 1,300 to 1,700 gross square feet with an average retail store size of approximately 1,500 gross square feet. Iridesse rents its retail store locations under standard shopping mall leases, which may contain minimum rent escalations, for an average term of ten years. Iridesse leases are all directly or indirectly guaranteed by Registrant. There are no pending lease expirations or renewals in Fiscal 2006.

New IRIDESSE Store Leases. In addition to the U.S. leases described above, Iridesse has entered into 10-year leases for stores averaging 1,500 gross square feet in Aventura, Florida; Tampa, Florida and Atlantic City, New Jersey.

Item 3.    Legal Proceedings.

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

On or about July 1, 2004, both Tiffany and the landlord of Tiffany’s Customer Fulfillment Center (“River Park”) requested arbitration of the parties’ continuing dispute over their respective obligations surrounding completion of River Park’s site work (Tiffany and Company v. River Park Business Center, Inc., American Arbitration Association). In connection with the arbitration, River Park’s then pending civil claim in the Superior Court of New Jersey (Morris County), River Park Business Center, Inc. v. Tiffany and Company, was dismissed in September 2004.

In the arbitration, Tiffany asserts River Park’s continuing breach of its obligations to complete Landlord’s Work by the close of Fiscal 2001, as originally required under the Ground Lease, and to obtain timely site plan approval from the Township of Hanover. Tiffany seeks damages stemming from River Park’s continuous delays in completing its obligations, which damages Tiffany contends are in excess of $1,000,000. In its arbitration complaint, River Park seeks an unspecified amount in damages alleging entitlement to reimbursement of grading costs and excess installation costs of the landfill gas venting system. See Item 1. Business under Trademarks for disclosure on Tiffany and Company v. eBay, Inc.

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

No matters were submitted to a vote of the Company’s security holders during the fourth quarter of the fiscal year ended January 31, 2006.

See Item 13. Certain Relationships and Related Transactions for information on the Executive Officers of the Registrant as incorporated by reference from Registrant’s Proxy Statement dated April 14, 2006, pages PS-17-18.

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PART II

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

Registrant’s Common Stock is traded on the New York Stock Exchange. In consolidated trading, the high and low selling prices per share for shares of such Common Stock for Fiscal 2005 were:

		High								Low
First Fiscal Quarter		$	35.25							$	29.53
Second Fiscal Quarter		$	34.84							$	28.60
Third Fiscal Quarter		$	41.47							$	33.11
Fourth Fiscal Quarter		$	43.80							$	37.47

On March 24, 2006, the high and low selling prices quoted on such exchange were $39.08 and $38.75, respectively. On March 24, 2006 there were 7,487 record holders of Registrant’s Common Stock.

In consolidated trading, the high and low selling prices per share for shares of such Common Stock for Fiscal 2004 were:

		High								Low
First Fiscal Quarter		$	43.26							$	35.44
Second Fiscal Quarter		$	39.78							$	32.38
Third Fiscal Quarter		$	35.94							$	27.00
Fourth Fiscal Quarter		$	32.76							$	29.47

It is Registrant’s policy to pay a quarterly dividend on the Registrant’s Common Stock, subject to declaration by Registrant’s Board of Directors. In Fiscal 2004, a dividend of $0.05 per share of Common Stock was paid on April 12, 2004, and dividends of $0.06 per share of Common Stock were paid on July 12, 2004, October 11, 2004 and January 10, 2005. In Fiscal 2005, a dividend of $0.06 per share of Common Stock was paid on April 11, 2005, and dividends of $0.08 per share of Common Stock were paid on July 11, 2005, October 11, 2005 and January 10, 2006.

In calculating the aggregate market value of the voting stock held by non-affiliates of the Registrant shown on the cover page of this Annual Report on Form 10-K, 1,518,325 shares of Registrant’s Common Stock beneficially owned by the executive officers and directors of the Registrant (exclusive of shares which may be acquired on exercise of employee stock options) were excluded, on the assumption that certain of those persons could be considered “affiliates” under the provisions of Rule 405 promulgated under the Securities Act of 1933.

The following table contains the Company’s stock repurchases of equity securities in the fourth quarter of Fiscal 2005:

Issuer Purchases of Equity Securities

(d) Maximum Number

(c) Total Number of

(or Approximate Dollar

Shares (or Units)

Value) of Shares, (or

(a) Total Number of

(b) Average Price

Purchased as Part of

Units) that May Yet Be

Shares (or Units)

Paid per Share (or

Publicly Announced

Purchased Under the

Period

Purchased

Unit)

Plans or Programs*

Plans or Programs*

November 1, 2005 to November 30, 2005

–

–

–

$294,640,000

December 1, 2005 to December 31, 2005

–

–

–

$294,640,000

January 1, 2006 to January 31, 2006

469,050

$39.39

469,050

$276,166,000

TOTAL

469,050

$39.39

469,050

$276,166,000

*

* The current stock repurchase program authorizes the Company to repurchase up to $400,000,000 of its Common Stock through open market or private transactions. The current program expires on March 30, 2007.

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Item 6.    Selected Financial Data.

The following table sets forth selected financial data, certain of which have been derived from the Company’s audited financial statements for fiscal 2001-2005:

	(in thousands, except per share amounts,
	percentages, ratios, retail locations and
	employees)		2005				2004				2003				2002				2001
	EARNINGS DATA
	Net sales		$	2,395,153			$	2,204,831			$	2,000,045			$	1,706,602			$	1,606,535
	Gross profit			1,342,340				1,230,573				1,157,382				1,011,448				943,477
	Earnings from operations			382,705				294,529				355,519				319,197				309,897
	Net earnings			254,655				304,299				215,517				189,894				173,587
	Net earnings per diluted share			1.75				2.05				1.45				1.28				1.15
	Weighted-average number of diluted common shares			145,578				148,093				148,472				148,591				150,517
	BALANCE SHEET AND CASH FLOW DATA
	Total assets		$	2,777,272			$	2,666,118			$	2,391,088			$	1,923,586			$	1,631,074
	Cash and cash equivalents			393,609				187,681				248,665				156,197				173,675
	Short-term investments			–				139,200				27,450				–				–
	Inventories, net			1,060,164				1,057,245				871,251				732,088				611,653
	Short-term borrowings and long-term debt (including current portion)			471,676				440,563				486,859				349,659				270,967
	Stockholders’ equity			1,830,913				1,701,160				1,468,200				1,208,049				1,036,945
	Working capital			1,334,233				1,208,068				952,923				770,481				638,709
	Cash flows from operating activities			262,691				130,853				283,842				221,441				241,506
	Capital expenditures			157,036				142,321				272,900				219,717				170,806
	Stockholders’ equity per share			12.85				11.77				10.01				8.34				7.15
	Cash dividends paid per share			0.30				0.23				0.19				0.16				0.16
	RATIO ANALYSIS AND OTHER DATA
	As a percentage of net sales:
	Gross profit			56.0	%			55.8	%			57.9	%			59.3	%			58.7	%
	Earnings from operations			15.9	%			13.4	%			17.8	%			18.7	%			19.3	%
	Net earnings			10.6	%			13.8	%			10.8	%			11.1	%			10.8	%
	Capital expenditures			6.6	%			6.5	%			13.6	%			12.9	%			10.6	%
	Return on average assets			9.4	%			12.0	%			10.0	%			10.7	%			10.9	%
	Return on average stockholders’ equity			14.4	%			19.2	%			16.1	%			16.9	%			17.7	%
	Total debt-to-equity ratio			25.8	%			25.9	%			33.2	%			28.9	%			26.1	%
	Company-operated TIFFANY & CO. stores and boutiques			154				151				141				131				126
	Number of employees			8,120				7,341				6,862				6,431				5,938

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

Financial information for 2005 and 2004 includes the effect of the Company’s adoption of SFAS 123R, “Share-Based Payment” (see Note O to Consolidated Financial Statements). In addition, 2004 includes the effect of the Company’s sale of its equity investment in Aber Diamond Corporation (see Note D to Consolidated Financial Statements).

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes. All references to years relate to the fiscal year that ends on January 31 of the following calendar year.

2005 HIGHLIGHTS

•

Net sales rose 9% to $2.4 billion. Worldwide comparable store sales rose 5% on a constant-exchange-rate basis (see Non-GAAP Measures).

•

Japan retail sales, on a constant-exchange-rate basis, increased 4% in 2005 while comparable store sales were flat after three years of declines. Management believes that the comparable store sales decline was stemmed due to new product introductions, initiatives in sales training and improvements in the economic environment.

•

Net earnings decreased 16%, or $50 million, to $255 million. Prior year net earnings were not representative because they benefited from a $125 million gain, net of tax, from the Company’s sale of its equity investment in Aber Diamond Corporation (“Aber”).

•

The Company repatriated $178 million in accumulated earnings from foreign affiliates, which resulted in a lower effective tax rate.

•

Company-operated square footage of TIFFANY & CO. stores increased 2%. The Company added eight retail locations – four in the U.S., two in Japan and one each in Australia and France. In addition, five existing locations were closed in Japan.

•

E-commerce sites were launched in Canada and Japan.

•

The Company sold and leased back its Retail Service Center (a distribution and administrative office facility) and received proceeds of $75 million.

•

The Board of Directors increased the annual dividend rate by 33%.

•

The Company repurchased 3.8 million shares of its Common Stock.

NON-GAAP MEASURES

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.

The Company reports information in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). Internally, management monitors the sales performance of its international stores and boutiques 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 uses this constant-exchange-rate measure because it believes it is a more representative assessment of the sales performance of its international stores and boutiques 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 tables reconcile net sales percentage increases (decreases), versus the prior year, from the GAAP to the non-GAAP basis:

		2005												2004
										Constant-												Constant-
		GAAP				Translation				Exchange-				GAAP				Translation				Exchange-
Net Sales		Reported				Effect				Rate Basis				Reported				Effect				Rate Basis
Worldwide			9	%			–				9	%			10	%			2	%			8	%
U.S. Retail			9	%			–				9	%			10	%			–				10	%
International Retail			5	%			(2	)%			7	%			10	%			6	%			4	%
Japan Retail			–				(4	)%			4	%			1	%			6	%			(5	)%
Other Asia-Pacific			17	%			3	%			14	%			27	%			4	%			23	%
Europe			4	%			(3	)%			7	%			23	%			11	%			12	%

		2005												2004
										Constant-												Constant-
Comparable		GAAP				Translation				Exchange-				GAAP				Translation				Exchange-
Store Sales		Reported				Effect				Rate Basis				Reported				Effect				Rate Basis
Worldwide			4	%			(1	)%			5	%			7	%			3	%			4	%
U.S. Retail			7	%			–				7	%			10	%			–				10	%
International Retail			–				(2	)%			2	%			3	%			6	%			(3	)%
Japan Retail			(4	)%			(4	)%			–				(2	)%			6	%			(8	)%
Other Asia-Pacific			10	%			2	%			8	%			15	%			4	%			11	%
Europe			(2	)%			(3	)%			1	%			13	%			10	%			3	%

RESULTS OF OPERATIONS

Certain operating data as a percentage of net sales were as follows:

						2005				2004				2003
Net sales							100.0	%			100.0	%			100.0	%
Cost of sales							44.0				44.2				42.1
Gross profit							56.0				55.8				57.9
Selling, general and administrative expenses							40.1				42.4				40.1
Earnings from operations							15.9				13.4				17.8
Interest, financing and other income, net							0.5				0.8				0.7
Gain on sale of equity investment							–				8.8				–
Earnings before income taxes							15.4				21.4				17.1
Provision for income taxes							4.8				7.6				6.3
Net earnings							10.6	%			13.8	%			10.8	%

Net Sales

														2005 vs. 2004				2004 vs. 2003
(in thousands)		2005				2004				2003				Increase				Increase
U.S. Retail		$	1,220,683			$	1,116,845			$	1,013,034				9	%			10	%
International Retail			900,689				857,360				781,572				5	%			10	%
Direct Marketing			157,483				142,508				133,254				11	%			7	%
Other			116,298				88,118				72,185				32	%			22	%
		$	2,395,153			$	2,204,831			$	2,000,045				9	%			10	%

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 of relocated stores are included if the relocation occurs within the same geographical market. In Japan, sales of a new store or boutique are not included if the store was relocated from one department store to another or from a department store to a free-standing location. The results of a store in which the square footage has been expanded or reduced remain in the comparable store base in all markets.

In the second quarter of 2005, the Company placed responsibility for U.S. non-Internet business-to-business sales within the U.S. Retail channel and, consequently, now reports non-Internet business-to-business sales in that channel. In the past, such sales were reported in the Direct Marketing channel, which will continue to report Internet business-to-business transactions. The prior year’s amounts affected by the change have been reclassified to conform to the current year presentation.

U.S. Retail.  The following table presents the U.S. Retail channel and its components as a percentage of worldwide net sales:

						2005								2004								2003
New York Flagship store							10	%							10	%							10	%
Branch stores							39	%							39	%							39	%
Business-to-business							2	%							2	%							2	%
							51	%							51	%							51	%

U.S. Retail sales increased in 2005 and 2004. The New York Flagship store’s sales increased 5% in 2005 and 13% in 2004 and comparable branch store sales increased 7% in 2005 and 9% in 2004. Comparable store sales growth in both years resulted from increases in the average sales amount per transaction. Management attributes the increased amount per transaction to sales of higher-priced merchandise and management’s decision to reposition the Company’s silver jewelry category toward higher-priced offerings, as well as generally favorable conditions for consumer spending. In 2005, the Company experienced growth across a range of jewelry categories, with especially strong results in jewelry with diamonds which are at price points above the Company’s average. In both years, there were increased sales to U.S. customers, which account for the vast majority of U.S. Retail sales, and to foreign tourists especially in the New York Flagship store. The Company opened four new stores in both 2005 and 2004, consistent with its ongoing strategy to open three-five new U.S. stores each year.

International Retail.  The following table presents the sales contribution in U.S. dollars of each geographic region within the International Retail channel as a percentage of worldwide net sales:

						2005								2004								2003
Japan							20	%							22	%							24	%
Other Asia-Pacific							8	%							7	%							6	%
Europe							6	%							6	%							6	%
Other							4	%							4	%							3	%
							38	%							39	%							39	%

International Retail sales, on a constant-exchange-rate basis, increased 7% in 2005 and 4% in 2004. When compared with the prior year, the weighted-average U.S. dollar exchange rate was stronger in 2005 and weaker in 2004.

Japan retail sales, on a constant-exchange-rate basis, increased 4% in 2005 and declined 5% in 2004. Comparable store sales were unchanged in 2005 and declined 8% in 2004. Management’s operational focus in Japan is on new products, targeted publicity and marketing, the quality of selling locations and selling skills. Although improvements in the Japanese economy were a positive factor, management believes that its focus on the above initiatives has contributed to the improved results in 2005, especially during the second half of the year. However, Japan sales will continue to be affected by increased “luxury-goods” competition.

Japan sales of engagement and other fine jewelry increased in 2005 and 2004, while sales of silver jewelry declined in both years although at a lesser rate in 2005. In 2005, the Company opened two locations and five were closed, consistent with management’s intention to enhance the quality of its selling locations in Japan. In 2004, the Company opened four locations and one was closed. The Company also launched an e-commerce website in 2005.

In the Asia-Pacific region outside of Japan, comparable store sales on a constant-exchange-rate basis increased 8% in 2005 due to growth in all markets and 11% in 2004. In Europe, comparable store sales on a constant-exchange-rate basis increased 1% in 2005 and 3% in 2004 due to growth in most markets, largely offset by a sales decline in the United Kingdom.

Store Data. Gross square feet of company-operated TIFFANY & CO. stores increased 2% to 745,000 in 2005, following a 9% increase to 729,000 in 2004. Sales per gross square foot generated by those stores were $2,666 in 2005, $2,546 in 2004 and $2,512 in 2003. Management expects further improvements in sales per square foot primarily due to comparable store sales growth. In addition, the Company’s newer U.S. stores use a smaller footprint than historically and are more productive.

The Company’s worldwide expansion strategy is to open 8-12 Company-operated TIFFANY & CO. stores and boutiques annually (excluding any closings). Plans in the U.S. for 2006 include opening a store in Nashville, Tennessee; Indianapolis, Indiana; Atlantic City, New Jersey; and Tucson, Arizona. International plans include new stores in Yonago and Mito, Japan; Monterrey, Mexico; Vancouver, British Columbia; Vienna, Austria; Macau; and second stores in Shanghai and Beijing, China.

Direct Marketing. Direct Marketing sales rose in both 2005 and 2004 due to increases in the average order size, which management attributes to a favorable consumer environment and new product introductions. The Company continues to experience increased website traffic and orders, as well as consumers shifting their purchases from catalogs to the Internet. While the number of catalog orders declined in both years, catalogs remain an effective marketing tool for both retail and Internet sales.

Other. Other sales in 2005 and 2004 increased primarily due to wholesale sales of diamonds (such sales commenced in 2004), as well as sales growth in LITTLE SWITZERLAND stores (which represents the majority of Other sales). To a much lesser extent, sales in IRIDESSE stores, which commenced in late 2004, contributed to this channel’s sales growth.

Gross Profit

Gross profit as a percentage of net sales (“gross margin”) improved in 2005 by 0.2 percentage point and declined in 2004 by 2.1 percentage points. The increase in 2005 was primarily attributable to changes in geographic and product sales mix and selective price increases (0.6 percentage point), partially offset by increased low margin wholesale sales of diamonds (0.5 percentage point). Wholesale diamond sales are made to divest stones that do not meet Tiffany’s quality requirements; typically, the Company purchases such stones in mixed lots which are then culled. The decline of 2.1 percentage points in 2004 was primarily attributable to higher inventory costs due to increases in diamond and precious metal prices (1.0 percentage point); changes in geographic and product sales mix away from Japan and silver jewelry and toward higher-priced, lower-margin diamond jewelry (0.6 percentage point); the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (0.2 percentage point); and costs incurred to expand product distribution and sourcing/manufacturing capacity.

The Company’s hedging program (see Note K to Consolidated Financial Statements) uses yen put options to stabilize product costs in Japan over the short-term despite exchange rate fluctuations. The Company adjusts its retail prices in Japan from time to time to address longer-term changes in the yen/dollar relationship and local competitive pricing.

Management’s long-term strategy and objectives include achieving product sourcing/manufacturing efficiencies (including direct rough-diamond sourcing and increased internal manufacturing), controlling costs and implementing selective price adjustments in order to maintain the Company’s gross margin at, or above, prior year levels.

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

SG&A expenses increased 3% in 2005. However, excluding several one-time costs in 2004 (a contribution to The Tiffany & Co. Foundation, an impairment charge and exit costs (see below for more details)), SG&A expenses increased 7% in 2005 due to higher labor and benefit costs (representing approximately 50% of the increase) and higher depreciation and occupancy expenses attributable to new stores and variable rent (representing approximately 30% of the increase).

In 2005, the Company recorded $2,201,000 of losses associated with the sale of the Company’s equity investment in a retail designer and distributor and $2,115,000 of losses associated with the sale of a glassware manufacturing operation.

SG&A expenses increased 17% in 2004, which included the following expenses that represented approximately half of the increase:

	•		$25,000,000 contribution to The Tiffany & Co. Foundation. The contribution was made from the proceeds received from the Company’s sale of its equity investment in Aber. The Tiffany & Co. Foundation is a non-profit organization that provides grants to other non-profit organizations;
	•		$19,006,000 due to the early adoption, retroactive to February 1, 2004, of SFAS No. 123R;
	•		$12,193,000 impairment charge. In accordance with its policy on impairment of goodwill and long-lived assets, the Company identified impairment losses in one of its international retail markets and in one of its specialty retail businesses as a result of store performance and cash flow projections; and
	•		$2,932,000 of exit costs associated with discontinuing a specialty retail concept that the Company decided not to pursue.

In addition, the Company had higher labor and benefit costs in 2004 (representing approximately 20% of the increase), depreciation and occupancy expenses (representing approximately 15% of the increase) and marketing expenses (representing approximately 10% of the increase).

Management’s long-term objective is to reduce the ratio of SG&A expenses to net sales by controlling expenses so that sales growth will result in a higher rate of earnings growth. As a percentage of net sales, SG&A expenses improved 2.3 percentage points in 2005. Excluding the one-time costs in 2004 discussed above, SG&A expenses as a percentage of net sales improved 0.5 percentage point in 2005 due to overall sales growth.

Earnings from Operations

										% of								% of								% of
(in thousands)						2005				Sales*				2004				Sales*				2003				Sales*
Earnings (losses) from operations:
U.S. Retail						$	268,769				22	%		$	227,302				20	%		$	224,149				22	%
International Retail							212,496				24	%			202,260				24	%			213,666				27	%
Direct Marketing							58,542				37	%			47,566				33	%			46,813				35	%
Other							(18,829	)			(16	)%			(23,290	)			(26	)%			(8,460	)			(12	)%
							520,978								453,838								476,168
Unallocated corporate expenses							(138,273	)							(159,309	)							(120,649	)
Earnings from operations						$	382,705							$	294,529							$	355,519

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

Reclassifications were made to prior year’s earnings (losses) from operations by segment to conform to the current year presentation and to reflect the revised manner in which management evaluates the performance of segments. (See Note R to Consolidated Financial Statements for further information on the reclassifications that were made).

Earnings from operations rose 30% in 2005. On a segment basis, the ratio of earnings (losses) from operations (before the effect of unallocated corporate expenses and interest, financing and other income, net) to each segment’s net sales in 2005 compared with 2004 was as follows:

	•		U.S. Retail – increased 2 percentage points primarily due to increased sales and gross margin and the leveraging of fixed expenses;
	•		International Retail – was consistent with the prior year;

	•		Direct Marketing – increased 4 percentage points primarily due to increased sales and gross margin and the leveraging of fixed expenses;
	•		Other – decreased loss of 10 percentage points primarily due to the absence of impairment and exit costs incurred in 2004. Excluding these charges from the 2004 loss from operations, the ratio of losses from operations to net sales would have been equal to the prior year.

Earnings from operations declined 17% in 2004. On a segment basis, the ratio of earnings (losses) from operations (before the effect of unallocated corporate expenses and interest, financing and other income, net) to each segment’s net sales in 2004 compared with 2003 was as follows:

	•		U.S. Retail – decreased 2 percentage points primarily due to shifts in product sales mix toward higher-priced, lower margin diamond jewelry and higher inventory costs;
	•		International Retail – decreased 3 percentage points primarily due to product sales mix, higher inventory costs, increased import tariffs on U.S. manufactured products shipped to Europe and increased SG&A expenses;
	•		Direct Marketing – decreased 2 percentage points primarily due to lower sales and higher fixed expenses, mostly associated with the Customer Fulfillment Center, a distribution facility, which opened in September 2003 and primarily supports the Direct Marketing segment;
	•		Other – increased loss of 14 percentage points primarily due to impairment and exit costs incurred in 2004, expenses associated with the start-up and development of new specialty retail concepts and sales of diamonds unsuitable for the Company’s production, which earn a minimal to no gross margin.

Each segment’s earnings (losses) from operations in 2005 and 2004 were affected by an allocation of the expense associated with the adoption of SFAS No. 123R.

Unallocated corporate expenses include costs related to the Company’s administrative support functions, such as information technology, finance, legal and human resources. Unallocated corporate expenses decreased 13% in 2005 and increased 32% in 2004. The 13% decrease in 2005 was primarily due to the $25,000,000 contribution to The Tiffany & Co. Foundation made in 2004, which was partially offset by incremental labor and benefit costs. The 32% increase in 2004 was primarily due to the contribution to The Tiffany & Co. Foundation, as well as incremental labor and benefit costs.

Interest Expense and Financing Costs

Interest expense in 2005 was slightly higher than 2004. Interest expense in 2004 rose over 2003 due to a higher level of average borrowings, a higher weighted-average interest rate and lower capitalized interest on capital expenditures.

Other Income, Net

Other income, net includes interest income, gains/losses on investment activities and foreign currency transactions, and minority interest income/expense. Other income, net increased in 2005 and 2004. The increase in 2005 was primarily due to increased interest income associated with a higher level of average investments and higher interest rates, as well as transaction gains on settlement of foreign payables. The

increase in 2004 was primarily due to increased interest income resulting from a higher level of average investments and increased interest rates, as well as increased minority interest income.

Gain on Sale of Equity Investment

In December 2004, the Company sold its entire investment holdings of eight million shares in Aber, which had been acquired in July 1999, and recorded a pre-tax gain of $193,597,000, or a gain of $125,064,000 net of tax (see Liquidity and Capital Resources).

Provision for Income Taxes

The effective income tax rate was 30.8% in 2005, compared with 35.6% in 2004 and 37.1% in 2003. The decrease in both years was primarily due to benefits associated with the repatriation provisions of the American Jobs Creation Act of 2004 (“AJCA”). The 2004 rate also benefited from the favorable state tax treatment on the gain from the Company’s sale of its equity investment in Aber, partly offset by a favorable reserve adjustment in 2003 related to the elimination of certain tax exposures.

The AJCA, which was signed into law on October 22, 2004, created a temporary incentive for U.S. companies to repatriate accumulated foreign earnings by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. This incentive effectively reduces the amount of U.S. Federal income tax due on repatriation. Taking advantage of the AJCA, the Company recorded an income tax benefit of $8,600,000 in 2004 to reflect the Company’s plan to repatriate $100,000,000 of accumulated foreign earnings. In 2005, the Company recorded an income tax benefit of $22,588,000 due to the Internal Revenue Service clarifying certain provisions of the AJCA in May 2005, which also resulted in the Company’s decision to repatriate additional foreign earnings. The tax benefit to the Company occurred because the Company had previously accrued income taxes on un-repatriated foreign earnings at higher income tax rates. In total, the Company repatriated $178,245,000 of accumulated foreign earnings.

The AJCA provides a two-year transition from the existing Extraterritorial Income Exclusion Act of 2000. The World Trade Organization (“WTO”) ruled that this exclusion was an illegal export subsidy. The European Union believes that the AJCA fails to adequately repeal illegal export subsidies because of these transitional provisions and has asked the WTO to review whether these transitional provisions are in compliance with the WTO’s prior ruling. Until the final resolution of this matter, management will be unable to predict what impact, if any, this will have on future earnings.

2006 Outlook

Management’s financial performance objectives for 2006 are based on the following assumptions:

	•		Net sales growth of 10%. This objective assumes mid-single-digit worldwide comparable store sales growth on a constant-exchange-rate basis for the full year, including a high-single-digit increase in the U.S. and low-single-digit growth in Japan.
	•		Gross margin equal to fiscal year 2005.
	•		Improvement in the ratio of SG&A to net sales.
	•		Earnings before income taxes growth of at least 12%.
	•		Effective tax rate of 38%.
	•		Diluted earnings per share in a range of $1.77 – $1.82.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity needs have been, and are expected to remain, primarily a function of its seasonal and expansion-related working capital requirements and capital expenditure needs. The Company had net cash inflows from operating activities of $262,691,000 in 2005, $130,853,000 in 2004 and $283,842,000 in 2003. The increase in 2005 resulted from increased net earnings after adjustment for the gain on the sale of the equity investment in Aber and smaller growth in inventories, partly offset by increased tax payments largely associated with a gain recognized on the sale of the Company’s equity investment in Aber in the fourth quarter of 2004. The decrease in 2004 resulted from a decrease in net earnings, after adjustment for the gain on the sale of the equity investment in Aber, and higher inventory purchases.

Working Capital

Working capital (current assets less current liabilities) and the corresponding current ratio (current assets divided by current liabilities) were $1,334,233,000 and 4.7 at January 31, 2006, compared with $1,208,068,000 and 4.0 at January 31, 2005.

Accounts receivable, less allowances, at January 31, 2006 were 7% higher than January 31, 2005. On a 12-month rolling basis, accounts receivable turnover was 19 times in 2005 and 18 times in 2004.

Inventories, net at January 31, 2006 did not change significantly from January 31, 2005. Combined raw material and work-in-process inventories increased 2% and finished goods inventories were approximately unchanged. Changes in foreign currency exchange rates decreased inventories, net by 3% compared to January 31, 2005.

The Company continually strives to improve its inventory management by developing more effective systems and processes for product development, assortment planning, sales forecasting, supply-chain logistics and store replenishment. Management expects a single-digit percentage increase in inventories in 2006.

Capital Expenditures

Capital expenditures were $157,036,000 in 2005, $142,321,000 in 2004 and $272,900,000 in 2003, representing 7%, 6% and 14% of net sales in 2005, 2004 and 2003. In all three years, expenditures were primarily related to the opening, renovation and expansion of stores and distribution facilities and ongoing investments in new systems. In 2003, the Company purchased the land and building housing its Tokyo Flagship store for $140,400,000 (U.S. dollar equivalent at the acquisition date). In 2002, the Company acquired the property housing its Flagship store on Old Bond Street in London and an adjacent building at a total cost of $43,000,000 (U.S. dollar equivalent at the acquisition date), in order to renovate and reconfigure the interior retail selling space. Construction commenced in 2004 and is expected to be completed in 2006 at a cost of approximately $34,000,000.

In 2000, the Company began a multi-year project to renovate and reconfigure its New York Flagship store in order to increase the total sales area by approximately 25%, and to provide additional space for customer service, customer hospitality and special exhibitions. The increase in the sales area was completed in 2001 when the renovated second floor opened to provide an expanded presentation of engagement and other jewelry. The renovated sixth floor that now houses the customer service department opened in 2002. The renovated fourth floor that offers tableware merchandise opened in 2003. The renovated third floor with silver jewelry and accessories opened in 2004. In conjunction

with the New York store project, the Company relocated its after-sales service functions and several of its administrative functions. The Company has spent approximately $89,000,000 to date for the New York store and related projects. Based on current plans, the Company estimates that the overall cost of these projects will be $110,000,000 when completed in 2006.

Based on current plans, management estimates that capital expenditures will be approximately $170,000,000 in 2006.

Acquisitions, Investments and Dispositions

In October 2005, the Company acquired a Vietnamese corporation that specializes in polishing small carat weight diamonds. The price payable by the Company for the entire equity interest in this corporation is $2,000,000, of which $1,200,000 was paid in 2005; the balance will be paid when certain post-acquisition requirements are satisfied but no later than a fixed due date. This acquisition was not significant to the Company’s financial position, earnings or cash flows.

The Company has made a $10,000,000 investment ($4,500,000 in 2004 and $5,500,000 in 2005) in a joint venture that owns and operates a diamond polishing facility in South Africa. The Company’s interest in, and control over, this venture are such that its results are consolidated with those of the Company and its subsidiaries. The Company expects, through its investment, to gain access to additional supplies of diamonds that meet its quality standards.

In December 2004, the Company sold its entire investment in Aber through a private offering. To gain Aber’s consent to the sale, the Company paid a fee and ceded its right to representation on Aber’s Board of Directors. Aber, in turn, paid the Company the present value of the right to purchase diamonds at a discount, under a purchase agreement, which obligates the Company to purchase, subject to availability and the Company’s quality standards, a minimum of $50,000,000 of diamonds per year through 2013. Inclusive of the payments described above, the Company received proceeds of $278,081,000, net of investment banking and legal fees, related to the sale of its equity investment. A pre-tax gain of $193,597,000 was recognized on the sale of the stock, and $10,843,000 was deferred related to the present value of the discount under the purchase agreement. As the deferred amount represents the present value of the discount, interest will be recorded on the deferred amount, and the undiscounted amount will be recognized as a reduction of inventory costs. The Company used $25,000,000 of the proceeds for a charitable contribution to The Tiffany & Co. Foundation; management used the balance for general corporate purposes, including share repurchases and additional investments to secure a greater supply of rough diamonds. The Company continues to maintain its commercial relationship with Aber through the diamond purchase agreement.

In December 2002, the Company made a $4,000,000 investment in a privately-held company that designs and sells jewelry. In 2004 and 2003, the Company made additional investments of $2,500,000 and $4,500,000. In October 2005, the Company sold its equity interest and recorded a loss of $2,201,000 in SG&A expenses. The Company consolidated those results in its financial statements based on the percentage of ownership and effective control over the direction of the operations of the business.

In September 2005, the Company entered into a sale-leaseback arrangement for its Retail Service Center, a distribution and administrative office facility. The Company received proceeds of $75,000,000 resulting in a gain of $5,300,000, which has been deferred and is being amortized over the lease term. The lease has been accounted for as an operating lease. The lease expires in 2025 and has two ten-year renewal options.

The Company continuously evaluates its manufacturing operations and supply chain to ensure that it has the optimal production mix to support long-term growth needs. In August 2005, the Company sold a glassware manufacturing operation. The Company recorded a loss of approximately $2,115,000 in SG&A expenses associated with the sale of the operation.

Marketable Securities

The Company invests excess cash in short-term investments and marketable securities. During 2005, 2004 and 2003, the Company purchased $100,234,000, $383,989,000 and $27,450,000 of marketable securities and short-term investments. In addition, the Company received proceeds of $248,228,000 and $237,519,000 during 2005 and 2004 from the sale of marketable securities and short-term investments. There were no sales during 2003.

Dividends

Cash dividends paid were $42,903,000 in 2005, $33,569,000 in 2004 and $27,700,000 in 2003. The dividend payout ratio (dividends as a percentage of net earnings) was 17% in 2005, 11% in 2004 and 13% in 2003. In May 2005, the Company’s Board of Directors declared a 33% increase in the quarterly rate on common shares, increasing it from $0.06 per share to $0.08 per share. In May 2004, the Company’s Board of Directors declared a 20% increase in the quarterly rate on common shares, increasing it from $0.05 per share to $0.06 per share. In May 2003, the Company’s Board of Directors declared a 25% increase in the quarterly rate on common shares, increasing it from $0.04 per share to $0.05 per share.

Stock Repurchases

In March 2005, the Company’s Board of Directors approved a stock repurchase program (“2005 Program”) that authorized the repurchase of up to $400,000,000 of the Company’s Common Stock through March 2007 by means of open market or private transactions. The 2005 Program replaced and terminated an earlier program. The timing of repurchases and the actual number of shares to be repurchased depend on a variety of discretionary factors such as price and other market conditions.

The Company’s stock repurchase activity was as follows:

(in thousands, except per share amounts)		2005				2004				2003
Cost of repurchases		$	132,816			$	86,732			$	4,610
Shares repurchased and retired			3,835				2,735				200
Average cost per share		$	34.63			$	31.71			$	23.05

At January 31, 2006, there remained $276,166,000 of authorization for future repurchases under the 2005 Program.

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

Recent Borrowings

The Company’s current sources of working capital are internally-generated cash flows and borrowings available under a revolving credit facility.

In July 2005, the Company entered into a new $300,000,000 revolving credit facility (“Credit Facility”) with an option to increase such commitments up to $500,000,000. The Credit Facility replaced the Company’s previously existing $250,000,000 credit facility and the $10,000,000 Little Switzerland unsecured revolving credit facility. The Credit Facility is available for working capital and other corporate purposes and contains covenants that require maintenance of certain debt/equity and interest-coverage ratios, in addition to other requirements customary to loan facilities of this nature. Borrowings may be made from eight participating banks and are at interest rates based upon local currency borrowing rates plus a margin that fluctuates with the Company’s fixed charge coverage ratio. The weighted average interest rate at January 31, 2006 was 3.59%. The Credit Facility expires in July 2010.

In January 2006, the Company borrowed HKD 300,000,000 ($38,672,000 at January 31, 2006) (“Hong Kong Term Loan”), SGD 13,100,000 ($8,043,000 at January 31, 2006) (“Singapore Term Loan”) and CHF 19,500,000 ($15,145,000 at January 31, 2006) (“Switzerland Term Loan”) due in 2011. These funds were used to partially finance the repatriation of dividends related to the AJCA (see Provision for Income Taxes above). Principal payments of 10% of the original principal amount are due each year, with the balance due upon maturity. The covenants of the term loans are similar to the Credit Facility. Interest rates are based upon local currency borrowing rates plus a margin that fluctuates with the Company’s fixed charge coverage ratio. The interest rates for the Hong Kong Term Loan, the Singapore Term Loan and the Switzerland Term Loan were 4.28%, 3.65% and 1.28%, respectively, at January 31, 2006.

In October 2004, the Company’s obligation to repay a yen 5,500,000,000 ($51,530,000 at maturity) borrowing came due and was paid in full, primarily with proceeds from a new yen 5,000,000,000 short-term loan. The yen 5,000,000,000 ($46,845,000 at issuance) short-term loan agreement was entered into in October 2004, had an interest rate of 0.59%, came due in January 2005 and was paid in full with existing funds.

In September 2003, the Company issued yen 15,000,000,000 ($127,546,000 at January 31, 2006) of senior unsecured First Series Yen Bonds (“Bonds”) due 2010 with principal due upon maturity and a fixed coupon rate of 2.02% payable in semi-annual installments. The Bonds were sold in a private transaction to qualified institutional investors in Japan. The proceeds from the issuance were primarily used by the Company to repay the yen 11,000,000,000 ($91,938,000 at issuance) short-term bridge loan used to partially finance the purchase of the land and building housing its Tokyo Flagship store, which was entered into in June 2003 and matured in September 2003.

The ratio of total debt (short-term borrowings, current portion of long-term debt and long-term debt) to stockholders’ equity was 26% at January 31, 2006 and 2005.

At January 31, 2006, the Company was in compliance with all covenants.

Based on the Company’s financial position at January 31, 2006, management anticipates that cash on hand, internally-generated cash flows and the funds available under the Credit Facility will be sufficient to support the Company’s planned worldwide business expansion, share repurchases, debt service and seasonal working capital increases for the foreseeable future.

Contractual Cash Obligations and Commercial Commitments

The following is a summary of the Company’s contractual cash obligations at January 31, 2006:

(in thousands)						Total				2006				2007-2008				2009-2010				Thereafter
Operating leases						$	724,446			$	94,526			$	165,675			$	131,468			$	332,777
Inventory purchase obligations							501,293				151,293				100,000				100,000				150,000
Short-term borrowings and long- term debt							471,676				45,128				72,372				250,848				103,328
Interest on debt and interest- rate swap agreements a							90,786				19,666				38,690				25,930				6,500
Construction-in-progress							23,910				23,160				180				180				390
Non-inventory purchase obligations							6,677				6,677				–				–				–
Other contractual obligations b							9,609				7,250				1,259				1,100				–
						$	1,828,397			$	347,700			$	378,176			$	509,526			$	592,995

a)		Excludes interest payments on amounts outstanding under available lines of credit, as the outstanding amounts fluctuate based on the Company’s working capital needs. Variable-rate interest payments were estimated based on rates at January 31, 2006. Actual payments will differ based on changes in interest rates.
b)		Other contractual obligations consist primarily of royalty and maintenance commitments.

The summary above does not include cash contributions for the Company’s pension plan and cash payments for other postretirement obligations. The Company plans to contribute approximately $15,000,000 to the pension plan in 2006. However, this expectation is subject to change if actual asset performance is different than the assumed long-term rate of return on pension plan assets. The Company estimates cash payments for postretirement health-care and life insurance benefit obligations to be $1,242,000 in 2006. In addition, the summary above does not include the credit facility that the Company is providing to Tahera Diamond Corporation (“Tahera”), see below.

The following is a summary of the Company’s outstanding borrowings and available capacity under the Credit Facility and other lines of credit at January 31, 2006:

						Total				Borrowings				Available
(in thousands)						capacity				outstanding				capacity
Credit Facility*						$	300,000			$	38,818			$	261,182
Other lines of credit							7,341				124				7,217
						$	307,341			$	38,942			$	268,399

*This facility matures in July 2010 and the capacity may be increased to $500,000,000.

In addition, the Company had letters of credit and financial guarantees of $20,567,000 at January 31, 2006, of which $13,346,000 expires within one year.

In November 2004, the Company entered into an agreement with Tahera, a Canadian diamond mining and exploration company, to purchase or market all of the diamonds to be mined at the Jericho mine which has been developed and constructed by Tahera in Nunavut, Canada (“Project”). In consideration of that agreement, the Company provided a credit facility to Tahera which allows Tahera to draw up to CDN$35,000,000 (U.S.$30,536,000 at January 31, 2006) to finance the development and construction of

the Project. At January 31, 2006, CDN$29,718,000 (U.S.$25,927,000 at January 31, 2006) was outstanding under this credit facility. Principal and interest payments are due periodically throughout the term of the facility which matures in December 2013. The Company will begin purchasing diamonds from Tahera in 2006.

Seasonality

As a jeweler and specialty retailer, the Company’s business is seasonal in nature, with the fourth quarter typically representing a proportionally greater percentage of annual sales, earnings from operations and cash flow. Management expects such seasonality to continue.

CRITICAL ACCOUNTING ESTIMATES

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from those estimates. Periodically, the Company reviews all significant estimates and assumptions affecting the financial statements and records the effect of any necessary adjustments.

The development and selection of critical accounting estimates and the related disclosures below have been reviewed with the Audit Committee of the Company’s Board of Directors. The following critical accounting policies that rely on assumptions and estimates were used in the preparation of the Company’s consolidated financial statements:

Inventory. The Company writes down its inventory for discontinued and slow-moving products. This write-down is equal to the difference between the cost of inventory and its estimated market value, and is based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs might be required. At January 31, 2006, a 10% change in the reserve for discontinued and slow-moving products would have resulted in a change of $2,200,000 in inventory and cost of sales. The Company’s domestic and foreign branch inventories, excluding Japan, are valued using the last-in, first-out (LIFO) method, and inventories held by foreign subsidiaries and Japan are valued using the average cost method. Fluctuation in inventory levels, along with the costs of raw materials, could affect the carrying value of the Company’s inventory.

Long-lived assets. The Company’s long-lived assets are primarily property, plant and equipment. The Company reviews its long-lived assets for impairment when management determines that the carrying value of such assets may not be recoverable due to events or changes in circumstances. Recoverability of long-lived assets is evaluated by comparing the carrying value of the asset with estimated future undiscounted cash flows. If the comparisons indicate that the value of the asset is not recoverable, an impairment loss is calculated as the difference between the carrying value and the fair value of the asset and the loss is recognized during that period. The Company recorded impairment charges of $10,230,000 in 2004 and did not record any impairment charges in 2005 and 2003.

Goodwill. The Company performs its annual impairment evaluation of goodwill during the fourth quarter of its fiscal year or when circumstances otherwise indicate an evaluation should be performed. The evaluation, based upon discounted cash flows, requires management to estimate future cash flows, growth rates and economic and market conditions. The 2005 evaluation did not result in any impairment charges; however, it is possible that impairment charges could be recorded in the future if results vary from those anticipated. Impairment charges recorded in 2004 amounted to $1,963,000 and no such charges were recorded in 2003.

Income taxes. Foreign and domestic tax authorities periodically audit the Company’s income tax returns. These audits often examine and test the factual and legal basis for positions the Company has taken in its tax filings with respect to its tax liabilities, including the timing and amount of deductions and the allocation of income among various tax jurisdictions (“tax filing positions”). Management believes that its tax filing positions are reasonable and legally supportable. However, in specific cases, various tax authorities may take a contrary position and insist upon an adjustment. In evaluating the exposures associated with the Company’s various tax filing positions, management records reserves for probable exposures. Earnings could be affected to the extent the Company prevails in matters for which reserves have been established or is required to pay amounts in excess of established reserves. The Company also records valuation allowances when management determines it is more likely than not that deferred tax assets will not be realized in the future.

Employee benefit plans. The Company maintains several pension and retirement plans, as well as provides certain postretirement health-care and life insurance benefits for current and retired employees. The Company makes certain assumptions that affect the underlying estimates related to pension and other postretirement costs. Significant changes in interest rates, the market value of securities and projected health-care costs would require the Company to revise key assumptions and could result in a higher or lower charge to earnings.

The Company used a discount rate of 6.00% to determine its 2005 pension and postretirement expense. Holding all other assumptions constant, a 0.5% increase in the discount rate would have decreased 2005 pension and postretirement expenses by $3,105,000 and $245,000. A decrease of 0.5% in the discount rate would have increased the 2005 pension and postretirement expenses by $3,363,000 and $275,000. The discount rate is subject to change each year, consistent with changes in the yield on applicable high-quality, long-term corporate bonds. Management selects a discount rate at which pension and postretirement benefits could be effectively settled based on (i) analysis of expected benefit payments attributable to current employment service and (ii) appropriate yields related to such cash flows.

The Company used an expected long-term rate of return of 7.50% to determine its 2005 pension expense. Holding all other assumptions constant, a 0.5% change in the long-term rate of return would have changed the 2005 pension expense by $670,000. The expected long-term rate of return on pension plan assets is selected by taking into account the average rate of return expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. More specifically, consideration is given to the expected rates of return (including reinvestment asset return rates) based upon the plan’s current asset mix, investment strategy and the historical performance of plan assets.

For postretirement benefit measurement purposes, the following annual rates of increase in the per capita cost of covered health care were assumed for 2006: 9.50% (for pre-age 65 retirees) and 10.50% (for post-age 65 retirees). The rate was assumed to decrease gradually to 4.75% by 2016 (for pre-age 65 retirees) and by 2018 (for post-age 65 retirees) and remain at that level thereafter. A one-percentage-point increase in the assumed health-care cost trend rate would have increased the aggregate service and interest cost components of the 2005 postretirement expense by $708,000. Decreasing the assumed health-care cost trend rate by one-percentage-point would have decreased the aggregate service and interest cost components of the 2005 postretirement expense by $480,000.

Equity Compensation Plans. The Company has equity compensation plans for employees and directors. Until January 2005, the Company granted only stock options. In January 2005, the Company, in addition to stock options, granted performance-based restricted stock units to executive officers of the Company and time-vesting restricted stock units to other management employees. Additionally, in the fourth quarter of 2004, the Company early adopted SFAS No. 123R that requires new, modified and unvested share-based payment transactions with employees, such as stock options and restricted stock,

be measured at fair value and recognized as compensation expense over the vesting period (see Note B to Consolidated Financial Statements). The fair value of each option award is estimated using a Black-Scholes option valuation model that requires the Company to develop estimates for assumptions used in the model. The Black-Scholes valuation model uses the following assumptions: expected volatility, expected term of the option, risk-free interest rate and dividend yield. Expected volatility estimates developed by the Company are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate the expected term of the option; i.e. the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date. The dividend yield represents the expected dividends on the Company stock for the expected term of the option.

NEW ACCOUNTING STANDARDS

See Note B to Consolidated Financial Statements.

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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to market risk from fluctuations in foreign currency exchange rates and interest rates, which could affect its consolidated financial position, earnings and cash flows. The Company manages its exposure to market risk through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company uses derivative financial instruments as risk management tools and not for trading or speculative purposes, and does not maintain such instruments that may expose the Company to significant market risk.

Foreign Currency Risk

In Japan, the Company uses yen put options to minimize the effect of a weakening yen on U.S. dollar- denominated transactions. To a lesser extent, the Company uses foreign-exchange forward contracts to protect against weakening local currencies. Gains or losses on these instruments substantially offset losses or gains on the assets, liabilities and transactions being hedged. Management neither foresees nor expects significant changes in foreign currency exposure in the near future.

The fair value of yen put options is sensitive to changes in yen exchange rates. If the market yen exchange rate at the time of an option’s expiration is stronger than the contracted exchange rate, the Company allows the option to expire, limiting its loss to the cost of the option contract. The cost of outstanding option contracts at January 31, 2006 and 2005 was $2,828,000 and $2,791,000. At January 31, 2006 and 2005, the fair value of outstanding yen put options was $7,083,000 and $915,000. The fair value of the options was determined using quoted market prices for these instruments. At January 31, 2006 and 2005, a 10% appreciation in yen exchange rates from the prevailing market rates would have resulted in a fair value of $1,083,000 and $79,000. At January 31, 2006 and 2005, a 10% depreciation in yen exchange rates from the prevailing market rates would have resulted in a fair value of $15,644,000 and $5,742,000.

At January 31, 2006 and 2005, the Company had $7,481,000 and $6,854,000 of outstanding forward foreign-exchange contracts, which subsequently matured in February 2006 and February 2005. Due to the short-term nature of the Company’s forward foreign-exchange contracts, the book value of the underlying assets and liabilities approximates fair value.

Interest Rate Risk

The Company uses interest-rate swap contracts related to certain debt arrangements to manage its net exposure to interest rate changes. The interest-rate swap contracts effectively convert fixed-rate obligations to floating-rate instruments. Additionally, since the fair value of the Company’s fixed-rate long-term debt is sensitive to interest rate changes, the interest-rate swap contracts serve as a hedge to changes in the fair value of these debt instruments. A 100 basis point increase in interest rates at January 31, 2006 and 2005 would have decreased the market value of the Company’s fixed-rate long-term debt, including the effect of the interest-rate swap, by $11,484,000 and $15,459,000. A 100 basis point decrease in interest rates at January 31, 2006 and 2005 would have increased the market value of the Company’s fixed-rate long-term debt, including the effect of the interest-rate swap, by $11,868,000 and $13,963,000.

Management does not expect significant changes in exposure to interest rate fluctuations, nor in market risk-management practices.

Item 8.    Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Tiffany & Co.

We have completed our integrated audits of Tiffany & Co.’s fiscal year 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of January 31, 2006, and an audit of its fiscal year 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of stockholders’ equity and comprehensive earnings, and of cash flows present fairly, in all material respects, the financial position of Tiffany & Co. and its subsidiaries (the “Company”) at January 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note B to the consolidated financial statements, effective February 1, 2004, the Company adopted SFAS No. 123R, “Share-Based Payment.”

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the Report of Management appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of January 31, 2006 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all

material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
New York, New York
March 30, 2006

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF EARNINGS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE EARNINGS