UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K



FORM 10-K
þ

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

For the Fiscal Year Ended June 30, 2012

27, 2015
OR

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

Commission file number: 1-16153



Coach, Inc.

(Exact name of registrant as specified in its charter)

 
Maryland 52-2242751
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

516 West 34th34th Street, New York, NY 10001

(Address of principal executive offices); (Zip Code)

(212) 594-1850

(Registrant’s telephone number, including area code)



Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class: Name of Each Exchange on which Registered
Common Stock, par value $.01 per share New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesAct.Yes xþ Noo

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YesAct.Yes o Noxþ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesdays. Yes xþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes. Yes xþ Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.xo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Large Accelerated Filer
xSmaller reporting company
Accelerated FileroNon-Accelerated FileroSmaller Reporting Companyo

Indicate by check mark whether the registrant is a shell companyCompany (as defined in Rule 12b-2 of the Act).Yeso Noxþ

The aggregate market value of Coach, Inc. common stock held by non-affiliates as of December 31, 201126, 2014 (the last business day of the most recently completed second fiscal quarter) was approximately $17.3 billion.$10.2 billion. For purposes of determining this amount only, the registrant has excluded shares of common stock held by directors and officers. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.

On August 3, 2012,July 31, 2015, the Registrant had 285,186,057276,627,052 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Documents Form 10-K Reference
Proxy Statement for the 20122015 Annual Meeting of Stockholders Part III, Items 10 - 14





COACH, INC.

TABLE OF CONTENTS

COACH, INC.

TABLE OF CONTENTS


 
 Page Number
PART I
 

Item 1.

 2PART II 

Item 1A.

Risk Factors

12

Item 1B.

Unresolved Staff Comments

18

Item 2.

Properties

19

Item 3.

Legal Proceedings

19

Item 4.

Mine Safety Disclosures

20
PART II

Item 5.

Item 6.

Item 7.

Item 7A.

Item 8.

Item 9.

 43PART III 

Item 9A.

Controls and Procedures

43

Item 9B.

Other Information

43
PART III

Item 10.

Item 11.

Item 12.

Item 13.

 44PART IV 

Item 14.

Principal Accountant Fees and Services

44
PART IV

Item 15.



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TABLE OF CONTENTS

SPECIAL NOTE ON FORWARD-LOOKING INFORMATION

This document, and the documents incorporated by reference in this document, in our press releases and in oral statements made from time to time by us or on our behalf, contain certain forward-looking statements"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and are based on management’s current expectations. These forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “may,” “will,” “should,” “expect,” “confidence,” “trends,” “intend,” “estimate,” “on track,” “are positioned to,” “on course,” “opportunity,” “continue,” “project,” “guidance,” “target,” “forecast,” “anticipated,” “plan,” “potential,” the negative of these terms or comparable terms. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Coach, Inc.’s actual results could differ materially from the results contemplated by these forward-looking statements due to a number of important factors, including those discussed in the sections of this Form 10-K filing entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of the forward-looking statements contained in this Form 10-K.

INFORMATION REGARDING HONG KONG DEPOSITARY RECEIPTS

Coach’s Hong Kong Depositary Receipts are traded on The Stock Exchange of Hong Kong Limited under the symbol 6388. Neither the Hong Kong Depositary Receipts nor the Hong Kong Depositary Shares evidenced thereby have been or will be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States or to, or for the account of, a U.S. Person (within the meaning of Regulation S under the Securities Act), absent registration or an applicable exemption from the registration requirements. Hedging transactions involving these securities may not be conducted unless in compliance with the Securities Act.



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TABLE OF CONTENTS


In this Form 10-K, references to “Coach,” “we,” “our,” “us” "Coach" and the “Company” refer to Coach, Inc., including consolidated subsidiaries. Unless the context requires otherwise, references to the "Coach brand" do not include the Stuart Weitzman brand and references to the "Stuart Weitzman brand" do not include the Coach brand. The fiscal years ended June 30, 201227, 2015 ("fiscal 2015"), June 28, 2014 (“fiscal 2012”2014”), and July 2, 2011June 29, 2013 (“fiscal 2011”2013") were each 52-week periods. The fiscal year ended July 3, 2010 (“fiscal 2010”) was a 53-week period. The fiscal year ending June 29, 2013 (“fiscal 2013”) will be a 52-week period.

PART I

ITEM 1. BUSINESS

Coach, Inc. (the "Company") is a leading New York design house of modern luxury accessories and lifestyle brands.
NARRATIVE DESCRIPTION OF COACH BRAND
The Coach brand is one of the most recognized fine accessories brands in both North America and in targeted international markets, and has a rich heritage of pairing exceptional leathers and materials with innovative design.
We offer premium lifestyle accessories to a loyal and engaged customer base and provide consumers with fresh, compelling and innovative products that are extremely well made, at an attractive price. Our product offering uses a broad range of high quality leathers, fabrics and materials. In response to our customer’s demands for both fashion and function, Coach offers updated styles and multiple product categories which address an increasing share of our customer’s accessory wardrobe. Coach presents a sophisticated, modern and inviting environment to showcase our product assortment and reinforce a consistent brand positioning wherever the consumer may shop. We utilize a flexible, cost-effective global sourcing model, in which independent manufacturers supply our products, allowing us to bring our broad range of products to market rapidly and efficiently.
We offer a number of key differentiating elements that set us apart from the competition, including:
A Distinctive Brand — The Coach brand represents a blend of classic American style with a distinctive New York spirit, offering a design that is known for a distinctive combination of style and function. Coach offers lifestyle products that are relevant, extremely well made and provide excellent value.
A Market Leadership Position With Growing International Recognition — The Coach brand is a global leader in premium handbags and lifestyle accessories. Our long-standing reputation and distinctive image have been consistently developed across an expanding number of products, sales channels and international markets, including within North America and Japan. Coach also continues to gain traction in mainland China and other Asian markets, Europe and Latin America.
A Loyal And Involved Consumer — Consumers have a strong emotional connection with the Coach brand. Part of our everyday mission is to cultivate consumer relationships by strengthening this sentiment and brand loyalty.
A Multi-Channel Global Distribution Model — Products are available in image-enhancing environments globally wherever our consumer chooses to shop including: retail and outlet stores, directly operated concession shop-in-shops, online, and department and specialty stores. This allows us to maintain a dynamic balance as results do not depend solely on the performance of a single channel or geographic area. Our stores showcase the world of our products and enhance the shopping experience while reinforcing the image of our brand. The modern store design creates a distinctive environment to display our products. We continue to be committed to the elevation and enhancement of our in-store imagery through strategic investments in Coach branded stores and wholesale locations. Furthermore, store associates are trained to maintain high standards of visual presentation, merchandising and customer service.
Innovation With A Consumer-Centric Focus — Coach listens to its consumer through rigorous consumer research and strong consumer orientation. To truly understand globalization and its related impact, we also need to understand the local context in each market, learning about our consumer wherever our products are sold. The Coach brand also works to anticipate the consumer’s changing needs by keeping the product assortment fresh and compelling.
NARRATIVE DESCRIPTION OF STUART WEITZMAN BRAND
Stuart Weitzman Intermediate LLC ("Stuart Weitzman") is a global leader in designer footwear, and is built upon the concept of crafting a beautifully-constructed shoe, merging fashion and function. Stuart Weitzman is a leading women's premium footwear brand in North America, with a strong opportunity for growth both within North America and international markets. The design team, under Mr. Stuart Weitzman, is responsible for conceptualizing and directing the design of all products, and works closely with its manufacturing partners, primarily in Spain, to construct a broad mix of footwear styles. These manufacturers in aggregate support a broad mix of materials and seasonal influx of new, fashion oriented styles, which allows the Stuart Weitzman brand to quickly meet marketplace demands and changing consumer preferences.
Stuart Weitzman products, which substantially consist of footwear, are sold primarily through wholesale concepts (including shop-in-shops) as well as through retail concepts (including directly operated stores and e-commerce sites). As of June 27, 2015, Stuart Weitzman employed approximately 500 people globally, including both full and part time employees, but excluding seasonal and temporary employees. Of these employees, approximately 300 were retail employees in the global retail field. The Company

2


owns all of the material worldwide trademark rights (including the Stuart Weitzman trademark) used in connection with the production, marketing and distribution of Stuart Weitzman products. In addition, the Company owns registrations for design patents and applications for utility patents for Stuart Weitzman products.
GENERAL DEVELOPMENT OF BUSINESS

Founded in 1941, Coach Inc. was acquired by Sara Lee Corporation (“Sara Lee”) in 1985. In June 2000, Coach was incorporated in the state of Maryland. In October 2000, Coach was listed on the New York Stock Exchange and sold approximately 68 million shares of common stock, split adjusted, representing 19.5% of the then outstanding shares. In April 2001, Sara Lee completed a distribution of its remaining ownership in Coach via an exchange offer, which allowed Sara Lee stockholders to tender Sara Lee common stock for Coach common stock.

In June 2001, Coach Japan was formed

Coach’s international expansion strategy is to expand ourenter into joint ventures and distributor relationships to build market presence in the Japaneseand capability. To further accelerate brand awareness, aggressively grow market share and to exercise greater control overof our brand, in that country.Coach has historically acquired its partner’s interests.
In June 2001, Coach Japan was initially formed as a joint venture with Sumitomo Corporation. On July 1, 2005, we purchased Sumitomo’s 50% interest in Coach Japan, resulting in Coach Japan becoming a 100% owned subsidiary of Coach, Inc.

In fiscal 2009, the Company acquired the Coach domestic retail businesses in Hong Kong, Macau and mainland China (“Coach China”) from its former distributor, the ImagineX group. These acquisitions provide the Company with greater control over the brand in China, enabling Coach to raise brand awareness and aggressively grow market share with the Chinese consumer.

Japan.

In fiscal 2011, the Company acquiredpurchased a non-controlling interest in a joint venture with Hackett Limited to expand the Coach International business in Europe. Through the joint venture, the Company opened retail locations in Spain, Portugal and Great Britainthe United Kingdom in fiscal 2011, and in France and Ireland in fiscal 2012. The Company currently anticipates further European expansion2012 and in Germany in fiscal 2013.

In the beginning of fiscal 2012,2014, the Company purchased Hackett Limited’s remaining 50% interest in the joint venture, and has continued to expand its presence in Europe.

Coach acquired the Coach domestic retail businesses from its distributors as follows:
nFiscal 2009: Hong Kong, Macau and mainland China (“Greater China”).
nFiscal 2012: Singapore and Taiwan.
nFiscal 2013: Malaysia and South Korea.
On May 4, 2015, the Company completed the acquisition of luxury footwear company Stuart Weitzman to complement its current leadership position in premium handbags and accessories. The operating results of the Stuart Weitzman brand have been consolidated in the Company's operating results commencing on May 4, 2015.
SEGMENTS
In fiscal 2015, the Company has three reportable segments:
North America, which includes sales to North American consumers through Coach-branded stores (including the Internet) and sales to wholesale customers. This segment represented approximately 59% of Coach's total net sales in fiscal 2015.
International, which includes sales to consumers through Coach-branded stores (including the Internet) and concession shop-in-shops in Japan and mainland China, Coach-operated stores and concession shop-in-shops in Hong Kong, Macau, Singapore, Taiwan, Malaysia, South Korea, the United Kingdom, France, Ireland, Spain, Portugal, Germany, Italy, Belgium and Taiwan,the Netherlands as well as sales to wholesale customers and distributors in approximately 45 countries. This segment represented approximately 39% of total net sales in fiscal 2015.
Other, which were operatedconsists of sales and expenses generated by Valiram Groupthe Coach brand in other ancillary channels, including licensing and Tasa Meng, respectively. disposition. Other also consists of sales and expenses generated by the Stuart Weitzman brand during the final two months of fiscal 2015. This segment represented approximately 2% of total net sales in fiscal 2015.
North America Segment
North American Retail Stores — Coach retail stores are located in regional shopping centers and metropolitan areas throughout the U.S. and Canada. The retail stores carry an assortment of products depending on their size, location and customer preferences. Our flagship stores, which offer the broadest assortment of Coach products, are located in high-visibility locations.

3


In connectionfiscal 2015, we have reduced the number of retail stores and total square footage, as we continue to optimize our real estate position. We expect this trend to continue in the next fiscal year with the fiscal 2011 agreement with the Valiram Group, the Company assumed direct controlanticipated closure of its domesticapproximately 15-20 North America retail businessstores in Malaysia in July 2012. Additionally, in connection with the fiscal 2012 agreement with Shinsegae International,year ending July 2, 2016 ("fiscal 2016"), attributable to our Transformation Plan, as described in Note 3, "Transformation and Other Actions."
  Fiscal Year Ended
   
June 27,
2015
 
June 28,
2014
 
June 29,
2013
Retail stores 258
 332
 351
Net decrease vs. prior year (74) (19) (3)
% decrease vs. prior year (22.3)% (5.4)% (0.8)%
Retail square footage 728,833
 910,003
 952,422
Net decrease vs. prior year (181,170) (42,419) (6,677)
% decrease vs. prior year (19.9)% (4.5)% (0.7)%
Average square footage 2,825
 2,741
 2,713
North American Outlet Stores — Coach's outlet stores serve as an efficient means to sell manufactured-for-outlet product, including outlet exclusives, and to a lesser extent, discontinued inventory outside the Company assumed direct control of its retail businesschannel. These stores operate under the Coach name and are geographically positioned primarily in Koreaestablished outlet centers that are generally in early August 2012.

FINANCIAL INFORMATION ABOUT SEGMENTS

Seeclose proximity to major markets.

Coach’s outlet store design, visual presentations and customer service levels support and reinforce the Segment Information note presentedbrand's image. Through these outlet stores, Coach targets value-oriented customers.
The change in the Notesnumber of North America Coach outlet stores and their total and average square footage is shown in the following table:
  Fiscal Year Ended
   
June 27,
2015
 
June 28,
2014
 
June 29,
2013
Outlet stores 204
 207
 193
Net (decrease) increase vs. prior year (3) 14
 24
% (decrease) increase vs. prior year (1.4)% 7.3% 14.2%
Outlet square footage 1,189,018
 1,132,714
 982,202
Net increase vs. prior year 56,304
 150,512
 192,503
% increase vs. prior year 5.0 % 15.3% 24.4%
Average square footage 5,829
 5,472
 5,089
Over the next few years, we expect to continue to see modest to no growth in outlet store square footage as we continue to optimize our real estate position across channels by expanding our most productive stores to accommodate a broader expression of lifestyle assortment while continuing to assess opportunities to close under-performing stores.
Internet — Coach views its www.coach.com website as a key communications vehicle for the Consolidated Financial Statements.

NARRATIVE DESCRIPTION OF BUSINESS

brand to promote traffic in Coach has grown fromretail stores and department store locations and build brand awareness, as well as an additional channel to sell Coach brand products directly to customers. With approximately 64 million unique visits to www.coach.com in fiscal 2015, our online store provides a family-run workshop inshowcase environment where consumers can browse through a Manhattan loft to a leading American marketer of fine accessories and gifts for women and men. Coach is oneselected offering of the most recognized fine accessories brandslatest styles and colors. Our e-commerce programs also include our invitation-only outlet Internet sales site, where we have considerably reduced the number of promotional events since fiscal 2014.

North America Wholesale — Coach began as a U.S. wholesaler to department stores and this channel continues to remain a part of our overall consumer reach. Today, we work closely with our partners to ensure a clear and consistent product presentation. Coach enhances its presentation through the creation of shop-in-shops with proprietary Coach fixtures within the department store environment. Coach custom tailors its assortments through wholesale product planning and allocation processes to match the attributes of our department store consumers in each local market. Coach continues to closely manage inventories in this channel given the highly promotional environment at point-of-sale. Coach utilizes automatic replenishment with major accounts in an effort to optimize inventory across wholesale doors. Over the next year, we expect to continue investing in the elevation of shop-in-shop environments.

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Coach brand's products are sold in approximately 1,000 wholesale locations in the U.S. and Canada. Our most significant U.S. wholesale customers are Macy’s (including Bloomingdale's), Dillard's, Nordstrom, Lord & Taylor, The Bay, Bon Ton, Belk and Von Maur. Coach products are also available on these customers' websites.
International Segment
Our International Markets operate department store concession shop-in-shop locations and freestanding flagship, retail and outlet stores as well as e-commerce websites. Flagship stores, which offer the broadest assortment of Coach products, are located in targetedselect high-visibility shopping districts.
The following table shows the number of international markets. directly-operated locations and their total and average square footage:
  Fiscal Year Ended
   
June 27,
2015
 
June 28,
2014
 
June 29,
2013
Coach International:       
Locations: 503
 475
 409
Net increase vs. prior year 28
 66
 41
% increase vs. prior year 5.9% 16.1% 11.1%
Square footage: 1,030,695
 918,995
 768,567
Net increase vs. prior year 111,700
 150,428
 103,171
% increase vs. prior year 12.2% 19.6% 15.5%
Average square footage 2,049
 1,935
 1,879
We offer premium lifestyle accessoriesexpect our International segment to a loyalreflect modest growth in store count over the next few years, particularly within mainland China and growing customer base and provide consumers with fresh, relevant and innovative products that are extremely well made, at an attractive price. Coach’s modern, fashionable handbags and accessories use a broad range of high quality leathers, fabrics and materials.Europe.
International Wholesale — In responseaddition to our customer’s demands for both fashioncompany-operated stores, this channel includes sales to international wholesale distributors and function, Coach offers updated styles and multiple product categories which address an increasing shareauthorized retailers. Travel retail represents the largest portion of our customer’s accessory wardrobe.customers’ sales in this channel. However, we continue to drive growth by expanding our distribution to reach local consumers in new markets. Coach has developed relationships with a select group of distributors who sell Coach products through department stores and freestanding retail locations in approximately 45 countries. Coach's current network of international distributors serve the following domestic and/or travel retail markets: Argentina, Australia, Austria, Bahamas, Bahrain, Benelux, Brazil, Canada, Chile, Greater China, Colombia, Denmark, Dominican Republic, Finland, France, Germany, Indonesia, Italy, Japan, South Korea, Kuwait, Lebanon, Malaysia, Mexico, New Zealand, Norway, Panama, Peru, Philippines, Portugal, Qatar, Saudi Arabia, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, the United Arab Emirates, the United Kingdom, Uruguay, U.S. & Territories, Venezuela and Vietnam.
For locations not in freestanding stores, Coach has created a sophisticated, modernshop-in-shops and inviting environmentother image enhancing environments to showcase our product assortmentincrease brand appeal and reinforce a consistentstimulate growth. Coach continues to improve productivity in this channel by opening larger image-enhancing locations, expanding existing stores and closing less productive stores. Coach's most significant international wholesale customers are the DFS Group, Everrich DFS Corp, Lotte Group, Shilla Group and Vantage Point. Coach's products are sold in approximately 430 wholesale locations.
Other Segment
Stuart Weitzman — The Stuart Weitzman brand position wherever the consumer may shop. We utilize a flexible, cost-effective global sourcing model, in which independent manufacturers supply our products, allowing us to bring our broad range of products to market rapidly and efficiently.

Coach offers a number of key differentiating elements that set it apart from the competition, including:

A Distinctive Brand — Coach offers distinctive, easily recognizable, accessible luxury products that are relevant, extremely well made and provide excellent value.


TABLE OF CONTENTS

A Market Leadership Position With Growing Global Share — Coach is a global leader in premium handbag and accessories. Each year, as our market share increases, our leadership position strengthens. In North America, Coach is the leading brand. In Japan, Coach is the leading imported luxury handbag and accessories brand by units sold.

A Loyal And Involved Consumer — Coach consumers have a specific emotional connection with the brand. Part of the Company’s everyday mission is to cultivate consumer relationships by strengthening this emotional connection.

A Multi-Channel International Distribution Model — This allows Coach to maintain a critical balance as results do not depend solely on the performance of a single channel or geographic area. The Direct-to-Consumer channel provides us with immediate, controlled access to consumerssold primarily through Coach-operateddepartment stores in North America; Japan; Hong Kong, Macau,America and mainland China; Taiwan; Singaporeinternational distributors, including approximately 600 wholesale locations, and within numerous independent third party distributors. Its most significant wholesale customers include Nordstrom, Saks, and Neiman Marcus. Furthermore, Stuart Weitzman products are also sold in freestanding flagship and retail stores, and e-commerce websites. As of June 27, 2015, Stuart Weitzman had 54 directly operated stores with a total square footage of 91,101 and an average square footage of 1,687.


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Licensing — In our worldwide licensing relationships, Coach takes an active role in the Internet. Beginningdesign process and controls the marketing and distribution of products under the Coach brand. Licensing revenue was approximately $31.9 million and $27.9 million in fiscal 2015 and fiscal 2014, respectively. Our key licensing relationships as of June 27, 2015 are as follows:
    Date
Category Partner Introduction Expiration
Footwear Jimlar Corporation 1999 2017
Eyewear 
Luxottica(1)
 2012 2016
Watches Movado 1998 2020
Fragrance 
Estee Lauder(2)
 2010 2015
Fragrance 
Interparfums(2)
 2015 2026
(1)
The Luxottica licensing relationship is expected to automatically renew in June 2016 with a new expiration date in calendar year 2020.
(2)
The Estee Lauder licensing relationship expired on June 30, 2015. Coach entered into a new licensing agreement with Interparfums in April 2015, expiring in June 2026.
Products made under license are, in most cases, sold through all of the channels discussed above and, with the first quarter of fiscal 2013, this channel also includes Coach-operated storesCompany's approval, these licensees have the right to distribute products selectively through several other channels, including: shoes in Malaysia and Korea. The Indirect channel provides us with access to consumers via wholesale department store salons, watches in selected jewelry stores and specialty store locationseyewear and sunwear in over 20 countries.

Innovation And A Consumer-Centric Focus —selected optical retailers. These venues provide additional, yet controlled, exposure of our brands. Our licensing partners pay royalties on their net sales of our branded products. However, such royalties are not material to our business as they currently comprise less than 1% of the Company's total net sales. The licensing agreements generally give Coach listensthe right to its consumer through rigorous consumer researchterminate the license if specified sales targets are not achieved.

The Other segment also consists of sales generated in ancillary channels.
See Note 16, "Segment Information" for more information about all segments.
The following discussion - including "Products," "Design and strong consumer orientation.Merchandising," "Marketing," "Manufacturing," "Distribution," "Information Systems," "Trademarks and Patents," "Seasonality," "Government Regulation," "Competition" and "Employees" - is based on the Coach works to anticipate the consumer’s changing needs by keeping the product assortment fresh and relevant.

We believe that these differentiating elements have enabled the Company to offer a unique proposition to the marketplace. We hold the number one position within the U.S. premium handbag and accessories market and the number two position within the Japanese imported luxury handbag and accessories market.

brand.

PRODUCTS

Coach's

Coach brand’s primary product offerings, manufactured by third-party suppliers, include women’s and men’s bags, small leather goods, footwear, business cases, ready-to-wear including outerwear, watches, weekend and travel accessories, wearables, footwear,scarves, sunwear, fragrance, jewelry, sunwear, travel bags watches and fragrance.other lifestyle products. The following table shows the percent of net sales thatfor each product category represented:

represented for the Coach brand (in millions):
   
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
Men’s & Women’s Handbags  65  66  65
Accessories  28   27   26 
All other products  7   7   9 
Total  100  100  100

  Fiscal Year Ended
 June 27,
2015
 June 28,
2014
 June 29,
2013
 Amount 
% of total
net sales
 Amount 
% of total
net sales
 Amount 
% of total
net sales
 Women's Handbags$2,389.6
 58% $2,826.1
 59% $3,177.2
 62%
 Women's Accessories709.4
 17
 860.3
 18
 954.2
 19
 Men's680.4
 16
 691.8
 14
 599.5
 12
 All Other Products369.2
 9
 428.0
 9
 344.5
 7
 Total Sales$4,148.6
 100% $4,806.2
 100% $5,075.4
 100%
            
During fiscal 2015, the Company reevaluated its product categories and determined that small accessory handbags and travel bags, which were previously classified as "Women's Accessories" and "All Other Products," respectively, are viewed by management to be part of its "Women's Handbag" product category. Prior periods have been adjusted to reflect the current period classification.

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Women’s Handbags — Women’s handbag collections feature classically inspired designs as well as fashion designs. Typically, there are three to four collections per quarter and four to seven styles per collection. These collections are designed to meet the fashion and functional requirements of our broad and diverse consumer base.
Women’s Accessories — Women’s accessories include small leather goods and novelty accessories. Women’s small leather goods, which complement our handbags, include money pieces, wristlets and cosmetic cases. Key rings and charms are also included in this category.
Men’s — Men’s handbagbag collections include business cases, computer bags, messenger-style bags and totes. In fiscal 2012, we introduced the new Hamptons Weekend and Willis collections, and made updates to our Poppy, Madison and Kristin collections. In early fiscal 2013, we launched a new dual-gender Legacy lifestyle collection, inspired by our heritage, grounded in leather and featuring distinctive Coach elements. Legacy, our largest product launch in many years, is an iconic lifestyle collection which provides a foundation for the brand, targeting multi-generational consumers whom are both classic and stylish in their preferences.

Accessories — Accessories include women’s and men’s small leather goods, novelty accessories and women’s and men’s belts. Women’s small leather goods, which coordinate with our handbags, include money pieces, wristlets, and cosmetic cases. Men’s small leather goods consist primarily of wallets, card cases and card cases.belts. Novelty accessories include time management and electronic accessories. Key rings and charms are also included in this category.

Wearables — This category is comprised

All Other Products (excluding the Stuart Weitzman brand) consist of scarves, jackets, gloves and hats, including both cold weather and fashion. The assortment is primarily women's and contains a fashion assortment in all components of this category.

the following:

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Footwear — Jimlar Corporation (“Jimlar”("Jimlar") has been Coach'sCoach brand's footwear licensee since 1999. Footwear is distributed through select Coach retail stores coach.comour Internet sales sites and about 1,000 U.S. department stores.stores and military locations. Footwear sales are comprised primarily of women’s styles, which coordinate with Coach’s handbag collections.

Jewelrystyles.

Wearables — This category is comprised of banglecertain seasonal lifestyle apparel collections, including outerwear, ready-to-wear and cold weather accessories, such as gloves, scarves and hats. These products are primarily women's and contain a fashion assortment in all components of this category.
Jewelry — This category is comprised of bracelets, necklaces, rings and earrings offered in both sterling silver, leather and non-precious metals.

Sunwear — Marchon Eyewear, Inc.Luxottica Group SPA (“Marchon”Luxottica”) has been Coach’s eyewear licensee since 2003 under a licensing agreement that expired in 2011. During October 2010, the Company signed a licensing agreement with Luxottica Trading and Finance Ltd. (“Luxottica”) and began transitioning the eyewear business during the second half of fiscal 2012. This collection is a collaborative effort that combines the Coach aesthetic for fashion accessories with the latest fashion directions, primarily in sunglasses. CoachOur sunglasses are sold in Coach retail stores and coach.com,on our Internet sales sites, department stores worldwide, select sunglass retailers and optical retailers in major global markets.

Travel Bags — The travel collections are comprised of luggage and related accessories, such as travel kits and valet trays.

Watches — Movado Group, Inc. (“Movado”) has been Coach's watch licensee since 1998 and has developed a distinctive collection of watches inspired primarily by the women's collections with select men's styles.

The Coach watch collection is currently sold in Coach retail stores and on our Internet sales sites, department stores worldwide, and select watch retailers in major global markets.

Fragrance — Starting inUpon the springexpiration of 2010, Estée Lauder Companies Inc. (“Estée Lauder”), through its subsidiary, Aramis Inc., became Coach's fragrance licensee. contract in June 2015, Coach entered into a new licensing agreement with Interparfums, which will expire in June 2026. Fragrance is distributed through Coach retail stores, coach.com, about 4,000 U.S.our Internet sales sites, department and specialty stores worldwide, and 500 international locations.select perfumeries in major global markets. Coach offers four women’swomen's fragrance collections and one men’s fragrance. The women's fragrance collectionswhich include eau de perfume spray, eau de toilette spray, purse spray, body lotion and body splashes.

lotion. Coach also offers men's fragrance collections.

DESIGN AND MERCHANDISING

Coach's New York-based

Coach brand's design team, led by itsthe Executive Creative Director, Stuart Vevers, is responsible for conceptualizing and directing the design of all Coach products. Designers have access to Coach's extensive archives of product designs created over the past 70 years,since Coach's inception, which are a valuable resource for new product concepts. CoachOur designers are also supported by a strong merchandising team that analyzes sales, market trends and consumer preferences to identify businessmarket opportunities that help guide each season's design process.process and create a globally relevant product assortment. Merchandisers also analyze productsmanage the product life cycle to maximize sales and edit, add and delete to achieve profitable salesprofitability across all channels. The product category teams, each comprised of design, merchandising/product development and sourcing specialists help the Coach brand execute design concepts that are consistent with the brand's strategic direction.

Coach's

Our design and merchandising teams work in close collaboration with all of our licensing partners to ensure that the licensed products (watches, footwear, eyewear and fragrance) are conceptualized and designed to address the intended market opportunity and convey the distinctive perspective and lifestyle associated with the our brands.
MARKETING
Coach brand.

During fiscal 2008, the Company announced a new business initiative to drive brand creativity. This initiative has evolved into the Reed Krakoff brand, representing New American luxury, which is supported by a team of experienced designers and merchandisers and encompasses all women’s categories, with a focus on ready-to-wear, handbags, accessories, footwear and jewelry. We introduced the Reed Krakoff brand with store openings in North America and internationally through specialty retailers in early fiscal 2011.

SEGMENTS

Coach operates in two reportable segments: Direct-to-Consumer and Indirect. The reportable segments represent channels of distribution that offer similar products, service and marketing strategies.

Direct-to-Consumer Segment

The Direct-to-Consumer segment consists of channels that provide us with immediate, controlled access to consumers: Coach-operated stores in North America; Japan; Hong Kong, Macau, and mainland China; Taiwan; Singapore and the Internet. This segment represented approximately 89% of Coach's total net sales in fiscal 2012, with North American stores and the Internet, Coach Japan and Coach China contributing


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approximately 63%, 18% and 6% of total net sales, respectively. Beginning with the first quarter of fiscal 2013, this segment also includes Coach-operated stores in Malaysia and Korea.

North American Retail Stores — Coach stores are located in regional shopping centers and metropolitan areas throughout the U.S. and Canada. The retail stores carry an assortment of products depending on their size and location. Our flagship stores, which offer the broadest assortment of Coach products, are located in high-visibility locations such as New York, Chicago, San Francisco and Toronto.

Our stores are sophisticated, sleek, modern and inviting. They showcase the world of Coach and enhance the shopping experience while reinforcing the image of the Coach brand. The modern store design creates a distinctive environment to display our products. Store associates are trained to maintain high standards of visual presentation, merchandising and customer service. The result is a complete statement of the Coach modern American style at the retail level.

The following table shows the number of Coach retail stores and their total and average square footage:

   
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
Retail stores  354   345   342 
Net increase vs. prior year  9   3   12 
Percentage increase vs. prior year  2.6  0.9  3.6
Retail square footage  959,099   936,277   929,580 
Net increase vs. prior year  22,822   6,697   36,543 
Percentage increase vs. prior year  2.4  0.7  4.1
Average square footage  2,709   2,714   2,718 

North American Factory Stores — Coach's factory stores serve as an efficient means to sell manufactured-for-factory-store product, including factory exclusives, as well as discontinued and irregular inventory outside the retail channel. These stores operate under the Coach Factory name and are geographically positioned primarily in established outlet centers that are generally more than 30 miles from major markets.

Coach’s factory store design, visual presentations and customer service levels support and reinforce the brand's image. Through these factory stores, Coach targets value-oriented customers who would not otherwise buy the Coach brand. Prices are generally discounted from 20% to 70% below full retail prices.

The following table shows the number of North America Coach factory stores and their total and average square footage:

   
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
Factory stores  169   143   121 
Net increase vs. prior year  26   22   10 
Percentage increase vs. prior year  18.2  18.2  9.0
Factory square footage  789,699   649,094   548,797 
Net increase vs. prior year  140,605   100,297   71,073 
Percentage increase vs. prior year  21.7  18.3  14.9
Average square footage  4,673   4,539   4,536 

Internet — Coach views its website as a key communications vehicle for the brand to promote traffic in Coach retail stores and department store locations and build brand awareness. With approximately 76 million unique visits to the coach.com e-commerce website in fiscal 2012, our online store provides a showcase environment where consumers can browse through a selected offering of the latest styles and colors. Our e-commerce programs also include third-party flash sites and our invitation-only factory flash site.

Coach Japan — Coach Japan operates department store shop-in-shop locations and freestanding flagship, retail and factory stores as well as an e-commerce website. Flagship stores, which offer the broadest assortment of Coach products, are located in select shopping districts throughout Japan.


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The following table shows the number of Coach Japan locations and their total and average square footage:

   
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
Coach Japan locations  180   169   161 
Net increase vs. prior year  11   8   6 
Percentage increase vs. prior year  6.5  5.0  3.9
Coach Japan square footage  320,781   303,925   293,441 
Net increase vs. prior year  16,856   10,484   13,013 
Percentage increase vs. prior year  5.5  3.6  4.6
Average square footage  1,782   1,798   1,823 

Coach China — Coach China operates department store shop-in-shop locations as well as freestanding flagship, retail and factory stores. Flagship stores, which offer the broadest assortment of Coach products, are located in select shopping districts in Hong Kong and mainland China.

The following table shows the number of Coach China locations and their total and average square footage:

   
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
Coach China locations  96   66   41 
Net increase vs. prior year  30   25   13 
Percentage increase vs. prior year  45.5  61.0  46.4
Coach China square footage  201,736   127,550   78,887 
Net increase vs. prior year  74,186   48,663   26,216 
Percentage increase vs. prior year  58.2  61.7  49.8
Average square footage  2,101   1,933   1,924 

Coach Singapore and Taiwan — Coach Singapore and Taiwan operate department store shop-in-shop locations as well as freestanding flagship, retail and factory stores. Flagship stores, which offer the broadest assortment of Coach products, are located in select shopping districts in Singapore and Taiwan.

The following table shows the number of Coach Singapore and Taiwan locations and their total and average square footage:

   
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
Coach Singapore and Taiwan locations  34   27   22 
Net increase vs. prior year  7   5   2 
Percentage increase vs. prior year  25.9  22.7  10.0
Coach Singapore and Taiwan square footage  55,840   43,158   36,078 
Net increase vs. prior year  12,682   7,080   5,542 
Percentage increase vs. prior year  29.4  19.6  18.1
Average square footage  1,642   1,598   1,640 

Reed Krakoff — The Reed Krakoff brand represents new American luxury primarily for handbags, accessories and ready-to-wear. We introduced the Reed Krakoff brand with store openings in North America and internationally through specialty retailers in early fiscal 2011. Reed Krakoff operates department store shop-in-shop locations, freestanding flagship stores as well as an e-commerce website at reedkrakoff.com. Flagship stores, which offer the broadest assortment of Reed Krakoff products, are located in select shopping districts in the U.S.


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Indirect Segment

Coach began as a U.S. wholesaler to department stores and this segment remains a part of our overall consumer reach. Today, we work closely with our partners, both domestic and international, to ensure a clear and consistent product presentation. The Indirect segment represented approximately 11% of total net sales in fiscal 2012, with U.S. Wholesale and Coach International representing approximately 6% and 4% of total net sales, respectively. The Indirect segment also includes royalties earned on licensed product.

U.S. Wholesale — This channel offers access to Coach products to consumers who prefer shopping at department stores. Coach enhances presentation, within the department store environment, primarily through the creation of more shop-in-shops with proprietary Coach fixtures. Coach custom tailors its assortments through wholesale product planning and allocation processes to better match the attributes of our department store consumers in each local market. Coach products are also available on macys.com, dillards.com, bloomingdales.com, lordandtaylor.com, belk.com, vonmaur.com and nordstrom.com. While overall U.S. department store sales have slowed over the last few years, the handbag and accessories category has remained strong. The Company continues to closely manage inventories in this channel given the highly promotional environment at point-of-sale.

Coach's products are sold in approximately 990 wholesale locations in the U.S. and Canada. Our most significant U.S. wholesale customers are Macy’s (including Bloomingdale's), Dillard's, Nordstrom, Lord & Taylor, Carson’s, the Bay and Saks Fifth Avenue.

Coach International — This channel represents sales to international wholesale distributors and authorized retailers. Travel retail represents the largest portion of our customers’ sales in this channel. However, we continue to drive growth by expanding our distribution to reach local consumers in emerging markets. Coach has developed relationships with a select group of distributors who sell Coach products through department stores and freestanding retail locations in over 20 countries. Coach's current network of international distributors serves the following domestic and/or travel retail markets: South Korea, US & Territories, Taiwan, Malaysia, Hong Kong, Mexico, Saudi Arabia, Thailand, Japan, Australia, Singapore, UAE, France, China, Macau, Indonesia, Kuwait, Bahamas, Aruba, Vietnam, New Zealand, Bahrain, India and Brazil.

For locations not in freestanding stores, Coach has created shop-in-shops and other image enhancing environments to increase brand appeal and stimulate growth. Coach continues to improve productivity in this channel by opening larger image-enhancing locations, expanding existing stores and closing smaller, less productive stores. Coach's most significant international wholesale customers are the DFS Group, Shinsegae International, Tasa Meng Corp, Lotte Group and Shilla Group.

In connection with the fiscal 2011 agreement with the Valiram Group, the Company assumed direct control of its domestic retail business in Malaysia in July 2012. Additionally, in connection with the fiscal 2012 agreement with Shinsegae International, the Company assumed direct control of its retail business in Korea in early August 2012.

In fiscal 2013, the Company will be expanding further into Latin America through distributor partners to customers in Venezuela, Colombia, Panama and Peru.

The following table shows the number of international wholesale locations at which Coach products are sold:

   
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
International freestanding stores  77   61   53 
International department store locations  87   109   93 
Other international locations  41   41   36 
Total international wholesale locations  205   211   182 

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Licensing — In our licensing relationships, Coach takes an active role in the design process and controls the marketing and distribution of products under the Coach brand. The current licensing relationships as of June 30, 2012 are as follows:

CategoryLicensing
Partner
Introduction
Date
TerritoryLicense
Expiration
Date
FootwearJimlarSpring '99U.S.2014
EyewearLuxotticaSpring '12Worldwide2016
WatchesMovadoSpring '98Worldwide2015
FragranceEstee LauderSpring '10Worldwide2015

Products made under license are, in most cases, sold through all of the channels discussed above and, with Coach's approval, these licensees have the right to distribute Coach brand products selectively through several other channels: shoes in department store shoe salons, watches in selected jewelry stores and eyewear in selected optical retailers. These venues provide additional, yet controlled, exposure of the Coach brand. Coach's licensing partners pay royalties to Coach on their net sales of Coach branded products. However, such royalties are not material to the Coach business as they currently comprise less than 1% of Coach’s total net sales. The licensing agreements generally give Coach the right to terminate the license if specified sales targets are not achieved.

MARKETING

Coach’sglobal marketing strategy is to deliver a consistent, relevant and relevantmulti-layered message eachevery time the consumer comes in contact with the Coach brandour brands through our communications and visual merchandising. The CoachCoach's image is created internally and executed by theour creative marketing, visual merchandising and public relations teams.teams, as well as with outside creative agencies. Coach also has a sophisticated consumer and market research capability, which helps us assess consumer attitudes and trends and gauge the likelihood of a product’s success in the marketplace prior to its introduction.

trends.

In conjunction with promoting a consistent global image, Coach uses its extensive customer database and consumer knowledge to target specific products and communications to specific consumers to efficiently stimulate sales across all distribution channels.


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Coach engages in several consumer communication initiatives, including direct marketing activities and national, regional and local advertising. In fiscal 2012, consumer contacts increased 131% to over 1.4 billion primarily driven by increased email communications. The Company continues to leverage marketing expenses by refining our marketing programs to increase productivity and optimize distribution. Total expenses relatedattributable to consumer communicationsCoach brand marketing-related events in fiscal 20122015 were $89.2$158.9 million, representing less than 2%or approximately 4% of net sales, compared to $130.1 million in fiscal 2014, or approximately 3% of net sales.

Coach’s

Coach's wide range of direct marketing activities includes email contacts and brochurescatalogs targeted to promote sales to consumers in their preferred shopping venue. In addition to building brand awareness the coach.com and reedkrakoff.comdriving online revenue, Coach's websites serve as an effective brand communications vehiclescommunication vehicle by providing a showcase environment where consumers can browse through a strategic offering of the latest styles and colors, which drives store traffic and enables the collection of customer data.

As part of the Coach's direct marketing strategy, the Company uses its databasewe use databases primarily consisting of approximately 2228 million active households in North America, and 6.6approximately 11 million active households in Japan.Asia and approximately 380,000 households in Europe. Email contacts and catalogsdirect mail pieces are an important part of Coach's principal means of communication and are sent to selected households to stimulate consumer purchases and build brand awareness. The growing number of visitorsVisitors to the coach.comCoach's e-commerce sites in the U.S., Canada, Japan and Japan providesChina provide an opportunity to increase the size of these databases.

During fiscal 2012, the Company sent approximately 1.2 billion emails to strategically selected customersdatabases, as we continue to evolve our internet outreach to maximize productivity while streamlining distribution. well as point of sale transactions globally except where restricted.

In fiscal 2012, the Company distributed over one million catalogs2015, Coach had informational websites in Coach stores in Japan;Brazil, Chile, Colombia, Mexico, Panama, Peru, Venezuela, Australia, Hong Kong, Macau and mainland China; andIndonesia, Korea, Malaysia, New Zealand, Singapore, Taiwan, and Singapore. The Company also mailed over one million additional catalogs to households throughout Asia, including over 700,000 in China.


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In fiscal 2012, Coach had marketing websites in Australia, Bahrain, Brazil, China, Colombia,Thailand, Vietnam, France, Ireland, Malaysia, Mexico, Panama, Portugal, Singapore, South Korea, Spain, Taiwan, Thailand, UAE, United Kingdom, VenezuelaUnited Arab Emirates, Saudi Arabia, Kuwait and Vietnam.Bahrain. In addition, the Company utilizes and continues to explore newdigital technologies such as blogs and social networkingmedia websites, including Twitter, Facebook, Instagram, Pinterest, WeChat and Facebook,Sina Weibo, as a cost effective consumer communication opportunity to increase on-line and store sales, acquire new customers and build brand awareness.

The CompanyCoach brand also runs national, regional and local advertisingmarketing campaigns in support of its major selling seasons.

MANUFACTURING

While all of our In fiscal 2014, Coach refreshed its strategy to expand its marketing campaigns to more clearly message its brand and products are manufactured by independent manufacturers, we nevertheless maintain control of the supply chain process from design through manufacture.under an effortless New York style positioning. We are ableplan to docontinue to support this by qualifying raw material suppliers and by maintaining sourcing and product development offices in China, Hong Kong, Vietnam, South Korea and India that work closely with our independent manufacturers. This broad-based, global manufacturing strategy is designed to optimize the mix of cost, lead times and construction capabilities. Over the last several years, we have increased the presence of our senior management at our manufacturers’ facilities to enhance control over decision making and ensure the speed with which we bring new product to market is maximized.

These independent manufacturers support a broad mix of product types, materials and a seasonal influx of new, fashion oriented styles, which allows us to meet shifts in marketplace demand and changes in consumer preferences. During fiscal 2012, approximately 71% of Coach's total net sales were generated from newly introduced products with no sales in the same quarter the previous year. As the collections are seasonalfuture through an increased presence in relevant fashion, media events and planned to be sold in stores for short durations, our production quantities are limited which lowers our exposure to excess and obsolete inventory.

All product sources, including independent manufacturers and licensing partners, must achieve and maintain Coach's high quality standards, which are an integral part of the Coach identity. One of Coach's keys to success lies in the rigorous selection of raw materials. Coach has longstanding relationships with purveyors of fine leathers and hardware. Although Coach products are manufactured by independent manufacturers, we maintain control of the raw materials that are used in all of our products. Compliance with quality control standards is monitored through on-site quality inspections at all independent manufacturing facilities.

publications.

MANUFACTURING
Coach carefully balances its commitments to a limited number of “better brand” partners with demonstrated integrity, quality and reliable delivery. Our manufacturers are located in many countries, including Vietnam, mainland China, the Philippines, India, Thailand, Italy, United States, Vietnam, Hong Kong, India, Thailand, Philippines, TaiwanMyanmar and Peru.the United States. Coach continues to evaluate new manufacturing sources and geographies to deliver the finest quality products at the lowest cost and help limit the impact of manufacturing in inflationary markets. During fiscal 2012, one vendor2015, the Coach brand had two vendors who each provided approximately 16%slightly over 10% of Coach’sthe Company's total units. These two vendors are geographically dispersed and have multiple locations in different countries. No other individual vendor currently provides more than approximately 11%10% of Coach’s total units. Before partnering with a vendor, Coach evaluates each facility by conducting a quality and business practice standards audit. Periodic evaluations of existing, previously approved facilities are conducted on a random basis. We believe that all of our manufacturing partners are in material compliance with Coach’s integrity standards.

These independent manufacturers each or in aggregate support a broad mix of product types, materials and a seasonal influx of new, fashion oriented styles, which allows us to meet shifts in marketplace demand and changes in consumer preferences.
Our raw material suppliers, independent manufacturers and licensing partners, must achieve and maintain high quality standards, which are an integral part of our identity. One of Coach's keys to success lies in the rigorous selection of raw materials. Coach has longstanding relationships with purveyors of fine leathers and hardware. Although Coach products are manufactured by independent manufacturers, we maintain a level of oversight in the selection of the raw materials that are used in all of our products. Compliance with quality control standards is monitored through on-site quality inspections at all independent manufacturing facilities.
We maintain control of the supply chain process from design through manufacture. We are able to do this by qualifying raw material suppliers and by maintaining sourcing management offices in Vietnam, Greater China, Hong Kong and the Philippines that work closely with our independent manufacturers. This broad-based, global manufacturing strategy is designed to optimize the mix of cost, lead times and construction capabilities.
DISTRIBUTION

Coach

In North America, the Company operates an 850,000 square foot distribution and consumer service facility in Jacksonville, Florida.Florida for Coach brand products. This automated facility uses a bar code scanning warehouse management system. Coach's distribution center employees use handheld radio frequency scanners to read product bar codes, which allow them to more accurately process and pack orders, track shipments, manage inventory and generally provide excellent service to our customers. Coach'sCoach brand products are primarily shipped to Coach retail stores and wholesale customers via express delivery providers and common carriers, and direct to consumers via express delivery providers.

To support our growth


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Outside of North America, the Company has established regional distribution centers, through third-parties, in Shanghai, China and the region, in fiscal 2010 we established an Asia distribution center in Shanghai, owned and operated by a third-party, allowing us to better manage the logistics in this region while reducing costs.Oldenzaal, The CompanyNetherlands for Coach brand products. Coach also operates alocal distribution center,centers, through a third-party,third-parties, in Japan.

Japan, China, Hong Kong, South Korea, Taiwan, Malaysia, Singapore and Macau for Coach brand products.

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MANAGEMENT INFORMATION SYSTEMS

The foundation of Coach's information systems is its Enterprise Resource Planning (“ERP”) system. This fully integrated system supports all aspects of finance and accounting, procurement, inventory control, sales and store replenishment. The system functions as a central repository for all of Coach's transactional information, resulting in increased efficiencies, improved inventory control and a better understanding of consumer demand. This system was upgraded in fiscal 2008, continues to be the most current version available, and is fully scalable to accommodate growth.

Complementing its ERP system are several other system solutions, each of which Coach believes is well suitedsuitable for its needs. The data warehouse system summarizes the transaction information and provides a singleglobal platform for all management reporting. The supply chain management system supports sales andsystems support product development, procurement, inventory planning and reporting functions. ProductIn North America, product fulfillment is facilitated by Coach's highly automated warehouse management system and electronic data interchange system, while the unique requirements of Coach's internetInternet business are supported by Coach’s order management system. Finally,and e-commerce systems. Internationally, Coach selectively relies on the warehouse and distribution systems owned by the third-parties that operate certain of our international distributions centers. Additionally, the point-of-sale system supports all in-store transactions, distributes management reporting to each store, and collects sales and payroll information on a daily basis. This daily collection of store sales and inventory information results in early identification of business trends and provides a detailed baseline for store inventory replenishment. Updates and upgrades of these systems are made on a periodic basis in order to ensure that we constantly improve our functionality. All complementary systems are integrated with the central ERP system.

TRADEMARKS AND PATENTS

Coach owns all of the material worldwide trademark rights used in connection with the production, marketing and distribution of all of its products, bothproducts. In addition, it licenses trademarks and copyrights used in connection with the U.S.production, marketing and in other countries in which the products are principally sold.distribution of certain categories of goods and limited edition collaborative special projects. Coach also owns and maintains worldwide registrations for trademarks in all relevant classes of products in each of the countries in which Coachour products are sold. Major trademarks includeCoach, Coach COACH, COACH NEW YORK, COACH and lozenge design, CoachHorse & Carriage Design, COACH and tag design,Story Patch Design, COACH and Lozenge Design, COACH and Tag Design, Signature C design, CoachDesign, and Op Art designC Design and The Heritage Logo (Coach Leatherware Est. 1941)COACH LEATHERWARE EST. 1941 (the "Heritage Logo"). Coach is not dependent on any one particular trademark or design patent although Coach believes that the Coach name is important for its business. In addition, several of Coach's products are covered by design patents orand a utility patent applications.application. Coach aggressively polices its trademarks and trade dress, and pursues infringers both domestically and internationally. It also pursues counterfeiters domestically and internationally through leads generated internally, as well as through its network of investigators, the Coach hotline and business partners around the world.

Coach expects that its material trademarks will remain in existencefull force and effect for as long as Coach continueswe continue to use and renew them.
SEASONALITY
Because Coach has no material patents.

SEASONALITY

Because Coachbrand's products are frequently given as gifts, Coach has historically realized,we experience seasonal variations in net sales, operating cash flows and expectsworking capital requirements, primarily related to continue to realize,seasonal holiday shopping. During the first fiscal quarter, we build inventory for the holiday selling season. In the second fiscal quarter, working capital requirements are reduced substantially as we generate higher net sales and operating income, in the second quarter of its fiscal year, which includesespecially during the holiday months of November and December. In addition, fluctuationsFluctuations in net sales, operating income and operating incomecash flows in any fiscal quarter aremay be affected by the timing of seasonal wholesale shipments and other events affecting retail sales. Over the last several years, we have achieved higher levels of growth in the non-holiday quarters, which has reduced these seasonal fluctuations.

sales, including adverse weather conditions.

GOVERNMENT REGULATION

Most of Coach's imported products are subject to existing or potential duties, tariffs orindirect taxes, quotas and non-tariff trade barriers that may limit the quantity of products that Coach may import into the U.S. and other countries or may impact the cost of such products. Coach hasis not beenmaterially restricted by quotas or other government restrictions in the operation of its business, andhowever customs duties have not compriseddo represent a material portionpart of the total cost of its products. In addition,product cost. To maximize opportunities, Coach operates complex supply chains through foreign trade zones, bonded logistic parks and other strategic initiatives such as free trade agreements. Additionally, Coach operates a direct import business in many countries worldwide. As a result, Coach is subject to foreign governmental regulationstringent government regulations and trade restrictions including retaliation against certain prohibited foreign practices, with respect to its product sourcingcross-border activity either by the various customs and international sales operations.

border protection agencies or by other government agencies which control the quality and safety of Coach’s products. Coach maintains an internal global trade and customs organization to help manage its import/export activity.


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COMPETITION

The premium handbag, footwear and accessories industry is highly competitive. The Company mainlyCoach competes primarily with European and American luxury and accessible luxury brands as well as private label retailers, including some of Coach’s


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Coach's wholesale customers. Over the last several years the category hasthese categories have grown, encouraging the entry of new competitors as well as increasing the competition from existing competitors. The Company believes, however, that as a market leader we benefit from thisThis increased competition as it drives consumer interest in this brand loyal category.

The Company further believes that there are several factors that differentiate us from our competitors, including but not limited to: distinctive newness, innovation and quality of our products, ability to meet consumer’s changing preferences and our superior customer service.

EMPLOYEES

As of June 30, 2012,27, 2015, Coach brand employed approximately 18,000 people,15,800 globally, including both full and part time employees, but excluding seasonal and temporary employees. Of these employees, approximately 6,2007,400 and 8,0005,700 were full time and part time employees, respectively, in the global retail field in North America; Japan; Hong Kong, Macau, and mainland China; Taiwan; Singapore and Korea. Approximately 70 of Coach’s employees are covered by collective bargaining agreements.field. Coach believes that its relations with its employees are good, and it has never encountered a strike or work stoppage.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

See the Segment Information noteNote 16, "Segment Information" presented in the Notes to the Consolidated Financial Statements for geographic information.

AVAILABLE INFORMATION

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge on our investor website, located atwww.coach.comwww.coach.com/investors under the caption “SEC Filings”, as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission. These reports are also available on the Securities and Exchange Commission’s website atwww.sec.gov. No information contained on any of our websites is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K.

The Company has included the Chief Executive Officer (“CEO”) and Chief Financial Officer certifications regarding its public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibit 31.1 to this report on Form 10-K. Additionally, the Company filed with the New York Stock Exchange (“NYSE”) the CEO’s certification regarding the Company’s compliance with the NYSE’s Corporate Governance Listing Standards (“Listing Standards”) pursuant to Section 303A.12(a) of the Listing Standards, which indicated that the CEO was not aware of any violations of the Listing Standards by the Company.



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ITEM 1A. RISK FACTORS

You should consider carefully all of the information set forth or incorporated by reference in this document and, in particular, the following risk factors associated with the Businessbusiness of Coachthe Company and forward-looking information in this document. Please also see “Special Note on Forward-Looking Information” at the beginning of this report. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also have an adverse effect on us. If any of the risks below actually occur, our business, results of operations, cash flows or financial condition could suffer.

The current economic conditionssuccessful execution of our multi-year transformation initiatives is key to the long-term growth of our business.
During the fourth quarter of fiscal 2014, we announced a multi-year strategic plan with the objective of transforming the brand and reinvigorating growth, which will enable the Company to return to ‘best-in-class’ profitability. Key operational and cost elements in order to fund and execute this plan include: (i) the investment in capital improvements in our stores and wholesale locations to drive comparable sales improvement; (ii) the optimization and streamlining of our organizational model as well as the closure of underperforming stores in North America, and select International stores, (iii) the realignment of inventory levels and mix to reflect our elevated product strategy and consumer preferences; (iv) the investment in incremental advertising costs to elevate consumer perception of our brand, drive sales growth and promote our new strategy; and (v) the significant scale-back of our promotional cadence in an increased global promotional environment, particularly within our outlet Internet sales site. The Company believes that long-term growth can be realized through its transformational efforts over time. There is no assurance that such efforts will be successful in achieving long-term growth or changing the perception of the Company from an accessories brand to a global lifestyle brand. Furthermore, actual costs incurred under the Transformation Plan may differ from expectations based on our execution of the key operational and cost elements described above. Refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3, "Transformation and Other Actions," for further information regarding the Transformation Plan.
If the execution of our transformation plan falls short, our business, financial condition and results of operation could be materially adversely affect our financial condition, results of operations and consumer purchases of luxury items.

The current uncertain global economic conditions are having a significant negative impact on businesses around the world. Our results can be impacted by a number of macroeconomic factors, including but not limited to consumer confidence and spending levels, unemployment, consumer credit availability, raw materials costs, fuel and energy costs, global factory production, commercial real estate market conditions, credit market conditions and the level of customer traffic in malls and shopping centers.

Demand for our products, and consumer spending in the premium handbag and accessories market generally, is significantly impacted by trends in consumer confidence, general business conditions, interest rates, the availability of consumer credit, and taxation. Consumer purchases of discretionary luxury items, such as Coach products, tend to decline during recessionary periods, when disposable income is lower. The general economic conditions in the economy may continue to affect consumer purchases of our products for the foreseeable future and adversely impact our results of operations.

affected.

The growth of our business depends on the successful execution of our growth strategies, including our efforts to expand internationally.

internationally into a global lifestyle brand.

Our growth depends on the continued success of existing products, as well as the successful design and introduction of new products. Our ability to create new products and to sustain existing products is affected by whether we can successfully anticipate and respond to consumer preferences and fashion trends. The failure to develop and launch successful new products could hinder the growth of our business. Also, any delay in the development or launch of a new product could result in our company not being the first to bring product to market, which could compromise our competitive position.

Additionally, our current growth strategy includes plans to expand in a number of international regions, including Asia and Europe. We currently plan to open additional Coach and Stuart Weitzman stores in mainland China, Europe and other international markets, both directly and through strategic partners. Our brands may not be well-established or widely sold in some of these markets, and we may have entered into strategic agreementslimited experience operating directly or working with variousour partners to expand our operations in Europe.there. In addition, we have recently taken control of certain of our retail operations in the Asia-Pacific region, including Taiwan, Malaysia and South Korea during calendar year 2012. We do not yet have significant experience directly operating in these countries, and in many of them we face established competitors. Many of these countriesmarkets have different operational characteristics, including but not limited to employment and labor, transportation, logistics, real estate, environmental regulations and local reporting or legal requirements.

Furthermore, consumer demand and behavior, as well as tastes and purchasing trends may differ in these countries, and as a result, sales of our product may not be successful, or the margins on those sales may not be in line with those we currently anticipate. Further, such markets will have upfront short-term investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance and therefore may be dilutive to Coach in the short-term. In many of these countries, there is significant competition to attract and retain experienced and talented employees. If
Consequently, if our international expansion plans are unsuccessful, or we are unable to retain and/or attract key personnel, our business, financial condition and results of operation could be materially adversely affected.

We face risks associated with operating in international markets.
We operate on a global basis, with approximately 39% of our net sales coming from operations outside of North America. While geographic diversity helps to reduce the Company’s exposure to risks in any one country, we are subject to risks associated with international operations, including, but not limited to:
changes in exchange rates for foreign currencies, which may adversely affect the retail prices of our products, result in decreased international consumer demand, or increase our supply costs in those markets, with a corresponding negative impact on our gross margin rates;
political or economic instability or changing macroeconomic conditions in our major markets;

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compliance with laws relating to foreign operations, including the Foreign Corrupt Practices Act and the U.K. Bribery Act, which in general concern the bribery of foreign public officials;
changes in tourist shopping patterns, particularly that of the Chinese consumer;
natural and other disasters;
changes in legal and regulatory requirements, including, but not limited to safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on the transfer of currency, climate change legislation, product safety regulations or other charges or restrictions, resulting in the imposition of new or more onerous trade restrictions, tariffs, embargoes, exchange or other government controls; and
the repatriation of foreign cash.
Economic conditions could materially adversely affect our financial condition, results of operations and consumer purchases of luxury items.
Our results can be impacted by a number of macroeconomic factors, including but not limited to consumer confidence and spending levels, unemployment, consumer credit availability, raw materials costs, fuel and energy costs (including oil prices), global factory production, commercial real estate market conditions, credit market conditions and the level of customer traffic in malls and shopping centers.
Demand for our products, and consumer spending in the premium handbag and accessories market generally, is significantly impacted by trends in consumer confidence, general business conditions, interest rates, foreign currency exchange rates, the availability of consumer credit, and taxation. Consumer purchases of discretionary luxury items, such as the Company's products, tend to decline during recessionary periods or periods of sustained high unemployment, when disposable income is lower. Unfavorable economic conditions may also reduce consumers’ willingness and ability to travel to major cities and vacation destinations in which our stores are located.
Our business may be subject to increased costs due to excess inventories and a decline in profitability as a result of increasing pressure on margins if we misjudge the demand for our products.
Our industry is subject to significant pricing pressure caused by many factors, including intense competition and a highly promotional environment, fragmentation in the retail industry, pressure from retailers to reduce the costs of products, and changes in consumer spending patterns. If we misjudge the market for our products we may be faced with significant excess inventories for some products and missed opportunities for other products. If that occurs, we may be forced to rely on destruction, donation, markdowns or promotional sales to dispose of excess, slow-moving inventory, which may negatively impact our gross margin, overall profitability and efficacy of our brands.
Increases in our costs, such as raw materials, labor or freight could negatively impact our gross margin. Labor costs at many of our manufacturers have been increasing significantly and, as the middle class in developing countries continues to grow, it is unlikely that such cost pressure will abate. The cost of transportation has been increasing as well and it is likely such cost will fluctuate significantly if oil prices remain volatile. We may not be able to offset such increases in raw materials, labor or transportation costs through pricing measures or other means.
Significant competition in our industry could adversely affect our business.

We face intense competition in the product lines and markets in which we operate. Our competitors are European and American luxury brands, as well as private label retailers, including some of Coach’sthe Company's wholesale customers. There is a risk that our competitors may develop new products or product categories that are more popular with our customers. We may be unable to anticipate the timing and scale of such product introductions by competitors,


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which could harm our business. Our ability to compete also depends on the strength of our brand, whether we can attract and retain key talent, and our ability to protect our trademarks and design patents. A failure to compete effectively could adversely affect our growth and profitability.

We face risks associated with operating

Acquisitions may not be successful in international markets.

We operate on a global basis, with approximately 32% of our net sales coming from operations outsideachieving intended benefits, cost savings and synergies and may disrupt current operations; the U.S. However, salesacquired Stuart Weitzman business may underperform relative to our international wholesale customers are denominatedexpectations; and the Stuart Weitzman acquisition may cause our financial results to differ from our expectations or the expectations of the investment community.

During fiscal 2015, we acquired Stuart Weitzman Holdings, LLC, a leading designer and manufacturer of women's luxury footwear. We may have difficulty integrating the Stuart Weitzman business into our operations or otherwise successfully managing the expansion of the Stuart Weitzman business. Additionally, while we continually review potential acquisition opportunities, there can be no assurance that we will be able to identify suitable candidates or consummate these transactions on favorable terms or at all. The potential difficulties of integrating the operations of an acquired business, such as Stuart Weitzman, and realizing our expectations for an acquisition, including the benefits that may be realized, include, among other things:

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failure of the business to perform as planned following the acquisition or achieve anticipated revenue or profitability targets;
delays, unexpected costs or difficulties in U.S. dollars. While geographic diversity helpscompleting the integration of acquired companies or assets;
higher than expected costs, lower than expected cost savings or synergies and/or a need to reduceallocate resources to manage unexpected operating difficulties;
difficulties assimilating the Company’s exposureoperations and personnel of acquired companies into our operations;
diversion of the attention and resources of management or other disruptions to riskscurrent operations;
unanticipated issues in any one country, we are subject to risks associated with international operations, including, but not limited to:

integrating manufacturing, logistics, information, communications and other systems;
unanticipated changes in exchange rates for foreign currencies, which may adversely affectapplicable laws and regulations;
unanticipated changes in the retail pricescombined business due to potential divestitures or other requirements imposed by antitrust regulators;
retaining key customers, suppliers and employees;
retaining and obtaining required regulatory approvals, licenses and permits;
operating risks inherent in the acquired business and our business;
consumers’ failure to accept product offerings by us or our licensees;
assumption of our products, resultliabilities not identified in decreased international consumer demand, or increase our supply costs in those markets, with a corresponding negativedue diligence;
the impact on our gross margin rates,or an acquired business’ internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002; and
political other unanticipated issues, expenses and liabilities.
Our failure to successfully complete the integration of any acquired business, including Stuart Weitzman, and any adverse consequences associated with future acquisition activities, could have an adverse effect on our business, financial condition and operating results.
Completed acquisitions may result in additional goodwill and/or economic instabilityan increase in other intangible assets on our balance sheet.  We are required at least annually, or changing macroeconomic conditions in our major markets,
naturalas facts and circumstances exist, to test goodwill and other disasters in internationalintangible assets with indefinite lives to determine if impairment has occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets with indefinite lives and the implied fair value of the goodwill or the fair value of other markets, and
changes in foreign or domestic legal and regulatory requirements resultingintangible assets with indefinite lives in the impositionperiod the determination is made. We determined there was no impairment in fiscal 2015, fiscal 2014 and fiscal 2013; however, we cannot accurately predict the amount and timing of new or more onerous trade restrictions, tariffs, embargoes, exchangeany impairment of assets. Should the value of goodwill or other government controls.

We monitorintangible assets become impaired, there could be a material adverse effect on our global foreign currency exposure and in order to minimize the impact on earnings of foreign currency rate movements, we hedge our subsidiaries’ U.S. dollar-denominated inventory purchases in Japan and Canada, as well as Coach’s cross currency denominated intercompany loan portfolio. We cannot ensure, however, that these hedges will fully offset the impact of foreign currency rate movements. Additionally, our international subsidiaries primarily use local currencies as the functional currency and translate their financial results from the local currency to U.S. dollars. If the U.S. dollar strengthens against these subsidiaries’ foreign currencies, the translation of their foreign currency denominated transactions may decrease consolidated net sales and profitability.

Failure to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure the brand and negatively affect sales.

We believe our trademarks, copyrights, patents, and other intellectual property rights are extremely important to our success and our competitive position. We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts worldwide. In spite of our efforts, counterfeiting still occurs and if we are unsuccessful in challenging a third-party’s rights related to trademark, copyright, or patent this could adversely affect our future sales, financial condition and results of operation. We are aggressive in pursuing entities involved in the traffickingoperations.

Computer system disruption and sale of counterfeit merchandise through legal action or other appropriate measures. We cannot guarantee that the actions we have taken to curb counterfeiting and protect our intellectual property will be adequate to prevent to protect the brand and prevent counterfeiting in the future. Furthermore, our efforts to enforce our intellectual property rights are often met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. Unplanned increases in legal fees and other costs associates with defending our intellectual property rights could result in higher operating expenses. Finally, many countries’ laws do not protect intellectual property rights to the same degree as US laws.

Cybercyber security threats, including a privacy or data security breach, could damage our relationships with our customers, harm our reputation, expose us to litigation and adversely affect our business.

We depend on digital technologies for the successful operation of our business, including corporate email communications to and from employees, customers and stores, the design, manufacture and distribution of our finished goods, digital marketing efforts, collection and retention of customer data, employee information, the processing of credit card transactions, online e-commerce activities and our interaction with the public in the social media space. The possibility of a cyber-attack on any one or all of these systems is a serious threat. The retail industry, in particular, has been the target of many recent cyber-attacks. As part of our business model, we collect, retain, and transmit confidential information over public networks. In addition to our own databases, we use third party service providers to store, process and transmit this information on our behalf. Although we contractually require these service providers to implement and use


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reasonable security measures, we cannot control third parties and cannot guarantee that a security breach will not occur in the future either at their location or within their systems. We also store all designs, goods specifications, projected sales and distribution plans for our finished products digitally. We have confidential security measures in place to protect both our physical facilities and digital systems from attacks. Despite these efforts, however, we may be vulnerable to targeted or random security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.

Consumer awareness

Awareness and sensitivity to privacy breaches and cyber security threats by consumers, employees and lawmakers is at an all-time high. Any misappropriation of confidential or personally identifiable information gathered, stored or used by us, be it intentional or accidental, could have a material impact on the operation of our business, including severely damaging our reputation and our relationships with our customers, employees and investors. We may also incur significant costs implementing additional security measures to protect against new or enhanced data security or privacy threats, or to comply with state, federal and international laws governing the unauthorized disclosure of confidential information as well as increased cyber security protection costs such as organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants and lost revenues resulting from unauthorized use of proprietary information including our

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intellectual property. Lastly, we could face sizable fines, significant breach-notification costs and increased litigation as a result of cyber security breaches.

In addition, we maintain e-commerce sites in the U.S., Canada, Japan and China and have plans for additional e-commerce sites in other parts of the world. Additionally, Coach has informational websites in various countries, as described in Item I, "Business." Lastly, our e-commerce programs also include an invitation-only Coach outlet flash sale site. Given the robust nature of our e-commerce presence and digital strategy, it is imperative that we and our e-commerce partners maintain uninterrupted operation of our: (i) computer hardware, (ii) software systems, (iii) customer marketing databases, and (iv) ability to email our current and potential customers. Despite our preventative efforts, our systems are vulnerable from time-to-time to damage, disruption or interruption from, among other things, physical damage, natural disasters, inadequate system capacity, system issues, security breaches, email blocking lists, computer viruses or power outages. Any material disruptions in our e-commerce presence or information technology systems could have a material adverse effect on our business, financial condition and results of operations.
The success of our business depends on our ability to retain the value of the Coach brand and the Stuart Weitzman brand and to respond to changing fashion and retail trends in a timely manner.
We believe that the Coach brand, established almost 75 years ago, is regarded as America's preeminent designer, producer, and marketer of fine accessories and gifts for women and men. We attribute the prominence of the Coach brand to the unique combination of our original American attitude and design, our heritage of fine leather goods and custom fabrics, our superior product quality and durability and our commitment to customer service. Furthermore, the Stuart Weitzman brand is viewed as a leading design house of women's luxury footwear within North America, with a strong opportunity for growth globally, and is built upon the idea of crafting a beautifully-constructed shoe, merging fashion and function. Any misstep in product quality or design, customer service, marketing, unfavorable publicity or excessive product discounting could negatively affect the image of our brands with our customers. Furthermore, the product lines we have historically marketed and those that we plan to market in the future are becoming increasingly subject to rapidly changing fashion trends and consumer preferences, including the increasing shift to digital brand engagement and social media communication. If we do not anticipate and respond promptly to changing customer preferences and fashion trends in the design, production, and styling of our products, as well as create compelling marketing campaigns that appeal to our customers, our sales and results of operations may be negatively impacted. Our success also depends in part on our ability to execute on our Transformation Plan. Even if our products, marketing campaigns and retail environments do meet changing customer preferences and/or stay ahead of changing fashion trends, our brand image could become tarnished or undesirable in the minds of our customers or target markets, which could materially adversely impact our business, financial condition, and results of operations.
Our business is exposed to foreign currency exchange rate fluctuations.
We monitor our global foreign currency exposure. In order to minimize the impact on earnings of foreign currency rate movements, we hedge our subsidiaries’ U.S. dollar-denominated inventory purchases in Japan and Canada, as well as the Company's cross currency denominated intercompany loan portfolio. We cannot ensure, however, that these hedges will fully offset the impact of foreign currency rate movements. Additionally, our international subsidiaries primarily use local currencies as the functional currency and translate their financial results from the local currency to U.S. dollars. If the U.S. dollar strengthens against these subsidiaries’ foreign currencies, the translation of their foreign currency denominated transactions may decrease consolidated net sales and profitability. Our continued international expansion will increase our exposure to foreign currency fluctuations. Sales to our international wholesale customers are primarily denominated in U.S. dollars.
As a result of operating retail stores outside of the U.S., we are also exposed to market risk from fluctuations in foreign currency exchange rates. A substantial weakening of foreign currencies against the U.S. dollar could impact consumers’ willingness or ability to travel abroad and/or purchase our products while traveling, as well as require us to raise our retail prices or reduce our profit margin in various locations outside of the U.S. In addition, our sales and profitability could be negatively impacted if consumers in those markets were unwilling to purchase our products at increased prices.
Our stock price may periodically fluctuate based on the accuracy of our earnings guidance or other forward-looking statements regarding our financial performance, including our ability to return value to investors.
Our business and long-range planning process is designed to maximize our long-term strength, growth, and profitability, and not to achieve an earnings target in any particular fiscal quarter. We believe that this longer-term focus is in the best interests of the Company and our stockholders. At the same time, however, we recognize that it is helpful to provide investors with guidance as to our forecast of net sales, earnings per share and other financial metrics or projections. While we generally expect to provide updates to our financial guidance when we report our results each fiscal quarter, we do not have any responsibility to update any of our forward-looking statements at such times or otherwise. In addition, any longer-term guidance that we provide is based on goals that we believe, at the time guidance is given, are reasonably attainable for growth and performance over a number of years. However, such long-range targets are more difficult to predict than our current quarter and fiscal year expectations. If, or when, we announce actual results that differ from those that have been predicted by us, outside investment analysts, or others, our stock

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price could be adversely affected. Investors who rely on these predictions when making investment decisions with respect to our securities do so at their own risk. We take no responsibility for any losses suffered as a result of such changes in our stock price.
We periodically return value to investors through payment of quarterly dividends. Investors may have an expectation that we will continue to pay our quarterly dividend at certain levels. The market price of our securities could be adversely affected if our cash dividend rate differs from investors’ expectations. See “If we are unable to pay quarterly dividends at intended levels, our reputation and stock price may be harmed” for addition discussion of our quarterly dividend.
Failure to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure the brand and negatively affect sales.
We believe our trademarks, copyrights, patents, and other intellectual property rights are extremely important to our success and our competitive position. We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts worldwide. In spite of our efforts, counterfeiting still occurs and if we are unsuccessful in challenging a third-party’s rights related to trademark, copyright, or patent this could adversely affect our future sales, financial condition, and results of operations. We are aggressive in pursuing entities involved in the trafficking and sale of counterfeit merchandise through legal action or other appropriate measures. We cannot guarantee that the actions we have taken to curb counterfeiting and protect our intellectual property will be adequate to protect the brand and prevent counterfeiting in the future. Our trademark applications may fail to result in registered trademarks or provide the scope of coverage sought. Furthermore, our efforts to enforce our intellectual property rights are often met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. Unplanned increases in legal fees and other costs associated with defending our intellectual property rights could result in higher operating expenses. Finally, many countries’ laws do not protect intellectual property rights to the same degree as U.S. laws.
Our business is subject to the risks inherent in global sourcing activities.

As a companyCompany engaged in sourcing on a global scale, we are subject to the risks inherent in such activities, including, but not limited to:

unavailability of, or significant fluctuations, in the cost of raw materials,materials;
compliance by us and our independent manufacturers and suppliers with labor laws and other foreign governmental regulations,regulations;
imposition of additional duties, taxes and other charges on imports or exports,exports;
increases in the cost of labor, fuel (including volatility in the price of oil), travel and transportation,transportation;
compliance with our Global Business Integrity Program,Program;
compliance by our independent manufacturers and suppliers with our Global Operating Principles and/or Supplier Selection Guidelines, as applicable;
compliance with U.S. laws regarding the identification and reporting on the use of “conflict minerals” sourced from the Democratic Republic of the Congo in the Company’s products;
disruptions or delays in shipments,shipments;
loss or impairment of key manufacturing or distribution sites,sites;
inability to engage new independent manufacturers that meet the Company’s cost-effective sourcing model,model;
product quality issues,issues;
political unrest,unrest;
unforeseen public health crises, such as pandemic and epidemic diseases;
natural disasters or other extreme weather events, whether as a result of climate change or otherwise; and
acts of war or terrorism and other external factors over which we have no control.

While

We are subject to labor laws governing relationships with employees, including minimum wage requirements, overtime, working conditions, and citizenship requirements. Compliance with these laws may lead to increased costs and operational complexity and may increase our exposure to governmental investigations or litigation.
In addition, we require our independent manufacturers and suppliers to operate in compliance with applicable laws and regulations, as well as our Global Operating Principles and/or Supplier Selection Guidelines,Guidelines; however, we do not control these manufacturers or suppliers or their labor, environmental or other business practices. Copies of our Global Business Integrity Program, Global Operating Principles and Supplier Selection Guidelines are posted onavailable through our website, coach.com.www.coach.com. The

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violation of labor, environmental or other laws by an independent manufacturer or supplier, or divergence of an independent manufacturer’s or supplier’s labor practices from those generally accepted as ethical or appropriate in the U.S., could interrupt or otherwise disrupt the shipment of our products, harm our trademarks or damage our reputation. The occurrence of any of these events could materially adversely affect our business, financial condition and results of operations.

We are dependent on a limited number of distribution and sourcing centers. Our ability to meet the needs of our customers and our retail stores and e-commerce sites depends on the proper operation of these centers. If any of these centers were to shut down or otherwise become inoperable or inaccessible for any reason, we could suffer a substantial loss of inventory and/or disruptions of deliveries to our retail and wholesale customers. While we have business continuity and contingency plans for our sourcing and distribution center sites, significant disruption of manufacturing or distribution for any of the above reasons could interrupt product supply, result in a substantial loss of inventory, increase our costs, disrupt deliveries to our customers and our retail stores, and, if not remedied in a timely manner, could have ana material adverse impact on our business. Because our distribution centers include automated and computer controlled equipment, they are susceptible to risks including power interruptions, hardware and system failures, software viruses, and security breaches. We maintain three primary distribution centers: a distribution center in Jacksonville, Florida, owned and operated by Coach, an AsiaCoach. To support our growth in mainland China and Europe, we established distribution centercenters in Shanghai, China and Oldenzaal, The Netherlands, owned and operated by a third-party, allowing us to better manage the logistics in these regions while reducing costs. We also operate distribution centers, through third-parties, in Japan, mainland China, Hong Kong, Singapore, Taiwan, Malaysia, The United States and a distribution center, through a third-party, in Japan. See Distribution section of Item 1. Business for further discussion.South Korea. The warehousing of


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Coach the Company's merchandise, store replenishment and processing direct-to-customer orders is handled by these centers and a prolonged disruption in any center’s operation could materially adversely affect our business and operations.

Increases

We are subject to risks associated with leasing retail space subject to long-term and non-cancelable leases. We may be unable to renew leases at the end of their terms. If we close a leased retail space, we remain obligated under the applicable lease.
We do not own any of our retail store locations. We lease our corporate-owned stores under long-term, non-cancelable leases, which usually have initial terms ranging from five and ten years, with renewal options typically in five year increments. We believe that the leases we enter into in the future will likely be long-term and non-cancelable and have similar renewal options. Generally, our leases are “net” leases, which require us to pay our proportionate share of the cost of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases at our option. If we determine that it is no longer economical to operate a retail store subject to a lease and decide to close it as we have done in the past and will do in the future, we may remain obligated under the applicable lease for, among other things, payment of the base rent for the balance of the lease term. In some instances, we may be unable to close an underperforming retail store due to continuous operation clauses in our costs, suchlease agreements. In addition, as raw materials, labor or freight could negatively impact our overall profitability. Labor costs at manyeach of our manufacturers have been increasing significantly and, as the middle classleases expire, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close retail stores in developing countries continuesdesirable locations. Our inability to grow, it is unlikely that such cost pressure will abate. The cost of transportation has been increasing as well and it is unlikely such cost pressure will abate if oil prices continue to increase. We may not be able to offset such increases in raw materialssecure desirable retail space or labor or transportation costs through pricing measures or other means. These increasing costs of productionsfavorable lease terms could also adversely affectimpact our ability to achievegrow. Likewise, our obligation to continue making lease payments in respect of leases for closed retail spaces could have a material adverse effect on our business, financial condition and results of operations.
Our success depends, in part, on attracting, developing and retaining qualified employees, including key personnel.
The ability to successfully execute against our goals is heavily dependent on attracting, developing and retaining qualified employees, including our senior management team. Competition in our industry to attract and retain these employees is intense and is influenced by: our ability to offer competitive compensation and benefits, employee morale, our reputation, recruitment by other employers, perceived internal opportunities, non-competition and non-solicitation agreements and macro unemployment rates. Our transformation plan and its attendant changes regarding organizational efficiencies may intensify this risk.
We depend on the gross margin objectivesguidance of our senior management team and other key employees who have significant experience and expertise in our industry and our operations. In recent years, we have established.

experienced turnover of several senior management roles and we have focused time and resources on recruiting or promoting from within the new members of our current senior management team. The continued turnover of senior management or the unexpected loss of one or more of our key personnel or any negative public perception with respect to these individuals could also have a material adverse effect on our business, results of operations and financial condition. We do not maintain key-person or similar life insurance policies on any of senior management team or other key personnel.

Our business is subject to increased costs due to excess inventories if we misjudge the demand for our products.

If Coach misjudges the market for its products it may be faced with significant excess inventories for some products and missed opportunities for other products. In addition, because Coach places orders for products with its manufacturers before it receivesNorth American wholesale customers’ orders, it could experience higher excess inventories if wholesale customers order fewer products than anticipated. If that occurs, we may be forced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which may negatively impact our business.

Our Indirect segmentbusiness could suffer as a result of consolidations, liquidations, restructurings and other ownership changes in the retail industry.

Our Indirect segment,North American wholesale business, primarily consisting of the U.S. Wholesale and Coach International businessesbusiness, comprised approximately 11%5% of total net sales for fiscal 2012.2015. Continued consolidationfragmentation in the retail industry could further decrease the number of, or concentrate the ownership of, stores that carry our and our licensees’ products. Furthermore, a decision by the controlling owner of a group of stores or any other significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease or eliminate the amount of merchandise purchased from us or our licensing partners could result in an adverse effect on the sales and profitability within this channel.

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We rely on our Indirect segment.

licensing partners to preserve the value of our licenses and the failure to maintain such partners could harm our business.

We currently have multi-year agreements with licensing partners for our footwear, eyewear, watches and fragrance products. See Item 1 - “Business - Products” for additional discussion of our licensing arrangements. In the future, we may enter into additional licensing arrangements. The risks associated with our own products also apply to our licensed products as well as unique problems that our licensing partners may experience, including risks associated with each licensing partner’s ability to obtain capital, manage its labor relations, maintain relationships with its suppliers, manage its credit and bankruptcy risks, and maintain customer relationships. While we maintain significant control over the products produced for us by our licensing partners, any of the foregoing risks, or the inability of any of our licensing partners to execute on the expected design and quality of the licensed products or otherwise exercise operational and financial control over its business, may result in loss of revenue and competitive harm to our operations in the product categories where we have entered into such licensing arrangements. Further, while we believe that we could replace our existing licensing partners if required, our inability to do so for any period of time could materially adversely affect our revenues and harm our business.
As we outsource functions, we will become more dependent on the third parties performing these functions.
As part of our long-term strategy, we look for opportunities to cost effectively enhance capability of business services. While we believe we conduct appropriate due diligence before entering into agreements with these third parties, the failure of any of these third parties to provide the expected services, provide them on a timely basis or to provide them at the prices we expect could disrupt or harm our business. Any significant interruption in the operations of these service providers, over which we have no control, could also have an adverse effect on our business. Furthermore, we may be unable to provide these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable to us.
Our operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of Coachthe Company's common stock.

Because Coach products are frequently given as gifts, Coach has historically realized, and expects to continue to realize, higher sales and operating income in the second quarter of its fiscal year, which includes the holiday months of November and December. Poor sales in Coach’s second fiscal quarter would have a material adverse effect on its full year operating results and result in higher inventories. In addition, fluctuations in sales and operating income in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events affecting retail sales.

If we are unable to pay quarterly dividends at intended levels, our reputation and stock price may be harmed.

Our quarterly cash dividend is currently $0.30 per common share.

The dividend program requires the use of a modestmoderate portion of our cash flow. Our ability to pay dividends will depend on our ability to generate sufficient cash flows from operations in the future. This ability may be subject to certain economic, financial, competitive and other factors that are beyond our control. Our Board of Directors (“Board”) may, at its discretion, decrease the intended level of dividends or entirely discontinue the payment of dividends at any time. Any failure to pay dividends after we have announced our intention to do so may negatively impact our reputation, investor confidence in us and negatively impact our stock price.

Changes in our credit profile or deterioration in market conditions may limit our access to the credit and capital markets and adversely impact our financial results or our business initiatives.
We have maintained and accessed revolving credit facilities and issued debt securities as a source of liquidity, along with cash flows generated from our operations, our available cash and cash equivalents and short-term investments, our non-current investments, and other available financing options. We remain committed to maintaining a strong financial profile with ample liquidity. Our ability to access the credit and capital markets in the future as a source of funding, and the borrowing costs associated with such financing, is dependent upon market conditions and our credit rating and outlook.
Fluctuations in our tax obligations and effective tax rate may result in volatility of our operatingfinancial results and stock price.

We are subject to income taxes in many U.S. and certain foreign jurisdictions. We record tax expense based on our estimates of future payments, which includestaxable income and required reserves for uncertain tax positions in multiple tax jurisdictions. At any one time, manymultiple tax years are subject to audit by various taxing jurisdictions. The results


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of these audits and negotiations with taxing authorities may affect the ultimateresult in a settlement of these issues.which differs from our original estimate. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. In addition, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings or by changes to existing accounting rules or regulations.earnings. Further, proposed tax changes that may be enacted in the future could negatively impact our current or future tax structure and effective tax rates.


17


We could experience cost overruns and disruptions to our operations in connection with the construction of, and relocation to, our new global corporate headquarters.
The Company has entered into various agreements relating to the development of the Company’s new global corporate headquarters in a new office building to be located at the Hudson Yards development site in New York City. The financing, development and construction of the new building is taking place through a joint venture between the Company and the developers. Construction of the new building has commenced and occupancy in the new global headquarters is currently expected to take place in fiscal 2016. During fiscal 2015, the Company invested $139.1 million in the Hudson Yards joint venture, resulting in a total equity method investment of 320.2 million as of June 27, 2015. The Company expects to invest approximately $210 million in the joint venture over the next two years, with approximately $195 million estimated in fiscal 2016, depending on construction progress. Outside of the joint venture, the Company is directly investing in aspects of the new corporate headquarters. The Company has incurred $34.0 million of capital expenditures to date, including $5.9 million in fiscal 2015, and we expect approximately $185 million of additional expenditures over the remaining period of construction. The Company’s allocable share of the joint venture investments and capital expenditures will be financed by the Company with cash on hand, debt-related borrowings and approximately $130 million of proceeds from the sale of its current headquarters buildings.
Due to the inherent difficulty in estimating costs associated with projects of this scale and nature, certain of the costs associated with this project may be higher than estimated and it may take longer than expected to complete the project. In addition, the process of moving our headquarters is inherently complex and not part of our day to day operations. Thus, that process could cause significant disruption to our operations and cause the temporary diversion of management resources, all of which could have a material adverse effect on our business. In addition, we cannot give any assurance that our developer will complete its obligations in a timely manner or at all or how changes in the overall development of the Hudson Yards project may impact the development of, or value of, the building in which our new global headquarters will be located. Further, our developer has financing, construction and development obligations to parties other than us, and we cannot give any assurance as to how those obligations may impact the development of the project.
The ownership of real property, such as the new global corporate headquarters, also subjects us to various other risks, including, among others:
the possibility of environmental contamination and the costs associated with correcting any environmental problems;
the risk of financial loss in excess of amounts covered by insurance, or uninsured risks, such as the loss caused by damage to the new building as a result of fire, floods, or other natural disasters; and
adverse changes in the value of these properties, due to interest rate changes, changes in the neighborhood in which the property is located, or other factors.
Provisions in Coach’sthe Company's charter, bylaws and Maryland law may delay or prevent an acquisition of Coachthe Company by a third party.

Coach’s

The Company's charter, bylaws and Maryland law contain provisions that could make it more difficult for a third party to acquire Coachthe Company without the consent of Coach’sour Board. Coach’sThe Company's charter permits its Board, without stockholder approval, to amend the charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that Coachthe Company has the authority to issue. In addition, Coach’sthe Company's Board may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, rights and other terms of the classified or reclassified shares. Although Coach’sthe Company's Board has no intention to do so at the present time, it could establish a series of preferred stock that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for Coach’sthe Company's common stock or otherwise be in the best interest of Coach’sthe Company's stockholders.

Coach’s

The Company's bylaws can only be amended by Coach’sour Board. Coach’sThe Company's bylaws also provide that nominations of persons for election to Coach’sthe Company's Board and the proposal of business to be considered at a stockholders meeting may be made only in the notice of the meeting, by Coach’sthe Company's Board or by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures of Coach’sthe Company's bylaws. Also, under Maryland law, business combinations, including issuances of equity securities, between Coachthe Company and any person who beneficially owns 10% or more of Coach’sthe Company's common stock or an affiliate of such person are prohibited for a five-year period, beginning on the date such person last becomes a 10% stockholder, unless exempted in accordance with the statute. After this period, a combination of this type must be approved by two super-majority stockholder votes, unless some conditions are met or the business combination is exempted by Coach’sthe Company's Board.

Risks relating to our Hong Kong Depositary Receipts (“HDRs”)

An active trading market for the Hong Kong Depositary Receipts on the Hong Kong Stock Exchange might not develop or be sustained and their trading prices might fluctuate significantly.


18


We cannot assure you that an active trading market for the HDRs on the Hong Kong Stock Exchange canwill develop or be sustained. If an active trading market of the HDRs on the Hong Kong Stock Exchange does not develop or is not sustained, the market price and liquidity of the HDRs could be materially and adversely affected. As a result, the market price for HDRs in Hong Kong might not be indicative of the trading prices of Coach’s Common Stockcommon stock on the NYSE, even allowing for currency differences.

The characteristics of the U.S. capital markets and the Hong Kong capital markets are different.

The NYSE and the Hong Kong Stock Exchange have different trading hours, trading characteristics (including trading volume and liquidity), trading and listing rules, and investor bases (including different levels of retail and institutional participation). As a result of these differences, the trading prices of Common Stockcommon stock and the HDRs representing them might not be the same, even allowing for currency differences. Fluctuations in the price of our Common Stockcommon stock due to circumstances peculiarparticular to the U.S. capital markets could materially and adversely affect the price of the HDRs. Because of the different characteristics of the U.S. and Hong Kong equity markets, the historic market prices of our Common Stockcommon stock may not be indicative of the performance of the HDRs.

We are a corporation incorporated in the State of Maryland in the United States and our corporate governance practices are principally governed by U.S. federal and Maryland state laws and regulations.

We are a corporation incorporated in the State of Maryland in the United States and our HDRs are listed on the Hong Kong Stock Exchange. Our corporate governance practices are primarily governed by and subject to U.S. federal and Maryland laws and regulations. U.S. federal and Maryland laws and regulations differ in a


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number of respects from comparable laws and regulations in Hong Kong. There are certain differences between the stockholder protection regimes in Maryland and the United States and in Hong Kong.

We have obtained a ruling from the Securities and Futures Commission of Hong Kong (the “SFC”) that we will not be regarded as a public companyCompany in Hong Kong for the purposes of the Code on Takeovers and Mergers and the Share Repurchases Code of Hong Kong and hence, these codes will not apply to us. We have also obtained a partial exemption from the SFC in respect of the disclosure of interest provisions set out in the Securities and Futures Ordinance of Hong Kong. In addition, we have been granted waivers or exemptions by the Hong Kong Stock Exchange from certain requirements under its listing rules. Neither our stockholders nor the HDR holders will have the benefit of those Hong Kong rules, regulations and the listing rules of the Hong Kong Stock Exchange for which we have applied, and been granted, waivers or exemptions by the Hong Kong Stock Exchange and SFC.

Additionally, if any of these waivers or exemptions were to be revoked in circumstances including our non-compliance with applicable undertakings for any reason, additional legal and compliance obligations might be costly and time consuming, and might result in issues of interjurisdictional compliance, which could adversely affect us and HDR holders.

As the SFC does not have extra-territorial jurisdiction on any of its powers of investigation and enforcement, it will also have to rely on the regulatory regimes of Maryland state authorities and the SEC to enforce any corporate governance breaches committed by us in the United States. Investors in the HDRs should be aware that it could be difficult to enforce any judgment obtained outside the United States against us or any of our associates.

Furthermore, prospective investors in the HDRs should be aware, among other things, that there are U.S. federal withholding and estate tax implications for HDR holders.

HDR holders are not stockholders of the Company and must rely on the depositary for the HDRs (the “HDR Depositary”) to exercise on their behalf the rights that are otherwise available to the stockholders of the Company.

HDR holders do not have the rights of stockholders. They only have the contractual rights set forth for their benefit under the deposit agreement for the HDRs (the “Deposit Agreement”). Holders of HDRs are not permitted to vote at stockholders’ meetings, and they may only vote by providing instructions to the HDR Depositary. There is no guarantee that holders of HDRs will receive voting materials in time to instruct the HDR Depositary to vote and it is possible that holders of HDRs, or persons who hold their Hong Kong depositary shares through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote, although both we and the HDR Depositary will endeavor to make arrangements to ensure as far as practicable that all holders of HDRs will be able to vote. As the HDR Depositary or its nominee will be the registered owner of the Common Stockcommon stock underlying their HDRs, holders of HDRs must rely on the HDR Depositary (or its nominee) to exercise rights on their behalf. In addition, holders of HDRs will also incur charges on any cash distribution made pursuant to the Deposit Agreement and on transfers of certificated HDRs.

Holders of HDRs will experience dilution in their indirect interest in the Company in the event of an equity offering which is not extended to them.

If we decide to undertake an equity offering (that is not a rights or other offering that is extended to HDR holders), HDR holders may suffer a dilution in their indirect ownership and voting interest in the Common Stock,common stock, as compared to their holdings in the HDRs immediately prior to such an offering.


19


Holders of HDRs will be reliant upon the performance of several service providers. Any breach of those service providers of their contractual obligations could have adverse consequences for an investment in HDRs.

An investment in HDRs will depend for its continuing viability on the performance of several service providers, including but not limited to the HDR Depositary, the registrar for the HDRs, the custodian and any sub-custodian appointed in respect of the underlying Common Stock.common stock. A failure by any of those service


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providers to meet their contractual obligations, whether or not by culpable default, could detract from the continuing viability of the HDRs as an investment. CoachThe Company will not have direct contractual recourse against the custodian, any sub-custodian or the registrar; hence the potential for redress in circumstances of default will be limited. However, Coachthe Company and the HDR Depositary have executed a deed poll in favor of HDR holders in relation to the exercise by them of their rights as HDR holders under the Deposit Agreement against the Company or the HDR Depositary.

Withdrawals and exchanges of HDRs into Common Stockcommon stock traded on the NYSE might adversely affect the liquidity of the HDRs.

Our Common Stockcommon stock is presently traded on the NYSE. Any HDR holder may at any time request that their HDRs be withdrawn and exchanged into Common Stockcommon stock for trading on the NYSE. Upon the exchange of HDRs into Common Stock,common stock, the relevant HDRs will be cancelled. In the event that a substantial number of HDRs are withdrawn and exchanged into Common Stock and subsequently cancelled, the liquidity of the HDRs on the Hong Kong Stock Exchange might be adversely affected.

The time required for HDRs to be exchanged into Common Stockcommon stock (and vice versa) might be longer than expected and investors might not be able to settle or effect any sales of their securities during this period.

There is no direct trading or settlement between the NYSE and the Hong Kong Stock Exchange on which the Common Stockcommon stock and the HDRs are respectively traded. In addition, the time differences between Hong Kong and New York and unforeseen market circumstances or other factors may delay the exchange of HDRs into Common Stockcommon stock (and vice versa). Investors will be prevented from settling or effecting the sale of their securities across the various stock exchanges during such periods of delay. In addition, there is no assurance that any exchange of HDRs into Common Stockcommon stock (and vice versa) will be completed in accordance with the timelines investors might anticipate.

Investors are subject to exchange rate risk between Hong Kong dollars and U.S. dollars.

The value of an investment in the HDRs quoted in Hong Kong dollars and the value of dividend payments in respect of the HDRs could be affected by fluctuations in the U.S. dollar/Hong Kong dollar exchange rate. While the Hong Kong dollar is currently linked to the U.S. dollar using a specified trading band, no assurance can be given that the Hong Kong government will maintain the trading band at its current limits or at all.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.



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ITEM 2. PROPERTIES

The following table sets forth the location, use and size of Coach'sthe Company's key distribution, corporate and product development facilities as of June 30, 2012.27, 2015. The majority of the properties are leased, with the leases expiring at various times through 2028, subject to renewal options.

Location Use 
Approximate
Square Footage
Jacksonville, Florida DistributionNorth America distribution and consumer service 850,000
New York, New York Corporate, design, sourcing and product development 433,000
429,000(1)

Carlstadt, New Jersey Corporate officesCorporate65,000
New York, New YorkStuart Weitzman corporate, design, sourcing and product development 37,50065,000
Tokyo, Japan Coach Japan regional management 32,30032,000
Dongguan, ChinaSourcing, quality control and product development27,000
Shanghai, China CoachGreater China regional management 23,00022,000
Hong KongSourcing and quality control17,000
Hong Kong Coach Hong Kong regional management 18,100
South Korea 14,000Coach South Korea regional management 18,000
Shanghai, ChinaCoach Asia shared service center17,700
Hong KongCorporate sourcing and quality control
17,000(2)

Dongguan, ChinaCorporate sourcing, quality control and product development16,700
Ho Chi Minh City, Vietnam SourcingCorporate sourcing and quality control 10,200
Fort Lauderdale, Florida 11,000Stuart Weitzman corporate management 9,400
LondonCoach Europe regional management8,000
Taipei City, Taiwan Coach Taiwan regional management 6,400
Malaysia 6,000
Hong KongCoach Malaysia regional management 3,800Sourcing and quality control6,000
Singapore Coach Singapore regional management 2,9003,000
Seoul, South KoreaSourcing3,000
Beijing, China CoachGreater China regional management 2,800
Clark, Philippines 3,000
Long An, VietnamSourcingCorporate sourcing and quality control 2,400
1,000
Chennai, IndiaSourcing and quality control600
LuxembourgCoach regional management300 

(1)
Includes 250,000approximately 285,000 square feet in Coach ownedrelated to Coach-owned buildings. During fiscal 2009, Coach purchased its corporate headquarters building at 516 West 34th Street in New York City for $126.3 million.

(2)
Represents a Coach-owned location.

As of June 30, 2012, Coach27, 2015, the Company also occupied 354258 Coach retail and 169 factory204 Coach outlet leased stores located in North America, 180503 Coach-operated concession shop-in-shops within department store shop-in-shops,stores, Coach retail stores and factoryoutlet stores in Japan, 96 Coach-operated department store shop-in-shops, retailour international locations, and 54 Stuart Weitzman stores and factory stores in Hong Kong, Macau and mainland China, and 34 Coach-operated department store shop-in-shops, retail stores and factory stores in Taiwan and Singapore.globally. These leases expire at various times through 2024.2036. Coach considers these properties to be in generally good condition and believes that its facilities are adequate for its operations and provide sufficient capacity to meet its anticipated requirements.

Refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3, "Transformation and Other Actions," for further information regarding the Transformation Plan, and its impact on future store trends.

ITEM 3. LEGAL PROCEEDINGS

Coach is involved in various routine legal proceedings as both plaintiff and defendant incident to the ordinary course of its business, including proceedings to protect Coach’s intellectual property rights, litigation instituted by persons alleged to have been injured upon premises within Coach’s control and litigation with present or former employees.

As part of Coach’s policing program for its intellectual property rights, from time to time, Coach files lawsuits in the U.S. and abroad alleging acts of trademark counterfeiting, trademark infringement, patent infringement, trade dress infringement, copyright infringement, unfair competition, trademark dilution and/or state or foreign law claims. At any given point in time, Coach may have a number of such actions pending. These actions often result in seizure of counterfeit merchandise and/or out of court settlements with defendants. From time to time, defendants will raise, either as affirmative defenses or as counterclaims, the invalidity or unenforceability of certain of Coach’s intellectual properties.

Although Coach’s litigation with present or former employees is routine and incidental to the conduct of Coach’s business, as well as for any business employing significant numbers of employees, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive


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damages for actions claiming discrimination on the basis of age,


21


gender, race, religion, disability or other legally protected characteristic or for termination of employment that is wrongful or in violation of implied contracts.

Coach believes that the outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on Coach’s business or consolidated financial statements.

Coach has not entered into any transactions that have been identified by the IRS as abusive or that have a significant tax avoidance purpose. Accordingly, we have not been required to pay a penalty to the IRS for failing to make disclosures required with respect to certain transactions that have been identified by the IRS as abusive or that have a significant tax avoidance purpose.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.



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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market and Dividend Information

Coach’s common stock is listed on the New York Stock Exchange and is traded under the symbol “COH.” Coach’s Hong Kong Depositary Receipts have also been listed on the Hong Kong Stock Exchange since December 2011 and the issuance from time-to-time of these Hong Kong Depositary Receipts has not been registered under the Securities Act, or with any securities regulatory authority of any state or other jurisdiction of the United States and is being made pursuant to Regulation S of the Securities Act. Accordingly, they may not be re-offered, resold, pledged or otherwise transferred in the United States or to, or for the account of, a “U.S. person” (within the meaning of Regulation S promulgated under the Securities Act), unless the securities are registered under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and hedging transactions involving the Hong Kong Depositary Receipts may not be conducted unless in compliance with the Securities Act. No additional common stock was issued, nor capital raised through this listing.

The following table sets forth, for the fiscal periods indicated, the high, low and lowclosing prices per share of Coach’s common stock as reported on the New York Stock Exchange Composite Index.

    
 High  Low Dividends Declared per Common Share
Fiscal 2012 Quarter ended:
                    
October 1, 2011 $69.20       $45.70   0.225 
December 31, 2011  66.54        48.37   0.225 
March 31, 2012  79.70        59.74   0.225 
June 30, 2012  79.00        55.18   0.300 
Closing price at June 30, 2012      $58.48           
Fiscal 2011 Quarter ended:
                    
October 2, 2010 $43.86       $33.75   0.150 
January 1, 2011  58.55        42.27   0.150 
April 2, 2011  58.28        49.24   0.150 
July 2, 2011  66.14        50.34   0.225 
Closing price at July 1, 2011      $65.99           

 High Low Closing Dividends Declared per Common Share
Fiscal 2015 Quarter ended:  
   
   
   
September 27, 2014$37.70
 $33.39
   
 $0.3375
December 27, 201437.60
 32.72
   
 0.3375
March 28, 201543.87
 35.65
   
 0.3375
June 27, 201543.45
 34.00
 $36.12
 0.3375
        
Fiscal 2014 Quarter ended:  
   
   
   
September 28, 2013$59.58
 $51.53
   
 $0.3375
December 28, 201357.95
 47.89
   
 0.3375
March 29, 201456.72
 44.31
   
 0.3375
June 28, 201450.86
 33.60
 $34.47
 0.3375
As of August 3, 2012,July 31, 2015, there were 3,4003,809 holders of record of Coach’s common stock.

Any future determination to pay cash dividends will be at the discretion of Coach’s Board and will be dependent upon Coach’s financial condition, operating results, capital requirements and such other factors as the Board deems relevant.


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The information under the principal heading “Securities Authorized For Issuance Under Equity Compensation Plans” in the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 7, 2012,4, 2015, to be filed with the Securities and Exchange Commission (The “Proxy Statement”), is incorporated herein by reference.


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Performance Graph

The following graph compares the cumulative total stockholder return (assuming reinvestment of dividends) of Coach’sthe Company's common stock with the cumulative total return of the S&P 500 Stock Index and the “former peer set” and “revised"revised peer set”set" companies listed below over the five-fiscal-year period ending June 29, 2012,27, 2015, the last trading day of Coach’s most recent fiscal year. Coach’s “former peer set,” as determined by management, through fiscal 2011, consisted of:

Ann Taylor Stores Corporation,
Kenneth Cole Productions, Inc.,
Ralph Lauren Corporation,
Tiffany & Co.,
Talbots, Inc., and
Williams-Sonoma, Inc.

During fiscal 2012, the Company established a “revised peer set” consisting of:

The Gap, Inc.,
Guess?, Inc.,
Limited Brands, Inc.,
PVH Corporation,
Ralph Lauren Corporation,
Tiffany & Co.,
V.F. Corporation, and
Williams-Sonoma, Inc.

Coach management selected the “revised peer set” on an industry/line-of-business basis and believes these companies represent good faith comparables based on their history, size, and business models in relation to Coach, Inc.


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[GRAPHIC MISSING]

      
 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12
COH $100.00  $60.94  $56.88  $78.16  $138.48  $128.60 
Former Peer Set $100.00  $62.51  $36.82  $62.47  $94.44  $88.03 
Revised Peer Set $100.00  $72.17  $56.14  $83.70  $132.21  $142.00 
S&P 500 $100.00  $86.88  $64.11  $73.36  $95.87  $101.09 

The graph assumes that $100 was invested on June 29, 2007July 3, 2010 at the per share closing price in each of Coach’s common stock, the S&P 500 Stock Index and a “former peer set” and “revised peer set”set index compiled by us tracking the peer group companies listed above, and that all dividends were reinvested. The stock performance shown in the graph is not intended to forecast or be indicative of future performance.

The Company's former peer set consisted of:
The Gap, Inc.,
Guess?, Inc.,
L Brands, Inc.,
PVH Corp.,
Ralph Lauren Corporation,
Tiffany & Co.,
V.F. Corporation, and
Williams-Sonoma, Inc.
During fiscal 2015, the Company established a revised peer set consisting of:
L Brands, Inc.,
PVH Corp.,
Ralph Lauren Corporation,
Tiffany & Co.,
V.F. Corporation,
Estee Lauder, Inc.,
Kate Spade & Company,
Abercrombie & Fitch Co., and
Michael Kors Holdings Limited
Coach management selected the “revised peer set” on an industry/line-of-business basis and believes this updated set of companies represent good faith comparables based on their history, size, and business models in relation to Coach, Inc.

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  June-10 June-11 June-12 June-13 June-14 June-15
COH $100.00 $181.04 $168.14 $167.80 $103.33 $113.16
Peer Set $100.00 $179.00 $205.09 $303.39 $374.33 $343.00
Former Peer Set $100.00 $159.61 $171.34 $244.34 $276.27 $290.54
S&P 500 $100.00 $139.57 $144.67 $186.60 $240.78 $258.50
Stock Repurchase Program

The Company’s share repurchasesCompany did not repurchase any shares during the fourth quarter of fiscal 2015. The existing plan, publicly announced on October 23, 2012, wereexpired in June 2015 with zero remaining availability as follows:

    
Period Total Number
of Shares
Purchased
 Average Price
Paid per
Share
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(1)
   (in thousands, except per share data)
Period 10 (4/1/12 – 5/5/12)  335  $73.52   335  $405,998 
Period 11 (5/6/12 – 6/2/12)  1,478   69.07   1,478   303,905 
Period 12 (6/3/12 – 6/30/12)  680   62.17   680   261,627 
Total  2,493      2,493       

(1)The Company repurchases its common shares under repurchase programs that were approved by the Board as follows:

Date Share Repurchase Programs were
Publicly Announced
Total Dollar Amount ApprovedExpiration Date of Plan
January 25, 2011
$1.5 billionJune 2013
of June 27, 2015.


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ITEM 6. SELECTED FINANCIAL DATA (dollars and shares in thousands,millions, except per share data)

The selected historical financial data presented below as of and for each of the fiscal years in the five-year period ended June 30, 2012 have27, 2015 has been derived from Coach’s audited Consolidated Financial Statements. The financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Consolidated Financial Statements and Notes thereto and other financial data included elsewhere herein.

     
 Fiscal Year Ended(1)
Fiscal Year Ended(1)
 June 30, 2012(2) July 2, 2011(2) July 3, 2010 June 27, 2009(2) June 28, 2008(2)
June 27,
2015(2)(4)
 
June 28,
2014
(3)(4)
 
June 29,
2013
(3)(4)
 
June 30,
2012
(3)(4)
 
July 2,
2011
(4)
Consolidated Statements of Income:
                           
   
   
   
   
Net sales $4,763,180  $4,158,507  $3,607,636  $3,230,468  $3,180,757 $4,191.6
 $4,806.2
 $5,075.4
 $4,763.2
 $4,158.5
Gross profit  3,466,078   3,023,541   2,633,691   2,322,610   2,407,103 2,908.6
 3,297.0
 3,698.1
 3,466.1
 3,023.5
Selling, general and administrative expenses  1,954,089   1,718,617   1,483,520   1,350,697   1,259,974 
Selling, general and administrative ("SG&A") expenses2,290.6
 2,176.9
 2,173.6
 1,954.1
 1,718.6
Operating income  1,511,989   1,304,924   1,150,171   971,913   1,147,129 618.0
 1,120.1
 1,524.5
 1,512.0
 1,304.9
Income from continuing operations(3)  1,038,910   880,800   734,940   623,369   783,039 
Income from continuing operations:
                         
Net income402.4
 781.3
 1,034.4
 1,038.9
 880.8
Net income:    
   
   
   
Per basic share $3.60  $2.99  $2.36  $1.93  $2.20 $1.46
 $2.81
 $3.66
 $3.60
 $2.99
Per diluted share  3.53   2.92   2.33   1.91   2.17 1.45
 2.79
 3.61
 3.53
 2.92
Weighted-average basic shares outstanding  288,284   294,877   311,413   323,714   355,731 275.7
 277.8
 282.5
 288.3
 294.9
Weighted-average diluted shares outstanding  294,129   301,558   315,848   325,620   360,332 277.2
 280.4
 286.3
 294.1
 301.6
Dividends declared per common share(4) $0.975  $0.675  $0.375  $0.075  $ 
Dividends declared per common share$1.350
 $1.350
 $1.238
 $0.975
 $0.675
         
Consolidated Percentage of Net Sales Data:
                             
   
   
   
Gross margin  72.8  72.7  73.0  71.9  75.769.4% 68.6% 72.9% 72.8% 72.7%
Selling, general and administrative expenses  41.0  41.3  41.1  41.8  39.6
SG&A expenses54.6% 45.3% 42.8% 41.0% 41.3%
Operating margin  31.7  31.4  31.9  30.1  36.114.7% 23.3% 30.0% 31.7% 31.4%
Income from continuing operations  21.8  21.2  20.4  19.3  24.6
Net income9.6% 16.3% 20.4% 21.8% 21.2%
         
Consolidated Balance Sheet Data:
                             
   
   
   
Working capital $1,086,368  $859,371  $773,605  $936,757  $908,277 $1,671.8
 $1,042.1
 $1,348.4
 $1,086.4
 $859.4
Total assets  3,104,321   2,635,116   2,467,115   2,564,336   2,247,353 4,666.9
 3,663.1
 3,531.9
 3,104.3
 2,635.1
Cash, cash equivalents and investments  923,215   712,754   702,398   806,362   706,905 1,931.8
 1,353.1
 1,332.2
 923.2
 712.8
Inventory  504,490   421,831   363,285   326,148   318,490 485.1
 526.2
 524.7
 504.5
 421.8
Long-term debt  985   23,360   24,159   25,072   2,580 
Total debt890.4
 140.5
 1.0
 23.4
 24.2
Stockholders' equity  1,992,931   1,612,569   1,505,293   1,696,042   1,490,375 2,489.9
 2,420.6
 2,409.2
 1,992.9
 1,612.6

26



 
Fiscal Year Ended(1)
  
June 27,
2015
(2)
 
June 28,
2014
(3)
 
June 29,
2013
(3)
 
June 30,
2012
(3)
 July 2,
2011
Coach Operated Store Data:  
   
   
   
   
Stores open at fiscal year-end:         
North American retail stores258
 332
 351
 354
 345
North American outlet stores204
 207
 193
 169
 143
Coach International503
 475
 409
 368
 311
Stuart Weitzman stores54
 
 
 
 
Total stores open at fiscal year-end1,019
 1,014
 953
 891
 799
          
Store square footage at fiscal year-end:         
North American retail stores728,833
 910,003
 952,422
 959,099
 936,277
North American outlet stores1,189,018
 1,132,714
 982,202
 789,699
 649,094
Coach International1,030,695
 918,995
 768,567
 665,396
 544,798
Stuart Weitzman stores91,101
 
 
 
 
Total store square footage at fiscal year-end3,039,647
 2,961,712
 2,703,191
 2,414,194
 2,130,169
          
Average store square footage at fiscal year-end:    
   
   
   
North American retail stores2,825
 2,741
 2,713
 2,709
 2,714
North American outlet stores5,829
 5,472
 5,089
 4,673
 4,539
Coach International2,049
 1,935
 1,879
 1,808
 1,752
Stuart Weitzman stores1,687
 
 
 
 

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 Fiscal Year Ended(1)
   June 30, 2012(2) July 2, 2011(2) July 3, 2010 June 27, 2009(2) June 28, 2008(2)
Coach Operated Store Data:(5)
                         
North American retail stores  354   345   342   330   297 
North American factory stores  169   143   121   111   102 
Coach Japan locations  180   169   161   155   149 
Coach China locations  96   66   41   28   24 
Coach Singapore and Taiwan locations  34   27   22   20   17 
Total stores open at fiscal
year-end
  833   750   687   644   589 
North American retail stores  959,099   936,277   929,580   893,037   795,226 
North American factory stores  789,699   649,094   548,797   477,724   413,389 
Coach Japan locations  320,781   303,925   293,441   280,428   259,993 
Coach China locations  201,736   127,550   78,887   52,671   44,504 
Coach Singapore and Taiwan locations  55,840   43,158   36,078   30,536   24,360 
Total store square footage at fiscal year-end  2,327,155   2,060,004   1,886,783   1,734,396   1,537,472 
Average store square footage at fiscal year-end:
                         
North American retail stores  2,709   2,714   2,718   2,706   2,678 
North American factory stores  4,673   4,539   4,536   4,304   4,053 
Coach Japan locations  1,782   1,798   1,823   1,809   1,745 
Coach China locations  2,101   1,933   1,924   1,881   1,854 
Coach Singapore and Taiwan locations  1,642   1,598   1,640   1,527   1,433 

(1)
Coach’sThe Company’s fiscal year ends on the Saturday closest to June 30. Fiscal years 2015, 2014, 2013, 2012 2011, 2009, and 20082011 were each 52-week years. Fiscal year 2010 was a 53-week year.
(2)
DuringThe Company acquired Stuart Weitzman in the fourth quarter of fiscal 2015.
(3)
The Company acquired its international businesses from its former distributors as follows: fiscal 2014 — the remaining 50% interest in Europe; fiscal 2013 — Malaysia and South Korea; fiscal 2012 — Singapore and Taiwan.







27


(4)
For all fiscal years 2012, 2011, 2009 and 2008,presented below, the Company recorded certain items which affect the comparability of our results. The following tables reconcile the as reported results to such results excluding these items. See Itemitem 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for further information about these items.

    
 Fiscal 2012
     Income from Continuing Operations
   SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis) $1,954,089  $1,511,989  $1,038,910  $3.53 
Excluding items affecting comparability  (39,209  39,209   0   0.00 
Adjusted: (Non-GAAP Basis) $1,914,880  $1,551,198  $1,038,910  $3.53 

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 Fiscal 2011
     Income from Continuing Operations
   SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis) $1,718,617  $1,304,924  $880,800  $2.92 
Excluding items affecting comparability  (25,678  25,678   0   0.00 
Adjusted: (Non-GAAP Basis) $1,692,939  $1,330,602  $880,800  $2.92 

    
 Fiscal 2009
     Income from Continuing Operations
   SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis) $1,350,697  $971,913  $623,369  $1.91 
Excluding items affecting comparability  (28,365  28,365   (1,241  0.00 
Adjusted: (Non-GAAP Basis) $1,322,332  $1,000,278  $622,128  $1.91 

    
 Fiscal 2008
     Income from Continuing Operations
   SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis) $1,259,974  $1,147,129  $783,039  $2.17 
Excluding items affecting comparability  (32,100  32,100   (41,037  (0.11
Adjusted: (Non-GAAP Basis) $1,227,874  $1,179,229  $742,002  $2.06 
(3)on the items related to fiscal 2015, fiscal 2014, and fiscal 2013. During fiscal 2008, the Company had income from discontinued operations in connection with exiting its corporate accounts business. There were no discontinued operations in fiscal years 2012, 2011, 2010 or 2009.
(4)During the fourth quarter of fiscal 2009, the Company initiated a cash dividend at an annual rate of $0.30 per share. During the fourth quarter of fiscal 2010, the Company increased the cash dividend to an annual rate of $0.60 per share. During the fourth quarter of fiscal 2011, the Company increased the cash dividend to an annual rate of $0.90 per share. During the fourth quarter of fiscalFiscal 2012, the Company increaseddecreased its provision for income taxes by $23.9 million, primarily as a result of recording the cash dividendeffect of a revaluation of certain deferred tax asset balances due to a change in Japan's corporate tax laws and the favorable settlement of a multi-year transfer pricing agreement within Japan. The Company used the net income favorability to contribute an expected annual rate $1.20 per share.
(5)During fiscal 2009, the Company acquired its domestic retail businesses in Hong Kong, Macau and mainland China from its former distributor, the ImagineX group. Prioraggregate $39.2 million to the acquisitions, these locations were operatedCoach Foundation. Fiscal 2011 was impacted by the ImagineX group. During fiscal 2012,result of a favorable settlement of a multi-year tax return examination and charitable contributions. The following table reconciles the Company acquired its domestic retail businesses in Singapore and Taiwan from their former distributors, Valiram Group and Tasa Meng, respectively. PriorCompany's reported results on a U.S. GAAP basis to the acquisitions,our adjusted results that exclude these locations were operated by these distributors. See the Acquisitions note presented in the Notes to the Consolidated Financial Statements.items:
       Net Income
Fiscal 2015Gross Profit SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis)$2,908.6
 $2,290.6
 $618.0
 $402.4
 $1.45
Excluding items affecting comparability9.7
 (160.8) 170.5
 128.8
 0.47
Adjusted: (Non-GAAP Basis)$2,918.3
 $2,129.8
 $788.5
 $531.2
 $1.92
          
       Net Income
Fiscal 2014Gross Profit SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis)$3,297.0
 $2,176.9
 $1,120.1
 $781.3
 $2.79
Excluding items affecting comparability82.2
 (49.3) 131.5
 88.3
 0.31
Adjusted: (Non-GAAP Basis)$3,379.2
 $2,127.6
 $1,251.6
 $869.6
 $3.10
          
       Net Income
Fiscal 2013Gross Profit SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis)$3,698.1
 $2,173.6
 $1,524.5
 $1,034.4
 $3.61
Excluding items affecting comparability4.8
 (48.4) 53.2
 32.6
 0.11
Adjusted: (Non-GAAP Basis)$3,702.9
 $2,125.2
 $1,577.7
 $1,067.0
 $3.73
          
       Net Income
Fiscal 2012Gross Profit SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis)$3,466.1
 $1,954.1
 $1,512.0
 $1,038.9
 $3.53
Excluding items affecting comparability
 (39.2) 39.2
 
 
Adjusted: (Non-GAAP Basis)$3,466.1
 $1,914.9
 $1,551.2
 $1,038.9
 $3.53
          
       Net Income
Fiscal 2011Gross Profit SG&A Operating Income Amount Per Diluted Share
As Reported: (GAAP Basis)$3,023.5
 $1,718.6
 $1,304.9
 $880.8
 $2.92
Excluding items affecting comparability
 (25.7) 25.7
 
 
Adjusted: (Non-GAAP Basis)$3,023.5
 $1,692.9
 $1,330.6
 $880.8
 $2.92



28

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of Coach’s financial condition and results of operations should be read together with Coach’s consolidated financial statements and notes to those statements, included elsewhere in this document. When used herein, the terms “Coach,“Company,“Company,”"Coach," “we,” “us” and “our” refer to Coach, Inc., including consolidated subsidiaries.

Unless the context requires otherwise, references to the "Coach brand" do not include the Stuart Weitzman brand and references to the "Stuart Weitzman brand" do not include the Coach brand.

EXECUTIVE OVERVIEW

Coach, Inc. is a leading American marketerNew York design house of finemodern luxury accessories and gifts for womenlifestyle brands. The Coach brand was established in New York City in 1941, and men. Our product offerings include women’shas a rich heritage of pairing exceptional leathers and men’s bags, accessories, business cases, footwear, wearables, jewelry, sunwear, travel bags, watches and fragrance. materials with innovative design.
Coach, Inc. operates in twothree segments: Direct-to-ConsumerNorth America, International and Indirect.Other (which includes the Stuart Weitzman brand acquired by the Company in the fourth quarter of fiscal 2015). The Direct-to-ConsumerNorth America segment includes sales to consumersNorth American customers through Coach-operated stores (including the Internet) and sales to North American wholesale customers. The International segment includes sales to customers through Coach-operated stores (including the Internet) and concession shop-in-shops in North America; Japan;Japan and mainland China, Coach-operated stores and concession shop-in-shops in Hong Kong, Macau, and mainland China; Taiwan; Singapore, Taiwan, Malaysia, South Korea, the United Kingdom, France, Ireland, Spain, Portugal, Germany, Italy, Belgium and the Internet. Beginning with the first quarter of fiscal 2013, this segment also includes Coach-operated stores in Malaysia and Korea. The Indirect segment includesNetherlands, as well as sales to wholesale customers and distributors in over 20 countries,approximately 45 countries. Other, consists of sales and expenses generated by the Coach brand in other ancillary channels, including licensing and disposition. Other also consists of sales and expenses generated by the United States, and royalties earned on licensed product.Stuart Weitzman brand during the final two months of fiscal 2015. As Coach’sthe Company's business model is based on multi-channel internationalglobal distribution, our success does not depend solely on the performance of a single channel or geographic area.

In order to sustaindrive growth within our global framework, we continue to focus on two key growth strategies: increased global distribution, with an emphasis on North America and China, and improved store sales productivity. To that endbusiness, we are focused on four key initiatives:

initiatives, which directly align with the Coach brand Transformation Plan, described below:
GrowingGrow our Women’s business in North America through the growingand worldwide, by transforming from a leading international accessories market and by increasing our North American retail store base by opening storesCompany into a global lifestyle brand, anchored in new markets and adding stores in under-penetrated existing markets. We believe that North America can support about 500 retail stores in total, including up to 30 in Canada. We expect to open about 10 net new retail stores and 18 factory outlets in fiscal 2013. The pace of our future retail store openings will depend upon the economic environment and will reflect opportunities in the marketplace. In addition, as part of our culture of innovation and continuous improvement, we have implemented a number of initiatives to accelerate the level of newness, elevate our product offering and enhance the in-store experience. These initiatives will enable us to maximize productivity and continue to leverage our leadership position in the market.luxury accessories.
Leverage the global opportunity for the Coach brand by raising brand awareness and building market share in markets in whichwhere Coach is under-penetrated, most notably in Asia where China is our largest geographic growth opportunity, given the size of the market, its rate of growth, and our increasing brand awareness.Europe. We currently plan to open about 30 new locations in China during fiscal 2013, with the majority in mainland China. We will continue to expand market share with the Japanese consumer, driving growth in Japan primarily by opening new retail locations. We currently plan to open approximately 13 net new locations, most notably Men’s locations, during fiscal 2013. In addition to the acquisitions of our Singapore and Taiwan businesses during fiscal 2012, and consistent with our strategy of directly operating key Asian markets, we have acquired our domestic businesses in Korea and Malaysia subsequent to the end of fiscal 2012. Outside of Asia, we are also developing the brand opportunity as we expand into EuropeSouth America and SouthCentral America.
Focus on the Men’s opportunity for the brand, notably in North America and Asia, whileby drawing on our long heritage in the category. We have implemented a number of initiatives to elevate our Men’s product offering through image-enhancing and accessible locations. We are leveraging the Men’scapitalizing on this opportunity by opening new locations in both full-pricestandalone and factory, and as a productivity driver with a broadened assortment, dual-genderdual gender stores and shop-in-shop store executions.broadening the men’s assortment in existing stores.
Raise brand awareness and maximize e-commerce sales throughHarness the growing power of the digital world, by accelerating the development of our digital strategy, coach.com,programs and capabilities in North America and worldwide, reflecting the change in consumer shopping behavior globally. Our intent is to rapidly drive further innovation to engage with customers in this channel. Key elements include www.coach.com, our invitation-only outlet Internet site, our global e-commerce sites and programs, third-party flash sites, marketing sites and social networking. Our e-commerce programs include an invitation-only factory flash site targeted towardsmedia.
During the fourth quarter of fiscal 2014, Coach, Inc. announced a multi-year strategic plan with the objective of transforming the Coach brand and reinvigorating growth, which we believe will enable the Company to return to ‘best-in-class’ profitability. This multi-faceted, multi-year transformation plan (the "Transformation Plan") builds on the core brand equities of quality and craftsmanship with the aim of evolving our most loyal Factory exclusive customers. The Company utilizes and continues to explore implementing

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new technologies such as our global web presence, with 22 marketing websites in 23 countries, e-commerce enabled in the United States, Canada and Japan, and social networking and blogs as cost-effective consumer communication opportunities to increase online and store sales.

competitive value proposition. We believe our strategy offers significant growth opportunities in handbags and accessories, as well as in the growth strategies described above will allow usbroader set of lifestyle categories that we have operated in for some time but are less developed, including footwear and ready-to-wear. This strategy has required an integrated holistic approach, across product, stores and marketing and promotional activities, and entails the roll-out of carefully crafted aspirational marketing campaigns to define the Coach brand and to deliver long-term superior returns ona fuller and more consistent brand expression.

Key operational and cost measures of the Transformation Plan include: (i) the investment in capital improvements in our investmentsstores and wholesale locations to drive increased cash flows from operating activities. However,comparable sales improvement; (ii) the current macroeconomic environment, while stabilizing, has created a challenging retail market in which consumers, notablyoptimization and streamlining of our organizational model as well as the closure of underperforming stores in North America, and Japan, are still cautious.select International stores; (iii) the realignment of inventory levels and mix to reflect our elevated product strategy and consumer preferences; (iv) the investment of approximately $50 million in incremental advertising costs to elevate consumer perception of our Coach brand, drives sales growth and promote our new strategy, which started in fiscal 2015; and (v) the significant scale-back of our promotional cadence in an increased global promotional environment, particularly within our outlet Internet sales site, which began in fiscal 2014. The Company believes long-term growth can still be achievedCompany's execution of these key operational and cost measures were on plan through a combination of expanded distribution, a focus on innovation to support productivity and disciplined expense control. Our multi-channel distribution model is diversified and includes substantial international and factory businesses, which reduces our reliance upon our full-price U.S. business. With an essentially debt-free balance sheet and significant cash position, we have a business model that generates significant cash flow and we are in a position to invest in our brand while continuing to return capital to shareholders through common stock repurchases and dividends.

FISCAL 2012

The key metrics of fiscal 2012 were:

Earnings per diluted share rose 20.9% to $3.53.
Net sales increased 14.5% to $4.76 billion.
Direct-to-consumer sales rose 16.1% to $4.23 billion.
Comparable sales in Coach’s North American stores increased 6.6%.
In North America, Coach opened 9 net new retail stores and 26 new factory stores, including 16 Men’s, bringing the total number of retail and factory stores to 354 and 169, respectively, at the end of fiscal 2012. 2015, and we believe that long-term

29


growth can be realized through these transformational efforts over time. For further discussion of charges incurred in connection with the Transformation Plan, see "Items Affecting Comparability," herein.
Furthermore, as discussed in Note 7, "Acquisitions," the Company acquired luxury designer footwear brand Stuart Weitzman, which we believe will complement our current leadership position in premium handbags and accessories, while immediately adding to the Company's earnings as we continue to make meaningful progress towards our brand transformation. The acquisition was consummated on May 4, 2015, and the brand contributed $43.0 million in net sales in fiscal 2015, included within our Other segment.
Current Trends and Outlook
In addition to the risks surrounding the successful execution of our Transformation Plan initiatives, our outlook reflects a certain level of uncertainty surrounding the global economy. The global economic environment continues to have an impact on consumer confidence, which in turn influences the level of spending on discretionary items. Global consumer retail traffic remained relatively weak and inconsistent, which has led to a more promotional environment in the fragmented retail industry due to increased competition and a desire to offset traffic declines with increased levels of conversion. Macroeconomic and geopolitical events in Greater China and southeast Asia have contributed to volatility in consumer spending within the region. Furthermore, it is still too early to understand the impact, if any, of MERS (Middle East Respiratory Syndrome) on consumer spending in Asia, including the impact on tourism in the region.
Within the U.S., a prolonged and tough winter season impacted demand during the first half of calendar 2015, however certain limited and recent factors within the U.S., including an improvement in the labor market and modest growth in overall consumer spending, suggest a potential moderate strengthening in the U.S. economic outlook. It is still, however, too early to understand what kind of sustained impact this will have on consumer discretionary spending. If the global macroeconomic environment remains volatile or worsens, the constrained level of worldwide consumer spending and modified consumption behavior may continue to have a negative effect on our outlook.
We also expanded 10 factorywill continue to monitor these risks and trends and evaluate and adjust our operating strategies and cost management opportunities to mitigate the related impact on our results of operations, while remaining focused on the long-term growth of our business and protecting the value of our brands.
As discussed in Part I, Item 1 - "Business" and as part of our Transformation Plan as described in Note 3, "Transformation and Other Actions," in fiscal 2015, we have reduced the number of retail stores and total square footage within North America, as we continue to optimize our real estate position. We expect this trend to continue in the next fiscal year with the anticipated closure of approximately 15-20 North America retail stores in North America.
Coach China results continuedfiscal 2016, attributable to be strong with double-digitour Transformation Plan. We expect to continue to see modest to no growth in comparableNorth America outlet store square footage as we continue to optimize our real estate position across channels by expanding our most productive stores to accommodate a broader expression of lifestyle assortment while continuing to assess opportunities to close under-performing stores. Within our International segment, we are expecting to reflect modest growth in our store count over the next few years, particularly within mainland China and Europe. Lastly, within Stuart Weitzman, we are expecting modest growth in our real estate position over the next year.
For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part I, Item 1A - "Risk Factors" included in this Annual Report on Form 10-K.


30


SUMMARY — FISCAL 2015
In fiscal 2015, Coach, China opened 30Inc. reported net new locations, bringingsales of $4.19 billion (including $43.0 million attributable to the total numberStuart Weitzman brand), net income of locations at$402.4 million and net income per diluted share of $1.45. This compares to net sales of $4.81 billion, net income of $781.3 million, and net income per diluted share of $2.79 in fiscal 2014.
In fiscal 2015, the endcomparability of our operating results has been affected by $145.9 million of pretax charges ($107.8 million after tax, or $0.39 per diluted share) related to our Transformation Plan, $24.6 million of pretax charges ($21.0 million after tax, or $0.08 per diluted share) related to acquisition charges associated with the Stuart Weitzman brand. These fiscal 2012 to 96.
Coach Japan opened 11 net new locations, bringing the total number of locations at the end of fiscal 2012 to 180. In addition, we expanded three locations.
The company acquired its domestic retail Coach businesses in Taiwan and Singapore. As the result of these acquisitions and subsequent openings, the company operated 7 retail locations in Singapore and 27 in Taiwan as of the end of fiscal 2012. The Company has assumed direct control of its domestic business in Malaysia in July 2012 and its domestic retail business in Korea in August 2012.
Coach’s Board2015 actions taken together increased the Company’s cash dividendCompany's selling, general and administrative ("SG&A") expenses by 33%$160.8 million and cost of sales by $9.7 million, negatively impacting net income by $128.8 million, or $0.47 per diluted share.
In fiscal 2014, the comparability of our operating results was affected by $131.5 million of pretax charges ($88.3 million after tax or $0.31 per diluted share) related to our Transformation Plan. These fiscal 2014 actions increased the Company's SG&A expenses by $49.3 million and cost of sales by $82.2 million, negatively impacting net income by $88.3 million, or $0.31 per diluted share.
Our operating performance for fiscal 2015 reflected a decline in net sales of 12.8%, primarily due to our North America business partially offset by a $43.0 million contribution from the Stuart Weitzman brand. Excluding the effects of foreign currency, net sales decreased 10.6%. Our gross profit decreased by 11.8% to $2.91 billion during fiscal 2015 which included the negative impact of charges under our Transformation Plan of $5.0 million and Stuart Weitzman purchase accounting related items of $4.7 million. Excluding our Transformation Plan and acquisition-related charges in fiscal 2015 and fiscal 2014, gross profit decreased by 13.6%, to an expected annual rate$2.92 billion. SG&A expenses increased by 5.2% to $2.29 billion during fiscal 2015. Excluding charges under our Transformation Plan and acquisition-related charges in fiscal 2015 and fiscal 2014, SG&A expenses remained fairly consistent.
Net income decreased in fiscal 2015 as compared to fiscal 2014, due to a decrease in operating income of $1.20$502.1 million, partially offset by a $131.8 million decrease in our provision for income taxes. Net income per diluted share starting with the dividend paid on July 2, 2012.decreased primarily due to lower net income. Excluding charges under our Transformation Plan and acquisition-related charges in fiscal 2015 and charges under our Transformation Plan in fiscal 2014, net income and net income per diluted share decreased 38.9% and 38.2%, respectively.

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FISCAL 20122015 COMPARED TO FISCAL 2011

2014

The following table summarizes results of operations for fiscal 20122015 compared to fiscal 2011:

2014. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.
      
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 Variance
   (dollars in millions, except per share data)
   Amount % of
net sales
 Amount % of
net sales
 Amount %
Net sales $4,763.2   100.0 $4,158.5   100.0 $604.7   14.5
Gross profit  3,466.1   72.8   3,023.5   72.7   442.6   14.6 
Selling, general and administrative expenses  1,954.1   41.0   1,718.6   41.3   235.5   13.7 
Operating income  1,512.0   31.7   1,304.9   31.4   207.1   15.9 
Provision for income taxes  466.8   9.8   420.4   10.1   46.4   11.0 
Net income  1,038.9   21.8   880.8   21.2   158.1   17.9 
Net Income per share:
                              
Basic $3.60       $2.99       $0.61   20.5
Diluted  3.53        2.92        0.61   20.9 

 Fiscal Year Ended
  June 27, 2015 June 28, 2014 Variance
  (dollars in millions, except per share data)
  Amount 
% of
net sales
 Amount 
% of
net sales
 Amount %
Net sales$4,191.6
 100.0% $4,806.2
 100.0% $(614.6) (12.8)%
Gross profit2,908.6
 69.4
 3,297.0
 68.6
 (388.4) (11.8)
Selling, general and administrative expenses2,290.6
 54.6
 2,176.9
 45.3
 113.7
 5.2
Operating income618.0
 14.7
 1,120.1
 23.3
 (502.1) (44.8)
Interest (expense) income, net(6.4) (0.2) 2.2
 
 (8.6)            NM
Provision for income taxes209.2
 5.0
 341.0
 7.1
 (131.8) (38.7)
Net income402.4
 9.6
 781.3
 16.3
 (378.9) (48.5)
Net income per share:  
   
   
   
   
   
     Basic$1.46
   
 $2.81
   
 $(1.35) (48.1)%
     Diluted$1.45
   
 $2.79
   
 $(1.33) (47.9)%
NM - Not meaningful
Items Affecting Comparability
The Company’s reported results are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The reported gross profit, SG&A expenses, operating income, income before provision for income taxes, provision for income taxes, net income and earnings per diluted share in fiscal 2015 and 2014 reflect certain items which

31


affect the comparability of our results, as noted in the following reconciliation tables. Refer to page 41 for a discussion on the Non-GAAP Measures.

COACH, INC.

GAAP TO NON-GAAP RECONCILIATION
For the Years Ended June 27, 2015 and June 28, 2014
 June 27, 2015
  
GAAP Basis
(As Reported)
Transformation and Other ActionsAcquisition-Related CostsAcquisition-Related Purchase Accounting
Non-GAAP Basis
(Excluding Items)
 (dollars in millions, except per share data)
Gross profit$2,908.6
$(5.0)$
$(4.7)$2,918.3
SG&A expenses2,290.6
140.9
17.1
2.8
2,129.8
Operating income618.0
(145.9)(17.1)(7.5)788.5
Income before provision for income taxes611.6
(145.9)(17.1)(7.5)782.1
Provision for income taxes209.2
(38.1)(3.6)
250.9
Net income402.4
(107.8)(13.5)(7.5)531.2
Diluted net income per share1.45
(0.39)(0.05)(0.03)1.92
 June 28, 2014
  
GAAP Basis
(As Reported)
Transformation and Other ActionsAcquisition-Related CostsAcquisition-Related Purchase Accounting
Non-GAAP Basis
(Excluding Items)
 (dollars in millions, except per share data)
Gross profit$3,297.0
$(82.2)$
$
$3,379.2
SG&A expenses2,176.9
49.3


2,127.6
Operating income1,120.1
(131.5)

1,251.6
Income before provision for income taxes1,122.3
(131.5)

1,253.8
Provision for income taxes341.0
(43.2)

384.2
Net income781.3
(88.3)

869.6
Diluted net income per share2.79
(0.31)

3.10
Items Affecting Comparability
Fiscal 2015 Items
In fiscal 2015, the Company incurred charges as follows:
$145.9 million under our Transformation Plan due to accelerated depreciation and lease termination charges as a result of store updates and closures, organizational efficiency charges, and charges related to the destruction of inventory, within North America and select International stores;
$17.1 million primarily related to acquisition charges of $14.2 million associated with the Stuart Weitzman brand, and to a lesser extent, charges attributable to the contingent earn out payment of the acquisition; and
$7.5 million related to the short-term impact of purchase accounting, primarily due to the amortization of the fair value of the inventory step-up and order backlog asset.
These fiscal 2015 actions taken together increased the Company's SG&A expenses by $160.8 million and cost of sales by $9.7 million, negatively impacting net income by $128.8 million, or $0.47 per diluted share. Refer to the "Executive Overview" herein and Note 3, "Transformation and Other Actions," for further information regarding the Transformation Plan.
Additional actions under our Transformation Plan will continue into fiscal 2016, with expected incremental charges of around $50 million.

32


Fiscal 2014 Items
In fiscal 2014, the Company incurred restructuring and transformation related charges of $131.5 million under its Transformation Plan as announced in the fourth quarter of fiscal 2014. The charges recorded in cost of sales and SG&A expenses were $82.2 million and $49.3 million, respectively. These charges, which were primarily associated with our North America business, relate to inventory and fleet related costs, including impairment, accelerated depreciation and severance related to store closures.
Currency Fluctuation Effects
The change in net sales in fiscal 2015 has been presented both including and excluding currency fluctuation effects (primarily attributable to Coach Japan).
Net Sales

Net sales decreased 12.8% or $614.6 million to $4.19 billion in fiscal 2015. Excluding the effects of foreign currency, net sales decreased 10.6% or $511.3 million. This decrease was driven by lower sales in the North America business partially offset by gains in the International business, and a $43.0 million contribution due to the acquisition of Stuart Weitzman. The following table presents net sales by operatingreportable segment for fiscal 20122015 compared to fiscal 2011:

2014:
     
 Fiscal Year Ended
   Net Sales  Percentage of
Total Net Sales
   June 30,
2012
 July 2,
2011
 Rate of
Change
 June 30,
2012
 July 2,
2011
   (dollars in millions) (FY12 vs. FY11)    
Direct-to-Consumer $4,231.7  $3,646.4   16.1  88.8  87.7
Indirect  531.5   512.1   3.8   11.2   12.3 
Total net sales $4,763.2  $4,158.5   14.5   100.0  100.0

Direct-to-Consumer — Net sales increased 16.1% to $4.23 billion during fiscal 2012 from $3.65 billion during fiscal 2011, driven by sales increases in our Company-operated stores in North America and China.

  Fiscal Year Ended 
  Total Net Sales 
Rate of
Change
  
Percentage of
Total Net Sales
  June 27,
2015
 June 28,
2014
  June 27,
2015
  June 28,
2014
 
  (dollars in millions)           
North America$2,467.5
 $3,100.5
 (20.4)% 58.9
% 64.5
%
International1,622.0
 1,644.2
 (1.3)  38.7
  34.2
 
Other(1)
102.1
 61.5
 66.0
  2.4
  1.3
 
Total net sales$4,191.6
 $4,806.2
 (12.8)% 100.0
% 100.0
%
(1)
Net sales in the Other category consists of Coach brand ancillary channels in fiscal 2015, including licensing and disposition, and sales generated by the Stuart Weitzman brand during the final two months of fiscal 2015.
Comparable store sales measure sales performance at stores that have been open for at least 12 months, and includes sales from coach.com.the Internet. Coach excludes new locations from the comparable store base for the first yeartwelve months of operation. Similarly,Comparable store sales have not been adjusted for store expansions.
North America Net Sales decreased 20.4% or $633.0 million to $2.47 billion in fiscal 2015. Excluding the unfavorable impact of foreign currency due to the Canadian dollar, net sales decreased $622.5 million or 20.1%. This decrease was primarily driven by lower comparable store sales of $613.4 million or 22%, due to lower traffic as a result of a decrease in promotional activity, partially offset by higher transaction size. The Internet business had a negative impact of approximately 740 basis points on comparable store sales which is attributable to the Company's decision to both limit access and reduce the promotional cadence on our outlet Internet sales site. North America sales were also negatively impacted by lower wholesale sales of approximately $53.9 million due to lower shipments. These decreases were partially offset by a net increase of $32.4 million related to net sales generated by new store openings which were partially offset by the absence of net sales for those stores that are expanded by 15%have closed since fiscal 2014. Since the end of fiscal 2014, Coach closed a net 74 retail stores and a net three outlet stores, including the closure of 11 Men’s outlet stores.
International Net Sales decreased 1.3% or more are also excluded from$22.2 million to $1.62 billion in fiscal 2015. Excluding the comparable store base untilunfavorable impact of foreign currency, primarily due to the first anniversary of their reopening. Stores that are closed for renovations are removed from the comparable store base.

In North America,Japanese yen, net sales increased 12.7% driven by sales from$70.8 million or 4.3%. This increase was primarily due to growth in Greater China (which includes Hong Kong and Macau) reflecting an increase of $50.5 million primarily due to net new and expanded stores and positive comparable store sales, an increase of $36.7 million related to net new store openings and positive comparable store sales of our business in Europe and an increase of $15.7 million in our international wholesale business partially due to higher shipments. These increases were partially offset by a 6.6% increasedecrease in comparable store sales. Duringnet sales in Japan of $37.4 million due to lower traffic as a result of lapping the pull forward in demand in advance of the April 2014 consumption tax increase. Since the end of fiscal 2012, Coach2014, we opened 928 net new retail stores, and 26 new factory stores, and expanded 10 factory stores in North America. In Japan, net sales increased 11.7% driven by an approximately $40.1 million, or 5.3%, positive impact from foreign currency exchange. During fiscal 2012, Coach opened 11 net new locations and expanded three locations in Japan. Coach China results continued to be strong with double-digit percentage growth in comparable store sales. During fiscal 2012, Coach opened 3016 net new stores in mainland China, Hong Kong and mainland China.

Indirect —Macau and Japan, and 12 net new stores in the other regions.

Other Net salesSales increased 3.8%66.0% or $40.6 million to $531.5$102.1 million, from $512.1primarily due to the impact of the Stuart Weitzman acquisition.

33


Gross Profit
Gross profit decreased 11.8% or $388.4 million in fiscal 2011. The increase was driven primarily by a 7.9% increase in Coach International Wholesale net revenue, partially offset by a 1.6% decrease in U.S. Wholesale net revenue. Licensing revenue of approximately $28.5 million and $24.7 million in fiscal 2012 and fiscal 2011, respectively, is included in Indirect sales.


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Operating Income

Operating income increased 15.9% to $1.51$2.91 billion in fiscal 20122015 from $3.30 billion in fiscal 2014. Gross margin for fiscal 2015 was 69.4% as compared to $1.30 billion68.6% in fiscal 2011.2014. Excluding items affecting comparability of $39.2$9.7 million in fiscal 20122015 and $25.7$82.2 million in fiscal 2011, operating income increased 16.6%2014, gross profit decreased 13.6% or $460.9 million to $1.55 billion. Operating$2.92 billion from $3.38 billion in fiscal 2014, and gross margin increased to 31.7%was 69.6% in fiscal 2015 as compared to 31.4%70.3% in the prior year, as gross margin increased while selling, general, and administrative (“SG&A”) expenses decreased as a percentage of sales.fiscal 2014. Excluding items affecting comparability, operatingthe gross margin was 32.6% in fiscal 2012decreased 70 basis points, as compareddescribed below.

North America Gross Profitdecreased 21.0% or $418.1 million to 32.0% in fiscal 2011.

Gross profit increased 14.6% to $3.47$1.57 billion in fiscal 20122015. Gross margin decreased 50 basis points from $3.0264.3% in fiscal 2014 to 63.8% in fiscal 2015. The decrease in gross margin is primarily attributable to the impact of decreased promotional activity on an elevated product assortment. Specifically, the impact of a higher mix of elevated product sales primarily in our outlet stores, which contained higher average unit costs, negatively impacted gross margin by 120 basis points. This decrease was mostly offset by lower promotional activity, mainly as a result of the scale-back of promotional events within our outlet channel which favorably impacted gross margin by 90 basis points.

International Gross Profit decreased 3.6% or $46.5 million to $1.25 billion in fiscal 2011.2015. Gross margin was 72.8%decreased 180 basis points from 78.8% in fiscal 20122014 to 77.0% in fiscal 2015. The decrease in gross margin is primarily due to a less favorable geographic mix of our sales and unfavorable effects of foreign currency, which in aggregate negatively impacted gross margin by 110 basis points, particularly as compareda result of a decline in net sales in Japan, coupled with the growth of our international wholesale business, as well as the impact of stronger elevated product sales which carry higher average unit costs, negatively impacting gross margin by 60 basis points and to 72.7%a lesser extent increased promotional activity.
Other Gross Profit increased 57.2% or $21.1 million to $58.0 million in fiscal 2015. This increase is substantially attributable to the acquisition of the Stuart Weitzman brand during the fourth quarter of fiscal 2011. Coach’s2015.
Corporate Unallocated Gross Profit increased $55.1 million from a loss of $27.9 million in fiscal 2014 to a profit of $27.2 million in fiscal 2015. Excluding items affecting comparability of $9.7 million in fiscal 2015 and $82.2 million in fiscal 2014, corporate unallocated gross profit is dependent upon a variety of factors, including changesdecreased by $17.4 million from $54.3 million in the relative sales mix among distribution channels, changesfiscal 2014 to $36.9 million in the mix of products sold, foreign currency exchange ratesfiscal 2015, primarily due to increased inventory reserves and fluctuations in material costs. These factors, among others may cause gross profit to fluctuate from year to year.

less favorable production variances.

Selling, General and Administrative Expenses
SG&A expenses are comprised of four categories: (1)(i) selling; (2)(ii) advertising, marketing and design; (3)(iii) distribution and consumercustomer service; and (4)(iv) administrative. Selling expenses include store employee compensation, store occupancy costs storeand supply costs, wholesale and retail account administration compensation globally and all Coach Japan, Coach China, Coach Singapore and Coach Taiwaninternational operating expenses. These expenses are affected by the number of Coach-operatedCompany-operated stores in North America; Japan; Hong Kong, Macau, mainland China; Taiwan and Singapore open during any fiscal period.period and store performance, as compensation and rent expenses vary with sales. Advertising, marketing and design expenses include employee compensation, media space and production, advertising agency fees, new product design costs, public relations and market research expenses. Distribution and consumercustomer service expenses include warehousing, order fulfillment, shipping and handling, customer service, employee compensation and bag repair costs. Administrative expenses include compensation costs for the“corporate” functions including: executive, finance, human resources, legal and information systems departments, as well as corporate headquarters occupancy costs, consulting fees and software expenses. SG&AAdministrative expenses increase as the numberalso include global equity compensation expense.
The Company includes inbound product-related transportation costs from our service providers within cost of Coach-operated stores increase, although an increase in the number of stores generally results in the fixed portion of SG&A expenses being spread over a larger sales base.

Coach,sales. The Company, similar to some companies, includes certain transportation-related costs related to our distribution network in selling, general and administrative expenses rather than in cost of sales; for this reason, our gross margins may not be comparable to that of entities that include all costs related to their distribution network in cost of sales.

During fiscal 2012,

SG&A expenses increased 13.7%5.2% or $113.7 million to $1.95$2.29 billion in fiscal 2015 as compared to $1.72$2.18 billion during fiscal 2011. Excluding items affecting comparability of $39.2 million in fiscal 2012 and $25.7 million in fiscal 2011, SG&A expenses were $1.91 billion and $1.69 billion, respectively.2014. As a percentage of net sales, SG&A expenses were 41.0% and 41.3%increased to 54.6% during fiscal 2012 and2015 as compared to 45.3% during fiscal 2011, respectively.2014. Excluding items affecting comparability duringof $160.8 million in fiscal 20122015 and $49.3 million in fiscal 2011,2014, SG&A expenses increased $2.2 million from fiscal 2014; and SG&A expenses as a percentage of net sales were 40.2% and 40.7%, respectively,increased, due to deleveraging as we leveraged our selling expense base on higher sales.

net sales have declined, to 50.8% in fiscal 2015 from 44.3% in fiscal 2014.

Selling expenses were $1.36$1.53 billion, or 28.5%36.6% of net sales, in fiscal 2015 compared to $1.18$1.55 billion, or 28.5%32.2% of net sales, duringin fiscal 2011.2014. The dollar increase in$16.5 million decrease represents slightly lower selling expenses was duerelated to higher operating expensesour North America stores and Internet business, which were partially offset by increases to support growth in Coach Chinaour International business (primarily in Europe and North American stores due to higher sales and new store openings. Coach Japan operating expenses decreased by $0.4Greater China) as well as incremental Stuart Weitzman selling expenses. Excluding items affecting comparability of $4.1 million in constant currency, but was more than offset by the impactfiscal 2015, selling expenses were 36.5% of foreign currency exchange rates which increased reported expenses by approximately $15.2 million.

net sales.

Advertising, marketing, and design costs were $245.2$246.8 million, or 5.1%5.9% of net sales, in fiscal 2015, compared to $224.4$242.3 million, or 5.4%5.0% of net sales, during fiscal 2011.2014. The dollar increase was primarily due to marketing expenses related to consumer communications, which includes our digital strategy through coach.com, our global e-commerce sites, third-party flash sites, marketing sites and social networking. The Company operates marketing websites in 23 countries, and utilizes social networking and blogs as cost-effective consumer communication opportunities to increase online and store sales and build brand awareness. Also contributing to the increase were new design expenditures and developmentresult of higher costs for new merchandising initiatives.

marketing-related events which increased by $28.8 million as compared to fiscal 2014, partially offset by fewer promotional events made by the Company, primarily as a result of the Company's decision to limit access to our outlet Internet sales site.


34


Distribution and consumer service expenses were $68.9$69.6 million, or 1.4%1.7% of net sales, in fiscal 2015, compared to $58.2fiscal 2014 expenses of $87.2 million, or 1.4%1.8% of net sales. The decrease was primarily due to lower variable costs as a result of lower sales associated with the Company's decision to limit access to our outlet Internet sales site.
Administrative expenses were $441.5 million, or 10.5% of net sales, in fiscal 2015 compared to $300.5 million, or 6.3% of net sales, during fiscal 2011.

Administrative expenses were $282.2 million, or 5.9% of net sales, compared to $252.4 million, or 6.1% of net sales, during fiscal 2011.2014. Excluding items affecting comparability of $39.2 in fiscal 2012 and


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$25.7$156.7 million in fiscal 2011,2015 and $49.3 million in fiscal 2014, administrative expenses were $243.0$284.8 million, and $226.7 million, respectively, representing 5.1% and 5.5%or 6.8% of net sales, respectively.in fiscal 2015 and $251.2 million, or 5.2% of net sales, in fiscal 2014. The dollar increase in administrative expenses wasis primarily due to increased headcounthigher incentive compensation costs and systems investment, largelyadditional costs incurred particularly related to information technology.

Operating Income
Operating income decreased 44.8% or $502.1 million to $618.0 million during fiscal 2015 as compared to $1.12 billion in fiscal 2014. Operating margin decreased to 14.7% as compared to 23.3% in fiscal 2014. Excluding items affecting comparability of $170.5 million in fiscal 2015 and $131.5 million in fiscal 2014, operating income decreased 37.0% or $463.1 million to $788.5 million from $1.25 billion in fiscal 2014; and operating margin was 18.8%, in fiscal 2015 as compared to 26.0% in fiscal 2014.
The following table presents operating income by reportable segment for fiscal 2015 compared to fiscal 2014:
  (dollars in millions)
  June 27, 2015 June 28,
2014
 Variance
    Amount  %
   North America $820.5
 $1,164.1
 $(343.6) (29.5)%
   International 480.6
 555.7
 (75.1) (13.5)
   Other(1)
 25.5
 34.2
 (8.7) (25.4)
   Corporate unallocated (708.6) (633.9) (74.7) 11.8
Total operating income $618.0
 $1,120.1
 $(502.1) (44.8)%
(1)
Operating income in the Other category consists of sales and expenses in Coach brand ancillary channels in fiscal 2015, including licensing and disposition, and sales and expenses generated by the Stuart Weitzman brand during the final two months of fiscal 2015.
North America Operating Incomedecreased 29.5% or $343.6 million to $820.5 million in fiscal 2015 reflecting the decrease in gross profit of $418.1 million which was partially offset by lower SG&A expenses of $74.5 million. The decrease in SG&A expenses was due to lower variable selling costs as a result of lower sales in our international expansion.

stores and Internet business. Operating margin decreased 420 basis points to 33.3% in fiscal 2015 from 37.5% during the same period in the prior year due to higher SG&A expense as a percentage of net sales of 390 basis points, primarily due to deleveraging of selling expenses as net sales have declined, and lower gross margin of 50 basis points.

International Operating Incomedecreased 13.5% or $75.1 million to $480.6 million in fiscal 2015, primarily reflecting a decrease in gross profit of $46.5 million as well as higher SG&A expenses of $28.6 million. The increase in SG&A expenses is related to a $30.8 million increase in Greater China and Asia, excluding Japan, related to new store openings and a $24.9 million increase in Europe to support growth in the business. The increase in SG&A costs were partially offset by foreign currency effects in Japan of $32.2 million. Operating margin decreased 420 basis points to 29.6% in fiscal 2015 from 33.8% during the same period in the prior year primarily due to higher overall SG&A as a percentage of net sales which increased by 240 basis points and lower gross margin of 180 basis points.
Corporate Unallocated Operating Expense increased $74.7 million to $708.6 million in fiscal 2015, an increase of 11.8%. This increase was primarily attributable to higher charges incurred by the Company in fiscal 2015 as part of its Transformation Plan. Excluding items affecting comparability, unallocated operating expenses increased by 8.9% or $44.6 million to $547.0 million from $502.4 million. This increase is primarily due to higher incentive compensation costs and additional costs incurred particularly related to information technology.

35


Provision for Income Taxes

The effective tax rate was 31.0%34.2% in fiscal 20122015, as compared to 32.3%30.4% in fiscal 2011. During the second quarter of fiscal 2012, the Company recorded the effect of a revaluation of certain deferred tax asset balances due to a change in Japan’s corporate tax laws and the favorable completion of a multi-year transfer pricing agreement with Japan. Also, during the fourth quarter of fiscal 2012, the Company recognized a favorable tax settlement. As a result, it made charitable contributions which precisely offset the benefit of the tax settlement to net income and earnings per share. During the third quarter of fiscal 2011, the Company decreased the provision for income taxes primarily as a result of a favorable settlement of a multi-year tax return examination.2014. Excluding the benefit from these items affecting comparability, the effective tax rate was 32.8%32.1% in fiscal 2012 and 33.6%2015, as compared to 30.6% in fiscal 2011.2014. The decreaseincrease in theour effective tax rate is alsowas primarily attributable to higher profitabilitythe loss of certain foreign tax benefits that expired at the end of fiscal 2014, as well as the acquisition-related impact attributable to Stuart Weitzman. We expect our rate to be lower in lower tax rate jurisdictions in which income is earned, duefiscal 2016 primarily attributable to the increased globalizationgeographic mix of earnings, the Company,expiration of certain statutes, the settlement of audits and a lower effective statethe ongoing benefit of available foreign tax rate.

credits.

Net Income

Net income was $1.04 billion in fiscal 2012 compareddecreased 48.5% or $378.9 million to $880.8$402.4 million in fiscal 2011. The increase2015 as compared to $781.3 million in fiscal 2014. Excluding items of comparability, net income decreased 38.9% or $338.4 million to $531.2 million in fiscal 2015 from $869.6 million in fiscal 2014. This decrease was primarily due to the higherlower operating income and a reductionpartially offset by lower provision for income taxes.
Earnings per Share
Net income per diluted share decreased 47.9% to $1.45 in fiscal 2015 as compared to $2.79 in fiscal 2014. Excluding items of the effective tax rate.

comparability, net income per diluted share decreased 38.2% or $1.18 to $1.92 in fiscal 2015 from $3.10 in fiscal 2014, due to lower net income.

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FISCAL 20112014 COMPARED TO FISCAL 2010

2013

The following table summarizes results of operations for fiscal 20112014 compared to fiscal 2010:

2013. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.
      
 Fiscal Year Ended
   July 2, 2011 July 3, 2010 Variance
   (dollars in millions, except per share data)
   Amount % of
net sales
 Amount % of
net sales
 Amount %
Net sales $4,158.5   100.0 $3,607.6   100.0 $550.9   15.3
Gross profit  3,023.5   72.7   2,633.7   73.0   389.9   14.8 
Selling, general and administrative expenses  1,718.6   41.3   1,483.5   41.1   235.1   15.8 
Operating income  1,304.9   31.4   1,150.2   31.9   154.8   13.5 
Provision for income taxes  420.4   10.1   423.2   11.7   (2.8  (0.7
Net income  880.8   21.2   734.9   20.4   145.9   19.8 
Net Income per share:
                              
Basic $2.99       $2.36       $0.63   26.6
Diluted  2.92        2.33        0.59   25.5 

 Fiscal Year Ended
  June 28, 2014 June 29, 2013 Variance
  (dollars in millions, except per share data)
  Amount 
% of
net sales
 Amount 
% of
net sales
 Amount %
Net sales$4,806.2
 100.0% $5,075.4
 100.0% $(269.2) (5.3)%
Gross profit3,297.0
 68.6
 3,698.1
 72.9
 (401.1) (10.8)
Selling, general and administrative expenses2,176.9
 45.3
 2,173.6
 42.8
 3.3
 0.2
Operating income1,120.1
 23.3
 1,524.5
 30.0
 (404.4) (26.5)
Interest income, net2.2
 
 2.4
 
 (0.2) (8.3)
Other expense
 
 (6.4) (0.1) 6.4
 (100.0)
Provision for income taxes341.0
 7.1
 486.1
 9.6
 (145.1) (29.9)
Net income781.3
 16.3
 1,034.4
 20.4
 (253.1) (24.5)
Net Income per share:  
   
   
   
    
Basic$2.81
   
 $3.66
   
 $(0.85) (23.2)%
Diluted$2.79
   
 $3.61
   
 $(0.82) (22.7)%
Items Affecting Comparability
The Company’s reported results are presented in accordance with GAAP. The reported gross profit, SG&A expenses, operating income, income before provision for income taxes, provision for income taxes, net income and earnings per diluted share in fiscal 2014 and 2013 reflect certain items which affect the comparability of our results, as noted in the following reconciliation tables. Refer to page 41 for a discussion on the Non-GAAP Measures.


36


COACH, INC.
GAAP TO NON-GAAP RECONCILIATION
For the Years Ended June 28, 2014 and June 29, 2013
(in millions, except per share data)
 June 28, 2014
  
GAAP Basis
(As Reported)
 Transformation and Other Related Actions 
Non-GAAP Basis
(Excluding Items)
Gross profit$3,297.0
 $(82.2) $3,379.2
SG&A expenses2,176.9
 49.3
 2,127.6
Operating income1,120.1
 (131.5) 1,251.6
Income before provision for income taxes1,122.3
 (131.5) 1,253.8
Provision for income taxes341.0
 (43.2) 384.2
Net income781.3
 (88.3) 869.6
Diluted net income per share2.79
 (0.31) 3.10
 June 29, 2013
  
GAAP Basis
(As Reported)
 Restructuring and Transformation-Related Charges 
Non-GAAP Basis
(Excluding Items)
Gross profit$3,698.1
 $(4.8) $3,702.9
SG&A expenses2,173.6
 48.4
 2,125.2
Operating income1,524.5
 (53.2) 1,577.7
Income before provision for income taxes1,520.5
 (53.2) 1,573.7
Provision for income taxes486.1
 (20.6) 506.7
Net income1,034.4
 (32.6) 1,067.0
Diluted net income per share3.61
 (0.11) 3.73
Items Affecting Comparability
Fiscal 2014 Items
In fiscal 2014, the Company incurred restructuring and transformation related charges of $131.5 million under its Transformation Plan announced in the fourth quarter of fiscal 2014. The charges recorded in cost of sales and SG&A expenses were $82.2 million and $49.3 million, respectively. These charges, which are primarily associated with our North America business, relate to inventory and fleet related costs, including impairment, accelerated depreciation and severance related to store closures.
Fiscal 2013 Items
In fiscal 2013, the Company incurred restructuring and transformation related charges of $53.2 million. The charges recorded in selling, general and administrative expenses and cost of sales were $48.4 million and $4.8 million, respectively. The charges include the strategic reassessment of the Reed Krakoff business, streamlining our organizational model and reassessing the fleet of our retail stores and inventories.
Currency Fluctuation Effects
The change in net sales in fiscal 2014 has been presented both including and excluding currency fluctuation effects (primarily attributable to Coach Japan).

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Net Sales

Net sales decreased 5.3% or $269.2 million to $4.81 billion in fiscal 2014. Excluding the effects of foreign currency, net sales decreased 3.1% or $155.9 million. The decrease was driven by lower sales in the North America business partially offset by gains in the International business. The following table presents net sales by operatingreportable segment for fiscal 20112014 compared to fiscal 2010:

2013:
     
 Fiscal Year Ended
   Net Sales Rate of Change Percentage of
Total Net Sales
   July 2,
2011
 July 3,
2010
 July 2,
2011
 July 3,
2010
   (dollars in millions) (FY11 vs. FY10)      
Direct-to-Consumer $3,646.4  $3,178.7   14.7  87.7  88.1
Indirect  512.1   428.9   19.4   12.3   11.9 
Total net sales $4,158.5  $3,607.6   15.3   100.0  100.0

Direct-to-Consumer — Net sales increased 14.7% to $3.65 billion during fiscal 2011 from $3.18 billion during fiscal 2010, driven by sales increases in our Company-operated stores in North America and China. Net sales of fiscal 2010 included an additional week of sales, which represented approximately $62 million.

 Fiscal Year Ended
  Total Net Sales 
Rate of
Change
 Percentage of Total Net Sales
  June 28,
2014
 
June 29,
2013(1)
 June 28,
2014
 
June 29,
 2013(1)
      
 (dollars in millions)      
North America$3,100.5
 $3,478.2
 (10.9)% 64.5% 68.5%
International1,644.2
 1,558.1
 5.5 34.2
 30.7
Other(2)
61.5
 39.1
 57.3 1.3
 0.8
Total net sales$4,806.2
 $5,075.4
 (5.3)% 100.0% 100.0%
(1)
In connection with the acquisition of the retail business in Europe, the Company evaluated the composition of its reportable segments and concluded that sales in this region should be included in the International segment. Accordingly, prior year comparable sales have been reclassified to conform to the current year presentation. See Note 7, "Acquisitions" and Note 16, "Segment Information" for more information.
(2)
Net sales in the Other category consisted of sales generated in ancillary channels, including licensing and disposition.
Comparable store sales measure sales performance at stores that have been open for at least 12 months, and includes sales from coach.com.the Internet. Coach excludes new locations from the comparable store base for the first yeartwelve months of operation. Similarly, stores that are expandedComparable store sales have not been adjusted for store expansions given our planned capital investments in connection with the Transformation Plan.
North America Net Sales decreased 10.9% or $377.7 million to $3.10 billion in fiscal 2014. This decrease was primarily driven by 15.0% or more are also excluded from thelower comparable store base until the first anniversarysales of their reopening. Stores that are closed for renovations are removed from the$460.5 million or 15% largely due to lower traffic, and lower wholesale sales of $26.1 million due to lower shipments. The Internet business had a negative impact, of over 1%, on comparable store base.

In North America, net sales increased 14.4% driven bywhich is attributable to the Company's decision to eliminate third-party Internet events and to limit access to our outlet Internet sales from new and expanded stores and by a 10.6% increase in comparable store sales. During fiscal 2011, Coach opened three net new retail stores and 22 new factory stores, and expanded six factory stores in North America. In Japan, net sales increased 5.1% driven by an approximately $69.8 million, or 9.8%, positive impact from foreign currency exchange. During fiscal 2011, Coach opened eight net new locations and expanded three locations in Japan. Coach China results continued to be strong with double-digit percentage growth in comparable store sales. During fiscal 2011, Coach opened 25 net new stores in Hong Kong and mainland China.

Indirect — Net sales increased 19.4% to $512.1 million from $428.9 million in fiscal 2010. The increase was driven primarily by an 18.4% increase in Coach International Wholesale and U.S. Wholesale net revenue. The net sales increasesite. This decrease was partially offset by an additional weekincrease of sales$143.5 million related to net new stores. In fiscal 2014, Coach opened a net 14 outlet stores, including one Men’s outlet store, and closed a net 19 retail stores.

International Net Sales increased 5.5% or $86.1 million to $1.64 billion in fiscal 2010, which represented approximately $8 million. Licensing revenue2014. Excluding the unfavorable impact of approximately $24.7foreign currency, primarily due to the Japanese yen, net sales increased $191.0 million or 12.3%. The increase in net sales was primarily due to double digit growth in Greater China and $19.2Asia, excluding Japan, reflecting an increase of $152.4 million due to net new stores and positive comparable store sales, as well as a $40.5 million increase related to the acquisition of the Europe joint venture in the first quarter of fiscal 2014. In fiscal 2014, excluding the impact of acquisitions, we opened 39 net new stores, with 34 net new stores in mainland China, Hong Kong and Macau and Japan, and five net new stores in the other regions. The acquisition of the European joint venture resulted in a transfer of an additional 18 stores to the Company’s direct control. After the acquisition on July 1, 2013, Coach opened seven new stores and transitioned two stores from wholesale to direct control in fiscal 2014.
Gross Profit
Gross profit decreased 10.8% or $401.1 million to $3.30 billion in fiscal 2014 from $3.70 billion in fiscal 2013. Gross margin for fiscal 2014 was 68.6% as compared to 72.9% in fiscal 2013. Excluding items affecting comparability of $82.2 million in fiscal 20112014 and $4.8 million in fiscal 2010, respectively,2013, gross profit decreased 8.7% or $323.7 million to $3.38 billion from $3.70 billion in fiscal 2013, and gross margin was 70.3% in fiscal 2014 as compared to 73.0% in fiscal 2013.
North America Gross Profitdecreased 15.1% or $353.1 million to $1.99 billion in fiscal 2014. Gross margin decreased 310 basis points from 67.4% in fiscal 2013 to 64.3% in fiscal 2014. The decrease in gross margin is includeddue to a 210 basis point decline as a result of increased promotional activity, primarily in Indirect sales.

our outlet channel, and a 70 basis point decline as a result of selling products with a higher average unit cost as well as increased penetration of our broadened lifestyle categories.

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Operating Income

Operating income International Gross Profit increased 13.5%3.2% or $40.0 million to $1.30 billion in fiscal 2011 as compared to $1.15 billion2014. Gross margin decreased 180 basis points from 80.6% in fiscal 2010.2013 to 78.8% in fiscal 2014. The decrease in gross margin is primarily due to the negative translation effect of changes in foreign currency, primarily associated with fluctuations in the Japanese Yen. Other factors negatively impacting gross margin were increased promotions, selling products with a higher average unit cost, as well as increased penetration of our


38


broadened lifestyle categories which were partially offset by the lower step-up of inventory as part of the purchase accounting related to our acquisitions.
Corporate Unallocated Gross Profit decreased $92.6 million from $64.7 million in fiscal 2013 to a loss of $27.9 million in fiscal 2014. Excluding items affecting comparability of $25.7$82.2 million in fiscal 2011, operating income2014 and $4.8 million in fiscal 2013, gross profit decreased by $15.2 million from $69.5 million to $54.3 million in fiscal 2014, primarily due to less favorable production variances.
Selling, General and Administrative Expenses
SG&A expenses increased 15.7%0.2% or $3.3 million to $1.33 billion. Operating margin decreased to 31.4%$2.18 billion in fiscal 2014 as compared to 31.9% in the prior year, as gross margin decreased while selling, general, and administrative (“SG&A”) expenses slightly increased as a percentage of sales. Excluding items affecting comparability, operating margin was 32.0% in fiscal 2011.

Gross profit increased 14.8% to $3.02$2.17 billion in fiscal 2011 from $2.63 billion in fiscal 2010. Gross margin was 72.7% in fiscal 2011 as compared to 73.0% during fiscal 2010. Coach’s gross profit is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, foreign currency exchange rates and fluctuations in material costs. These factors, among, others may cause gross profit to fluctuate from year to year.

SG&A expenses are comprised of four categories: (1) selling; (2) advertising, marketing and design; (3) distribution and consumer service; and (4) administrative. Selling expenses include store employee compensation, store occupancy costs, store supply costs, wholesale account administration compensation and all Coach Japan and Coach China operating expenses. These expenses are affected2013, primarily driven by the number of Coach-operated stores in North America; Japan; Hong Kong, Macau and mainland China open during any fiscal period. Advertising, marketing and design expenses include employee compensation, media space and production, advertising agency fees, new product design costs, public relations and market research expenses. Distribution and consumer service expenses include warehousing, order fulfillment, shipping and handling, customer service and bag repair costs. Administrative expenses include compensation costs for the executive, finance, human resources, legal and information systems departments, corporate headquarters occupancy costs, consulting and software expenses. SG&A expenses increase as the number of Coach-operated stores increase, although an increase in the number of stores generally results in the fixed portion of SG&A expenses being spread over a larger sales base.

Coach, similar to some companies, includes certain costs related to our distribution network in selling general and administrative expenses rather than in cost of sales; for this reason, our gross margins may not be comparable to that of entities that include all costs related to their distribution network in cost of sales.

During fiscal 2011, SG&A expenses increased 15.8% to $1.72 billion, compared to $1.48 billion during fiscal 2010. Excluding items affecting comparability of $25.7 million in fiscal 2011, SG&A expenses were $1.69 billion.expenses. As a percentage of net sales, SG&A expenses were 41.3% and 41.1%increased to 45.3% during fiscal 2011 and2014 as compared to 42.8% during fiscal 2010, respectively.2013. Excluding items affecting comparability duringof $49.3 million in fiscal 2011,2014 and $48.4 million in fiscal 2013, SG&A expenses increased $2.4 million from fiscal 2013; and SG&A expenses as a percentage of net sales were 40.7%increased, primarily due to the increase in selling expenses as we leveraged our selling expense base on higher sales.

a percentage of net sales, to 44.3% in fiscal 2014 from 41.9% in fiscal 2013.

Selling expenses were $1.18$1.55 billion, or 28.5%32.2% of net sales, in fiscal 2014 compared to $1.05$1.51 billion, or 29.1%29.8% of net sales, duringin fiscal 2010.2013. The dollar increase in selling expenses was due to higher operating expensesreflected increases in Coach China and North American stores due to higher sales and new store openings. Additionally, sellingopenings in our International business including the impact of acquiring our former partner Hackett’s 50% interest in our European joint venture. These expenses of Reed Krakoff stores contributed to the dollar increase since the brand was not launched until the beginning of fiscal 2011. Coach China and North American store expenses as a percentage of sales decreased primarily due to operating efficiencies and sales leverage. The decrease in Coach Japan operating expenses in constant currency of $10.2 million waswere mostly offset by thea favorable impact of foreign currency exchange rates which increased reportedprimarily related to Coach Japan and lower expenses by approximately $33.5 million.

in North America due to the divestiture of the Reed Krakoff business.

Advertising, marketing, and design costs were $224.4 million, or 5.4% of net sales, compared to $179.4$242.3 million, or 5.0% of net sales, in fiscal 2014, compared to $265.4 million, or 5.2% of net sales, during fiscal 2010.2013. The increasedecrease was primarily due to newthe divestiture of the Reed Krakoff business. This decrease was partially offset by increased advertising, marketing, and design expenditures and development costs for new merchandising initiatives. Also contributingrelated to the increase were marketing expenses related to consumer communications, which includes our digital strategy through coach.com, our global e-commerce sites, marketing sites and social networking. The Company utilizes and continues to explore implementing new technologies such as our global web presence, with marketing websites in 23 countries, social networking and blogs as cost-effective consumer communication opportunities to increase on-line and store sales and build brand awareness.

Company’s transformation efforts.

Distribution and consumer service expenses were $58.2of $87.2 million, or 1.4%1.8% of net sales, compared to $48.0in fiscal 2014, were fairly consistent with fiscal 2013 expenses of $86.1 million, or 1.3%1.7% of net sales.
Administrative expenses were $300.5 million, or 6.3% of net sales, duringin fiscal 2010. To support our growth in China and the region, during


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the second half of fiscal 2010 we established an Asia distribution center in Shanghai, owned and operated by a third-party, allowing us2014 compared to better manage the logistics in this region. During fiscal 2011, the Asia distribution center contributed to the increase in distribution and consumer service expenses; however in the long run, the Company expects the Asia distribution center to reduce costs as a percentage of net sales.

Administrative expenses were $252.4$307.1 million, or 6.1% of net sales, compared to $204.0 million, or 5.7% of net sales, during fiscal 2010.2013. Excluding items affecting comparability of $25.7$49.3 million in fiscal 2011,2014 and $48.4 million in fiscal 2013, administrative expenses were $226.7$251.2 million, representing 5.5%or 5.2% of net sales, in fiscal 2014 and $258.7 million, or 5.1% of net sales, in fiscal 2013. Lower compensation expense was mostly offset by additional costs incurred as part of investments made in the business, particularly related to increased depreciation expense.

Operating Income
Operating income decreased 26.5% or $404.4 million to $1.12 billion during fiscal 2014 as compared to $1.52 billion in fiscal 2013. Operating margin decreased to 23.3% as compared to 30.0% in fiscal 2013. Excluding items affecting comparability of $131.5 million in fiscal 2014 and $53.2 million in fiscal 2013, operating income decreased 20.7% or $326.1 million to $1.25 billion from $1.58 billion in fiscal 2013; and operating margin was 26.0%, in fiscal 2014 as compared to 31.1% in fiscal 2013.
The following table presents operating income by reportable segment for fiscal 2014 compared to fiscal 2013:
  (dollars in millions)
  June 28,
2014
 June 29,
2013
 Variance
    Amount  %
   North America $1,164.1
 $1,460.0
 $(295.9) (20.3)%
   International 555.7
 582.2
 (26.5) (4.6)
   Other(1)
 34.2
 30.0
 4.2
 14.0
   Corporate unallocated (633.9) (547.7) (86.2) 15.7
Total operating income $1,120.1
 $1,524.5
 $(404.4) (26.5)%
(1)
Operating income in the Other category consisted of sales and expenses generated in ancillary channels, including licensing and disposition.
North America Operating Incomedecreased 20.3% or $295.9 million to $1.16 billion in fiscal 2014 reflecting the decrease in gross profit of $353.1 million which was partially offset by lower SG&A expenses of $57.2 million. The decrease in SG&A expenses was related to the absence of costs in fiscal 2014 related to the divestiture of the Reed Krakoff business and lower variable selling costs as a result of lower sales. Operating margin decreased 450 basis points to 37.5% in fiscal 2014 from 42.0% during

39


the same period in the prior year due to lower gross margin of 310 basis points and higher SG&A expense as a percentage of net sales of 140 basis points.
International Operating Incomedecreased 4.6% or $26.5 million to $555.7 million primarily reflecting higher SG&A expenses of $66.5 million partially offset by higher gross profit of $40.0 million. The increase in administrativeSG&A expenses is related to a $53.7 million increase in Greater China and Asia, excluding Japan, related to higher occupancy and employee costs associated with new store openings and a $45.8 million increase as a result of the recently acquired Europe business. The increase in SG&A costs was offset by foreign currency effects in Japan of $42.6 million. Operating margin decreased 360 basis points to 33.8% in fiscal 2014 from 37.4% during the same period in the prior year primarily due to lower gross margin of 180 basis points and higher share-based and performance-based compensation.

overall selling expenses as a percentage of net sales which increased by 180 basis points.

Corporate Unallocated Operating Expense increased $86.2 million to $633.9 million, an increase of 15.7%. This increase was primarily attributable to higher charges incurred by the Company in fiscal 2014 as part of its Transformation Plan. Excluding items affecting comparability, unallocated operating expenses increased by 1.6% or $7.9 million to $502.4 million from $494.5 million.
Provision for Income Taxes

The effective tax rate was 32.3%30.4% in fiscal 20112014, as compared to 36.5%32.0% in fiscal 2010.2013. Excluding the benefit from the items affecting comparability, the effective tax rate was 33.6%30.6% and 32.2% in fiscal 2011. The decrease2014 and fiscal 2013, respectively. Both fiscal 2014 and fiscal 2013 benefited from one-time discrete items. In fiscal 2014, the Company recognized a net benefit related to refinements of its various tax accounts which were partially offset by the loss of deductions related to changes in key executives. During fiscal 2013, the Company recognized a favorable tax settlement and the benefit of certain permanent adjustments related to executive compensation. These one-time discrete items favorably impacted our effective tax rate is primarily attributable to a favorable settlement of a multi-year tax return examinationby approximately 220 basis points and higher profitability40 basis points in lower tax rate jurisdictions in which income is earned, due to the increased globalization of the Company,fiscal 2014 and a lower effective state tax rate.

fiscal 2013, respectively.

Net Income

Net income was $880.8decreased 24.5% or $253.1 million to $781.3 million in fiscal 20112014 as compared to $734.9$1.03 billion in fiscal 2013. Excluding items of comparability, net income decreased 18.5% or $197.4 million to $869.6 million in fiscal 2010. The increase2014 from $1.07 billion in fiscal 2013. This decrease was primarily due to the higherlower operating income and a reductionpartially offset by lower provision for income taxes.
Earnings per Share
Net income per diluted share decreased 22.7% to $2.79 in fiscal 2014 as compared to $3.61 in fiscal 2013. Excluding items of the effective tax rate.

FISCAL 2012, FISCAL 2011, FISCAL 2009 AND FISCAL 2008 comparability, net income per diluted share decreased 16.9% or $0.63 to $3.10 in fiscal 2014 from $3.73 in fiscal 2013, due to lower net income.


40


ITEMS AFFECTING COMPARABILITY OF OUR FINANCIAL RESULTS

Non-GAAP Measures

The Company’s reported results are presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).GAAP. The reported gross profit, SG&A expenses, operating income, and provision for income taxes, net income and earnings per diluted share in fiscal 20122015, fiscal 2014 and 2011fiscal 2013 reflect certain items which affect the comparability of our results. Similarly,results, including the reported SG&A expenses, operating income, provision for income taxes, income from continuing operations, net incomeimpact of the Transformation Plan and earnings per diluted share from continuing operations in both fiscal 2009 and fiscal 2008 reflect certain items which affect the comparability of our results.acquisition-related charges. These metrics are also reported on a non-GAAP basis for these fiscal years to exclude the impact of these items.

These non-GAAP performance measures were used by management to conduct and evaluate its business during its regular review of operating results for the periods affected. Management and the Company’s Board utilized these non-GAAP measures to make decisions about the uses of Company resources, analyze performance between periods, develop internal projections and measure management performance. The Company’s primary internal financial reporting excluded these items affecting comparability. In addition, the compensation committee of the Company’s Board usedwill use these non-GAAP measures when setting and assessing achievement of incentive compensation goals.

Additionally, certain increases and decreases in operating results for the Company and its North America and International segment have been presented both including and excluding currency fluctuation effects from translating foreign-denominated amounts into U.S. dollars and compared to the same period in the prior fiscal year.
We believe these non-GAAP measures are useful to investors in evaluating the Company’s ongoing operating and financial results and understanding how such results compare with the Company’s historical performance. In addition,Additionally, we believe presenting certain increases and decreases that include and exclude the effect of foreign currency fluctuations helps investors and analysts understand the effect of significant year-over-year currency fluctuations. We believe excluding the items affecting comparability assists investors in developing expectations of future performance. These items affecting comparability do not represent the Company’s direct, ongoing business operations. By providing the non-GAAP measures, as a supplement to GAAP information, we believe we are enhancing investors’ understanding of our business and our results of operations. The non-GAAP financial measures are limited in their usefulness and should be considered in addition to, and not in lieu of, U.S. GAAP financial measures. Further, these non-GAAP measures may be unique to the Company, as they may be different from non-GAAP measures used by other companies.


For a detailed discussion on these non-GAAP measures, see Item 6. "Selected Financial Data," and the Results of Operations section within Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
FINANCIAL CONDITION
Cash Flows

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  Fiscal Year Ended  
  
June 27,
2015
 
June 28,
2014
 Change
  (dollars in millions)
Net cash provided by operating activities $937.4
 $985.4
 $(48.0)
Net cash used in investing activities (612.9) (707.7) 94.8
Net cash provided by (used in) financing activities 389.3
 (748.1) 1,137.4
Effect of exchange rate changes on cash and cash equivalents (13.9) (0.5) (13.4)
Net increase/(decrease) in cash and cash equivalents $699.9
 $(470.9) $1,170.8
The year-over-year comparisonsCompany’s cash and cash equivalents increased $699.9 million in fiscal 2015 compared to a decrease of our financial results are affected by the following items included$470.9 million in our reported results:

    
 Fiscal Year Ended
   (dollars in millions, except per share data)
   June 30, 2012 July 2, 2011 June 27, 2009 June 28, 2008
Operating income
                    
Cost savings measures $  $  $(13.4 $ 
Charitable foundation contribution  (39.2  (25.7  (15.0  (20.0
Variable expense           (12.1
Total Operating income impact $(39.2 $(25.7 $(28.4 $(32.1
Provision for income taxes
                    
Cost savings measures $  $  $(5.1 $ 
Charitable foundation contribution  (15.3  (10.2  (5.7  (7.8
Tax adjustments  (23.9  (15.5  (18.8  (60.6
Variable expense           (4.7
Total Provision for income taxes impact $(39.2 $(25.7 $(29.6 $(73.1
Net income
                         
Cost savings measures $  $  $(8.3 $ 
Charitable foundation contribution  23.9   (15.5  (9.3  (12.2
Tax adjustments  (23.9  15.5   18.8   60.6 
Variable expense           (7.4
Total Net income impact $0.0  $0.0  $1.2  $41.0 
Diluted earnings per share
                    
Cost savings measures $  $  $(0.03 $ 
Charitable foundation contribution  0.08   (0.05  (0.03  (0.03
Tax adjustments  (0.08  0.05   0.06   0.17 
Variable expense           (0.02
Total Diluted earnings per share impact $0.00  $0.00  $0.00  $0.11 

Fiscal 2012 Items

Charitable Contributions and Tax Adjustments

During fiscal 2012, the Company decreased the provision for income taxes by $23.9 million,2014, primarily as a result of recording the effect of a revaluation of certain deferred tax asset balances due to a change in Japan’s corporate tax laws and the favorable settlement of a multi-year transfer pricing agreement with Japan. The Company used the net income favorability to contribute an aggregate $39.2 million to the Coach Foundation. The Company believed that in order to reflect the direct results of the normal, ongoing business operations, both the tax adjustments and the resulting Coach Foundation funding needed to be adjusted. This exclusion is consistent with the way management views its results and is the basis on which incentive compensation was calculated for fiscal 2012.

Fiscal 2011 Items

Charitable Contributions and Tax Adjustments

During the third quarter of fiscal 2011, the Company decreased the provision for income taxescash provided by $15.5 million, primarily as a result of a favorable settlement of a multi-year tax return examination. The Company used the net income favorability to contribute $20.9 million to the Coach Foundation and 400 million yen or $4.8 million to the Japanese Red Cross Society. The Company believed that in order to reflect the direct results of the normal, ongoing business operations, both the tax adjustments and the resulting Coach Foundation funding and Japanese Red Cross Society contribution needed to be adjusted. This exclusion is consistent with the way management views its results and is the basis on which incentive compensation was calculated and paid for fiscal 2011.


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Fiscal 2009 Items

Cost Savings Measures

During the third quarter of fiscal 2009, the Company recorded a charge of $13.4 million, related to cost savings initiatives. These initiatives included the elimination of approximately 150 positions from the Company’s corporate offices in New York, New Jersey and Jacksonville, the closure of four underperforming retail stores and the closure of Coach Europe Services, the Company’s sample-making facility in Italy. Prior to these cost savings measuresfinancing activities in fiscal 2009, the Company had no recent past history of similar elimination of positions, closure of facilities, or closure of underperforming stores during the stores’ lease terms.

Charitable Contribution and Tax Adjustments

During the fourth quarter of fiscal 2009, the Company decreased the provision for income taxes2015.

Net cash provided by $18.8 million, primarily as a result of a favorable settlement of a multi-year tax return examination and other tax accounting adjustments. The underlying events and circumstances for the tax settlement and adjustments were not related to the fiscal 2008 settlement. The Company used the net income favorability to contribute $15.0 million to the Coach Foundation. The Company believed that in order to reflect the direct results of the normal, ongoing business operations, both the tax adjustments and the resulting foundation funding needed to be adjusted. This exclusion is consistent with the way management views its results and is the basis on which incentive compensation was calculated and paid for fiscal 2009.

Fiscal 2008 Items

Charitable Contribution and Tax Adjustments

During the fourth quarter of fiscal 2008, the Company decreased the provision for income taxes by $60.6 million, primarily as a result of a favorable settlement of a tax return examination. The underlying events and circumstances for the tax settlement were not related to the fiscal 2009 settlement. The Company used the net income favorability to create the Coach Foundation. The Company recorded an initial contribution to the Coach Foundation in the amount of $20.0 million. The Company believed that in order to reflect the direct results of the business operations as was done for executive management incentive compensation, both the tax adjustments and the resulting foundation funding needed to be adjusted.

Variable Expenses

As a result of the lower income tax provision, the Company incurred additional incentive compensation expense of $12.1 million, as a portion of the Company’s incentive compensation plan is based on net income and earnings per share. Incremental incentive compensation driven by tax settlements of this magnitude is unlikely to recur in the near future as the Company has modified its incentive compensation plans during fiscal 2009 to be measured exclusive of any unusual accounting adjustments. The Company believes excluding these variable expenses, which were directly linked to the tax settlements, assists investors in evaluating the Company’s direct, ongoing business operations.

Currency Fluctuation Effects

The percentage increase in sales and U.S. dollar increases in operating expenses in fiscal 2012 and fiscal 2011 for Coach Japan have been presented both including and excluding currency fluctuation effects from translating these foreign-denominated amounts into U.S. dollars and comparing these figures to the same periods in the prior fiscal year.

We believe that presenting Coach Japan sales and operating expense increases, including and excluding currency fluctuation effects, will help investors and analysts to understand the effect on these valuable performance measures of significant year-over-year currency fluctuations.

FINANCIAL CONDITION

Cash Flow

activities

Net cash provided by operating activities was $1.22 billion in fiscal 2012 compared to $1.03 billion in fiscal 2011. The increase of $188.4decreased $48.0 million was primarily due to the $158.1 million increase inlower net income as well as the result of working capital$378.9 million from fiscal 2014 to fiscal 2015, partially offset by changes between the two fiscal years, the most significantin our operating asset and liability balances of which

$331.4 million.

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occurredChanges in inventories,our operating asset and liability balances were primarily driven by changes in accounts payable, inventory, other balance sheet changes and accrued liabilities and other liabilities. Increases in inventory balances in fiscal 2012 resulted in the useAccounts payable were a source of cash of $71.7 million as compared to $64.7$64.4 million in fiscal 2011, primarily due to the Company’s international expansion. Changes during the year in accrued liabilities balances provided cash of $84.2 million in fiscal 2012, compared to $53.7 million in fiscal 2011,2015, driven primarily by the timing of certain expensesinventory purchases and tax payments. Changes in other liabilities balances resulted inlease termination payments, as compared to a use of cash of $17.6$30.2 million in fiscal 20122014. Inventory was a source of cash of $29.2 million in fiscal 2015, primarily driven by overall lower inventory purchases in fiscal 2015, as compared to a use of cash source of $13.4$64.1 million in fiscal 2011,2014. Other balance sheet changes, net, which primarily relate to other assets, were a source of cash of $17.8 million in fiscal 2015 as compared to a use of cash of $64.2 million in fiscal 2014, primarily due to the timinga decrease in tax receivables and changes in deferred tax accounts. Accrued liabilities were a source of certaincash


41


of $63.2 million in fiscal 2015, primarily driven by increased payroll and incentive compensation accruals, as compared to source of cash payments.

of $14.1 million in fiscal 2014.

Net cash used in investing activities
Net cash used in investing activities was $259.4$612.9 million in fiscal 20122015 compared to $59.6$707.7 million in fiscal 2011, with2014. The decrease in net cash used of $94.8 million was primarily due to the increaseimpact of $199.8 million largely driven by acquisitions, higher planned capitalnet proceeds from our investment and the timingportfolio of cash investments. During fiscal 2012, the Company acquired 100% of its domestic retail businesses in Singapore and Taiwan from the former distributors for an aggregate $53.2 million, net of cash acquired. Purchases of property and equipment were $184.3$255.6 million in fiscal 2012, which was $36.62015, compared to net cash used for purchase of investments of $397.1 million higher thanin fiscal 2011, reflecting planned increased capital investment. In addition, during fiscal 2012,2014, offset by an increase in net cash used of $515.8 million in cash used for acquisitions, related to the Company provided $24.1 million of loan advances in connection with its European joint venture operations, to fund expansion plansStuart Weitzman acquisition in the region.

fourth quarter of fiscal 2015, as well as an increase in net cash used of $51.9 million related to increased investments in the Hudson Yards joint venture.

Net cash used inprovided by (used in) financing activities
Net cash provided by financing activities was $741.9$389.3 million in fiscal 20122015 as compared to $875.1a use of cash of $748.1 million in fiscal 2011. The decrease2014. This increase of $133.2cash provided of $1,137.4 million was primarily attributabledue to $398.0the debt borrowings described in Note 11, "Debt", as well as the absence of cash used for share repurchases during fiscal 2015. The Company received $896.7 million less expended for common stock repurchases,in proceeds from long term debt, net of discount, which was partially offset by $192.4net repayments of $140 million lowerunder the Company's Amended and Restated Credit Agreement during fiscal 2015, compared to $140 million of net proceeds from exercises ofborrowings during fiscal 2014. Furthermore, the Company used $524.9 million for share based awards and $82.2 million higher dividend paymentsrepurchases in fiscal 2012, due2014, compared to the higher dividend payment rate.

Revolving Credit Facilities

Through June 18, 2012, the Company maintained a $100 million revolving credit facility with certain lendersno stock repurchases occurring in fiscal 2015.

Working Capital and Bank of America, N.A. as the primary lender and administrative agent (the “Bank of America facility”). At Coach’s request and lenders’ consent, the Bank of America facility was able to be expanded to $200 million and also extended for two additional one-year periods.

Coach paid a commitment fee of 6 to 12.5 basis points on the Bank of America facility on any unused amounts and interest of LIBOR plus 20 to 55 basis points on any outstanding borrowings. Both the commitment fee and the LIBOR margin were based on the Company’s fixed charge coverage ratio.

Coach’s Bank of America facility was available for seasonal working capital requirements or general corporate purposes and could be prepaid without penalty or premium. During fiscal 2012 and fiscal 2011 there were no borrowings under the Bank of America facility. Accordingly, as of July 2, 2011, there were no outstanding borrowings under the Bank of America facility.

The Bank of America facility contained various covenants and customary events of default. Coach was in compliance with all covenants of the Bank of America facility since its inception through its termination.

On June 18, 2012, the Company terminated the Bank of America facility and replaced it with a new, $400 million revolving credit facility with certain lenders and JP Morgan Chase Bank, N.A. as the primary lender and administrative agent (the “JP Morgan facility”). The JP Morgan facility may also be used to finance the working capital needs, capital expenditures, certain investments, share repurchases, dividends, and other general corporate purposes of the Company and its subsidiaries (which may include commercial paper back-up), and expires in June 2017. At Coach’s request and lenders’ consent, revolving commitments of the JP Morgan facility may be expanded to $650 million. Capital Expenditures

As of June 30, 2012,27, 2015, in addition to our cash flows generated from our operations, our sources of liquidity and capital resources were comprised of the following (in millions):
 Sources of Liquidity Outstanding Indebtedness Total Available Liquidity
Cash and cash equivalents(1)
$1,291.8
 $
 $1,291.8
Short-term investments(1)
234.0
 
 234.0
Non-current investments(2)
85.8
 
 85.8
Amended and Restated Credit Agreement(3)
1,000.0
 300.0
 700.0
4.250% Senior Notes(3)
600.0
 600.0
 
International credit facilities43.0
 
 43.0
Total$3,254.6
 $900.0
 $2,354.6
(1)
As of June 27, 2015, approximately 57% of our cash and short-term investments were held outside the U.S. in jurisdictions where we intend to permanently reinvest our undistributed earnings to support our continued growth. We are not dependent on foreign cash to fund our domestic operations. If we choose to repatriate any funds to the U.S. in the future, we would be subject to applicable U.S. and foreign taxes.
(2)
Excludes $320.2 million of our non-current investment related to the Hudson Yards joint venture. Refer to Note 6, "Investments," for further information.
(3)
In March 2015, the Company amended and restated its existing $700.0 million revolving credit facility (the "Revolving Facility") with certain lenders and JP Morgan Chase Bank, N.A. as the administrative agent, to provide for a five-year senior unsecured $300.0 million term loan (the “Term Loan”) and to extend the maturity date to March 18, 2020 (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement contains various covenants and customary events of default, including the requirement to maintain a maximum ratio of adjusted debt to consolidated EBITDAR, as defined in the agreement, of no greater than 4.0 as of the date of measurement. As of June 27, 2015, no known events of default have occurred. Furthermore, in March 2015, the Company issued $600.0 million aggregate principal amount of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par (the “4.250% Senior Notes”). Our average borrowings outstanding under our Revolving Facility for the fiscal 2015 and fiscal 2014 were $120.4 million and $93.9 million, respectively. Refer to Note 11, "Debt," for further information on our existing debt instruments.
We believe that our Amended and Restated Credit Agreement is adequately diversified with no undue concentrations in any one financial institution. As of June 27, 2015, there were no outstanding borrowings on the JP Morgan facility, and the borrowing capacity was $393 million, due to outstanding letters of credit.

Borrowings under the JP Morgan Facility bear interest at a rate per annum equal to, at Coach’s option, either (a) an alternate base rate or (b) a rate based on the rates applicable for deposits11 financial institutions participating in the interbank market for U.S. dollars or facility, with no one participant maintaining a maximum commitment percentage in excess of 14%. We have no reason at this time to believe that


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the applicable currency in which the loans are made (the “Adjusted LIBO Rate”) plus an applicable margin. The applicable margin for Adjusted LIBO Rate loansparticipating institutions will be adjusted by referenceunable to a grid (the “Pricing Grid”) based on the ratio of (a) consolidated debt plus 800% of consolidated lease expensefulfill their obligations to (b) consolidated EBITDAR (“Leverage Ratio”). Additionally, Coach will pay a commitment fee, calculated


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at a rate per annum determinedprovide financing in accordance with the Pricing Grid, on the average daily unused amount of the JP Morgan Facility, and certain fees with respect to letters of credit that are issued. At June 30, 2012, the commitment fee was nine basis points.

The JP Morgan facility contains various covenants and customary events of default. Coach has been in compliance with all covenantsterms of the facility since its inception.

To providein the event we elect to draw funds in the foreseeable future.

We have the ability to draw on our credit facilities or access other sources of financing options available to us in the credit and capital markets for, among other things, funding our investment in the Hudson Yards joint venture, our transformation-related initiatives, acquisition or integration-related costs, settlement of a material contingency, or a material adverse business or macroeconomic development, as well as for working capital andother general corporate purposes, Coach Japan has available credit facilities with several Japanese financial institutions. These facilities allow a maximum borrowing of 4.1 billion yen, or approximately $52 million, at June 30, 2012. Interest is based on the Tokyo Interbank rate plus a margin of 27.5 to 30 basis points. During fiscal 2012 and 2011, the peak borrowings were $0 and $27.1 million, respectively. As of June 30, 2012 and July 2, 2011, there were no outstanding borrowings under the Japanese credit facilities.

To provide funding for working capital and general corporate purposes, Coach Shanghai Limited has a credit facility that allows a maximum borrowing of 63 million Chinese renminbi, or approximately $10 million, at June 30, 2012. Interest is based on the People's Bank of China rate. During fiscal 2012 and fiscal 2011, there were no borrowings under this credit facility. Accordingly, at June 30, 2012 and July 2, 2011, there were no outstanding borrowings under this facility.

Common Stock Repurchase Program

During fiscal 2011, the Company completed its $1.0 billion common stock repurchase program, which was put into place in April 2010. In January 2011, the Board approved a new common stock repurchase program to acquire up to $1.5 billion of Coach’s outstanding common stock through June 2013. Purchases of Coach common stock are made subject to market conditions and at prevailing market prices, through open market purchases. Repurchased shares become authorized but unissued shares and may be issued in the future for general corporate and other uses. The Company may terminate or limit the stock repurchase program at any time.

During fiscal 2012 and fiscal 2011, the Company repurchased and retired 10.7 million and 20.4 million shares, respectively, or $0.70 billion and $1.10 billion of common stock, respectively, at an average cost of $65.49 and $53.81, respectively. As of June 30, 2012, $261.6 million remained available for future purchases under the existing program.

Liquidity and Capital Resources

In fiscal 2012, total capital expenditures were $184.3 million related primarily to new stores and corporate infrastructure in North America, China, and Japan which accounted for approximately $58.4 million, $35.4, and $10.4 million, respectively, of total capital expenditures. Spending on department store renovations and distributor locations accounted for approximately $9.9 million of the total capital expenditures. The remaining capital expenditures related to corporate systems and infrastructure. These investments were financed from on hand cash and operating cash flows.

For the fiscal year ending June 29, 2013, the Company expects total capital expenditures to be approximately $250 million. Capital expenditures will be primarily for new stores in North America, Asia and technology to support our global expansion. We will also continue to invest in corporate infrastructure and department store and distributor locations. These investments will be financed primarily from on hand cash and operating cash flows.

Coach experiences significant seasonal variations in its working capital requirements. During the first fiscal quarter Coach builds inventory for the holiday selling season, opens new retail stores and generates higher levels of trade receivables. In the second fiscal quarter its working capital requirements are reduced substantially as Coach generates consumer sales and collects wholesale accounts receivable. In fiscal 2012, Coach purchased approximately $1.4 billion of inventory, which was primarily funded by on hand cash and operating cash flows.

business purposes.

Management believes that cash flowflows from operations, access to the credit and on handcapital markets and our credit lines, on-hand cash and cash equivalents and our investments will provide adequate funds to support our operating, capital, and debt service requirements for the foreseeable working capital needs, planned capital expenditures, dividend paymentsfuture, our plans for acquisitions, further business expansion and the common stock repurchase program. Any futuretransformation-related initiatives. Future events, such as acquisitions or joint ventures, orand other similar transactions may require additional


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capital. There can be no assurance that any such capital will be available to Coachthe Company on acceptable terms or at all. Coach’sOur ability to fund its working capital needs, planned capital expenditures, dividend payments and scheduled debt payments, as well as to comply with all of the financial covenants under itsour debt agreements, depends on its future operating performance and cash flow, which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond Coach’sthe Company's control.

Commitments

At June 30,

Hudson Yards Joint Venture
In April 2013 the Company entered into a joint venture agreement with the Related Companies, L.P. to develop a new office tower in Manhattan in the Hudson Yards district. The formation of the joint venture serves as a financing vehicle for the project, with the Company owning less than 43% of the joint venture. Upon completion of the office tower, the Company will retain a condominium interest serving as its new corporate headquarters. During fiscal 2015 the Company invested $139.1 million in the joint venture. Since the formation of the Hudson Yards joint venture, the Company has invested $320.2 million in the joint venture. The Company expects to further invest approximately $210 million, the significant majority of which will be by the end of fiscal 2016, depending on construction progress. In addition to its investment in the joint venture, Coach is directly investing in a portion of the design and build-out of the new corporate headquarters and has incurred $34.0 million of capital expenditures to date, including $5.9 million in fiscal 2015, and expects to incur approximately $185 million over the remaining period of construction.
Stuart Weitzman Acquisition
On January 5, 2015, the Company entered into a purchase agreement with Stuart Weitzman Topco LLC and Stuart Weitzman Intermediate LLC, a wholly owned subsidiary of Topco. On May 4, 2015, the acquisition was consummated. Under the terms of the Stuart Weitzman purchase agreement, Coach purchased all of the equity interests of Stuart Weitzman Intermediate LLC, a luxury footwear company and the parent of Stuart Weitzman Holdings, LLC, from Topco for an aggregate payment of approximately $531.1 million in cash, subject to customary purchase price adjustments, as well as a potential earnout of up to $14.7 million annually in cash over the next three calendar years based on the achievement of certain revenue targets. On May 4, 2015, the Company funded the acquisition through cash on-hand, including the utilization of a portion of debt related proceeds, as described in Note 11, "Debt." Refer to Note 7, "Acquisitions," for further discussion on the Stuart Weitzman acquisition.
Seasonality
Because Coach products are frequently given as gifts, we experience seasonal variations in net sales, operating cash flows and working capital requirements, primarily related to seasonal holiday shopping. During the first fiscal quarter, we build inventory for the holiday selling season.  In the second fiscal quarter, our working capital requirements are reduced substantially as we generate higher net sales and operating income, especially during the holiday months of November and December. Fluctuations in net sales, operating income and operating cash flows in any fiscal quarter may be affected by other events affecting retail sales, such as changes in weather patterns or other macroeconomic events.
Common Stock Repurchase Program
In October 2012, the Company had lettersCompany’s Board of credit availableDirectors approved a common stock repurchase program to acquire up to $1.5 billion of $600 million, of which $215.4 million were outstanding. These letters of credit, which expire at various datesCoach’s outstanding common stock through 2014, primarily collateralize the Company’s obligation to third parties for the purchase of inventory.

Contractual Obligations

June 2015. As of June 30, 2012,27, 2015, the program has expired.

Purchases of Coach common stock are made subject to market conditions and at prevailing market prices, through open market purchases. Under Maryland law, Coach’s long-termstate of incorporation, treasury shares are not allowed. As a result, all repurchased shares are retired when acquired.
During fiscal 2015, the Company did not repurchase or retire any shares. During fiscal 2014, the Company repurchased and retired 10.2 million shares, or $524.9 million of common stock, at an average cost of $51.27.




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Contractual and Other Obligations
Firm Commitments
As of June 27, 2015, the Company's contractual obligations are as follows:

follows (in millions):
     
 Payments Due by Period
    Less than
1 Year
 1 – 3
Years
 3 – 5
Years
 More than
5 Years
   Total Fiscal
2013
 Fiscal
2014 — 2015
 Fiscal
2016 – 2017
 Fiscal 2018
and beyond
   (amounts in millions)
Capital expenditure commitments(1) $1.3  $1.3  $  $  $ 
Inventory purchase obligations(2)  212.1   212.1          
Long-term debt, including the current portion(3)  24.4   23.4   1.0       
Operating leases  1,075.5   179.3   324.2   233.4   338.5 
Total $1,313.3  $416.1  $325.2  $233.4  $338.5 

  Total 
Fiscal
2016
 
Fiscal
2017 – 2018
 
Fiscal
2019 – 2020
 
Fiscal 2021
and Beyond
Capital expenditure commitments(1)
 $103.1
 $103.1
 $
 $
 $
Inventory purchase obligations 254.7
 254.7
 
 
 
New corporate headquarters joint venture(2)
 210.0
 195.0
 15.0
 
 
Operating leases 1,356.0
 243.1
 394.1
 291.3
 427.5
Debt repayment 900.0
 15.0
 30.0
 255.0
 600.0
Interest on outstanding debt(3)
 257.1
 27.6
 51.0
 51.0
 127.5
Other 4.9
 2.2
 2.7
 
 
Total $3,085.8
 $840.7
 $492.8
 $597.3
 $1,155.0
(1)
RepresentsRelated to firm capital expenditure purchase obligations. The Company expects total capital expenditures to be in the Company’s legally binding agreements related toarea of $300 million in fiscal 2016, excluding the capital expenditures.cost associated with the new headquarters.
(2)
Represents the Company’s legally binding agreements to purchase finished goods.Payments are estimated and may vary based on construction progress.
(3)
Amounts presented includeInterest obligations exclude interest payment obligations.on the Revolving Facility and Term Loan as the interest rate on these arrangements is variable. See Note 11, "Debt," for more information.

Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $185.7 million as of June 27, 2015, as we cannot make a reliable estimate of the period in which the liability will be settled, if ever. The above table abovealso excludes the following: amounts included in current liabilities other than the current portion of long-term debt, in the Consolidated Balance Sheet at June 30, 201227, 2015 as these items will be paid within one year;year, certain long-term liabilities not requiring cash payments and cash contributions for the Company’s pension plans. The
Off-Balance Sheet Arrangements
In addition to the commitments included in the table above, we have outstanding letters of credit $6.8 million as of June 27, 2015, primarily serving to collateralize our obligation to third parties for insurance claims and store leases. These letters of credit expire at various dates through 2016.
As discussed earlier, the Company intends to contribute approximately $0.4 million to its pension plans during the next year. The above table also excludes reserves recorded in accordanceentered into a joint venture agreement with the Financial Accounting Standards Board’s (“FASB”) guidanceRelated Companies, L.P. to develop a new office tower in Manhattan in the Hudson Yards district, in April 2013. The formation of the Hudson Yards joint venture serves as a financing vehicle for accountingthe project. Construction of the new building has commenced and upon expected completion of the office tower in fiscal 2016, the Company will retain a condominium interest serving as its new corporate headquarters. The Company’s maximum loss exposure is limited to the committed capital.
We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements. Refer to Note 12, "Commitments and Contingencies," to the accompanying audited consolidated financial statements for uncertainty in income taxes which has been codified within Accounting Standards Codification (“ASC”) 740, as we are unable to reasonably estimate the timing of future cash flows related to these reserves.

Coach does not have any off-balance-sheet financing or unconsolidated special purpose entities. Coach’s risk management policies prohibit the use of derivatives for trading or speculative purposes. The valuation of financial instruments that are marked-to-market are based upon independent third-party sources.

Long-Term Debt

Coach is party to an Industrial Revenue Bond related to its Jacksonville, Florida distribution and consumer service facility. This loan has a remaining balance of $1.4 million and bears interest at 4.5%. Principal and interest payments are made semiannually, with the final payment due in 2014.

During fiscal 2009, Coach assumed a mortgage in connection with the purchase of its corporate headquarters building in New York City. This mortgage bears interest at 4.68%. Interest payments are made monthly and principal payments began in July 2009, with the final payment of $21.6 million due in June 2013. As of June 30, 2012, the remaining balance on the mortgage was $21.9 million.

further information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions.assumptions that affect our results of operations, financial condition and cash flows as well as the disclosure of contingent assets and liabilities as of the date of the Company's financial statements. Actual results could differ from estimates in amounts that may be material to the financial statements. Predicting future events is


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inherently an imprecise activity and, as such, requires the use of judgment. Actual results may varycould differ from estimates in amounts that may be material to the financial statements. The development and selection of the Company’s critical accounting policies and estimates are periodically reviewed with the Audit Committee of the Board.

The accounting policies discussed below are considered critical because changes to certain judgments and assumptions inherent in these policies could affect the financial statements. For more information on Coach’sthe Company's accounting policies, please refer to the Notes to Consolidated Financial Statements.

Income Taxes


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Revenue Recognition
Revenue is recognized by the Company when there is persuasive evidence of an arrangement, delivery has occurred (and risks and rewards of ownership have been transferred to the buyer), price has been fixed or is determinable, and collectability is reasonably assured.
Retail store and concession-based shop-in-shop revenues are recognized at the point of sale, which occurs when merchandise is sold in an over-the-counter consumer transaction. These revenues are recognized net of estimated returns at the time of sale to consumers. Internet revenue from sales of products ordered through the Company’s e-commerce sites is recognized upon delivery and receipt of the shipment by its customers and includes shipping and handling charges paid by customers. Internet revenue is also reduced by an estimate for returns.
Wholesale revenue is recognized at the time title passes and risk of loss is transferred to customers. Wholesale revenue is recorded net of estimates of returns, discounts and markdown allowances. Returns and allowances require pre-approval from management and discounts are based on trade terms. Estimates for markdown reserves are based on historical trends, actual and forecasted seasonal results, an evaluation of current economic and market conditions, retailer performance, and, in certain cases, contractual terms. The Company reviews and refines these estimates on at least a quarterly basis. The Company’s effective tax rate is based on pre-tax income, statutory tax rates, tax laws and regulations, and tax planning strategies availablehistorical estimates of these costs have not differed materially from actual results.
At June 27, 2015, a 10% change in the various jurisdictionsallowances for estimated uncollectible accounts, markdowns and returns would have resulted in an insignificant change in the Company's reserves and net sales.
Gift cards issued by the Company are recorded as a liability until they are redeemed, at which Coach operates. Deferred tax assets are reported at net realizable value, as determinedpoint revenue is recognized. The Company recognizes income for unredeemed gift cards when the likelihood of a gift card being redeemed by management. Significant management judgmenta customer is required in determiningremote, which is approximately two years after the effective tax rate, in evaluating our tax positionsgift card is issued, and in determining the net realizableCompany determines that it does not have a legal obligation to remit the value of deferred tax assets. In accordancethe unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property. Revenue associated with ASC 740-10, the Company recognizes the impact of tax positions in the financial statements if those positions will more likely thangift card breakage is not be sustained on audit, based on the technical merits of the position. Tax authorities periodically auditmaterial to the Company’s income tax returns. Management believes that our tax filing positions are reasonable and legally supportable. However, in specific cases, various tax authorities may take a contrary position. A change in our tax positions or audit settlements could have a significant impact on our results of operations. For further information about income taxes, see the Income Taxes note presented in the Notes to the Consolidated Financial Statements.

net operating results.

Inventories

The Company’s inventories are reported at the lower of cost or market. Inventory costs include material, conversion costs, freight and duties and are primarily determined by the first-in, first-out method. The Company reserves for inventory, including slow-moving and aged inventory, based on historical experience, current product demand, and expected future demand.demand and historical experience. A decrease in product demand due to changing customer tastes, buying patterns or increased competition could impact Coach’sthe Company's evaluation of its slow-moving and aged inventory and additional reserves might be required. Estimates may differ from actual results due to the quantity, quality and mix of products in inventory, consumer and retailer preferences and market conditions. At June 30, 2012,27, 2015, a 10% change in the inventory reserve, for slow-moving and aged inventoryexcluding amounts associated with the Transformation Plan, would have resulted in an insignificant change in inventory and cost of goods sold.

sales. Refer to Note 3, "Transformation and Other Actions," for charges related to inventory under the Company's Transformation Plan.

Business Combinations
In connection with an acquisition, we are required to record all assets acquired and liabilities assumed of the acquired business at their acquisition date fair value, including the recognition of contingent consideration at fair value on the acquisition date. These fair value determinations require our judgment and may involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items. We may utilize independent third-party valuation firms to assist in making these fair value determinations. Refer to Note 7, "Acquisitions," for detailed disclosures related to our acquisitions.
Goodwill and Other Intangible Assets

Goodwill and certain other intangible assets deemed to have indefinite useful lives, including trademarks and trade names, are not amortized, but are assessed for impairment at least annually. Finite-lived intangible assets are amortized over their respective estimated useful lives and, and along with other long-lived assets as noted above, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. Estimates of fair value for finite-lived intangible assets are primarily determined using discounted cash flows, with consideration of market comparisons and recent transactions. This approach may use significant estimates and assumptions, including projected future cash flows, discount rates and growth rates.

45


The Company evaluatesgenerally performs its annual goodwill and other indefinite lifeindefinite-lived intangible assets annually for impairment. In order to complete our impairment analysis we must performusing a valuation analysis which includes determiningqualitative approach to determine whether it is more likely than not that the fair values of such assets are less than their respective carrying values. If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of the Company’sasset exceeds its carrying value, a quantitative test is performed. The quantitative goodwill impairment test is a two-step process. The first step is to identify the existence of potential impairment by comparing the fair value of each reporting unitsunit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired and performance of the second step of the quantitative goodwill impairment test is unnecessary.
If the carrying value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying value of that goodwill. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill that would be recognized in a business combination. In other words, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value was the purchase price paid to acquire the reporting unit.
Determination of the fair value of a reporting unit and the fair value of individual assets and liabilities of a reporting unit is based on management's assessment, considering independent third-party appraisals when necessary. Furthermore, this determination is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the amount of any such charge. Estimates of fair value are primarily determined using discounted cash flows. This analysis contains uncertainties as it requires management to makeflows, market comparisons, and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows, discount rates, growth rates, and estimatedetermination of appropriate market comparables.
The Company performs its annual impairment assessment of goodwill, including trademarks and trade names, during the profitabilityfourth quarter of future growth strategies.each fiscal year. The Company determined that there was no impairment in fiscal 2012,2015, fiscal 20112014 or fiscal 2010.

2013 as the fair values of our reporting units significantly exceeded their respective carrying values.

Valuation of Long-Lived Assets

Long-lived assets, such as property and equipment, are evaluated for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. The evaluation is based on a reviewIn evaluating long-lived assets for recoverability, the Company uses its best estimate of forecasted operatingfuture cash flows andexpected to result from the profitabilityuse of the related asset group. Anand its eventual disposition. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized ifequal to the forecasteddifference between the carrying value of such asset and its fair value, considering external market participant assumptions.
In determining future cash flows, are less thanCoach takes various factors into account, including changes in merchandising strategy, the carrying amountemphasis on retail store cost controls, the effects of macroeconomic trends such as consumer spending, the impacts of the asset. The Company recorded an impairment loss in fiscal 2009experienced level of $1.5 million related toretail store managers, the closurelevel of three underperforming stores. The Company did not record any impairment losses in fiscal 2012, fiscal 2011 or fiscal 2010. However, asadvertising, promotional cadence and in-store capital investments. Since the determination of future cash flows is based on expectedan estimate of future performance, impairment could resultthere may be future impairments in the event that future if expectations arecash flows do not met.

Revenue Recognition

Sales are recognized at the point of sale, which occurs when merchandise is sold in an over-the-counter consumer transaction or, for the wholesale channels, upon shipment of merchandise, when title passes to the customer. Revenue associated with gift cards is recognized upon redemption. The Company estimates the amount of gift cards that will not be redeemed or remitted as escheatable property, based on historical

meet expectations.

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redemption patterns and escheatment laws, and records such amounts as breakage revenue when we can determine the portion of the liability where redemption is remote, which is approximately two years after the gift card is issued. Revenue associated with gift card breakage is not material to the Company’s net operating results. Allowances for estimated uncollectible accounts, discounts and returns are provided when sales are recorded based upon historical experience and current trends. Royalty revenues are earned through license agreements with manufacturers of other consumer products that incorporate the Coach brand. Revenue earned under these contracts is recognized based upon reported sales from the licensee. At June 30, 2012, a 10% change in the allowances for estimated uncollectible accounts, discounts and returns would have resulted in an insignificant change in accounts receivable and net sales.

Share-Based Compensation

The Company recognizes the cost of employee services received in exchange forequity awards of equity instruments, such as stock options,to employees and the non-employee Directors based on the grant-date fair value of those awards. The grant-date fair values of share unit awards are based on the fair value of the Company's common stock on the date of grant. The grant-date fair value of stock option awards is determined using the Black-Scholes option pricing model and involves several assumptions, including the expected term of the option, expected volatility and dividend yield. The expected term of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience. Expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded options on Coach’sthe Company's stock. Dividend yield is based on the current expected annual dividend per share and the Company’s stock price. Changes in the assumptions used to determine the Black-Scholes value could result in significant changes in the Black-Scholes value. However,
For stock options and share unit awards, the Company recognizes share-based compensation net of estimated forfeitures and revises the estimates in subsequent periods if actual forfeitures differ from the estimates. We estimate the forfeiture rate based on historical experience as well as expected future behavior.
The Company grants performance-based share awards to certain key executives, the vesting of which is subject to the executive’s continuing employment and the Company's achievement of certain performance goals. On a quarterly basis, the Company assesses actual performance versus the predetermined performance goals, and adjusts the share-based compensation

46


expense to reflect the relative performance achievement. Actual distributed shares are calculated upon conclusion of the service and performance periods, and include dividend equivalent shares. If the performance-based award incorporates a market condition, the grant-date fair value of such award is determined using a pricing model, such as a Monte Carlo Simulation.
A hypothetical 10% change in the Black-Scholes valueour stock-based compensation expense would have resultedaffected our fiscal 2015 net income by approximately $7 million.
Income Taxes
The Company’s effective tax rate is based on pre-tax income, statutory tax rates, tax laws and regulations, and tax planning strategies available in an insignificant changethe various jurisdictions in fiscal 2012 share-based compensation expense.

which Coach operates. The Company classifies interest and penalties on uncertain tax positions in the provision for income taxes. We record net deferred tax assets to the extent we believe that it is more likely than not that these assets will be realized. In making such determination, we consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operation. We reduce our deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some amount of deferred tax assets is not expected to be realized.

The Company recognizes the impact of tax positions in the financial statements if those positions will more likely than not be sustained on audit, based on the technical merits of the position. Although we believe that the estimates and assumptions we use are reasonable and legally supportable, the final determination of tax audits could be different than that which is reflected in historical tax provisions and recorded assets and liabilities. Tax authorities periodically audit the Company’s income tax returns, and in specific cases, the tax authorities may take a contrary position that could result in a significant impact on our results of operations. Significant management judgment is required in determining the effective tax rate, in evaluating our tax positions and in determining the net realizable value of deferred tax assets.
Recent Accounting Pronouncements

In May 2011,

See Note 2, "Significant Accounting Standards Codification 820-10 “Fair Value Measurements and Disclosures,” was amendedPolicies," to clarify certain disclosure requirements and improve consistency with international reporting standards. This amendment is to be applied prospectively and was effective for the Company beginning January 1, 2012. The adoption of this amendment did not have a material effect on the Company’saccompanying audited consolidated financial statements.

Accounting Standards Codification Topic 220, “Comprehensive Income,” was amended in June 2011 to require entities to present the totalstatements for a description of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive incomecertain recently issued or in two separate but consecutive statements. The amendment does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income under current GAAP. This guidance is effective for the Company’s fiscal year and interim periods beginning July 1, 2012. The Company is currently evaluating this guidance, but does not expect its adoption to have a material effect on itsproposed accounting standards which may impact our consolidated financial statements.

In September 2011, Accounting Standards Codification 350-20, “Intangibles — Goodwill and Other —  Goodwill,” was amended to allow entities to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired, and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This guidance is effective for the Company’s fiscal year beginning July 1, 2012. The Company does not expect its adoption to have a material effect on its consolidated financial statements.

statements in future reporting periods.

47


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk
The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows, arising from adverse changes in interestforeign currency exchange rates or foreign currency exchangeinterest rates. Coach manages these exposures through operating and financing activities and, when appropriate, through the use of derivative financial instruments with respect to Coach Japan and Coach Canada.instruments. The use of derivative financial instruments is in accordance with Coach’sthe Company's risk management policies. Coach doespolicies, and we do not enter into derivative transactions for speculative or trading purposes.

The following quantitative disclosures in the following discussion are based on quoted market prices obtained through independent pricing sources for the same or similar types of financial instruments, taking into consideration the underlying


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terms and maturities and theoretical pricing models. These quantitative disclosures do not represent the maximum possible loss or any expected loss that may occur, since actual results may differ from those estimates.

Foreign Currency Exchange

Rate Risk

Foreign currency exposures arise from transactions, including firm commitments and anticipated contracts, denominated in a currency other than the entity’s functional currency, and from foreign-denominated revenues and expenses translated into U.S. dollars.

Substantially all The majority of Coach’s fiscal 2012 non-licensed product needs are purchased from independent manufacturers in countries other than the United States, including China, Vietnam, India, Philippines, Thailand, Italy, Taiwan, Peru, Malaysia, Columbia, Turkey and Great Britain. Additionally, sales are made through international channels to third party distributors. Substantially allCompany's purchases and sales involving international parties, excluding international consumer sales, at Coach Japan, Coach Canada, Coach China, Coach Singapore, and Coach Taiwan are denominated in U.S. dollars and, therefore, are not subject toour foreign currency exchange risk.

In Japan and Canada, Coachrisk is limited. The Company is exposed to market risk from foreign currency exchange rate fluctuations resulting from Coach Japan and Coach Canada’sits operating subsidiaries’ U.S. dollar and Euro denominated inventory purchases. To mitigate such risk, Coach Japan and Coach Canada enter into certain foreign currency derivative contracts, primarily zero-cost collar options to manage these risks.and forward foreign currency contracts. As of June 30, 201227, 2015 and July 2, 2011, openJune 28, 2014, zero-cost collar options and forward foreign currency forwardexchange contracts designated as cash flow hedges with a notional amount of $310.9$126.7 million and $171.0$90.2 million, respectively, were outstanding.

Coach had exposure to market risk from foreign currency exchange rate fluctuations with respect to Coach Japan as As a result of its $65.0 million U.S. dollar-denominated fixed rate intercompany loan.the use of derivative instruments, we are exposed to the risk that counterparties to the derivative instruments will fail to meet their contractual obligations. To manage thismitigate the counterparty credit risk, we only enter into derivative contracts with carefully selected financial institutions. The Company also reviews the creditworthiness of our counterparties on December 29, 2011, Coach Japan entered into a cross-currency swap transaction,regular basis. As a result of the termsabove considerations, we do not believe that we are exposed to any undue concentration of which included an exchangecounterparty credit risk associated with our derivative contracts as of Japanese yen fixed interest for U.S. dollar fixed interest. June 27, 2015.

The loan and swap were settled at maturity in June 2012, at which point the swap required an exchange of Japanese yen and U.S. dollar based notional values.

CoachCompany is also exposed to market risk from foreign currency exchange rate fluctuations with respect to various cross-currency intercompany loans which are not long term in investment nature. This primarily includes exposure to exchange rate fluctuations in the Singapore Dollar, the Euro, the British Pound Sterling, the New Taiwan Dollar and related party loans. These loans are denominated in various foreign currencies, with a total notional value of approximately $207 million as of June 30, 2012.the Malaysian Ringgit. To manage the exchange rate risk related to these loans, the Company enteredprimarily enters into forward exchange and cross-currency swap contracts,contracts. As of June 27, 2015 and June 28, 2014, the termstotal notional values of which include the exchange ofoutstanding forward foreign currency fixed interest for U.S. dollar fixed interestexchange and an exchange of the foreign currencycross-currency swap contracts related to these loans were $25.8 million and U.S. dollar based notional values at the maturity dates of the contracts, the latest of which is June 2013.

$13.2 million, respectively.

The fair value of openoutstanding foreign currency derivatives included in current assets at June 30, 201227, 2015 and July 2, 2011June 28, 2014 was $1.5$3.4 million and $2.0$0.5 million, respectively. The fair value of openoutstanding foreign currency derivatives included in current liabilities at June 30, 201227, 2015 and July 2, 2011June 28, 2014 was $4.1$0.2 million and $1.7$0.9 million, respectively. The fair value of these contracts is sensitive to changes in foreign currency exchange rates.

Coach believes that exposure A sensitivity analysis of the effects of foreign exchange rate fluctuations on the fair values of our derivative contracts was performed to adverse changes inassess the risk of loss. As of June 27, 2015, a 10% devaluation of the U.S. Dollar against the exchange rates associated with revenues and expenses offor foreign operations, which are denominatedcurrencies under contract would result in Japanese yen, Chinese renminbi, Hong Kong dollar, Macanese pataca, Canadian dollar, Singapore dollar, Taiwan dollar, Malaysian ringgit, Korean won and the euro, are not material to the Company’s consolidated financial statements.

an immaterial impact on derivative contract fair values.

Interest Rate

Coach Risk

The Company is exposed to interest rate risk in relation to its investments, revolving credit facilitiesAmended and long-term debt.

Restated Credit Agreement, including the Term Loan, the 4.250% Senior Notes and investments.

Our exposure to changes in interest rates is primarily attributable to debt outstanding under our Amended and Restated Credit Agreement, including the Term Loan. Borrowings under the Amended and Restated Credit Agreement bear interest at a rate per annum equal to, at Coach’s option, either (a) a rate based on the rates applicable for deposits in the interbank market for U.S. dollars or the applicable currency in which the loans are made plus an applicable margin or (b) an alternate base rate (which is a rate equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (iii) the Adjusted LIBO Rate for a one month Interest Period on such day plus 1%). A hypothetical 10% change in the Amended and Restated Credit Agreement interest rate would have resulted in an insignificant change in interest expense in fiscal 2015. Furthermore, we are also exposed to changes in interest rates related to the fair value of our $600.0 million 4.250% Senior Notes. At June 27, 2015, the fair value of the 4.250% Senior Notes was approximately $579.0 million.
The Company’s investment portfolio is maintained in accordance with the Company’s investment policy, which identifies allowable investments, specifiesdefines our investment principles including credit quality standards and limits the credit exposure of any single issuer. The primary objective

48


of our investment activities is the preservation of principal while maximizing interest income and minimizing risk. We do not hold any investments for trading purposes. The Company’s investment portfolio primarily consists of U.S. government and agency securities as well as


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corporate debt securities. As the Company does not have the intent to sell and will not be required to sell these securities until maturity, investments are classified as held-to-maturity and stated at amortized cost, except for auction rate securities, which are classified as available-for-sale. At July 2, 2011, the Company’s investments, classified as held-to-maturity, consisted of commercial paper and treasury bills valued at $2.3 million. These investments matured during 2012, and the Company does not hold any similar investments at June 30, 2012. As the adjusted book value of the commercial paper and treasury bills equaled its fair value, there were no unrealized gains or losses associated with these investments. At June 30, 2012, the Company’s investments, classified as available-for-sale, consisted of a $6.0 million auction rate security. At June 30, 2012, as the auction rate securities’ adjusted book value equaled its fair value, there were no unrealized gains or losses associated with this investment.

As of June 30, 2012, the Company had no outstanding borrowings on its JP Morgan facility, its revolving credit facility maintained by Coach Japan, and its revolving credit facility maintained by Coach Shanghai Limited. The fair value of any future borrowing may be impacted by fluctuations in interest rates.

As of June 30, 2012, Coach’s outstanding long-term debt, including the current portion, was $23.4 million. A hypothetical 10% change in the interest rate applied to the fair value of debt would not have a material impact on earnings or cash flows of Coach.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See “Index to Financial Statements,” which is located on page 47appearing at the end of this report.

Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Based on the evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, each of Lew Frankfort, the Chief Executive Officer of the Company and Jane Nielsen, the Chief Financial Officer of the Company, hashave concluded that the Company’s disclosure controls and procedures are effective as of June 30, 2012.

27, 2015.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board regarding the preparation and fair presentation of published financial statements. Management evaluated the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework.Framework in 2013. Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 201227, 2015 and concluded that it is effective.

As discussed in Note 7 to the consolidated financial statements, the Company acquired Stuart Weitzman during the fourth quarter of the year ended June 27, 2015. This acquisition, representing approximately 13% of Coach, Inc. total assets and approximately 1% of Coach, Inc. net sales, has been excluded from management’s fiscal 2015 assessment of internal control over financial reporting.
The Company’s independent auditors have issued an audit report on the Company’sCompany's internal control over financial reporting. The audit report appears on page 49 of this report.

reporting as included elsewhere herein.

Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.




49

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required to be included by Item 10 of Form 10-K will be included in the Proxy Statement for the 20122015 Annual Meeting of Stockholders and such information is incorporated by reference herein. The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 11. EXECUTIVE COMPENSATION

The information regarding executive and director compensation set forth in the Proxy Statement for the 20122015 Annual Meeting of Stockholders is incorporated herein by reference. The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information under the headings “Securities Authorized for Issuance Under Equity Compensation Plans” and “Coach Stock Ownership by Certain Beneficial Owners and Management” in the Company’s Proxy Statement for the 20122015 Annual Meeting of Stockholders is incorporated herein by reference.

There are no arrangements known to the registrant that may at a subsequent date result in a change in control of the registrant.

The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required to be included by Item 13 of Form 10-K will be included in the Proxy Statement for the 20122015 Annual Meeting of Stockholders and such information is incorporated by reference herein. The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 14. PRINCIPAL ACCOUNTANTACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the sections entitled “Fees For Audit and Other Services” and “Audit Committee Pre-Approval Policy” in the Proxy Statement for the 20122015 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.


50


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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)Financial Statements and Financial Statement SchedulesSchedules. See “Index to Financial Statements,” appearing herein.

See “Index to Financial Statements” which is located on page 47 of this report.

(b)Exhibits. See the exhibit index which is included herein.


51


SIGNATURES

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COACH, INC.
COACH, INC.
Date: August 14, 2015By:/s/ Victor Luis
  
Date: August 22, 2012By: /s/ Lew Frankfort

Name: Lew Frankfort
Victor Luis
Title: Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below on August 22, 2012.

14, 2015.
Signature Title
/s/ Lew Frankfort

Lew Frankfort
 Chairman,
/s/ Victor LuisChief Executive Officer and Director
/s/ Jerry Stritzke

Jerry StritzkeVictor Luis
 President, Chief Operating Officer(Principal Executive Officer)
/s/ Jane Nielsen

Chief Financial Officer
Jane Nielsen Executive Vice President(Principal Financial and Chief Financial Officer
(as principal financial officer and
principal accounting officer of Coach)Accounting Officer)
/s/ Susan Kropf

Jide Zeitlin
Chairman and Director
Jide Zeitlin
/s/ David DentonDirector
David Denton
/s/ Andrea GuerraDirector
Andrea Guerra
/s/ Susan Kropf Director
Susan Kropf
/s/ Gary Loveman

Gary Loveman
 Director
Gary Loveman
/s/ Ivan Menezes

Ivan Menezes
 Director
Ivan Menezes
/s/ Irene Miller

Irene MillerWilliam Nuti
 Director
William Nuti
/s/ Michael Murphy

Michael MurphyStephanie Tilenius
 Director
/s/ Jide Zeitlin

Jide ZeitlinStephanie Tilenius
 Director


52



COACH, INC. 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

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UNITED STATES
SECURITES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FINANCIAL STATEMENTS
For the Fiscal Year Ended June 30, 2012

COACH, INC.

New York, New York 10001

INDEX TO FINANCIAL STATEMENTS

Page Number
Page
Number
48Consolidated Financial Statements: 
Financial Statement Schedules for the years ended June 30, 2012, July 2, 2011 and July 3, 2010:
Schedules:  


All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statementsConsolidated Financial Statements or notesNotes thereto.



53


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Coach, Inc.
New York, New York

We have audited the accompanying consolidated balance sheets of Coach, Inc. and subsidiaries (the “Company”"Company") as of June 30, 201227, 2015 and July 2, 2011,June 28, 2014, and the related consolidated statements of income, stockholders’comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2012.27, 2015. Our audits also included the financial statement schedule listed in the Index to the financial statements.Consolidated Financial Statements. These financial statements and financial statement schedule are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on thesethe financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the CompanyCoach, Inc. and subsidiaries at June 30, 201227, 2015 and July 2, 2011,June 28, 2014, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2012,27, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’sCompany's internal control over financial reporting as of June 30, 2012,27, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 22, 201214, 2015 expressed an unqualified opinion on the Company’sCompany's internal control over financial reporting.

/s/ DeloitteDELOITTE & ToucheTOUCHE LLP


New York, New York
August 22, 2012

14, 2015


54


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Coach, Inc.
New York, New York

We have audited the internal control over financial reporting of Coach, Inc. and subsidiaries (the “Company”"Company") as of June 30, 201227, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Stuart Weitzman Topco LLC and Stuart Weitzman Intermediate LLC (referred to herein as “Stuart Weitzman”), which was acquired on May 4, 2015 and whose financial statements constitute 13% of total assets and 1% of net sales of the consolidated financial statement amounts as of and for the year ended June 27, 2015. Accordingly, our audit did not include the internal control over financial reporting at Stuart Weitzman. The Company’sCompany'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, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit.

We conducted our audit 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. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’scompany's internal control over financial reporting is a process designed by, or under the supervision of, the company’scompany's principal executive and principal financial officers, or persons performing similar functions, and effected by the company’scompany's board of directors, management, and other personnel 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’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2012,27, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended June 30, 201227, 2015 of the Company and our report dated August 22, 201214, 2015 expressed an unqualified opinion on those consolidated financial statements and consolidated financial statement schedule.

/s/ DeloitteDELOITTE & ToucheTOUCHE LLP

New York, New York
August 22, 2012

14, 2015


55


COACH, INC.
CONSOLIDATED BALANCE SHEETS


 June 27,
2015
 June 28,
2014
 (millions)
ASSETS    
Current Assets:  
   
Cash and cash equivalents$1,291.8
 $591.9
Short-term investments234.0
 276.7
Trade accounts receivable, less allowances of $3.1 and $1.4, respectively219.5
 198.6
Inventories485.1
 526.2
Deferred income taxes98.4
 112.6
Prepaid expenses73.1
 45.5
Other current assets104.6
 103.7
Total current assets2,506.5
 1,855.2
Property and equipment, net732.6
 713.9
Long-term investments406.0
 484.5
Goodwill434.2
 361.4
Intangible assets359.9
 9.8
Deferred income taxes115.8
 111.6
Other assets111.9
 126.7
Total assets$4,666.9
 $3,663.1
LIABILITIES AND STOCKHOLDERS’ EQUITY  
   
Current Liabilities:  
   
Accounts payable$222.8
 $153.9
Accrued liabilities600.6
 518.7
Current debt11.3
 140.5
Total current liabilities834.7
 813.1
Long-term debt879.1
 
Other liabilities463.2
 429.4
Total liabilities2,177.0
 1,242.5
    
See Note 12 on commitments and contingencies

 

    
Stockholders’ Equity:  
   
Preferred stock: (authorized 25.0 million shares; $0.01 par value) none issued
 
Common stock: (authorized 1,000.0 million shares; $0.01 par value) issued and outstanding – 276.6 million and 274.4 million shares, respectively2.8
 2.7
Additional paid-in-capital2,754.4
 2,646.1
Accumulated deficit(189.6) (219.5)
Accumulated other comprehensive loss(77.7) (8.7)
Total stockholders’ equity2,489.9
 2,420.6
Total liabilities and stockholders’ equity$4,666.9
 $3,663.1

See accompanying Notes.

56


COACH, INC.
CONSOLIDATED STATEMENTS OF INCOME


 Fiscal Year Ended
  June 27,
2015
 June 28,
2014
 June 29,
2013
 (millions, except per share data)
Net sales$4,191.6
 $4,806.2
 $5,075.4
Cost of sales1,283.0
 1,509.2
 1,377.3
Gross profit2,908.6
 3,297.0
 3,698.1
Selling, general and administrative expenses2,290.6
 2,176.9
 2,173.6
Operating income618.0
 1,120.1
 1,524.5
Interest (expense) income, net(6.4) 2.2
 2.4
Other expense
 
 (6.4)
Income before provision for income taxes611.6
 1,122.3
 1,520.5
Provision for income taxes209.2
 341.0
 486.1
Net income$402.4
 $781.3
 $1,034.4
Net income per share:  
   
   
Basic$1.46
 $2.81
 $3.66
Diluted$1.45
 $2.79
 $3.61
Shares used in computing net income per share:  
   
   
Basic275.7
 277.8
 282.5
Diluted277.2
 280.4
 286.3
Cash dividends declared per common share$1.350
 $1.350
 $1.238

See accompanying Notes.


57


COACH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


 Fiscal Year Ended
  June 27,
2015
 June 28,
2014
 June 29,
2013
 (millions)
Net Income$402.4
 $781.3
 $1,034.4
Other comprehensive (loss) income, net of tax:  
   
   
Unrealized gains (losses) on cash flow hedging derivatives, net3.8
 (3.1) 4.2
Unrealized (losses) gains on available-for-sale investments, net(1.3) 4.1
 (1.3)
Change in pension liability, net1.0
 0.1
 1.3
Foreign currency translation adjustments(72.5) 2.4
 (66.9)
Other comprehensive (loss) income, net of tax(69.0) 3.5
 (62.7)
Comprehensive income$333.4
 $784.8
 $971.7

 

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COACH, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)

  
 June 30,
2012
 July 2,
2011
ASSETS
          
Current Assets:
          
Cash and cash equivalents $917,215  $699,782 
Short-term investments     2,256 
Trade accounts receivable, less allowances of $9,813 and $9,544, respectively  174,462   142,898 
Inventories  504,490   421,831 
Deferred income taxes  95,419   93,902 
Prepaid expenses  39,365   38,203 
Other current assets  73,577   53,516 
Total current assets  1,804,528   1,452,388 
Property and equipment, net  644,449   582,348 
Goodwill  376,035   331,004 
Intangible assets  9,788   9,788 
Deferred income taxes  95,223   103,657 
Other assets  174,298   155,931 
Total assets $3,104,321  $2,635,116 
LIABILITIES AND STOCKHOLDERS' EQUITY
          
Current Liabilities:
          
Accounts payable $155,387  $118,612 
Accrued liabilities  540,398   473,610 
Current portion of long-term debt  22,375   795 
Total current liabilities  718,160   593,017 
Long-term debt  985   23,360 
Other liabilities  392,245   406,170 
Total liabilities  1,111,390   1,022,547 
See note on commitments and contingencies
          
Stockholders' Equity:
          
Preferred stock: (authorized 25,000,000 shares; $0.01 par value) none issued      
Common stock: (authorized 1,000,000,000 shares; $0.01 par value) issued and outstanding – 285,118,488 and 288,514,529, respectively  2,851   2,886 
Additional paid-in-capital  2,327,055   2,000,426 
Accumulated deficit  (387,450  (445,654
Accumulated other comprehensive income  50,475   54,911 
Total stockholders' equity  1,992,931   1,612,569 
Total liabilities and stockholders' equity $3,104,321  $2,635,116 



See accompanying Notes to Consolidated Financial Statements.

Notes.


58


COACH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)

   
 Fiscal Year Ended
   June 30,
2012
 July 2,
2011
 July 3,
2010
Net sales $4,763,180  $4,158,507  $3,607,636 
Cost of sales  1,297,102   1,134,966   973,945 
Gross profit  3,466,078   3,023,541   2,633,691 
Selling, general and administrative expenses  1,954,089   1,718,617   1,483,520 
Operating income  1,511,989   1,304,924   1,150,171 
Interest income, net  720   1,031   7,961 
Other expense  (7,046  (4,736   
Income before provision for income taxes  1,505,663   1,301,219   1,158,132 
Provision for income taxes  466,753   420,419   423,192 
Net income $1,038,910  $880,800  $734,940 
Net income per share
          
Basic $3.60  $2.99  $2.36 
Diluted $3.53  $2.92  $2.33 
Shares used in computing net income per share
               
Basic  288,284   294,877   311,413 
Diluted  294,129   301,558   315,848 



See accompanying Notes to Consolidated Financial Statements.


TABLE OF CONTENTS

COACH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)

       
       
 Shares of Common Stock Preferred Stock Common Stock Additional
Paid-in-
Capital
 Retained Earnings/
(Accumulated Deficit)
 Accumulated Other Comprehensive Income Total Stockholders’ Equity
Balances at June 27, 2009  318,006  $  —  $3,180  $1,189,060  $499,951  $3,851  $1,696,042 
Net income              734,940      734,940 
Unrealized losses on cash flow hedging derivatives, net of tax                 (1,757  (1,757
Translation adjustments                 27,464   27,464 
Change in pension liability, net of tax                 (163  (163
Comprehensive income                                760,484 
Shares issued for stock options and employee benefit plans  9,547      96   204,886         204,982 
Share-based compensation           81,420         81,420 
Excess tax benefit from share-based compensation           27,616         27,616 
Repurchase and retirement of common stock  (30,686     (307     (1,149,691     (1,149,998
Dividends declared              (115,253     (115,253
Balances at July 3, 2010  296,867      2,969   1,502,982   (30,053  29,395   1,505,293 
Net income              880,800      880,800 
Unrealized gains on cash flow hedging derivatives, net of tax                 627   627 
Translation adjustments                 24,351   24,351 
Change in pension liability, net of tax                 538   538 
Comprehensive income                                906,316 
Shares issued for stock options and employee benefit plans  12,052      121   343,450         343,571 
Share-based compensation           95,830         95,830 
Excess tax benefit from share-based compensation           58,164         58,164 
Repurchase and retirement of common stock  (20,404     (204     (1,097,796     (1,098,000
Dividends declared              (198,605     (198,605
Balances at July 2, 2011  288,515      2,886   2,000,426   (445,654  54,911   1,612,569 
Net income              1,038,910      1,038,910 
Unrealized gains on cash flow hedging derivatives, net of tax                 1,004   1,004 
Translation adjustments                 (4,052  (4,052
Change in pension liability, net of tax                 (1,388  (1,388
Comprehensive income                                1,034,474 
Shares issued for stock options and employee benefit plans  7,291      72   151,061         151,133 
Share-based compensation           107,511         107,511 
Excess tax benefit from share-based compensation           68,057         68,057 
Repurchase and retirement of common stock  (10,688     (107     (699,893     (700,000
Dividends declared              (280,813     (280,813
Balances at June 30, 2012  285,118  $  —  $2,851  $2,327,055  $(387,450 $50,475  $1,992,931 



See accompanying Notes to Consolidated Financial Statements.


TABLE OF CONTENTS

 Shares of Common Stock Common Stock Additional Paid-in- Capital Accumulated Deficit Accumulated Other Comprehensive Income/(Loss) Total Stockholders' Equity
 (millions, except per share data)
Balance at June 30, 2012285.1
 $2.9
 $2,327.1
 $(387.5) $50.5
 $1,993.0
Net income
 
 
 1,034.4
 
 1,034.4
Other comprehensive loss
 
 
 
 (62.7) (62.7)
Shares issued for stock options and employee benefit plans3.9
 
 46.1
 
 
 46.1
Share-based compensation
 
 120.5
 
 
 120.5
Excess tax benefit from share-based compensation
 
 26.8
 
 
 26.8
Repurchase and retirement of common stock(7.1) (0.1) 
 (399.9) 
 (400.0)
Dividends declared ($1.238 per share)
 
 
 (348.9) 
 (348.9)
Balance at June 29, 2013281.9
 2.8
 2,520.5
 (101.9) (12.2) 2,409.2
Net income
 
 
 781.3
 
 781.3
Other comprehensive income
 
 
 
 3.5
 3.5
Shares issued for stock options and employee benefit plans2.7
 
 9.2
 
 
 9.2
Share-based compensation
 
 104.9
 
 
 104.9
Excess tax benefit from share-based compensation
 
 11.5
 
 
 11.5
Repurchase and retirement of common stock(10.2) (0.1) 
 (524.8) 
 (524.9)
Dividends declared ($1.350 per share)
 
 
 (374.1) 
 (374.1)
Balance at June 28, 2014274.4
 2.7
 2,646.1
 (219.5) (8.7) 2,420.6
Net income
 
 
 402.4
 
 402.4
Other comprehensive loss
 
 
 
 (69.0) (69.0)
Shares issued for stock options and employee benefit plans2.2
 0.1
 19.5
 
 
 19.6
Share-based compensation
 
 94.4
 
 
 94.4
Excess tax shortfall from share-based compensation
 
 (5.6) 
 
 (5.6)
Repurchase and retirement of common stock
 
 
 
 
 
Dividends declared ($1.350 per share)
 
 
 (372.5) 
 (372.5)
Balance at June 27, 2015276.6
 $2.8
 $2,754.4
 $(189.6) $(77.7) $2,489.9

See accompanying Notes.

59


COACH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)

   
 Fiscal Year Ended
   June 30,
2012
 July 2,
2011
 July 3,
2010
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income $1,038,910  $880,800  $734,940 
Adjustments to reconcile net income to net cash from operating activities:
               
Depreciation and amortization  132,909   125,106   126,744 
Provision for bad debt  595   2,014   (698
Share-based compensation  107,511   95,830   81,420 
Excess tax benefit from share-based compensation  (68,057  (58,164  (27,616
Deferred income taxes  27,568   39,724   (17,129
Other noncash credits and (charges), net  217   9,790   (10,449
Changes in operating assets and liabilities:
               
(Increase) decrease in trade accounts receivable  (26,565  (31,831  4,344 
Increase in inventories  (71,680  (64,720  (33,878
(Increase) decrease in other assets  (22,812  (42,174  35,640 
(Decrease) increase in other liabilities  (17,581  13,421   28,477 
Increase in accounts payable  36,494   9,742   1,019 
Increase in accrued liabilities  84,180   53,733   68,063 
Net cash provided by operating activities  1,221,689   1,033,271   990,877 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Acquisition of interest in equity method investment     (9,559   
Acquisitions of distributors  (53,235     (1,200
Purchases of property and equipment  (184,309  (147,744  (81,116
Loans to related parties  (24,138      
Purchases of investments     (224,007  (229,860
Proceeds from sales and maturities of investments  2,256   321,679   129,932 
Net cash used in investing activities  (259,426  (59,631  (182,244
CASH FLOWS FROM FINANCING ACTIVITIES
               
Dividend payments  (260,276  (178,115  (94,324
Repurchase of common stock  (700,000  (1,098,000  (1,149,998
Repayment of long-term debt  (795  (746  (679
Repayments on revolving credit facility        (7,496
Proceeds from share-based awards  185,071   362,157   213,296 
Taxes paid to net settle share-based awards  (33,938  (18,586  (8,314
Excess tax benefit from share-based compensation  68,057   58,164   27,616 
Net cash used in financing activities  (741,881  (875,126  (1,019,899
Effect of exchange rate changes on cash and cash equivalents  (2,949  4,798   7,374 
Increase (decrease) in cash and cash equivalents  217,433   103,312   (203,892
Cash and cash equivalents at beginning of year  699,782   596,470   800,362 
Cash and cash equivalents at end of year $917,215  $699,782  $596,470 
Supplemental information:
               
Cash paid for income taxes $438,884  $364,493  $364,156 
Cash paid for interest $1,793  $1,233  $1,499 
Noncash investing activity – property and equipment obligations $31,363  $23,173  $16,526 



See accompanying Notes to Consolidated Financial Statements.


 Fiscal Year Ended
  June 27,
2015
 June 28,
2014
 June 29,
2013
 (millions)
CASH FLOWS FROM OPERATING ACTIVITIES  
   
   
Net income$402.4
 $781.3
 $1,034.4
Adjustments to reconcile net income to net cash provided by operating activities:  
   
   
Depreciation and amortization191.8
 189.4
 163.0
Provision for bad debt1.7
 1.6
 (0.5)
Share-based compensation88.9
 95.1
 120.5
Excess tax shortfall (benefit) from share-based compensation5.6
 (11.5) (26.8)
Transformation and other actions59.7
 108.2
 25.7
Deferred income taxes21.5
 (22.8) (6.5)
Other noncash charges, net(3.2) 6.5
 1.2
Changes in operating assets and liabilities:  
   
   
Trade accounts receivable0.3
 (23.7) (14.2)
Inventories29.2
 (64.1) (38.6)
Other liabilities(5.9) 5.7
 (13.0)
Accounts payable64.4
 (30.2) 30.4
Accrued liabilities63.2
 14.1
 98.9
Other balance sheet changes, net17.8
 (64.2) 39.5
Net cash provided by operating activities937.4
 985.4
 1,414.0
CASH FLOWS USED IN INVESTING ACTIVITIES  
   
   
Acquisition of interest in equity method investment(139.1) (87.2) (93.9)
Acquisitions, net of cash acquired(519.6) (3.8) (53.3)
Purchases of property and equipment(199.3) (219.6) (241.4)
Loans to related parties
 
 (11.1)
Purchases of investments(49.6) (543.4) (170.8)
Proceeds from maturities and sales of investments305.2
 146.3
 
Acquisition of lease rights(10.5) 
 
Net cash used in investing activities(612.9) (707.7) (570.5)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES  
   
   
Dividend payments(371.8) (376.5) (339.7)
Repurchase of common stock
 (524.9) (400.0)
Proceeds from issuance of long-term debt, net of discount896.7
 
 
Debt issuance costs(6.6) 
 
Repayment of debt(0.5) (0.5) (22.3)
Proceeds from share-based awards36.5
 48.6
 80.4
Borrowings under revolving credit facility340.0
 450.0
 
Repayment of revolving credit facility(480.0) (310.0) 
Taxes paid to net settle share-based awards(15.6) (40.3) (34.3)
Excess tax (shortfall) benefit from share-based compensation(5.6) 11.5
 26.8
Acquisition-related payment of contingent consideration(3.8) (6.0) 
Net cash provided by (used in) financing activities389.3
 (748.1) (689.1)
Effect of exchange rate changes on cash and cash equivalents(13.9) (0.5) (8.8)
Increase (decrease) in cash and cash equivalents699.9
 (470.9) 145.6
Cash and cash equivalents at beginning of year591.9
 1,062.8
 917.2
Cash and cash equivalents at end of year$1,291.8
 $591.9
 $1,062.8
Supplemental information:  
   
   
Cash paid for income taxes, net$180.3
 $384.2
 $445.0
Cash paid for interest$1.4
 $1.3
 $1.3
Noncash investing activity – property and equipment obligations$59.5
 $28.7
 $34.3

See accompanying Notes.

60

TABLE OF CONTENTS

COACH, INC.


Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)



1. NATURE OF OPERATIONS

Coach, Inc. (the “Company”) designsis a leading New York design house of modern luxury accessories and markets high-quality, modern American classic accessories.lifestyle brands. The Company’s primary product offerings, manufactured by third-party suppliers, include women’s and men’s bags, accessories,small leather goods, footwear, business cases, footwear, wearables,ready-to-wear including outerwear, watches, weekend and travel accessories, scarves, sunwear, fragrance, jewelry, sunwear, travel bags watches and fragrance. Coach’sother lifestyle products. Coach branded products are sold through the Direct-to-ConsumerNorth America, International and Other reportable segments. The North America segment which includes Company-operatedsales to North American consumers through Coach-operated stores (including the Internet), and sales to wholesale customers and distributors. The International segment includes sales to consumers through Coach-operated stores (including the Internet) and concession shop-in-shops in North America; Japan;Japan and mainland China, Coach-operated stores and concession shop-in-shops in Hong Kong, Macau, mainland China; Taiwan; Singapore, Taiwan, Malaysia, South Korea, the United Kingdom, France, Ireland, Spain, Portugal, Germany, Italy, Belgium and the Internet, and through the Indirect segment, which includesNetherlands as well as sales to wholesale customers and distributors in over 20 countries,approximately 45 countries. The Other segment consists of Coach brand sales generated in other ancillary channels, including licensing and disposition. The Other segment also consists of sales generated through the United States, and royalties earned on licensed products. Beginning withStuart Weitzman brand during the first quarterfinal two months of fiscal 2013, the Direct-to-Consumer segment also includes Coach-operated stores in Malaysia and Korea.

2015.

2. SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to June 30. Unless otherwise stated, references to years in the financial statements relate to fiscal years. The fiscal years ended June 30, 201227, 2015 (“fiscal 2012”2015”), June 28, 2014 (“fiscal 2014”) and July 2, 2011June 29, 2013 (“fiscal 2011”2013”) were each 52-week periods. The fiscal year endedending July 3, 20102, 2016 (“fiscal 2010”) was a 53-week period. The fiscal year ending June 29, 2013 (“fiscal 2013”2016”) will be a 52-week53-week period.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results could differ from estimates in amounts that may be material to the financial statements.

Significant estimates inherent in the preparation of the consolidated financial statements include reserves for the realizability of inventory; customer returns, end-of-season markdowns, and operational chargebacks; reserves for litigation and other contingencies; useful lives and impairments of long-lived tangible and intangible assets; accounting for income taxes and related uncertain tax positions; the valuation of stock-based compensation awards and related expected forfeiture rates; reserves for restructuring; and accounting for business combinations, amongst others.
Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all 100% owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash balances and highly liquid investments with a maturity of three months or less at the date of purchase.

Investments

Long-term investments primarily consist of high-credit quality U.S. government and agencynon-U.S. issued corporate debt securities, as well as municipalU.S. Treasuries and government and corporate debt securities. Long-term investments areagency securities, classified as available-for-sale, and recorded at fair value, with unrealized gains and losses recorded in other comprehensive income. Long-term investments also include the equity method investment related to the Hudson Yards joint venture. Short-term investments consist primarily of U.S. Treasuries and government agency securities, and high-credit quality U.S. and non-U.S. issued corporate debt securities with original maturities greater than three months and with maturities within one year of balance sheet date, classified as available-for-sale and held-to-maturity. Held-to-maturity investments are recorded at amortized cost, which approximates fair value. Dividend and interest income are recognized when earned.

Short-term investments consist of commercial paper; the adjusted book value of the commercial paper equals its fair value. As

Investments in companies in which the Company does not have the intent to sell and will not be required to sell these securities until maturity, investmentshas significant influence, but less than a controlling financial interest, are classified as held-to-maturity and stated at amortized cost.

In fiscal 2011, the Company participated in the organization of a joint venture. The Company has contributed a total of $9,559 in cash to the joint venture through June 30, 2012. This investment, which consists of a 50% equity interest, is accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns between 20% and 50% of the investee, however, other factors are considered, such as board representation and the rights to participate in


61


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


the day-to-day operations of the business. The Company has an equity method investment related to an equity interest in an entity formed for the purpose of accounting.

developing a new office tower in Manhattan. Refer to Note 6, "Investments," for further information.

Additionally, GAAP requires the consolidation of all entities for which a Company has a controlling voting interest and all variable interest entities (“VIEs”) for which a Company is deemed to be the primary beneficiary. An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights.
From time to time, the Company may make an investment that requires judgment in determining whether the entity is a VIE. If it is determined that the entity is a VIE, the Company must assess whether it is the primary beneficiary.
Concentration of Credit Risk

Financial instruments that potentially expose Coachthe Company to concentration of credit risk consist primarily of cash and cash equivalents, investments and accounts receivable. The Company places its cash investments


TABLE OF CONTENTS

COACH, INC.

Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

with high-credit quality financial institutions and currently invests primarily in money market instruments, U.S. government and agency debt securities, municipal government and corporate debt securities and money market instrumentsbank deposits placed with major banks and financial institutions. Accounts receivable is generally diversified due to the number of entities comprising Coach’sthe Company's customer base and their dispersion across many geographical regions. The Company believes no significant concentration of credit risk exists with respect to these cash investments and accounts receivable.

Inventories

Inventories consist primarily of finished goods and

The Company’s inventories are valuedreported at the lower of cost (determined by the first-in, first-out method) or market. Inventory costs include material, conversion costs, freight and duties.

duties and are primarily determined by the first-in, first-out method. The Company reserves for inventory, including slow-moving and aged inventory, based on current product demand, expected future demand and historical experience. A decrease in product demand due to changing customer tastes, buying patterns or increased competition could impact the Company's evaluation of its inventory and additional reserves might be required.

Property and Equipment,

Net

Property and equipment, arenet is stated at cost less accumulated depreciation.depreciation including the impact of long-lived asset impairment and disposals. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Buildings are depreciated over 40 years. Machinery and equipment are depreciated over lives of five to seven years, and furniture and fixtures are depreciated over lives of three to fiveten years, and computer software is depreciated over lives of three to seven years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease terms. Maintenance and repair costs are charged to earnings as incurred while expenditures for major renewals and improvements are capitalized. Upon the disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts.

Operating Leases

The Company’s leases for office space, retail stores and the distribution facility are accounted for as operating leases. The majority of the Company’s lease agreements provide for tenant improvement allowances, rent escalation clauses and/or contingent rent provisions. Tenant improvement allowances are recorded as a deferred lease credit on the balance sheet and amortized over the lease term, which is consistent with the amortization period for the constructed assets. Rent expense is recorded when the Company takes possession of a store to begin its buildout, which generally occurs before the stated commencement of the lease term and is approximately 60 to 90 days prior to the opening of the store.

Goodwill and Other Intangible Assets

Goodwill and indefinite life intangible assets are evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performed an impairment evaluation in fiscal 2012, fiscal 2011 and fiscal 2010 and concluded that there was no impairment of its goodwill or indefinite life intangible assets.

Valuation of Long-Lived Assets

Long-lived assets, such as property and equipment, are evaluated for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. The evaluation is based on a reviewIn evaluating long-lived assets for recoverability, the Company uses its best estimate of forecasted operatingfuture cash flows andexpected to result from the profitabilityuse of the related asset group. Angroup and its eventual disposition. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized ifequal to the forecasteddifference between the carrying value of such asset and its fair value, considering external market participant assumptions. The Company recorded impairment losses of $0.0 million in fiscal 2015, $35.5 million in fiscal 2014, and $16.6 million in fiscal 2013, within Selling, general and administrative expenses.
In determining future cash flows, the Company takes various factors into account, including the effects of macroeconomic trends such as consumer spending, in-store capital investments, promotional cadence, the level of advertising and changes in merchandising strategy. Since the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that future cash flows do not meet expectations.

62


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


Operating Leases
The Company’s leases for office space, retail locations and distribution facilities are less thanaccounted for as operating leases. Certain of the Company's leases contain renewal options, rent escalation clauses, and/or landlord incentives. Renewal terms generally reflect market rates at the time of renewal. Rent expense for non-cancelable operating leases with scheduled rent increases and/or landlord incentives is recognized on a straight-line basis over the lease term, including any applicable rent holidays, beginning with the lease commencement date, or the date the Company takes control of the leased space, whichever is sooner. The excess of straight-line rent expense over scheduled payment amounts and landlord incentives is recorded as a deferred rent liability. As of the end of fiscal 2015 and fiscal 2014, deferred rent obligations of $122.4 million and $135.2 million, respectively, were classified primarily within other non-current liabilities in the Company's consolidated balance sheets. Certain rentals are also contingent upon factors such as sales. Contingent rentals are recognized when the achievement of the target (i.e., sale levels), which triggers the related rent payment, is considered probable and estimable.
Asset retirement obligations represent legal obligations associated with the retirement of a tangible long-lived asset. The Company’s asset retirement obligations are primarily associated with leasehold improvements that we are contractually obligated to remove at the end of a lease to comply with the lease agreement. When such an obligation exists, the Company recognizes an asset retirement obligation at the inception of a lease at its estimated fair value. The asset retirement obligation is recorded in current liabilities or non-current liabilities (based on the expected timing of payment of the related costs) and is subsequently adjusted for any changes in estimates. The associated estimated asset retirement costs are capitalized as part of the carrying amount of the asset.long-lived asset and depreciated over its useful life. As of the end of fiscal 2015 and fiscal 2014, the Company had asset retirement obligations of $16.0 million and $18.4 million, respectively, primarily classified within other non-current liabilities in the Company's consolidated balance sheets.
Business Combinations
In connection with an acquisition, the Company records all assets acquired and liabilities assumed of the acquired business at their acquisition date fair value, including the recognition of contingent consideration at fair value on the acquisition date. These fair value determinations require judgment and may involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items. Furthermore, the Company may utilize or consider independent third-party valuation firms when necessary. Refer to Note 7, "Acquisitions," for detailed disclosures related to our acquisitions.
Goodwill and Other Intangible Assets
Upon acquisition, the Company estimates and records the fair value of purchased intangible assets, which primarily consists of trademarks and trade names, customer relationships, lease rights and order backlog. The fair values of these intangible assets are estimated based on management's assessment, considering independent third-party appraisals when necessary. The excess of the purchase consideration over the fair value of net assets acquired, both tangible and intangible, is recorded as goodwill. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. Estimates of fair value for finite-lived intangible assets are primarily determined using discounted cash flows, with consideration of market comparisons and recent transactions. This approach may use significant estimates and assumptions, including projected future cash flows, discount rates and growth rates.
Goodwill and certain other intangible assets deemed to have indefinite useful lives, including trademarks and trade names, are not amortized, but are assessed for impairment at least annually. The Company generally performs its annual goodwill and indefinite-lived intangible assets impairment analysis using a qualitative approach to determine whether it is more likely than not that the fair values of such assets are less than their respective carrying values. If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of the asset exceeds its carrying value, a quantitative test is performed. The quantitative goodwill impairment test is a two-step process. The first step is to identify the existence of potential impairment by comparing the fair value of each reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired and performance of the second step of the quantitative goodwill impairment test is unnecessary.
If the carrying value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying value of that goodwill. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment evaluationloss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill that would be recognized in a business

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


combination. In other words, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value was the purchase price paid to acquire the reporting unit.
Determination of the fair value of a reporting unit and the fair value of individual assets and liabilities of a reporting unit is based on management's assessment, considering independent third-party appraisals when necessary. Furthermore, this determination is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the amount of any such charge. Estimates of fair value are primarily determined using discounted cash flows, market comparisons, and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows, discount rates, growth rates, and determination of appropriate market comparables.
The Company performs its annual impairment assessment of goodwill, including trademarks and trade names, during the fourth quarter of each fiscal 2012, fiscal 2011 and fiscal 2010 and concludedyear. The Company determined that there was no impairment in fiscal 2015, fiscal 2014 or fiscal 2013 as the fair values of its long-lived assets for stores expected to remain open.

the Company's reporting units significantly exceeded their respective carrying values.

Stock Repurchase and Retirement

Coach

The Company accounts for stock repurchases and retirements by allocating the repurchase price to common stock additional paid-in-capital and retained earnings. The repurchase price allocation is based upon the equity contribution associated with historical issuances, beginning with the earliest issuance. Under Maryland law, Coach’sthe Company's state of incorporation, treasury shares are not allowed. As a result, all repurchased shares are


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COACH, INC.

Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

retired when acquired. DuringThe Company may terminate or limit the second quarterstock repurchase program at any time. The Company's stock repurchase plan expired at the end of fiscal 2008, the Company’s total cumulative stock repurchases exceeded the total shares issued in connection with the Company’s October 2000 initial public offering, and stock repurchases in excess of this amount are assumed to be made from the Company’s April 2001 Sara Lee exchange offer. Shares issued in connection with this exchange offer were accounted for as a contribution to common stock and retained earnings. Therefore, stock repurchases and retirements associated with the exchange offer are accounted for by allocation of the repurchase price to common stock and retained earnings. During the fourth quarter of fiscal 2010, cumulative stock repurchases allocated to retained earnings have resulted in an accumulated deficit balance.2015. Since its initial public offering, the Company has not experienced a net loss in any fiscal year, and the net accumulated deficit balance in stockholders’ equity is attributable to the cumulative stock repurchase activity. The total cumulative amount of common stock repurchase price allocated to retained earnings as of June 30, 201227, 2015 and June 28, 2014 was approximately $5,800,000.

$6.73 billion.

Revenue Recognition

Sales

Revenue is recognized by the Company when there is persuasive evidence of an arrangement, delivery has occurred (and risks and rewards of ownership have been transferred to the buyer), price has been fixed or is determinable, and collectability is reasonably assured.
Retail store and concession-based shop-in-shop revenues are recognized at the point of sale, which occurs when merchandise is sold in an over-the-counter consumer transaction or, fortransaction. These revenues are recognized net of estimated returns at the wholesale channels, upon shipmenttime of merchandise, when title passessale to consumers. Internet revenue from sales of products ordered through the customer. Revenue associated with gift cardsCompany’s e-commerce sites is recognized upon redemption. The Companydelivery and receipt of the shipment by its customers and includes shipping and handling charges paid by customers. Internet revenue is also reduced by an estimate for returns.
Wholesale revenue is recognized at the time title passes and risk of loss is transferred to customers. Wholesale revenue is recorded net of estimates the amount of gift cards that will not be redeemed or remitted as escheatable property,returns, discounts and markdown allowances. Returns and allowances require pre-approval from management and discounts are based on trade terms. Estimates for markdown reserves are based on historical redemption patternstrends, actual and escheatment laws,forecasted seasonal results, an evaluation of current economic and records such amountsmarket conditions, retailer performance, and, in certain cases, contractual terms. The Company reviews and refines these estimates on at least a quarterly basis. The Company’s historical estimates of these costs have not differed materially from actual results.
Gift cards issued by the Company are recorded as breakagea liability until they are redeemed, at which point revenue is recognized. The Company recognizes income for unredeemed gift cards when we can determine the portionlikelihood of the liability where redemptiona gift card being redeemed by a customer is remote, which is approximately two years after the gift card is issued.issued, and the Company determines that it does not have a legal obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property. Revenue associated with gift card breakage is not material to the Company’s net operating results. Allowances
The Company accounts for estimated uncollectible accounts, discountssales taxes and returns are provided when sales are recorded. Royalty revenues are earned through license agreements with manufacturers of other consumer products that incorporate the Coach brand. Revenue earned under these contracts is recognized based upon reported sales from the licensee. Taxes collected from customers and remitted to governmental authorities are recordedrelated taxes on a net basis, and therefore are excludedexcluding such taxes from revenue.

Cost of Sales

Cost of sales consists of cost of merchandise, inbound freight and duty expenses,inventory costs and other inventory-relatedrelated costs such as reserves for inventory realizability and shrinkage, destruction costs, damages replacements and production overhead.

replacements.


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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


Selling, General and Administrative Expenses

("SG&A")

Selling, general and administrative expenses are comprised of four categories: (1) selling; (2) advertising, marketing and design; (3) distribution and consumercustomer service; and (4) administrative. Selling expenses include store employee compensation, store occupancy costs, store supply costs, wholesale and retail account administration compensation globally and all Coach Japan, Coach China, Coach Singapore, and Coach Taiwanthe Company's international operating expenses. These expenses are affected by the number of Company-operated stores open during any fiscal period and store performance, as compensation and rent expenses vary with sales. Advertising, marketing and design expenses include employee compensation, media space and production, advertising agency fees, new product design costs, public relations and market research expenses and mail order costs.expenses. Distribution and consumercustomer service expenses include warehousing, order fulfillment, shipping and handling, customer service, employee compensation and bag repair costs. Administrative expenses include compensation costs for the“corporate” functions including: executive, finance, human resources, legal and information systems departments, as well as corporate headquarters occupancy costs, and consulting fees and software expenses.

Preopening Costs

Costs associated with the opening Administrative expenses also include global equity compensation expense.

Shipping and Handling
Shipping and handling costs incurred were $41.2 million, $61.9 million and $66.8 million in fiscal 2015, fiscal 2014 and fiscal 2013, respectively, and are included in selling, general and administrative expenses. The Company includes inbound product-related transportation costs from service providers within cost of new stores are expensedsales. The Company includes certain transportation-related costs related to its distribution network in the period incurred.

selling, general and administrative expenses rather than in cost of sales.

Advertising

Advertising costs include expenses related to direct marketing activities, such as catalogs,direct mail pieces, digital and other media and production costs. In fiscal 2012,2015, fiscal 20112014 and fiscal 2010,2013, advertising expenses for the Company totaled $89,159, $74,988,


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COACH, INC.

Notes$160.9 million (including $2.0 million due to Consolidated Financial Statements (Continued)
(dollarsStuart Weitzman), $130.1 million and shares in thousands, except per share data)

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

and $61,241,$102.7 million respectively, and are included in selling, general and administrative expenses. Advertising costs are expensed when the advertising first appears.

Share-Based Compensation

The Company measuresrecognizes the cost of employee services received in exchange for an award of equity instrumentsawards to employees and the non-employee Directors based on the grant-date fair value of those awards. The grant-date fair values of share unit awards are based on the award.fair value of the Company's common stock on the date of grant. The grant-date fair value of stock option awards is determined using the award is recognized as compensation expense overBlack-Scholes option pricing model and involves several assumptions, including the vesting period.

Shippingexpected term of the option, expected volatility and Handling

Shipping and handling costs incurred were $52,240, $31,522, and $22,661 in fiscal 2012, fiscal 2011 and fiscal 2010, respectively, anddividend yield. The expected term of options represents the period of time that the options granted are included in selling, general and administrative expenses.

Income Taxes

The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Under ASC 740, a deferred tax liability or asset is recognized for the estimated future tax consequences of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. In evaluating the unrecognized tax benefits associated with the Company’s various tax filing positions, management records these positions using a more-likely-than-not recognition threshold for income tax positions taken or expected to be takenoutstanding and is based on historical experience. Expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded options on the Company's stock. Dividend yield is based on the current expected annual dividend per share and the Company’s stock price. Changes in accordance with ASC 740.the assumptions used to determine the Black-Scholes value could result in significant changes in the Black-Scholes value.

For stock options and share unit awards, the Company recognizes share-based compensation net of estimated forfeitures and revises the estimates in subsequent periods if actual forfeitures differ from the estimates. The Company estimates the forfeiture rate based on historical experience as well as expected future behavior.
The Company grants performance-based share awards to certain key executives, the vesting of which is subject to the executive’s continuing employment and the Company's or individual's achievement of certain performance goals. On a quarterly basis, the Company assesses actual performance versus the predetermined performance goals, and adjusts the share-based compensation expense to reflect the relative performance achievement. Actual distributed shares are calculated upon conclusion of the service and performance periods, and include dividend equivalent shares. If the performance-based award incorporates a market condition, the grant-date fair value of such award is determined using a Monte Carlo Simulation.

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


Income Taxes
The Company’s effective tax rate is based on pre-tax income, statutory tax rates, tax laws and regulations, and tax planning strategies available in the various jurisdictions in which the Company operates. The Company classifies interest and penalties if present, on uncertain tax positions in the Provisionprovision for income taxes. See the note on Change in Accounting Principle.

Fair Value of Financial Instruments

As of June 30, 2012 and July 2, 2011, the carrying values of cash and cash equivalents, trade accounts receivable, accounts payable and accrued liabilities approximated their values dueThe Company records net deferred tax assets to the short-term maturitiesextent it believes that it is more likely than not that these assets will be realized. In making such determination, the Company considers all available evidence, including scheduled reversals of these accounts.deferred tax liabilities, projected future taxable income, tax planning strategies and recent and expected future results of operation. The Company has evaluated its Industrial Revenue Bond and mortgage and believes,reduces deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some amount of deferred tax assets is not expected to be realized. Deferred taxes are not provided on the undistributed earnings of subsidiaries as such amounts are considered to be permanently invested.

The Company recognizes the impact of tax positions in the financial statements if those positions will more likely than not be sustained on audit, based on the interest rates, related terms and maturities,technical merits of the position. Although the Company believes that the fair valuesestimates and assumptions used are reasonable and legally supportable, the final determination of such instruments approximate their carrying amounts. See notetax audits could be different than that which is reflected in historical tax provisions and recorded assets and liabilities. Tax authorities periodically audit the Company’s income tax returns and the tax authorities may take a contrary position that could result in a significant impact on Fair Value Measurements forour results of operations. Significant management judgment is required in determining the fair valueseffective tax rate, in evaluating our tax positions and in determining the net realizable value of deferred tax assets.
Derivative Instruments
Substantially all of the Company’s investments astransactions involving international parties, excluding international consumer sales, are denominated in U.S. dollars, which limits the Company’s exposure to the transactional effects of June 30, 2012foreign currency exchange rate fluctuations. However, the Company is exposed to foreign currency exchange risk related to its foreign operating subsidiaries’ U.S. dollar-denominated inventory purchases and July 2, 2011.

Coach Japan and Coach Canadavarious cross-currency intercompany loans. The Company uses derivative financial instruments to manage these risks. These derivative transactions are in accordance with the Company’s risk management policies. The Company does not enter into foreign currencyderivative transactions for speculative or trading purposes.

The Company records all derivative contracts that hedge certain U.S. dollar- denominated inventory purchases. Additionally, the Company entered into forward exchange and cross-currency swap contracts to hedge various intercompany and related party loans denominated in various foreign currencies. These contracts qualify for hedge accounting and have been designated as cash flow hedges. Theat fair value of these contracts is recorded in other comprehensive income (loss) and recognized in earnings inon the period in which the hedged item is also recognized in earnings.consolidated balance sheet. The fair values of the foreign currency derivatives are based on the forward curves of the specific indices upon which settlement is based and includesinclude an adjustment for the Company’s credit risk. Considerable judgmentJudgment is required of management in developing estimates of fair value. The use of different market assumptions or methodologies could affect the estimated fair value.

For derivative instruments that qualify for hedge accounting, the effective portion of changes in the fair value of these instruments is either (i) offset against the changes in fair value of the hedged assets or liabilities through earnings or (ii) recognized as a component of accumulated other comprehensive income (loss) ("AOCI") until the hedged item is recognized in earnings, depending on whether the derivative is being used to hedge changes in fair value or cash flows, respectively.
Each derivative instrument entered into by the Company that qualifies for hedge accounting is expected to be highly effective at reducing the risk associated with the exposure being hedged. For each derivative that is designated as a hedge, the Company documents the related risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure, as well as how hedge effectiveness will be assessed over the term of the instrument. The extent to which a hedging instrument has been and is expected to remain highly effective in achieving offsetting changes in fair value or cash flows is assessed and documented by the Company on at least a quarterly basis.
To the extent that a derivative designated as a cash flow hedge is not considered to be effective, any change in its fair value related to such ineffectiveness is immediately recognized in earnings within foreign currency gains (losses). If it is determined that a derivative instrument has not been highly effective, and will continue not to be highly effective in hedging the designated exposure, hedge accounting is discontinued and further gains (losses) are recognized in earnings within foreign currency gains (losses). Upon discontinuance of hedge accounting, the cumulative change in fair value of the derivative previously recorded in AOCI is recognized in earnings when the related hedged item affects earnings, consistent with the original hedging strategy, unless the forecasted transaction is no longer probable of occurring, in which case the accumulated amount is immediately recognized in earnings within foreign currency gains (losses).

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Notes to Consolidated Financial Statements (Continued)


As a result of the use of derivative instruments, the Company may be exposed to the risk that the counterparties to such contacts will fail to meet their contractual obligations. To mitigate this counterparty credit risk, the Company has a policy of only entering into contracts with carefully selected financial institutions based upon an evaluation of their credit ratings, among other factors.
The fair values of the Company’s derivative instruments are recorded on its consolidated balance sheets on a gross basis. For cash flow reporting purposes, the Company classifies proceeds received or amounts paid upon the settlement of a derivative instrument in the same manner as the related item being hedged, primarily within cash from operating activities.
Hedging Portfolio
The Company enters into derivative contracts primarily to reduce its risks related to exchange rate fluctuations on U.S. dollar-denominated inventory purchases and various cross-currency intercompany loans. To the extent its derivative contracts designated as cash flow hedges are highly effective in offsetting changes in the value of the hedged items, the related gains (losses) are initially deferred in AOCI and subsequently recognized in the consolidated statements of income as follows:
Zero-cost collars and forward foreign currency exchange contracts - These derivatives are primarily executed by two of the Company’s businesses outside of the United States (Coach Japan and Coach Canada), and are recognized as part of the cost of the inventory purchases being hedged within cost of sales, when the related inventory is sold to a third party. Current maturity dates range from July 2015 to June 2016.
Cross currency swaps - These derivatives relate to intercompany loans, and are recognized within foreign currency gains (losses) generally in the period in which the related payments being hedged are revalued or settled.
Forward foreign currency exchange contracts, designated as fair value hedges and associated with intercompany and other contractual obligations, are recognized within foreign currency gains (losses) generally in the period in which the related payments being hedged are revalued. Current maturity dates are in July 2015, and are renewed monthly when applicable.
Foreign Currency

The functional currency of the Company's foreign operations is generally the applicable local currency. Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the weighted-average exchange rates for the period. The resulting translation adjustments are recordedincluded in the consolidated statements of comprehensive income as a component of accumulated other comprehensive income (loss) (“OCI”) and in the consolidated statements of equity within stockholders’AOCI. Gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature also are included within this component of equity.

The Company also recognizes gains and losses on transactions that are denominated in a currency other than the respective entity's functional currency in earnings. Foreign currency transaction gains and losses also include amounts realized on the settlement of certain intercompany loans with foreign subsidiaries.
Reclassifications
Refer to Note 16, "Segment Information," for a description of a product category classification adjustment made to prior year periods to reflect the current year classification.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"), which modifies the presentation of debt issuance costs in financial statements. Under this new guidance, the Company will be required to present these costs in our consolidated balance sheets as a direct deduction from the related debt liability, rather than the previous classification as a deferred asset within Other assets. ASU 2015-03 does not change the recognition and measurement requirements for debt issuance costs. The Company elected to early-adopt ASU 2015-03 as of the end of fiscal 2015, and has applied the provisions retrospectively. The adoption of ASU 2015-03 has resulted in the reclassification of $6.4 million of unamortized debt issuance costs related to the Company's 4.250% Senior Notes (see Note 11, "Debt") from Other assets to Long-term debt within its consolidated balance sheet as of June 27, 2015. There was no impact to the prior year Consolidated Financial Statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” which provides a single, comprehensive revenue recognition model for all contracts with customers, and contains principles to determine the measurement of revenue and timing of when it is recognized. The requirements of the new standard will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for the Company is the first quarter of fiscal 2019. Early adoption will be permitted for annual reporting periods beginning after December 15, 2016,

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


(dollars and shares in thousands, except per share data)

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Net Income Per Share

Basic net income per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted net income per share is calculated similarly but includes potential dilution from the exercise of stock options and vesting of stock awards.

Reclassification

Certain prior year amounts, specifically relating to cash flows in connection with share-based awards, have been reclassified to conform to the current year presentation in the Consolidated Statement of Cash Flows.

Recent Accounting Pronouncements

In May 2011, Accounting Standards Codification 820-10 “Fair Value Measurements and Disclosures,” was amended to clarify certain disclosure requirements and improve consistency with international reporting standards. This amendment is to be applied prospectively and was effective for the Company beginning January 1, 2012. The adoption of this amendment did not have a material effect on the Company’s consolidated financial statements.

Accounting Standards Codification Topic 220, “Comprehensive Income,” was amended in June 2011 to require entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income under current GAAP. This guidance is effective for the Company’s fiscal year and


including interim periods beginning July 1, 2012.within those annual periods. The Company is currently evaluating this guidance, but does not expect its adoption to have a material effect on its consolidated financial statements.

In September 2011, Accounting Standards Codification 350-20, “Intangibles — GoodwillConsolidated Financial Statements.

3. TRANSFORMATION AND OTHER ACTIONS
Fiscal 2015 and Other —  Goodwill,” was amendedFiscal 2014 Charges
Transformation Plan
During the fourth quarter of fiscal 2014, the Company announced a multi-year strategic plan to allow entitiestransform the brand and reinvigorate growth. This multi-faceted, multi-year transformation plan (the "Transformation Plan"), which will continue through fiscal 2016, includes key operational and cost measures, including: (i) the investment in capital improvements in stores and wholesale locations to assess qualitative factorsdrive comparable sales improvement; (ii) the optimization and streamlining of our organizational model as well as the closure of underperforming stores in North America, and select International stores; (iii) the realignment of inventory levels and mix to determine if it is more-likely-than-not that goodwill might be impaired,reflect the Company's elevated product strategy and whether it is necessaryconsumer preferences; (iv) the investment in incremental advertising costs to performelevate consumer perception of our brand, drive sales growth and promote this new strategy, which started in fiscal 2015; and (v) the two-step goodwill impairment test required under current accounting standards. This guidance is effective forsignificant scale-back of promotional cadence in an increased global promotional environment, particularly within the Company’soutlet Internet sales site, which began in fiscal year beginning July 1, 2012. The2014.
As of June 27, 2015, the Company does not expect its adoptionexpects to have a material effect on its consolidated financial statements.

3. ACQUISITIONS

On July 3, 2011, Coach acquired 100% of its domestic retail business in Singapore from the former distributor, Valiram Group, and on January 1, 2012, acquired 100% of its domestic retail business in Taiwan from the former distributor, Tasa Meng. The results of the acquired businesses have been includedincur aggregate pre-tax charges in the consolidated financial statements since July 3, 2011 and January 1, 2012, respectively, withinrange of $325 million, in total, under the Direct-to-Consumer segment. These acquisitions provideTransformation Plan. In the fourth quarter of fiscal 2014, the Company with greater control overrecorded charges of $131.5 million ($88.3 million after-tax, or $0.31 per diluted share). The charges recorded in cost of sales and SG&A expenses were $82.2 million and $49.3 million, respectively, and primarily related to the brandCompany's North America business. In fiscal 2015, the Company incurred transformation-related charges of $145.9 million ($107.8 million after-tax, or $0.39 per diluted share), which were largely related to the Company's North America business. The charges recorded in Singaporecost of sales and Taiwan, enabling Coach to raise brand awarenessSG&A expenses were $5.0 million and grow market share with regional consumers. The aggregate purchase prices of the Singapore and Taiwan businesses were $7,595 and $46,916, respectively, both paid during fiscal 2012.

$140.9 million, respectively.

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


(dollars

A summary of charges and sharesrelated liabilities under the Company's Transformation Plan are as follows (in millions):
 
Inventory-Related Charges(1)
 
Impairment(2)
 
Store-Related Costs(3)
 
Organizational Efficiency Costs(4)
 
Other(5)
 Total
Balance at June 29, 2013$
 $
 $
 $
 $
 $
Fiscal 2014 charges82.2
 35.5
 12.2
 1.0
 0.6
 131.5
Cash payments
 
 
 
 
 
Non-cash charges(66.8) (35.5) (6.7) 
 
 (109.0)
Balance at June 28, 2014$15.4
 $
 $5.5
 $1.0
 $0.6
 $22.5
Fiscal 2015 charges$3.0
 $
 $80.4
 $47.3
 $15.2
 $145.9
Cash payments(15.4) 
 (34.6) (30.8) (10.1) (90.9)
Non-cash charges(3.0) 
 (48.8) (5.5) (2.4) (59.7)
Balance at June 27, 2015$
 $
 $2.5
 $12.0
 $3.3
 $17.8
(1)
Inventory-related charges, recorded within cost of sales, primarily relate to reserves for the donation and destruction of certain on-hand inventory and future non-cancelable inventory purchase commitments. As of June 27, 2015, a reserve of $11.1 million is included within Inventories on the Company's Consolidated Balance Sheets.
(2)
Impairment charges, recorded within SG&A expenses, were based on discounted expected cash flows within certain impacted retail stores, and resulted in the reduction of the net carrying value of store-related long-lived assets to their estimated fair value.
(3)
Store-related costs, recorded within SG&A expenses, relate to store closure costs which include accelerated depreciation charges associated with store assets that the Company will no longer benefit from as a result of the Transformation Plan, as well as lease termination and store employee severance costs. The remaining balance as of June 27, 2015 is included within Accrued liabilities on the Company's Consolidated Balance Sheets.
(4)
Organizational efficiency charges, recorded within SG&A expenses, primarily relate to the severance and related costs of corporate employees.
(5)
Other charges comprise of consulting costs and the write-down of certain assets that will not be placed into service by the Company, which are recorded within SG&A expenses, and certain freight and handling costs incurred related to the destruction of inventory which are recorded within cost of sales.
The above charges were recorded as corporate unallocated expenses within the Company's Consolidated Statements of Income.
The Company expects to incur additional pre-tax charges of around $50 million during fiscal 2016 in thousands, except per share data)

3. ACQUISITIONS  – (continued)

The following table summarizesconnection with the preliminary estimated fair valuesTransformation Plan. These costs will primarily consist of global store-related costs, including the impact of accelerated depreciation and lease termination charges associated with store closures in North America and select International stores, and organizational efficiency charges.

Sale of Reed Krakoff Business
In the first quarter of fiscal 2014, the Company sold the Reed Krakoff business, involving the sale of the equity interests of Reed Krakoff LLC and certain assets, including the Reed Krakoff brand name and related intellectual property rights, to Reed Krakoff International LLC ("Buyer"). The sale was pursuant to the Asset Purchase and Sale Agreement dated July 29, 2013 (the "Reed Krakoff Purchase Agreement") with Buyer and Reed Krakoff, the Company’s former President and Executive Creative Director, and resulted in the Company recording a cost method investment of $3.3 million, which was included in Long-term investments in the consolidated balance sheet in the prior period. During the third quarter of fiscal 2015, the Company wrote-off its cost method investment, with the charge recorded within SG&A expenses.
In connection with the Reed Krakoff Purchase Agreement, Mr. Krakoff’s resignation from the Company and the closing of the sale, Mr. Krakoff waived his right to receive compensation, salary, bonuses, equity vesting and certain other benefits. The Company recorded a loss of $2.7 million during the first quarter of fiscal 2014 related to the sale, which is recorded in SG&A expenses on the consolidated statements of income. 

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


Fiscal 2013 Charges
Restructuring and Transformation-Related Charges
In fiscal 2013, the Company incurred restructuring and transformation related charges, which are not related to the Company's fiscal 2014 Transformation Plan, of $53.2 million ($32.6 million after-tax, or $0.11 per diluted share). The charges recorded in SG&A expenses and cost of sales were $48.4 million and $4.8 million, respectively. The charges primarily related to our North America segment.
A summary of charges and related liabilities acquiredare as follows (in millions):
 Severance and Related Costs Impairment Other Total
Fiscal 2013 charges$29.9
 $16.6
 $6.7
 $53.2
Cash payments
 
 
 
Non-cash charges(2.0) (16.6) (6.6) (25.2)
Balance at June 29, 2013$27.9
 $
 $0.1
 $28.0
(Income) expense(1.7) 
 1.9
 0.2
Non-cash charges(0.4) 
 (1.8) (2.2)
Cash payments and settlements(25.2) 
 (0.2) (25.4)
Balance at June 28, 2014$0.6
 $
 $
 $0.6
(Income) expense$
 $
 $
 $
Non-cash charges
 
 
 
Cash payments and settlements(0.6) 
 
 (0.6)
Balance at June 27, 2015$
 $
 $
 $

70


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


4. ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive (loss) income, as of the dates of acquisition:

indicated, are as follows (in millions):
 
 Estimated Fair Value
Current assets $12,671 
Fixed assets and other non-current assets  3,087 
Goodwill(1)  41,307 
Liabilities  (2,554
Total net assets acquired $54,511 

 Unrealized Unrealized      
 (Losses) Gains Gains (Losses)      
 on Cash on Available- Cumulative    
 Flow for-Sale Translation    
 
Hedges(1)
 Securities Adjustment 
Other(2)
 Total
Balance at June 29, 2013$3.7
 $(1.3) $(11.6) $(3.0) $(12.2)
   Other comprehensive income before reclassifications3.3
 3.2
 2.4
 
 8.9
   Less: gains (losses) reclassified from accumulated other comprehensive income6.4
 0.1
 
 (1.1) 5.4
Net current-period other comprehensive (loss) income(3.1) 3.1
 2.4
 1.1
 3.5
Balance at June 28, 2014$0.6
 $1.8
 $(9.2) $(1.9) $(8.7)
   Other comprehensive income (loss) before reclassifications11.9
 (1.3) (72.5) 
 (61.9)
   Less: gains (losses) reclassified from accumulated other comprehensive income8.1
 
 
 (1.0) 7.1
Net current-period other comprehensive income (loss)3.8
 (1.3) (72.5) 1.0
 (69.0)
Balance at June 27, 2015$4.4
 $0.5
 $(81.7) $(0.9) $(77.7)
(1)
We anticipate the entireThe ending balances of accumulated other comprehensive income related to cash flow hedges are net of tax of $(2.6) million and $(0.5) million as of June 27, 2015 and June 28, 2014, respectively. The amounts reclassified from accumulated other comprehensive income are net of tax of $(4.0) million and $(3.4) million as of June 27, 2015 and June 28, 2014, respectively.
(2)
The balance of acquired goodwill to beOther represents the minimum pension liability adjustment of $(0.9) million as of June 27, 2015and $(1.9) million as of June 28, 2014. As of June 27, 2015 and June 28, 2014 the balances of accumulated other comprehensive income are net of tax deductible.of $0.5 million and $1.5 million, respectively.

Prior to these acquisitions, Valiram Group operated five retail and department store locations in Singapore and Tasa Meng operated 26 retail and department stores in Taiwan. Management believes the strength of these established locations supported a premium above the fair value of the individual assets acquired. Unaudited pro forma information related to these acquisitions is not included, as the impact of this transaction is not material to the consolidated results of the Company.

In connection with the fiscal 2011 agreement with the Valiram Group, the Company assumed direct control of its domestic retail business in Malaysia in July 2012. Additionally, in connection with the fiscal 2012 agreement with Shinsegae International, the Company assumed direct control of its retail business in Korea in early August 2012.

4.
5. SHARE-BASED COMPENSATION

The Company maintains several share-based compensation plans which are more fully described below. The following table shows the total compensation cost charged against income for these plans and the related tax benefits recognized in the income statement:

statement (in millions):
   
 Fiscal Year Ended
   June 30,
2012
 July 2,
2011
 July 3,
2010
Share-based compensation expense $107,511  $95,830  $81,420 
Income tax benefit related to share-based compensation expense  37,315   33,377   28,446 

Coach

 
June 27, 2015(1)
 
June 28, 2014(2)
 June 29,
2013
Share-based compensation expense$94.4
 $104.9
 $120.5
Income tax benefit related to share-based compensation expense28.5
 33.1
 39.4
(1)
During the fiscal year ended June 27, 2015, the Company incurred approximately $5.5 million of share-based compensation expense that is related to organizational efficiency costs under the Company's Transformation Plan primarily as a result of the accelerated vesting of certain awards. See Note 3, "Transformation and Other Actions," for more information. Approximately $2.0 million of income tax benefit is associated with these actions for the fiscal year ended June 27, 2015.
(2) Approximately $9.8 million of share based compensation expense and $3.8 million of related income tax benefit are related to the sale of the Reed Krakoff business and restructuring and transformation recognized by the Company in the first quarter of fiscal 2014. See Note 3 for information as it relates to the sale of the Reed Krakoff business.

71


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


Stock-Based Plans

Coach

The Company maintains the Amended and Restated 2010 Stock Incentive Plan to award stock options and shares to certain members of Coach management and the outside members of its Board of Directors (“Board”). CoachThe Company maintains the 2000 Stock Incentive Plan, the 2000 Non-Employee Director Stock Plan and the 2004 Stock Incentive Plan for awards granted prior to the establishment of the 2010 Stock Incentive Plan. These plans were approved by Coach’sthe Company's stockholders. The exercise price of each stock option equals 100% of the market price of Coach’sthe Company's stock on the date of grant and generally has a maximum term of 10 years. Stock options and service based share awards that are granted as part of the annual compensation process generally vest ratably over three years. Other stock option and share awards granted primarily for retention purposes, are subject to forfeiture until completion of the vesting period, which ranges from one to five years. The Company issues new shares upon the exercise of stock options or vesting of share units and employee stock purchases.

For options granted under Coach’sunits.

Stock Options
A summary of stock option plans prior to July 1, 2003, an active employee can receive a replacement stock option equal toactivity during the number of shares surrendered upon a stock-for-stock exercise. The exercise price of the replacement option equals 100% of the market value at the date of exercise of the


TABLE OF CONTENTS

COACH, INC.

Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands,year ended June 27, 2015 is as follows (in millions, except per share data)

4. SHARE-BASED COMPENSATION  – (continued)

original option and will remain exercisable for the remaining term of the original option. Replacement stock options generally vest six months from the grant date. No replacement stock options were granted in fiscal 2012, fiscal 2011 or fiscal 2010.

Stock Options

A summary of option activity under the Coach stock option plans as of June 30, 2012 and changes during the year then ended is as follows:

:
    
 Number of
Options Outstanding
 Weighted-
Average
Exercise
Price
 Weighted-
Average
Remaining
Contractual
Term
(in years)
 Aggregate
Intrinsic
Value
Outstanding at July 2, 2011  16,832  $31.73           
Granted  2,258   62.39           
Exercised  (5,919  30.12           
Forfeited or expired  (371  41.45       
Outstanding at June 30, 2012  12,800   37.61   6.1  $276,237 
Vested or expected to vest at June 30, 2012  12,599   37.40   6.0   274,191 
Exercisable at June 30, 2012  7,061   30.86   4.4   195,081 

 
Number of
Options Outstanding
 
Weighted-
Average
Exercise
Price per Option
 
Weighted-
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
Outstanding at June 28, 201411.7
 $44.21
      
Granted4.1
 36.51
      
Exercised(1.2) 28.17
      
Forfeited or expired(1.1) 49.42
    
Outstanding at June 27, 201513.5
 42.81
 6.0 $17.2
Vested or expected to vest at June 27, 201513.1
 42.77
 5.8 17.2
Exercisable at June 27, 20157.8
 43.47
 4.2 16.7
The fair value of each Coach option grant is estimated on the date of grant using the Black-Scholes option pricing model and the following weighted-average assumptions:

   
 Fiscal Year Ended
   June 30,
2012
 July 2,
2011
 July 3,
2010
Expected term (years)  3.1   3.3   3.0 
Expected volatility  39.4  44.9  49.4
Risk-free interest rate  0.6  1.0  1.7
Dividend yield  1.5  1.5  1.0

 June 27,
2015
 June 28,
2014
 June 29,
2013
Expected term (years)3.6
 3.1
 3.1
Expected volatility31.9% 32.5% 39.5%
Risk-free interest rate1.1% 0.8% 0.4%
Dividend yield3.7% 2.6% 2.2%
The expected term of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience. Expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded options on Coach’sthe Company's stock. The risk free interest rate is based on the zero-coupon U.S. Treasury issue as of the date of the grant. Grants subsequent toDividend yield is based on the current expected annual dividend per share and the Company’s April 2009 Board approval to initiate a quarterly dividend included a dividend yield assumption based on Coach’s annual expected dividend divided by the grant-date sharestock price.

The weighted-average grant-date fair value of options granted during fiscal 2012,2015, fiscal 20112014 and fiscal 20102013 was $15.59, $11.41,$6.41, $9.79, and $9.68,$13.02, respectively. The total intrinsic value of options exercised during fiscal 2012,2015, fiscal 20112014 and fiscal 20102013 was $197,793, $226,511,$12.1 million, $28.0 million, and $127,879,$77.0 million, respectively. The total cash received from option exercises was $178,292, $357,344,$32.4 million, $44.5 million, and $208,919$74.3 million in fiscal 2012,2015, fiscal 20112014 and fiscal 2010,2013, respectively, and the actualcash tax benefit realized for the tax deductions from these option exercises was $73,982, $84,993,$4.7 million, $10.4 million, and $47,795,$29.2 million, respectively.

At June 30, 2012, $38,78327, 2015, $23.4 million of total unrecognized compensation cost related to non-vested stock option awards is expected to be recognized over a weighted-average period of 1.0 years.

year.

72


COACH, INC.

TABLE OF CONTENTS

COACH, INC.

Notes to Consolidated Financial Statements (Continued)


(dollars and shares in thousands,

Service-based Restricted Stock Unit Awards (“RSUs”)
A summary of service-based RSU activity during the year ended June 27, 2015 is as follows (in millions, except per share data)

4. SHARE-BASED COMPENSATION  – (continued)

Share Units

The grant-date fair value of each Coach share unit is equal to the fair value of Coach stock at the grant date. The weighted-average grant-date fair value of shares granted during fiscal 2012, fiscal 2011 and fiscal 2010 was $62.71, $40.31, and $30.55, respectively. The following table summarizes information about non-vested shares as of and for the year ended June 30, 2012:

:
  
 Number of
Non-Vested
Shares
 Weighted-Average Grant-Date
Fair Value
Nonvested at July 2, 2011  4,321  $33.81 
Granted  1,823   62.72 
Vested  (1,649  29.96 
Forfeited  (246  38.97 
Nonvested at June 30, 2012  4,249   46.36 

The total fair value of shares vested during fiscal 2012, fiscal 2011 and fiscal 2010 was $99,488, $58,359, and $23,955, respectively.

 
Number of
Non-vested
RSUs
 
Weighted-
Average Grant- Date Fair Value per RSU
Non-vested at June 28, 20143.2
 $54.68
Granted1.9
 36.38
Vested(1.3) 36.23
Forfeited(0.5) 48.28
Non-vested at June 27, 20153.3
 52.39
At June 30, 2012, $98,57127, 2015, $66.8 million of total unrecognized compensation cost related to non-vested share awards is expected to be recognized over a weighted-average period of 1.0 year.
The weighted-average grant-date fair value of share awards granted during fiscal 2015, fiscal 2014 and fiscal 2013 was $36.38, $52.93 and $54.49, respectively. The total fair value of shares vested during fiscal 2015, fiscal 2014 and fiscal 2013 was $48.4 million, $78.7 million and $93.3 million, respectively.
Performance-based Restricted Stock Unit Awards (“PRSU”)
The Company grants performance-based share awards to key executives, the vesting of which is subject to the executive’s continuing employment and the Company's achievement of certain performance goals. A summary of performance-based share award activity during the year ended June 27, 2015 is as follows (in millions, except per share data):
 
Number of
Non-vested
PRSUs
 
Weighted-
Average Grant- Date Fair Value per PRSU
Non-vested at June 28, 20140.9
 $44.60
Granted0.4
 36.43
Change due to performance condition achievement(1)

 55.46
Vested(0.1) 35.93
Forfeited(0.1) 49.29
Non-vested at June 27, 20151.1
 41.76
(1) During fiscal 2015, there was less than 0.1 million shares of PRSU activity due to changes in performance conditions.
At June 27, 2015, $16.2 million of total unrecognized compensation cost related to non-vested share awards is expected to be recognized over a weighted-average period of 1.1 years.

The weighted-average grant-date fair value of share awards granted during fiscal 2015, fiscal 2014 and fiscal 2013 was $36.43, $32.53 and $50.55, respectively. The total fair value of awards that vested during fiscal 2015 and fiscal 2014 was $2.5 million and $23.8 million, respectively. There were no vestings of performance-based shares during fiscal 2013.
During fiscal 2015, the Company granted 0.4 million shares of common stock with a fair value of $12.6 million to selected senior executives. The shares of common stock under these PRSU awards will be earned and distributed based on certain Company-specific productivity, strategic and sales metrics. Further, the shares are subject to a three-year cliff vesting, subject to the employee's continuing employment and the Company's achievement of the aforementioned performance goals established at the beginning of the performance period. The fair value of the PRSU's is based on the fair value of the Company's common stock on the date of grant.

73


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


During fiscal 2014, the Company granted 0.2 million shares of common stock with a fair value of $6.8 million to selected executives as retention PRSU awards with a maximum potential number of shares issued and fair value (excluding dividends) of 0.3 million shares and $9.1 million, respectively. The shares of common stock under these PRSU awards will be earned and distributed based on performance criteria which compares the Company’s total stockholder return over the performance period to the total stockholder return of the companies included in the Standard & Poor’s 500 Index on the date of grant (excluding the Company). The grant date fair value of the PRSU awards was determined utilizing a Monte Carlo simulation and the following assumptions: expected volatility of 32.61%, risk-free interest rate of 0.63%, and dividend yield of 0.00%. Included in the non-vested amount at June 27, 2015 are approximately 0.8 million of PRSU awards that are based on the aforementioned performance criteria.
In fiscal 2015, fiscal 2014 and fiscal 2013, the cash tax benefit realized for the tax deductions from all RSUs (service and performance-based) was $15.7 million, $33.5 million and $26.1 million, respectively.
Employee Stock Purchase Plan

Under the 2001 Employee Stock Purchase Plan, full-time Coach employees are permitted to purchase a limited number of CoachCompany common shares at 85% of market value. Under this plan, Coachthe Company sold 129, 120,0.1 million, 0.1 million, and 176 new0.1 million shares to employees in fiscal 2012,2015, fiscal 20112014 and fiscal 2010,2013, respectively. Compensation expense is calculated for the fair value of employees’ purchase rights using the Black-Scholes model and the following weighted-average assumptions:

   
 Fiscal Year Ended
   June 30,
2012
 July 2,
2011
 July 3,
2010
Expected term (years)  0.5   0.5   0.5 
Expected volatility  45.6  31.7  57.6
Risk-free interest rate  0.1  0.2  0.2
Dividend yield  1.4  1.3  1.0

 Fiscal Year Ended
  June 27,
2015
 June 28,
2014
 June 29,
2013
Expected term (years)0.5
 0.5
 0.5
Expected volatility26.4% 29.5% 34.1%
Risk-free interest rate0.1% 0.1% 0.1%
Dividend yield3.5% 2.2% 1.7%
The weighted-average fair value of the purchase rights granted during fiscal 2012,2015, fiscal 20112014 and fiscal 20102013 was $17.31, $11.51,$8.41, $13.30, and $9.15,$15.08, respectively.

Deferred Compensation

Under The Company issues new shares for employee stock purchases.


74


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


6. INVESTMENTS
The following table summarizes the Coach, Inc. Deferred Compensation Plan for Non-Employee Directors, Coach's outside directors may defer their director's fees. Amounts deferred under these plans may, atCompany’s investments, all of which are denominated in U.S. dollars, recorded within the participants' election, be either represented by deferred stock units,consolidated balance sheets as of June 27, 2015 and June 28, 2014 (in millions):
 June 27, 2015 June 28, 2014
  Short-term Long-Term Total Short-term Long-term Total
Available-for-sale investments:  
   
   
   
   
   
Government securities – U.S.(1)
$42.8
 $9.3
 $52.1
 $42.0
 $55.3
 $97.3
Corporate debt securities – U.S.(1)
110.0
 42.6
 152.6
 25.4
 144.9
 170.3
Corporate debt securities – non-U.S.(1)
74.6
 33.9
 108.5
 34.6
 98.8
 133.4
Asset backed securities
 
 
 
 1.1
 1.1
Available-for-sale investments, total$227.4
 $85.8
 $313.2
 $102.0
 $300.1
 $402.1
Held to maturity:           
Government securities – U.S.(2)
$
 $
 $
 $18.2
 $
 $18.2
Corporate debt securities – U.S.(2)
6.6
 
 6.6
 33.5
 
 33.5
Corporate debt securities – non-U.S.(2)

 
 
 24.4
 
 24.4
Commercial paper(2)

 
 
 23.5
 
 23.5
Other:  
   
   
   
   
   
Time deposits(3)

 
 
 75.1
 
 75.1
Other(4)

 320.2
 320.2
 
 184.4
 184.4
Total Investments$234.0
 $406.0
 $640.0
 $276.7
 $484.5
 $761.2
(1)
These securities have maturity dates between calendar years 2015 and 2017 and are recorded at fair value.
(2)
These securities have maturity dates of less than one year and are recorded at amortized cost which approximates fair value utilizing Level 2 information.
(3)
These time deposits had original maturities greater than 3 months and were recorded at fair value.
(4)
Primarily relates to the equity method investment related to an equity interest in an entity formed during fiscal 2013 for the purpose of developing a new office tower in Manhattan (the “Hudson Yards joint venture”), with the Company owning less than 43% of the joint venture. As of June 27, 2015 and June 28, 2014, the Company had an equity method investment of $320.2 million and $181.1 million, respectively, in the Hudson Yards joint venture. The Hudson Yards joint venture is determined to be a variable interest entity primarily due to the fact that it has insufficient equity to finance its activities without additional subordinated financial support from its two joint venture partners. The Company is not considered the primary beneficiary of the entity primarily because the Company does not have the power to direct the activities that most significantly impact the entity’s economic performance. The Company’s maximum loss exposure is limited to the committed capital. Refer to Note 12, "Commitments and Contingencies," for further information. Furthermore, as of June 28, 2014, the Company had a cost method investment of $3.3 million in the Reed Krakoff business, which was written off during the third quarter of fiscal 2015. Refer to Note 3, "Transformation and Other Actions," for further information regarding the Reed Krakoff investment.

75


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


The amortized cost, gross unrealized gains, gross unrealized losses and fair value of available-for-sale securities are presented below (in millions):
 June 27, 2015
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Government securities - U.S.$52.1
 $
 $
 $52.1
Corporate debt issues - U.S.152.3
 0.3
 
 152.6
Corporate debt issues - non-U.S.108.3
 0.2
 
 108.5
Asset backed securities
 
 
 
Total$312.7
 $0.5
 $
 $313.2
        
 June 28, 2014
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Government securities - U.S.$97.2
 $0.1
 $
 $97.3
Corporate debt issues - U.S.169.3
 1.0
 
 170.3
Corporate debt issues - non-U.S.132.7
 0.7
 
 133.4
Asset backed securities1.1
 
 
 1.1
Total$400.3
 $1.8
 $
 $402.1
7. ACQUISITIONS
Fiscal 2015 Acquisition
On May 4, 2015, the Company acquired all of the outstanding equity interests of Stuart Weitzman Topco LLC (“Topco”) and Stuart Weitzman Intermediate LLC (“Stuart Weitzman”), a wholly owned subsidiary of Topco, which represent the right to receive sharesCompany believes will complement its current leadership position in premium handbags and accessories. Stuart Weitzman designs and manufactures women’s luxury footwear and accessories. The results of Coach common stock on the distribution date elected byStuart Weitzman’s operations (including approximately $43 million of net sales and an operating loss of $4 million, including the participant, or placed in an interest-bearing account to be paid on such distribution date. The amounts accrued under these plans at June 30, 2012effects of purchase accounting and July 2, 2011 were $2,664 and $2,688, respectively, and arecontingent payments) have been included within total liabilities in the consolidated financial statements since the date of acquisition within the Other segment.
The aggregate cash paid in connection with the acquisition of Stuart Weitzman was $531.1 million (or $519.6 million net of cash acquired). Furthermore, the acquisition agreement contains a potential earnout payment of up to $14.7 million annually in cash over the next three calendar years, based on the achievement of certain revenue targets. The agreement also contains a catch-up provision that provides that if the revenue targets are missed in any one year but are surpassed in succeeding years then amounts for past years become due upon surpassing targets in succeeding years. The total amount payable under the earnout will not exceed $44.0 million.
The Company funded the acquisition through cash on-hand, including the utilization of a portion of debt related proceeds, as described in Note 11, “Debt.”

76


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


The purchase price allocations for these assets and liabilities are substantially complete, however it may be subject to change as additional information is obtained during the acquisition measurement period. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date (in millions):
Assets Acquired and Liabilities AssumedFair Value
Cash and cash equivalents$11.5
Trade accounts receivable34.0
Inventories(1)
32.9
Prepaid expenses and other current assets5.2
Property and equipment, net28.3
Goodwill(2)
125.8
Trademarks and trade names(3)
267.0
Other intangible assets(4)
87.0
Deferred income taxes7.1
Other assets2.3
    Total assets acquired601.1
Accounts Payable and accrued liabilities15.7
Other liabilities(5)
54.3
    Total liabilities assumed70.0
Total purchase price531.1
  
Less: Cash acquired(11.5)
  
Total purchase price, net of cash acquired$519.6
(1) Includes a step-up adjustment of approximately $5.6 million, which is being amortized over 4 months.
(2) Approximately $38.5 million of the goodwill balance sheets.

5.is tax deductible.

(3) The trademarks and trade names intangible asset was valued based on the relief from royalty approach.
(4) The components of Other intangible assets include customer relationships of approximately $54.7 million (amortized over 15 years), order backlog of approximately $7.7 million (amortized over 6 months) and favorable lease rights of approximately $24.6 million (amortized over the remainder of the underlying lease terms). The customer relationship intangible asset was valued using the excess earnings method, which discounts the estimated after-tax cash flows associated with the existing base of customers as of the acquisition date, factoring in expected attrition of the existing base. The order backlog intangible asset was valued using the excess earnings method, which discounts the estimated after-tax cash flows associated with open customer orders as of the acquisition date. Favorable lease rights were valued based on a comparison of market participant information and Company-specific lease terms.
(5) Included within Other liabilities is the fair value measurement of the contingent earnout payment of $17.8 million. This was valued primarily utilizing Level 3 inputs as defined by the fair value hierarchy, and was based on a weighted average expected achievement probability and discount rate over the expected measurement period.
The Company incurred certain pre-tax costs directly associated with the acquisition of approximately $14.2 million during fiscal 2015, within SG&A expenses.

77


COACH, INC.

Notes to Consolidated Financial Statements (Continued)


Fiscal 2014 Acquisition
On July 1, 2013, the Company became the 100% owner of its European joint venture by purchasing Hackett Limited’s remaining 50% interest in the joint venture, enabling the Company to assume direct control and consolidate its European retail business. The joint venture included 18 retail locations in Spain, Portugal, Great Britain, France, Ireland and Germany. The results of the acquired business have been included in the consolidated financial statements since the date of acquisition within the International segment. The purchase price consisted of cash payments of approximately $15.1 million and the forgiveness of a loan from the Company to Hackett Limited of approximately $18.0 million. The allocation of the purchase price acquisition has been completed resulting in goodwill of $14.8 million which is not tax deductible.
Fiscal 2013 Acquisitions
On July 1, 2012, the Company acquired 100% of its domestic retail business in Malaysia (consisting of 10 retail stores) from the former distributor, Valiram Group, and on August 5, 2012, acquired 100% of its domestic retail business in South Korea (consisting of 47 retail and department store locations) from the former distributor, Shinsegae International. The results of the acquired businesses have been included in the consolidated financial statements since the dates of acquisition within the International segment. The aggregate cash paid in connection with the acquisitions of the Malaysia and South Korea businesses was $8.6 million and $36.9 million, respectively. The Company made a contingent payment to Shinsegae International, of $6.0 million in fiscal 2014 and $3.8 million in fiscal 2015 (classified as financing activities within the Consolidated Statements of Cash Flows).
The following table summarizes the fair values of the assets acquired as part of the fiscal 2013 acquisitions (in millions):
Assets AcquiredFair Value
Current assets$21.4
Fixed assets and other non-current assets2.4
Goodwill(1)
31.6
Total assets acquired$55.4
(1) Approximately $30.0 million of the goodwill balance is tax deductible.
Unaudited pro forma information related to the fiscal 2015, 2014 and 2013 acquisitions are not included, as the impacts of these transactions are not material to the consolidated results of the Company.
8. LEASES

Coach

The Company leases certain office, distribution and retail facilities. The lease agreements, which expire at various dates through 2028,2036, are subject, in somemost cases, to renewal options and provide for the payment of taxes, insurance and maintenance. Certain leases contain escalation clauses resulting from the pass-through of


TABLE OF CONTENTS

COACH, INC.

Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)

5. LEASES  – (continued)

increases in operating costs, property taxes and the effect on costs from changes in consumer price indices. Certain rentals arestore-related rent expense may also be contingent upon factors such as sales.

Rent-free periods and scheduled rent increases are recorded as components of rent expense on a straight-line basis over the related terms of such leases. Contingent rentals are recognized when the achievement of the target (i.e., sales levels), which triggers the related payment, is considered probable.

Rent expense for the Company's operating leases consisted of the following:

following (in millions):
   
 Fiscal Year Ended
   June 30,
2012
 July 2,
2011
 July 3,
2010
Minimum rentals $153,577  $129,110  $121,563 
Contingent rentals  94,579   77,795   59,806 
Total rent expense $248,156  $206,905  $181,369 

 Fiscal Year Ended
  June 27,
2015
 June 28,
2014
 June 29,
2013
Minimum rent(1)
$213.8
 $172.8
 $169.7
Contingent rent142.8
 144.4
 112.6
Total rent expense$356.6
 $317.2
 $282.3
(1)
Fiscal 2015 includes $27.3 million of lease termination charges due to transformation-related store closures.

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


Future minimum rental payments under noncancelablenon-cancelable operating leases are as follows:

follows (in millions):
 
Fiscal Year Amount
2013 $179,330 
2014  169,840 
2015  154,381 
2016  124,202 
2017  109,224 
Subsequent to 2017  338,495 
Total minimum future rental payments $1,075,472 

Certain operating leases

Fiscal Year Amount
2016 $243.1
2017 209.3
2018 184.8
2019 158.3
2020 133.0
Subsequent to 2020 427.5
Total minimum future rental payments $1,356.0
9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The following tables provide for renewal for periodsinformation related to the Company’s derivatives (in millions):
  Notional Value Derivative Assets Derivative Liabilities
         Fair Value   Fair Value
Designated Derivative Hedging Instruments (1)
 June 27, 2015 June 28, 2014 Balance Sheet Classification June 27, 2015 June 28, 2014 Balance Sheet Classification June 27, 2015 June 28, 2014
C / FC - Inventory purchases $126.7
 $90.2
 Other current assets $3.3
 $0.4
 Accrued liabilities $(0.2) $(0.6)
CCS - Intercompany loans 
 4.8
 Other current assets 
 0.1
 __ 
 
FC - Intercompany Loans 25.8
 8.4
 Other current assets 0.1
 
 __ 
 
FC - Contractual Obligations(2)
 
 4.0
 __ 
 
 Accrued liabilities 
 (0.3)
Total Hedges $152.5
 $107.4
   $3.4
 $0.5
   $(0.2) $(0.9)
(1)
C = Zero-cost Collars; CCS = Cross Currency Swaps; FC = Forward foreign currency exchange contracts
(2)
Contractual obligations as of fiscal 2014 consisted of a $4.0 million payment due to Shinsegae International, related to the acquisition of the domestic retail business in South Korea.
  Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) Amount of Net Gain Reclassified from Accumulated OCI into Income (Effective Portion)
   
Fiscal Year Ended(1)
 
Income
Statement
Classification
 
Fiscal Year Ended(2)
Designated Cash Flow Hedges: June 27,
2015
 June 28,
2014
 June 29,
2013
 June 27,
2015
 June 28,
2014
 June 29,
2013
C / FC - Inventory purchases $11.9
 $3.1
 $8.5
 Cost of Sales $8.1
 $6.4
 $3.8
CCS - Intercompany loans 
 0.2
 (0.5) SG&A 
 
 
Total Hedges $11.9
 $3.3
 $8.0
   $8.1
 $6.4
 $3.8
(1)
For fiscal 2015, fiscal 2014 and fiscal 2013, the amounts above are net of tax of $(6.1) million, $(1.6) million and $(5.3) million, respectively.
(2)
For fiscal 2015, fiscal 2014 and fiscal 2013, the amounts above are net of tax of $(4.0) million, $(3.4) million and $(2.4) million, respectively.
During fiscal 2015, fiscal 2014 and fiscal 2013 there were no material gains or losses recognized in income due to hedge ineffectiveness.

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


For forward foreign currency exchange contracts that are designated as fair value hedges, the gain (loss) on the derivative as well as the offsetting (loss) gain on the hedged item attributable to the hedged risk, both of fivewhich are recorded within SG&A, resulted in an immaterial net impact to ten yearsthe Company's statement of operations.
The Company expects that $4.4 million of net derivative gains included in AOCI at their fair rental value atJune 27, 2015 will be reclassified into earnings within the time of renewal. In the normal course of business, operating leases are generally renewed or replaced by new leases.

6.next 12 months. This amount will vary due to fluctuations in foreign currency exchange rates.

10. FAIR VALUE MEASUREMENTS

In accordance with ASC 820-10, “Fair Value Measurements and Disclosures,” the

The Company categorizedcategorizes its assets and liabilities based on the priority of the inputs to the valuation technique into a three-level fair value hierarchy as set forth below. The three levels of the hierarchy are defined as follows:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities. Coach currently does not have any Level 1 financial assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1. Level 2 inputs include quoted prices for identical assets or liabilities in non-active markets, quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for substantially the full term of the asset or liability.

Level 3 — Unobservable inputs reflecting management’s own assumptions about the input used in pricing the asset or liability.


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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


(dollars and shares in thousands, except per share data)

6. FAIR VALUE MEASUREMENTS  – (continued)


The following table shows the fair value measurements of the Company’s financial assets and liabilities at June 30, 201227, 2015 and July 2, 2011:

June 28, 2014 (in millions):
    
 Level 2 Level 3
   June 30,
2012
 July 2,
2011
 June 30,
2012
 July 2,
2011
Assets:
                    
Long-term investment – auction rate security(a) $  $  $6,000  $6,000 
Derivative assets – zero-cost collar options(b)  971   2,020       
Derivative assets – forward contracts and cross currency swaps(c)  488          
Total $1,459  $2,020  $6,000  $6,000 
Liabilities:
                    
Derivative liabilities – zero-cost collar options(b) $3,538  $1,062  $  $ 
Derivative liabilities – forward contracts and cross-currency swaps(c)  560         651 
Total $4,098  $1,062  $  $651 

 Level 1 Level 2
  June 27,
2015
 June 28,
2014
 June 27,
2015
 June 28,
2014
Assets:  
   
   
   
Cash equivalents(1)
$485.0
 $1.2
 $14.7
 $45.1
Short-term investments:

 

 

 

Time deposits(2)

 
 
 75.1
Government securities - U.S.(2)
42.8
 42.0
 
 
Corporate debt securities - U.S.(2)

 
 110.0
 25.4
Corporate debt securities - non U.S.(2)

 
 74.6
 34.6
Long-term investments:       
Asset backed securities(3)

 
 
 1.1
Government securities - U.S.(3)
9.3
 55.3
 
 
Corporate debt securities - U.S.(3)

 
 42.6
 144.9
Corporate debt securities - non U.S.(3)

 
 33.9
 98.8
Derivative Assets:       
Inventory-related instruments(4)

 
 3.3
 0.4
Intercompany loan and contractual obligation hedges(4)

 
 0.1
 0.1
Total$537.1
 $98.5
 $279.2
 $425.5
Liabilities:  
   
   
   
Derivative liabilities:       
Inventory-related instruments(4)
$
 $
 $0.2
 $0.6
Intercompany loan and contractual obligation hedges(4)

 
 
 0.3
Total$
 $
 $0.2
 $0.9
(a)
(1)
Cash equivalents consist of money market funds and time deposits with maturities of three months or less at the date of purchase. Due to their short term maturity, management believes that their carrying value approximates fair value.
(2)
Short-term available-for-sale investments are recorded at fair value, which approximates their carrying value, and are primarily based upon quoted vendor or broker priced securities in active markets. Short-term held to maturity investments are recorded at amortized cost, which approximates fair value (Level 2).
(3)
Fair value is primarily determined using vendor or broker priced securities in active markets. These securities have maturity dates between calendar years 2015 and 2017.
(4)
The fair value of the security is determined using a valuation model that takes into consideration the financial conditions of the issuer and the bond insurer, current market conditions and the value of the collateral bonds.
(b)The Company enters into zero-cost collar options to manage its exposure to foreign currency exchange rate fluctuations resulting from Coach Japan's and Coach Canada’s U.S. dollar-denominated inventory purchases. The fair value of these cash flow hedges is primarily based on the forward curves of the specific indices upon which settlement is based and includes an adjustment for the counterparty’s or Company’s credit risk.
(c)The Company is a party to forward contracts and cross-currency swap transactions to manage its exposure to foreign currency exchange rate fluctuations resulting from fixed rate intercompany and related party loans. The fair value of these cash flow hedges is primarily based on the forward curves of the specific indices upon which settlement is based and includes an adjustment
Refer to Note 11, "Debt," for the Company's credit risk.

See note on Derivative Instruments and Hedging Activities for more information on the Company’s derivative contracts.

As of June 30, 2012 and July 2, 2011, the Company’s investments included an auction rate security (“ARS”) classified as a long-term investment, as the auction for this security has been unsuccessful. The underlying investments of the ARS are scheduled to mature in 2035. We have determined that the significant majority of the inputs used to value this security fall within Level 3 of the fair value hierarchy as the inputs are based on unobservable estimates. The fair value of the Company’s ARS has been $6,000 since the end of the second quarter of fiscal 2009.

Company's outstanding debt instruments.


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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


(dollars

The following table presents a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended June 27, 2015 and sharesJune 28, 2014. Level 3 available-for-sale securities consisted of one auction rate security.
 June 27, June 28,
 2015 2014
 (millions)
Balance, beginning of year$
 $6.0
Losses reclassified out of other comprehensive income
 1.1
Loss on sale (included in "Income before taxes")
 (0.1)
Sale of investment
 (7.0)
Balance, end of year$
 $
Non-Financial Assets and Liabilities
The Company’s non-financial instruments, which primarily consist of goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in thousands, except per share data)

6. FAIR VALUE MEASUREMENTS  – (continued)

Ascircumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering market participant assumptions. Refer to Note 7, "Acquisitions," for further discussion of July 2, 2011, the approaches used in valuing acquired assets and assumed liabilities.

The Company incurred impairment charges of $0.0 million in fiscal 2015, $35.5 million in fiscal 2014 and $16.6 million in fiscal 2013, to reduce the carrying amount of certain store assets (primarily leasehold improvements at selected retail store locations) to their fair values of $6.9 million as of June 28, 2014 and $4.3 million as of June 29, 2013. The fair values of these assets were determined based on Level 3 measurements. Inputs to these fair value measurements included estimates of the amount and the timing of the stores' net future discounted cash flows based on historical experience, current trends, and market conditions.
11. DEBT
The following table summarizes the components of the Company’s cross-currency swap derivatives, classified as Level 3 derivatives, were included within accrued liabilities. There were no derivatives classified as Level 3 as of June 30, 2012. Theoutstanding debt:
 
June 27,
2015
 
June 28,
2014
 (millions)
Current Debt:   
    Term Loan$11.3
 $
    Revolving Facility
 140.0
    Other
 0.5
Total Current Debt$11.3
 $140.5
    
Long-Term Debt:   
    Term Loan$288.7
 $
    4.250% Senior Notes600.0
 
Total Long-Term Debt888.7
 
    Less: Unamortized Discount and Debt Issuance Costs on 4.250% Senior Notes(9.6) 
Total Long-Term Debt, net$879.1
 $
During fiscal 2015, 2014 and 2013 the Company used a valuation model to value the Level 3 derivatives, which included a combination of observable inputs, such as tenure of the agreement and notional amount, and unobservable inputs, such as the Company’s credit rating. The table below presents the changes in the fair value of these derivatives during fiscal 2012 and fiscal 2011, through the settlement on December 29, 2011:

 
 Cross-Currency Swaps
Balance at July 2, 2011 $651 
Settlement on December 29, 2011  (651
Balance at December 31, 2011 $ 
Balance at July 3, 2010 $2,418 
Settlement on June 30, 2011  (2,418
Unrealized loss on cross-currency swap maturing on December 29, 2011, recorded in accumulated other comprehensive income  651 
Balance at July 2, 2011 $651 

The above settlement amounts for the cross-currency swaps on June 30, 2012 and December 29, 2011 are net of a previously unrecognized gain recognized through accumulated other comprehensive income of $615 in fiscal 2012 and a loss of $10,807 in fiscal 2011 priorinterest expense related to the respective settlement dates.

During fiscal 2011,outstanding debt of $11.9 million, $1.7 million and $1.4 million, respectively.


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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


Amended and Restated Credit Agreement

In March 2015, the Company purchased $224,007 of short-term investments consisting of U.S. treasury billsamended and commercial paper. These investments, net of proceeds from sales and maturities, totaled $2,256 as of July 2, 2011 and were classified as held-to-maturity based on our positive intent and ability to hold the securities to maturity. They were stated at amortized cost, which approximated fair market value due to their short maturities. There were no purchases of short-term investments during fiscal 2012, and there were no short-term investments held by the Company as of June 30, 2012.

7. DEBT

Revolving Credit Facilities

The Company maintains a $400,000restated its existing $700.0 million revolving credit facility (the "Revolving Facility") with certain lenders and JP Morgan Chase Bank, N.A. as the primary lender and administrative agent, to provide for a five-year senior unsecured $300.0 million term loan (the “JP Morgan facility”“Term Loan”) and to extend the maturity date to March 18, 2020 (the "Amended and Restated Credit Agreement"). As of June 27, 2015, there were no borrowings under the Revolving Facility.

The JP Morgan facility, which expiresTerm Loan will be repaid in June 2017, replacedquarterly installments beginning in September 2015 through December 2019, with the Company’s previous $100,000 revolving credit facility with certain lenders,remaining expected outstanding balance of $202.5 million due on maturity at March 18, 2020. There is no penalty for early repayment of outstanding amounts under the Term Loan. The Amended and BankRestated Credit Agreement will continue to be used for general corporate purposes of America, N.A. as the primary lenderCompany and administrative agent, which was terminated on June 18, 2012 (the “Bank of America facility”). At Coach’s request and lenders’ consent, the JP Morgan facility can be expanded to $650,000. its subsidiaries.
Borrowings under the JP Morgan facilityAmended and Restated Credit Agreement bear interest at a rate per annum equal to, at Coach’sthe Company's option, either (a) an alternate base rate or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. dollars or the applicable currency in which the loans are made (the “Adjusted LIBO Rate”) plus an applicable margin. The applicable margin foror (b) an alternate base rate (which is a rate equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (iii) the Adjusted LIBO Rate loans will be adjusted by reference tofor a grid (the “Pricing Grid”) basedone month Interest Period on the ratio of (a) consolidated debtsuch day plus 800% of consolidated lease expense to (b) consolidated EBITDAR (“Leverage Ratio”1%). Additionally, Coach will paythe Company pays a commitment fee calculated at a rate per annum determined in accordance with the Pricing Grid, on the average daily unused amount of the Facility, and certain fees with respect to letters of credit that are issued.Revolving Facility. At June 30, 2012,27, 2015, the interest rate on these borrowings was 1.395% and the commitment fee was nine basis points.

0.125%.

The JP Morgan facility may also be used to finance the working capital needs, capital expenditures, certain investments, share repurchases, dividends, and other general corporate purposesfair value of the outstanding balance of the Term Loan as of June 27, 2015 approximated carrying value, and was based on available external pricing data and current market rates for similar debt instruments, among other factors, and is classified as Level 2 measurements within the fair value hierarchy.
4.250% Senior Notes
In March 2015, the Company issued $600.0 million aggregate principal amount of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par (the “4.250% Senior Notes”). Interest is payable semi-annually on April 1 and October 1 beginning October 1, 2015. Prior to January 1, 2025 (90 days prior to the scheduled maturity date), the Company may redeem the 4.250% Senior Notes in whole or in part, at its subsidiaries (whichoption at any time or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 4.250% Senior Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 4.250% Senior Notes calculated as if the maturity date of the 4.250% Senior Notes was January 1, 2025 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis at the Adjusted Treasury Rate (as defined in the indenture for the 4.250% Senior Notes) plus 35 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date. On and after January 1, 2025 (90 days prior to the scheduled maturity date), the Company may include commercial paper back-up). During fiscal 2012redeem the 4.250% Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to 100% of the principal amount of the 4.250% Senior Notes to be redeemed, plus accrued and fiscal 2011 there were

unpaid interest to the redemption date.
Furthermore, the indenture for the 4.250% Senior Notes contains certain covenants limiting the Company’s ability to: (i) create certain liens, (ii) enter into certain sale and leaseback transactions and (iii) merge, or consolidate or transfer, sell or lease all or substantially all of the Company’s assets. As of June 27, 2015, no known events of default have occurred.
At June 27, 2015, the fair value of the 4.250% Senior Notes was approximately $579.0 million, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as Level 2 measurements within the fair value hierarchy.


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COACH, INC.

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


(dollars and shares in thousands, except per share data)

7. DEBT  – (continued)

no borrowings under the JP Morgan facility and the Bank of America facility. Accordingly, as


Debt Maturities
As of June 30, 2012 and July 2, 2011, there were no outstanding borrowings. The Company’s borrowing capacity27, 2015, the Company's aggregate maturities of total debt are as of June 30, 2012 was $393,300 due to outstanding letters of credit.

The JP Morgan facility contains various covenants and customary events of default. follows (in millions):

Fiscal Year Amount
2016 $15.0
2017 15.0
2018 15.0
2019 22.5
2020 232.5
Subsequent to 2020 600.0
Total future debt repayments $900.0
Other
Coach has been in compliance with all covenantsJapan, a wholly owned subsidiary of the facility since its inception.

ToCompany, maintains credit facilities with several Japanese financial institutions to provide funding for working capital and general corporate purposes, Coach Japan has available credit facilities with several Japanese financial institutions. These facilities allowallowing a total maximum borrowing capacity of 4.15.3 billion yen, or approximately $51,500, at$43 million, as of June 30, 2012.27, 2015. Interest is based on the Tokyo Interbank rate plus a margin of 27.525 to 30 basis points.

During fiscal 2012 and 2011, the peak borrowings were $0 and $27.1 million, respectively. As of June 30, 2012 and July 2, 2011, there were no outstanding borrowings under the Japanese credit facilities.

To provide funding for working capital and general corporate purposes, Coach Shanghai Limited has a credit facility that allows a maximum borrowing of 63 million Chinese renminbi, or approximately $10,000 at June 30, 2012. Interest is based on the People's Bank of China rate. During fiscal 20122015 and fiscal 2011,2014, there were no borrowings under this facility. The Coach Japan credit facility. Accordingly,facility can be terminated at June 30, 2012any time by the financial institution, and July 2, 2011, there wereis no outstanding borrowings under this facility.

Long-Term Debt

Coach is partyguarantee that it will be available to an Industrial Revenue Bond related to its Jacksonville, Florida facility. This loan bears interest at 4.5%. Principal and interest payments are made semi-annually, with the final payment dueCompany in August 2014. future periods. 

12. COMMITMENTS AND CONTINGENCIES
As of June 30, 201227, 2015, the Company's equity method investment related to an equity interest in an entity formed during fiscal 2013 for the purpose of developing a new office tower in Manhattan, the Hudson Yards joint venture, with the Company owning less than 43% of the joint venture. This investment is included in the Company’s long-term investments.
The formation of the Hudson Yards joint venture serves as a financing vehicle for the project. Construction of the new building has commenced and July 2, 2011,upon completion of the remaining balance onoffice tower in fiscal 2016, the loan was $1,440 and $1,860, respectively.Company will retain a condominium interest serving as its new corporate headquarters. During fiscal 2009, Coach assumed2015, the Company invested $139.1 million in the joint venture. Since the formation of the Hudson Yards joint venture, the Company has invested $320.2 million. The Company expects to invest approximately $210 million over the next two years, with approximately $195 million estimated in fiscal 2016, depending on construction progress. Outside of the joint venture, the Company is directly investing in a mortgageportion of the design and build-out of the new corporate headquarters. In fiscal 2015, $5.9 million was included in connection withcapital expenditures and we expect approximately another $185 million over the purchaseperiod of construction.
The Hudson Yards joint venture is determined to be a VIE primarily due to the fact that it has insufficient equity to finance its corporate headquarters building in New York City. This mortgage bears interest at 4.68%. Interest payments are made monthly and principal payments began in July 2009, withactivities without additional subordinated financial support from its two joint venture partners. The Company is not considered the final paymentprimary beneficiary of $21,555 due in June 2013. As of June 30, 2012, the remaining balance onentity primarily because the mortgage was $21,920. Future principal payments under these obligations are as follows:

Company does not have the power to direct the activities that most significantly impact the entity’s economic performance. The Company’s maximum loss exposure is limited to the committed capital.
 
Fiscal Year Amount
2013 $22,375 
2014  500 
2015  485 
2016   
2017   
Subsequent to 2017   
Total $23,360 

8. COMMITMENTS AND CONTINGENCIES

At June 30, 201227, 2015 and July 2, 2011,June 28, 2014, the Company had credit available of $600,000 and $275,000, respectively, of whichstandby letters of credit totaling $215,380$6.8 million and $171,916, respectively, were$5.6 million outstanding. The letters of credit, which expire at various dates through 2014,2016, primarily collateralize the Company’s obligation to third parties for the purchaseinsurance claims and value-added tax refunds. The Company pays certain fees with respect to letters of inventory.

credit that are issued.

TABLE OF CONTENTS

COACH, INC.

Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)

8. COMMITMENTS AND CONTINGENCIES  – (continued)

Coach is a party to employment agreements with certain key executives which provide for compensation and other benefits. The agreements also provide for severance payments under certain circumstances. The Company’s employment agreements and the respective end of initial term dates are as follows:

ExecutiveTitleEnd of Initial Term(1)
Lew FrankfortChairman and Chief Executive OfficerAugust 2012
Reed KrakoffPresident and Executive Creative DirectorJune 2014
Michael TucciPresident, North America Retail DivisionJune 2013

(1)Once the initial term expires, these agreements automatically renew for successive one year terms unless either the employee or Board provides notice

In addition to the employment agreements described above,Company had other contractual cash obligations as of June 30, 2012 and July 2, 2011 included $212,084 and $195,382, respectively,27, 2015, including $254.7 million related to inventory purchase obligations, and $1,272 and $1,087, respectively,$103.1 million related to firm capital expenditure purchase obligations. In addition, as of June 30, 2012,obligations (of which the Company had an irrevocable commitmentexpects total capital expenditures to fund the Coach Foundationbe in the amountarea of $18,900$300 million in fiscal 2013,2016), $4.9 million of other purchase obligations, $900.0 million of debt repayments and made$257.1 million of interest payments on the 4.250% Senior Notes. Refer to Note 8, "Leases," for a totalsummary of $20,270 in cash contributionsthe Company's future minimum rental payments under non-cancelable leases. Furthermore, refer to Note 7, "Acquisitions," for a description of potential earnout payments attributable to the Coach Foundation during fiscal 2012.

Stuart Weitzman acquisition.


84


In the ordinary course of business, Coachthe Company is a party to several pending legal proceedings and claims. Although the outcome of such items cannot be determined with certainty, Coach'sthe Company's general counsel and management are of the opinion that the final outcome will not have a material effect on Coach'sthe Company's cash flow, results of operations or financial position.

9. DERIVATIVE INSTRUMENTS

13. GOODWILL AND HEDGING ACTIVITIES

Substantially all purchases and sales involving international parties, excluding consumer sales at Coach Japan, Coach Canada, Coach China, Coach Singapore, and Coach Taiwan, are denominatedOTHER INTANGIBLE ASSETS

Goodwill
The change in U.S. dollars, which limitsthe carrying amount of the Company’s exposure to foreign currency exchange rate fluctuations. However,goodwill, is as follows (in millions):
 InternationalOtherTotal
Balance at June 29, 2013$345.0
$
$345.0
Acquisition of Europe retail business14.8

14.8
Foreign exchange impact1.6

1.6
Balance at June 28, 2014361.4

361.4
Acquisition of Stuart Weitzman
125.8
125.8
Foreign exchange impact(53.0)
(53.0)
Balance at June 27, 2015$308.4
$125.8
$434.2
Other Intangible Assets
Other intangible assets consist of the Company is exposed to market risk from foreign currency exchange risk related to Coach Japan’s and Coach Canada’s U.S. dollar-denominated inventory purchases and various cross-currency intercompany and related party loans. Coach uses derivative financial instruments to manage these risks. These derivative transactions are in accordance with the Company’s risk management policies. Coach does not enter into derivative transactions for speculative or trading purposes.

Coach Japan and Coach Canada enter into certain foreign currency derivative contracts, primarily zero-cost collar options, to manage the exchange rate risk related to their inventory purchases. As of June 30, 2012 and July 2, 2011, $310,891 and $171,030 of foreign currency forward contracts were outstanding, respectively.

On June 30, 2011, to manage the exchange rate risk related to a $109,110 intercompany loan, Coach Japan entered into a cross-currency swap transaction, the terms of which included an exchange of Japanese yen fixed interest for U.S. dollar fixed interest and an exchange of yen and U.S. dollar based notional values at maturity on December 29, 2011. On December 29, 2011, Coach Japan repaid the loan and settled the cross-currency swap. Concurrently, Coach Japan entered into a new $65,000 intercompany loan agreement and a cross currency swap transaction, the terms of which included an exchange of a Japanese yen fixed interest for a U.S. dollar fixed interest and an exchange of yen and U.S. dollar based notional values at maturity. The loan and swap were settled at maturity in June 2012.

During fiscal 2012, the Company entered into various intercompany and related party loans denominated in various foreign currencies. These loans have a total notional value of approximately $206,648 as of June 30, 2012 and maturity dates ranging from July 2012 to June 2013. To manage the exchange rate risk

following (in millions):
 Fiscal Year Ended
 June 27, 2015 June 28, 2014
 Gross
Carrying
Amount
 Accum.
Amort.
 Net Gross
Carrying
Amount
 Accum.
Amort.
 Net
Intangible assets subject to amortization:           
   Customer relationships$54.7
 $(0.8) $53.9
 $
 $
 $
   Order backlog7.7
 (2.6) 5.1
      
    Favorable lease rights24.6
 (0.5) 24.1
 
 
 
       Total intangible assets subject to amortization87.0
 (3.9) 83.1
 
 
 
Intangible assets not subject to amortization:           
   Trademarks and trade names276.8
 
 276.8
 9.8
 
 9.8
       Total intangible assets$363.8
 $(3.9) $359.9
 $9.8
 $
 $9.8

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Notes to Consolidated Financial Statements (Continued)


(dollars and shares in thousands, except per share data)

9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

related to these loans,


Amortization
Based on the Company entered into forward exchange and cross-currency swap contracts, the terms of which include the exchange of foreign currency fixed interest for U.S. dollar fixed interest and an exchangebalance of the foreign currency and U.S. dollar based notional values at the maturity dates, the latest of which is June 2013.

The Company’s derivative instruments are primarily designated as cash flow hedges. The effective portion of gains or losses on the derivative instruments are reported as a component of other comprehensive income and reclassified into earnings in the same periods during which the hedged transaction affects earnings. The ineffective portion of gains or losses on the derivative instruments are recognized in current earnings and are included within net cash provided by operating activities.

The following tables provide information related to the Company’s derivatives:

   
Derivatives Designated as Hedging Instruments Balance Sheet Classification Fair Value
 At June 30,
2012
 At July 2,
2011
Foreign exchange contracts
  Other Current Assets  $1,459  $2,020 
Total derivative assets    $1,459  $2,020 
Foreign exchange contracts
  Accrued Liabilities  $4,098  $1,713 
Total derivative liabilities    $4,098  $1,713 

  
 Amount of Loss Recognized in OCI on Derivatives (Effective Portion)
   Year Ended
Derivatives in Cash Flow Hedging Relationships June 30,
2012
 July 2,
2011
Foreign exchange contracts $(2,095 $(9,394
Total $(2,095 $(9,394

For fiscal 2012 and fiscal 2011, the amounts above are net of tax of $1,858 and $5,960, respectively.

  
 Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
   Year Ended
Location of Loss Reclassified from Accumulated OCI
into Income (Effective Portion)
 June 30,
2012
 July 2,
2011
Cost of Sales $(5,281 $(15,886
Total $(5,281 $(15,886

During fiscal 2012 and fiscal 2011, there were no material gains or losses recognized in income due to hedge ineffectiveness.

The Company expects that $994 of net derivative losses included in accumulated other comprehensive income at June 30, 2012 will be reclassified into earnings within the next 12 months. This amount will vary due to fluctuations in the Japanese yen and Canadian dollar exchange rates.

Hedging activity affected accumulated other comprehensive income, net of tax, as follows:

  
 Year Ended
   June 30,
2012
 July 2,
2011
Balance at beginning of period $(1,465 $(2,092
Net losses transferred to earnings  3,100   10,021 
Change in fair value, net of tax  (2,095  (9,394
Balance at end of period $(460 $(1,465

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)

10. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the years ended June 30, 2012 and July 2, 2011 are as follows:

   
 Direct-to- Consumer Indirect Total
Balance at July 3, 2010 $304,345  $1,516  $305,861 
Foreign exchange impact  25,143      25,143 
Balance at July 2, 2011  329,488   1,516   331,004 
Acquisition of Singapore and Taiwan retail businesses  41,307      41,307 
Foreign exchange impact  3,724      3,724 
Balance at June 30, 2012 $374,519  $1,516  $376,035 

At June 30, 2012 and July 2, 2011,Company's intangible assets not subject to amortization were $9,788as of June 27, 2015, the expected amortization expense for each of the next five fiscal years and consistedthereafter is as follows (in millions):

  Amortization Expense
Fiscal 2016$13.3
Fiscal 20177.1
Fiscal 20186.6
Fiscal 20196.6
Fiscal 20206.3
Fiscal 2021 and thereafter43.2
Total$83.1
The expected future amortization expense above reflects remaining useful lives of trademarks.

11.14.8 years for customer relationships, four months for order backlog, and the remaining lease terms ranging from approximately two to 10 years for favorable lease rights.

14. INCOME TAXES

The provisions for income taxes computed by applying the U.S. statutory rate to income before taxes as reconciled to the actual provisions were:

were (in millions):
      
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
   Amount Percentage Amount Percentage Amount Percentage
Income before provision for income taxes:
                              
United States $1,152,576   76.5 $983,698   75.6 $995,459   86.0
Foreign  353,087   23.5   317,521   24.4   162,673   14.0 
Total income before provision for income taxes: $1,505,663   100.0 $1,301,219   100.0 $1,158,132   100.0
Tax expense at U.S. statutory rate $526,979   35.0 $455,426   35.0 $405,346   35.0
State taxes, net of federal benefit  46,233   3.1   42,464   3.3   39,131   3.4 
Effects of foreign operations  (120,642  (8.1  (87,607  (6.8  (39,631  (3.5
Tax benefit related to agreements with tax authorities  (11,553  (0.7  (15,517  (1.2     0.0 
Other, net  25,736   1.7   25,653   2.0   18,346   1.6 
Taxes at effective worldwide rates $466,753   31.0 $420,419   32.3 $423,192   36.5
 Fiscal Year Ended
  June 27, 2015 June 28, 2014 June 29, 2013
  Amount Percentage Amount Percentage Amount Percentage
Income before provision for income taxes:  
   
   
   
   
   
United States$361.2
 59.1 % $818.6
 72.9 % $1,116.8
 73.4 %
Foreign250.4
 40.9
 303.7
 27.1
 403.7
 26.6
Total income before provision for income taxes$611.6
 100.0 % $1,122.3
 100.0 % $1,520.5
 100.0 %
            
Tax expense at U.S. statutory rate$214.0
 35.0 % $392.8
 35.0 % $532.2
 35.0 %
State taxes, net of federal benefit26.4
 4.3
 34.6
 3.1
 51.0
 3.4
Effects of foreign operations(79.7) (13.0) (93.1) (8.3) (119.2) (7.9)
Effects of foreign tax credits and acquisition reorganization9.3

1.5
 (1.5)
(0.1)



Tax benefit related to agreements with tax authorities
 
 
 
 (3.5) (0.2)
Other, net39.2
 6.4
 8.2
 0.7
 25.6
 1.7
Taxes at effective worldwide rates$209.2
 34.2 % $341.0
 30.4 % $486.1
 32.0 %

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Notes to Consolidated Financial Statements (Continued)


(dollars and shares in thousands, except per share data)

11. INCOME TAXES  – (continued)


Current and deferred tax provisions (benefits) were:

provision (benefit) was (in millions):
      
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
   Current Deferred Current Deferred Current Deferred
Federal $398,494  $9,676  $345,006  $11,848  $384,716  $(40,613
Foreign  (13,685  16,623   (3,064  26,589   (9,956  28,449 
State  54,108   1,537   38,753   1,287   65,562   (4,965
Total current and deferred tax provisions (benefits) $438,917  $27,836  $380,695  $39,724  $440,322  $(17,129

 Fiscal Year Ended
  June 27, 2015 June 28, 2014 June 29, 2013
  Current Deferred Current Deferred Current Deferred
Federal$142.9
 $10.5
 $283.4
 $(6.8) $411.7
 $(11.6)
Foreign9.8
 13.8
 20.0
 (5.7) 12.9
 4.2
State35.0
 (2.8) 60.4
 (10.3) 68.0
 0.9
Total current and deferred tax provision (benefit)$187.7
 $21.5
 $363.8
 $(22.8) $492.6
 $(6.5)
The components of deferred tax assets and liabilities at the respective year-ends were as follows:

(in millions):
  
 Fiscal 2012 Fiscal 2011
Share-based compensation $58,774  $59,672 
Reserves not deductible until paid  68,312   67,072 
Pensions and other employee benefits  67,851   67,264 
Property and equipment  6,472   12,439 
Net operating loss  35,080   42,215 
Other  5,655   2,887 
Gross deferred tax assets $242,144  $251,549 
Prepaid expenses $7,979  $6,781 
Goodwill  61,464   45,528 
Other  1,462   1,681 
Gross deferred tax liabilities  70,905   53,990 
Net deferred tax assets $171,239  $197,559 
Consolidated Balance Sheets Classification
          
Deferred income taxes – current asset $95,419  $93,902 
Deferred income taxes – noncurrent asset  95,223   103,657 
Deferred income taxes – noncurrent liability  (19,403   
Net amount recognized $171,239  $197,559 

 June 27,
2015
 June 28,
2014
Share-based compensation$66.7
 $66.8
Reserves not deductible until paid84.5
 97.9
Employee benefits48.4
 39.5
Net operating loss9.1
 23.2
Other0.8
 9.7
Prepaid expenses1.9
 0.5
Property and equipment16.4
 18.5
Gross deferred tax assets$227.8
 $256.1
    
Goodwill73.6
 91.4
Other
 0.2
Gross deferred tax liabilities73.6
 91.6
Net deferred tax assets$154.2
 $164.5
    
Consolidated Balance Sheets Classification  
   
Deferred income taxes – current asset$98.4
 $112.6
Deferred income taxes – noncurrent asset115.8
 111.6
Deferred income taxes – current liability
 
Deferred income taxes – noncurrent liability (included within "Other Liabilities")(60.0) (59.7)
Net deferred tax asset$154.2
 $164.5
Significant judgment is required in determining the worldwide provision for income taxes, and there are many transactions for which the ultimate tax outcome is uncertain. It is the Company’s policy to establish provisions for taxes that may become payable in future years, as a result ofincluding those due to an examination by tax authorities. The Company establishes the provisions based upon management’s assessment of exposure associated with uncertain tax positions. The provisions are analyzed periodicallyat least quarterly and adjustments are madeadjusted as events occur that warrant adjustments to those provisions. All of these determinations are subject toappropriate based on new information or circumstances in accordance with the requirements of ASC 740.


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Notes to Consolidated Financial Statements (Continued)


(dollars and shares in thousands, except per share data)

11. INCOME TAXES  – (continued)


A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:

follows (in millions):
   
 Fiscal
2012
 Fiscal
2011
 Fiscal
2010
Balance at beginning of fiscal year $162,060  $165,676  $137,807 
Gross increase due to tax positions related to prior periods  1,271   5,225   3,903 
Gross decrease due to tax positions related to prior periods  (7,264  (1,218  (971
Gross increase due to tax positions related to current period  28,151   29,342   27,034 
Decrease due to lapse of statutes of limitations  (15,187  (6,519  (1,692
Decrease due to settlements with taxing authorities  (13,432  (30,446  (405
Balance at end of fiscal year $155,599  $162,060  $165,676 

 June 27,
2015
 June 28,
2014
 June 29,
2013
Balance at beginning of fiscal year$170.7
 $148.8
 $155.6
Gross increase due to tax positions related to prior periods5.4
 14.7
 5.3
Gross decrease due to tax positions related to prior periods(1.1) (3.3) (6.4)
Gross increase due to tax positions related to current period16.5
 28.6
 33.7
Decrease due to lapse of statutes of limitations(21.1) (17.3) (29.1)
Decrease due to settlements with taxing authorities(2.3) (0.8) (10.3)
Balance at end of fiscal year$168.1
 $170.7
 $148.8
Of the $155,599$168.1 million ending gross unrecognized tax benefit balance $77,366as of June 27, 2015, $121.5 million relates to items which, if recognized, would impact the effective tax rate. Of the $170.7 million ending gross unrecognized tax benefit balance as of June 28, 2014, $113.0 million relates to items which, if recognized, would impact the effective tax rate. As of June 30, 201227, 2015 and July 2, 2011,June 28, 2014, gross interest and penalties payable was $24,338$17.6 million and $35,258,$18.0 million, respectively, which are included in otherOther liabilities. During fiscal 2012,2015, fiscal 20112014 and fiscal 2010,2013, the Company recognized gross interest and penalty (income)income of $0.1 million, gross interest and penalty expense of $(11,334), $(3,195),$0.8 million and $6,204, respectively, in the Consolidated Statementsgross interest and penalty income of Income.

$7.0 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. Tax examinations are currently in progress in select foreign and state jurisdictions that are extending the years open under the statutes of limitation. Fiscal years 20092011 to present are open to examination in the U.S. federal jurisdiction, fiscal 2008 to present in select state jurisdictions and fiscal 2004 to present in significant state jurisdictions and from fiscal 2004 to present inselect foreign jurisdictions. During fiscal 2012 and fiscal 2011, the Company recorded tax benefits related to multi-year agreements with tax authorities.

Based on the number of tax years currently under audit by the relevant tax authorities, theThe Company anticipates that one or more of these audits may be finalized and certain statutes of limitation may expire in the foreseeable future. However, based on the status of these examinations, and the protocol ofaverage time typically incurred in finalizing audits bywith the relevant tax authorities, we cannot reasonably estimate the impact of any amount of such changesthese audits may have in the next 12 months, if any, to previously recorded uncertain tax positions.

At We accrue for certain known and reasonably anticipated income tax obligations after assessing the likely outcome based on the weight of available evidence. Although we believe that the estimates and assumptions we have used are reasonable and legally supportable, the final determination of tax audits could be different than that which is reflected in historical income tax provisions and recorded assets and liabilities. With respect to all jurisdictions, we believe we have made adequate provision for all income tax uncertainties.

For the years ended June 30, 2012,27, 2015 and June 28, 2014, the Company had net operating loss carryforwards in foreign tax jurisdictions of $88,967,$618.3 million and $526.7 million, the majority of which will expire beginning in fiscal years 2013 through fiscal year 2017.can be carried forward indefinitely. The deferred tax assets related to the carryforwards have been reflected net of a $3,156$169.8 million and $131.8 million valuation allowance.

allowances at June 27, 2015 and June 28, 2014, respectively. The Company’s valuation allowance increased by $38.0 million in fiscal 2015 and increased by $52.2 million in fiscal 2014, primarily as the result of actual or anticipated results in the foreign jurisdictions.

The total amount of undistributed earnings of foreign subsidiaries as of June 30, 201227, 2015 and June 28, 2014, was $1,203,949.$2.09 billion and $2.03 billion, respectively. It is the Company’s intention to permanently reinvest undistributed earnings of its foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign withholding taxes or United States income taxes which may become payable if undistributed earnings of foreign subsidiaries are paid as dividends. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, is subject to many variables and is dependent on circumstances existing if and when remittance occurs.

12.

15. DEFINED CONTRIBUTION PLAN

Coach

The Company maintains the Coach, Inc. Savings and Profit Sharing Plan, which is a defined contribution plan. Employees who meet certain eligibility requirements and are not part of a collective bargaining agreement may participate in this program. The annual expense incurred by Coachthe Company for this defined contribution plan was $18,641, $16,029,$7.2 million, $7.5 million, and $13,285$16.3 million in fiscal 2012,2015, fiscal 20112014 and fiscal 2010,2013, respectively.

13. SEGMENT INFORMATION

The Company operates its business in two reportable segments: Direct-to-Consumer and Indirect. The Company's reportable segments represent channels of distribution that offer similar merchandise, service and marketing strategies. Sales of Coach products through Company-operated stores in North America; Japan;


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Notes to Consolidated Financial Statements (Continued)


(dollars

16. SEGMENT INFORMATION
In fiscal 2015, the Company has three reportable segments based on its business activities and sharesorganization:
North America, which includes sales to North American consumers through Coach-branded stores, including the Internet, and sales to wholesale customers.
International, which includes sales to consumers through Coach-branded stores (including the Internet) and concession shop-in-shops in thousands, except per share data)

13. SEGMENT INFORMATION  – (continued)

Japan and mainland China, Coach-operated stores and concession shop-in-shops in Hong Kong, Macau, and mainland China; Singapore;Singapore, Taiwan, Malaysia, South Korea, the United Kingdom, France, Ireland, Spain, Portugal, Germany, Italy, Belgium and the Internet constitute the Direct-to-Consumer segment. Beginning with the first quarter of fiscal 2013, this segment also includes Coach-operated stores in Malaysia and Korea. The Indirect segment includesNetherlands as well as sales to wholesale customers and distributors in over 20 countries,approximately 45 countries.

Other, consists of sales and expenses generated by the Coach brand in other ancillary channels, including licensing and disposition. Other also includes sales and expenses generated by the United States and royalties earned on licensed products. Stuart Weitzman brand during the final two months of fiscal 2015.
In deciding how to allocate resources and assess performance, Coach'sthe Company's chief operating decision maker regularly evaluates the sales and operating income of these segments. Operating income is the gross margin of the segment less direct expenses of the segment. Unallocated corporate expenses include inventory-related costs (such as production variances, generalvariances), advertising, marketing, design, administration and information systems, as well as distribution and consumer service expenses.

In connection with the acquisitions of the retail businesses in Hong Kong, Macau, mainland China, Singapore and Taiwan, Additionally, costs incurred by the Company evaluated the composition of its reportable segmentsas described in Note 3, "Transformation and concluded that sales in these regions should beOther Actions," and certain acquisition-related costs are also included in the Direct-to-Consumer segment. Accordingly, prior year net sales, operating incomeas unallocated corporate expenses. The following table summarizes segment performance for fiscal 2015, fiscal 2014 and profit before tax figures have been reclassified to conform to the current year presentation.

fiscal 2013 (in millions):
    
 Direct-to- Consumer Indirect Corporate Unallocated Total
Fiscal 2012
                    
Net sales $4,231,698  $531,482  $  $4,763,180 
Operating income (loss)  1,733,612   298,593   (520,216  1,511,989 
Income (loss) before provision for income taxes  1,733,612   298,593   (527,302  1,505,663 
Depreciation and amortization expense  90,733   9,049   33,127   132,909 
Total assets  1,546,225   107,135   1,450,961   3,104,321 
Additions to long-lived assets  121,426   7,085   69,776   198,287 
Fiscal 2011
               
Net sales $3,646,424  $512,083  $  $4,158,507 
Operating income (loss)  1,438,998   280,225   (414,299  1,304,924 
Income (loss) before provision for income taxes  1,438,998   280,225   (418,004  1,301,219 
Depreciation and amortization expense  82,333   11,273   31,500   125,106 
Total assets  1,454,106   109,514   1,071,496   2,635,116 
Additions to long-lived assets  106,556   8,671   39,424   154,651 
Fiscal 2010
                    
Net sales $3,178,735  $428,901  $  $3,607,636 
Operating income (loss)  1,260,503   241,534   (351,866  1,150,171 
Income (loss) before provision for income taxes  1,260,503   241,534   (343,905  1,158,132 
Depreciation and amortization expense  85,110   10,138   31,496   126,744 
Total assets  1,294,445   120,739   1,051,931   2,467,115 
Additions to long-lived assets  45,003   9,088   26,307   80,398 
 
North
America
 International 
Other(1)
 Corporate Unallocated Total
Fiscal 2015  
   
   
   
   
Net sales$2,467.5
 $1,622.0
 $102.1
 $
 $4,191.6
Gross profit1,574.6
 1,248.8
 58.0
 27.2
 2,908.6
Operating income (loss)820.5
 480.6
 25.5
 (708.6) 618.0
Income (loss) before provision for income taxes820.5
 480.6
 25.5
 (715.0) 611.6
Depreciation and amortization expense(2)
61.8
 63.1
 5.2
 110.5
 240.6
Total assets385.1
 1,057.6
 610.0
 2,614.2
 4,666.9
Additions to long-lived assets89.9
 73.9
 1.5
 34.0
 199.3
 North
America
 International 
Other(1)
 Corporate Unallocated Total
Fiscal 2014  
   
   
   
   
Net sales$3,100.5
 $1,644.2
 $61.5
 $
 $4,806.2
Gross profit1,992.7
 1,295.3
 36.9
 (27.9) 3,297.0
Operating income (loss)1,164.1
 555.7
 34.2
 (633.9) 1,120.1
Income (loss) before provision for income taxes1,164.1
 555.7
 34.2
 (631.7) 1,122.3
Depreciation and amortization expense72.9
 58.8
 
 57.7
 189.4
Total assets432.6
 1,128.5
 5.6
 2,096.4
 3,663.1
Additions to long-lived assets102.2
 71.5
 
 45.9
 219.6

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Notes to Consolidated Financial Statements (Continued)


(dollars

 North
America
 International 
Other(1)
 Corporate Unallocated Total
Fiscal 2013  
   
   
   
   
Net sales$3,478.2
 $1,558.1
 $39.1
 $
 $5,075.4
Gross profit2,345.8
 1,255.2
 32.4
 64.7
 3,698.1
Operating income (loss)1,460.0
 582.2
 30.0
 (547.7) 1,524.5
Income (loss) before provision for income taxes1,460.0
 582.2
 30.0
 (551.7) 1,520.5
Depreciation and amortization expense72.3
 45.7
 
 45.0
 163.0
Total assets459.8
 894.8
 34.8
 2,142.5
 3,531.9
Additions to long-lived assets98.7
 60.9
 
 81.8
 241.4
(1) Other consists of sales and sharesexpenses generated by the Coach brand in thousands, except per share data)

13. SEGMENT INFORMATION  – (continued)

other ancillary channels, including licensing and disposition, and sales and expenses generated by the Stuart Weitzman brand during the final two months of fiscal 2015.

(2)
Depreciation and amortization expense includes $48.8 million of transformation-related charges, for the fiscal year ended June 27, 2015. These charges are recorded as corporate unallocated expenses.
Coach's product offerings include modern luxury accessories and lifestyle collections, including women's and men's bags, small leather goods, footwear, business cases, wearables including outerwear, watches, weekend and travel accessories, scarves, sunwear, fragrance, jewelry, travel bags and other lifestyle products. During fiscal 2015, the Company reevaluated its product categories and determined that small accessory handbags and travel bags, which were previously classified as "Women's Accessories" and "All Other Products," respectively, are viewed by management to be part of its "Women's Handbag" product category. Prior periods have been adjusted to reflect the current period classification. The following table shows net sales for each product category represented (in millions):
  Fiscal Year Ended
 June 27,
2015
 % of Total June 28,
2014
 % of Total June 29,
2013
 % of Total
 Women's Handbags$2,389.6
 57% $2,826.1
 59% $3,177.2
 62%
 Women's Accessories709.4
 17% 860.3
 18% 954.2
 19
 Men's680.4
 16% 691.8
 14% 599.5
 12
 All Other Products412.2
 10% 428.0
 9% 344.5
 7
 Total Sales$4,191.6
 100% $4,806.2
 100% $5,075.4
 100%

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


The following is a summary of the commonall costs not allocated in the determination of segment performance:

operating income performance (in millions):
   
 Fiscal Year Ended
   June 30,
2012
 July 2,
2011
 July 3,
2010
Production variances $35,262  $64,043  $61,481 
Advertising, marketing and design  (217,167  (175,643  (164,082
Administration and information systems  (272,556  (247,585  (204,029
Distribution and customer service  (65,755  (55,114  (45,236
Total corporate unallocated $(520,216 $(414,299 $(351,866

 Fiscal Year Ended
  June 27,
2015
 June 28,
2014
 June 29,
2013
Inventory-related costs(1)
$27.2
 $(27.9) $64.7
Advertising, marketing and design(2)
(246.7) (238.1) (236.7)
Administration and information systems(2)(3)
(422.8) (283.9) (293.0)
Distribution and customer service(2)
(66.3) (84.0) (82.7)
Total corporate unallocated$(708.6) $(633.9) $(547.7)
(1)
Inventory-related costs consist of production variances and transformation-related costs, and are recorded within cost of sales. In fiscal 2015, 2014 and 2013 production variances were $32.2 million, $54.3 million and $69.5 million, respectively. In fiscal 2015, fiscal 2014 and fiscal 2013, transformation and other-related costs were $(5.0) million, $(82.2) million and $(4.8) million, respectively.
(2)
Costs recorded within SG&A expenses.
(3)
Fiscal 2015 includes transformation and acquisition-related charges of $(156.7) million. Fiscal 2014 and fiscal 2013 includes charges of $(49.3) million and $(48.4) million, respectively, related to transformation and other actions.
Geographic Area Information

As of June 30, 2012, Coach27, 2015, the Company operated 329277 retail stores and 163 factory195 outlet stores in the United States, 2526 retail stores and six factoryten outlet stores in Canada, 180Canada. Outside of North America, the Company operated 196 concession shop-in-shops within department store shop-in-shops,stores, retail stores and factoryoutlet stores in Japan, 171 in Greater China, and 130 department store shop-in-shops, retail stores and factory stores144 in Hong Kong, Macau, mainland China, Taiwan and Singapore. Coachother international locations. The Company also operates distribution, product development and quality control locations in the United States, Hong Kong, China, South Korea, Vietnam, Philippines, India and India.Spain. Geographic revenue information is based on the location of our customer.customer sale. Geographic long-lived asset information is based on the physical location of the assets at the end of each periodfiscal year and includes property and equipment, net and other assets.

    
 United States Japan Other International(1) Total
Fiscal 2012
                    
Net sales $3,243,710  $844,863  $674,607  $4,763,180 
Long-lived assets  631,979   74,324   108,334   814,637 
Fiscal 2011
                    
Net sales $2,895,029  $757,744  $505,734  $4,158,507 
Long-lived assets  574,285   76,804   76,473   727,562 
Fiscal 2010
                    
Net sales $2,534,372  $720,860  $352,404  $3,607,636 
Long-lived assets  567,380   76,514   42,466   686,360 

 
United States(1)
 
Japan(1)
 
Greater China(1)
 
Other(2)
 Total
 (millions)
Fiscal 2015  
   
     
   
Net sales$2,372.8
 $545.6
 $635.8
 $637.4
 $4,191.6
Long-lived assets559.5
 55.4
 91.2
 138.4
 844.5
Fiscal 2014  
   
     
   
Net sales$2,968.6
 $654.7
 $583.9
 $599.0
 $4,806.2
Long-lived assets594.7
 70.4
 83.9
 91.6
 840.6
Fiscal 2013  
   
     
   
Net sales$3,334.5
 $760.9
 $452.8
 $527.2
 $5,075.4
Long-lived assets638.8
 73.0
 55.5
 56.6
 823.9
(1)
Includes net sales from our global travel retail business in locations within the specified geographic area.
(2)
Other International sales reflect shipments to third-party distributors, primarily in East Asia, and sales from Coach-operatedCompany-operated stores and concession shop-in-shops in Hong Kong, Macau, mainland China,Singapore, Taiwan, SingaporeMalaysia, South Korea, Europe and Canada.

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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


(dollars and shares in thousands, except

17. EARNINGS PER SHARE
Basic net income per share data)

14. EARNINGS PER SHARE

is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted net income per share is calculated similarly but includes potential dilution from the exercise of stock options and RSUs and any other potentially dilutive instruments, only in the periods in which such effects are dilutive under the treasury stock method.

The following is a reconciliation of the weighted-average shares outstanding and calculation of basic and diluted earnings per share:

share (in millions, except per share data):
   
 Fiscal Year Ended
   June 30, 2012 July 2, 2011 July 3, 2010
Net income $1,038,910  $880,800  $734,940 
Total weighted-average basic shares  288,284   294,877   311,413 
Dilutive securities:
               
Employee benefit and share award plans  1,694   1,792   1,318 
Stock option programs  4,151   4,889   3,117 
Total weighted-average diluted shares  294,129   301,558   315,848 
Net income per share:
               
Basic $3.60  $2.99  $2.36 
Diluted $3.53  $2.92  $2.33 

 Fiscal Year Ended
  June 27,
2015
 June 28,
2014
 June 29,
2013
Net income$402.4
 $781.3
 $1,034.4
Total weighted-average basic shares275.7
 277.8
 282.5
      
Dilutive securities:    
   
Share-based award plans0.9
 1.0
 1.5
Stock option programs0.6
 1.6
 2.3
Total weighted-average diluted shares277.2
 280.4
 286.3
      
Net income per share:    
   
Basic$1.46
 $2.81
 $3.66
Diluted$1.45
 $2.79
 $3.61
At June 30, 2012,27, 2015, options to purchase 1165.9 million shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise prices, ranging from $72.06$38.75 to $78.46, were greater than the average market price of the common shares.

At July 2, 2011,June 28, 2014, options to purchase 556.4 million shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise prices, ranging from $59.97$43.39 to $60.28,$78.46, were greater than the average market price of the common shares.

At July 3, 2010,June 29, 2013, options to purchase 3,7102.1 million shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise prices, ranging from $41.93$56.95 to $51.56,$78.46, were greater than the average market price of the common shares.

15.

Earnings per share amounts have been calculated based on unrounded numbers. Options to purchase shares of the Company's common stock at an exercise price greater than the average market price of the common stock during the reporting period are anti-dilutive and therefore not included in the computation of diluted net income per common share. In addition, the Company has outstanding RSUs that are issuable only upon the achievement of certain performance goals. PRSUs are included in the computation of diluted shares only to the extent that the underlying performance conditions (and any applicable market condition modifiers) (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. As of June 27, 2015, June 28, 2014 and June 29, 2013, there were approximately 6.8 million, 7.1 million, and 2.8 million, respectively, of additional shares issuable upon exercise of anti-dilutive options and contingent vesting of PRSUs, which were excluded from the diluted share calculations.
18. STOCK REPURCHASE PROGRAM

Purchases of Coach’sthe Company's common stock arehave been made from time to time, subject to market conditions and at prevailing market prices, through open market purchases. RepurchasedUnder Maryland law, Coach’s state of incorporation, treasury shares of common stock become authorized but unissuedare not allowed. As a result, all repurchased shares and may be issued in the future for general corporate and other purposes.are retired when acquired. The Company may terminate or limit theCompany's stock repurchase program expired at any time.

the end of fiscal 2015, with zero remaining availability at June 27, 2015.


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COACH, INC.

Notes to Consolidated Financial Statements (Continued)


During fiscal 2012,2015, fiscal 20112014, and fiscal 2010,2013, the Company repurchased and retired 10,688, 20,404zero, 10.2 million and 30,6867.1 million shares, respectively, or $700,000, $1,098,000$0.0 million, $524.9 million, and $1,150,000$400.0 million of common stock, respectively, at an average cost of $65.49, $53.81$0.00, $51.27 and $37.48$56.61 per share, respectively. As of June 30, 2012, Coach had $261,627 remaining in the stock repurchase program.


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COACH, INC.

Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)

16.19. SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of certain balance sheet accounts are as follows:

follows (in millions):
  
 June 30, 2012 July 2, 2011
Property and equipment
          
Land and building $168,550  $168,550 
Machinery and equipment  34,056   32,298 
Furniture and fixtures  490,892   394,588 
Leasehold improvements  618,583   552,855 
Construction in progress  19,774   17,568 
Less: accumulated depreciation  (687,406  (583,511
Total property and equipment, net $644,449  $582,348 
Accrued liabilities
          
Payroll and employee benefits $184,918  $177,412 
Accrued rent  37,834   34,833 
Dividends payable  85,796   65,260 
Operating expenses  231,850   196,105 
Total accrued liabilities $540,398  $473,610 
Other liabilities
          
Deferred lease incentives $116,302  $116,032 
Non-current tax liabilities  155,599   162,060 
Tax-related deferred credit (See Note on Income Taxes)  22,520   46,534 
Other  97,824   81,544 
Total other liabilities $392,245  $406,170 
Accumulated other comprehensive income
          
Cumulative translation adjustments $55,360  $59,412 
Cumulative effect of adoption of ASC 320-10-35-17,
net of taxes of $628 and $628
  (1,072  (1,072
Unrealized losses on cash flow hedging derivatives,
net of taxes of $576 and $899
  (461  (1,465
ASC 715 adjustment and minimum pension liability,
net of taxes of $2,028 and $1,309
  (3,352  (1,964
Accumulated other comprehensive income $50,475  $54,911 

************************************************************************************

 June 27,
2015
 June 28,
2014
Property and equipment  
   
Land and building$168.5
 $168.6
Machinery and equipment34.7
 34.7
Furniture and fixtures640.9
 544.6
Leasehold improvements650.7
 648.6
Construction in progress78.8
 85.1
Less: accumulated depreciation(841.0) (767.7)
Total property and equipment, net$732.6
 $713.9
Accrued liabilities  
   
Payroll and employee benefits$181.9
 $137.8
Accrued rent47.8
 50.9
Dividends payable93.3
 92.6
Operating expenses277.6
 237.4
Total accrued liabilities$600.6
 $518.7
Other liabilities  
   
Deferred lease obligation$122.4
 $135.2
Gross unrecognized tax benefit168.1
 170.7
Deferred tax liabilities60.0
 59.7
Other112.7
 63.8
Total other liabilities$463.2
 $429.4

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COACH, INC.

Schedule II — Valuation and Qualifying Accounts

For the Fiscal Years Ended June 30, 2012, July 2, 201127, 2015, June 28, 2014 and July 3, 2010

June 29, 2013
(amounts in thousands)

millions)
    
 Balance at Beginning
of Year
 Provision Charged to Costs and Expenses Write-offs/
Allowances Taken
 Balance at
End of
Year
Fiscal 2012
                    
Balance at Beginning
of Year
 Additions Charged to Costs and Expenses Additions Related to Acquisition 
Write-offs/
Allowances Taken
 
Balance at
End of Year
Fiscal 2015  
   
     
   
Allowance for bad debts $3,431  $(117 $4  $3,318 $1.4
 $1.7
 $0.9
 $(0.9) $3.1
Allowance for returns  6,113   12,019   (11,637  6,495 2.9
 8.9
 0.7
 (5.0) 7.5
Allowance for markdowns11.6
 42.5
 3.8
 (39.9) 18.0
Valuation allowance     3,156      3,156 131.8
 38.0
 
 
 169.8
Total $9,544  $15,058  $(11,633 $12,969 $147.7
 $91.1
 $5.4
 $(45.8) $198.4
Fiscal 2011
                    
Fiscal 2014  
   
     
   
Allowance for bad debts $1,943  $1,495  $(7 $3,431 $1.1
 $1.6
 $
 $(1.3) $1.4
Allowance for returns  5,022   11,070   (9,979  6,113 7.0
 0.8
 
 (4.9) 2.9
Allowance for markdowns8.4
 37.9
 
 (34.7) 11.6
Valuation allowance            79.6
 52.2
 
 
 131.8
Total $6,965  $12,565  $(9,986 $9,544 $96.1
 $92.5
 $
 $(40.9) 147.7
Fiscal 2010
                    
Fiscal 2013  
   
     
   
Allowance for bad debts $2,840  $(897 $  $1,943 $3.3
 $(0.5) $
 $(1.7) $1.1
Allowance for returns  3,507   8,579   (7,064  5,022 2.8
 8.6
 
 (4.4) 7.0
Allowance for markdowns3.7
 22.5
 
 (17.8) 8.4
Valuation allowance            53.5
 29.3
 
 (3.2) 79.6
Total $6,347  $7,682  $(7,064 $6,965 $63.3
 $59.9
 $
 $(27.1) $96.1



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COACH, INC.


Quarterly Financial Data
(dollars and shares in thousands,millions, except per share data)
(unaudited)

    
 First
Quarter
 Second Quarter Third Quarter Fourth Quarter
Fiscal 2012(1)
                    
Net sales $1,050,359  $1,448,649  $1,108,981  $1,155,191 
Gross profit  764,653   1,045,211   818,067   838,147 
Net income  214,983   500,901   225,002   251,430 
Net income per common share:
                    
Basic  0.74   1.20   0.78   0.88 
Diluted  0.73   1.18   0.77   0.86 
Fiscal 2011(1)
                    
Net sales $911,669  $1,264,457  $950,706  $1,031,675 
Gross profit  676,171   915,176   691,655   740,539 
Net income  188,876   303,428   186,015   202,481 
Net income per common share:
                    
Basic  0.64   1.02   0.63   0.70 
Diluted  0.63   1.00   0.62   0.68 
Fiscal 2010(1)
                    
Net sales $761,437  $1,065,005  $830,669  $950,525 
Gross profit  550,178   770,939   615,575   696,999 
Net income  140,827   240,950   157,636   195,527 
Net income per common share:
                    
Basic  0.44   0.76   0.51   0.65 
Diluted  0.44   0.75   0.50   0.64 

 First Quarter Second Quarter Third Quarter Fourth Quarter
Fiscal 2015(1)
  
   
   
   
Net sales$1,038.8
 $1,219.4
 $929.3
 $1,004.1
Gross profit715.4
 840.0
 665.5
 687.7
Net income119.1
 183.5
 88.1
 11.7
Net income per common share:       
Basic0.43
 0.67
 0.32
 0.04
Diluted0.43
 0.66
 0.32
 0.04
Fiscal 2014(1)
  
   
   
   
Net sales$1,150.8
 $1,419.6
 $1,099.6
 $1,136.2
Gross profit826.6
 982.7
 781.3
 706.4
Net income217.9
 297.4
 190.8
 75.2
Net income per common share:       
Basic0.77
 1.07
 0.69
 0.27
Diluted0.77
 1.06
 0.68
 0.27
Fiscal 2013(1)
  
   
   
   
Net sales$1,161.4
 $1,503.8
 $1,187.6
 $1,222.6
Gross profit845.2
 1,085.4
 880.2
 887.3
Net income221.4
 352.8
 238.9
 221.3
Net income per common share:  
   
   
   
Basic0.78
 1.25
 0.85
 0.79
Diluted0.77
 1.23
 0.84
 0.78
(1)
The sum of the quarterly earnings per share may not equal the full-year amount, as the computations of the weighted-average number of common basic and diluted shares outstanding for each quarter and the full year are performed independently.

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COACH, INC.

EXHIBITS TO FORM 10-K

(a)Exhibit Table (numbered in accordance with Item 601 of Regulation S-K)

Exhibit No. Description
3.1 Amended and Restated Bylaws of Coach, Inc., dated February 7, 2008, which is incorporated herein by reference from Exhibit 3.1 to Coach’s Current Report on Form 8-K filed on February 13, 2008
3.2 Articles Supplementary of Coach, Inc., dated May 3, 2001, which is incorporated herein by reference from Exhibit 3.2 to Coach’s Current Report on Form 8-K filed on May 9, 2001
3.3 Articles of Amendment of Coach, Inc., dated May 3, 2001, which is incorporated herein by reference from Exhibit 3.3 to Coach’s Current Report on Form 8-K filed on May 9, 2001
3.4 Articles of Amendment of Coach, Inc., dated May 3, 2002, which is incorporated by reference from Exhibit 3.4 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2002
3.5 Articles of Amendment of Coach, Inc., dated February 1, 2005, which is incorporated by reference from Exhibit 99.1 to Coach’s Current Report on Form 8-K filed on February 2, 2005
4.1 Specimen Certificate for Common Stock of Coach, which is incorporated herein by reference from Exhibit 4.1 to Coach's Registration Statement on Form S-1 (Registration No. 333-39502)
4.2 Deposit Agreement, dated November 24, 2011, between Coach, Inc. and JPMorgan Chase Bank, N.A., as depositary, which is incorporated by reference from Exhibit 4.1 to Coach’s Current Report on Form 8-K filed on November 25, 2011
4.3 Deed Poll, dated November 24, 2011, executed by Coach, Inc. and JPMorgan Chase Bank, N.A., as depositary, pursuant to the deposit agreement in favor of and in relation to the rights of the holders of the depositary receipts, which is incorporated by reference from Exhibit 4.1 to Coach’s Current Report on Form 8-K filed on November 25, 2011
10.1 4.4 Revolving Credit Agreement,Indenture, dated as of July 26, 2007, by andMarch 2, 2015, relating to the 4.250% senior unsecured notes due 2025, between Coach certain lenders and U.S. Bank National Association, as trustee, which is incorporated herein by reference from Exhibit 4.1 to Coach’s Current Report on Form 8-K filed on March 2, 2015
4.5First Supplemental Indenture, dated as of America, N.A.March 2, 2015, relating to the 4.250% senior unsecured notes due 2025, between Coach and U.S. Bank National Association, as trustee, which is incorporated herein by reference from Exhibit 4.2 to Coach’s Current Report on Form 8-K filed on March 2, 2015
4.6Form of 4.250% senior unsecured notes due 2025 (included in the First Supplemental Indenture), which is incorporated herein by reference from Exhibit 4.3 to Coach’s Current Report on Form 8-K filed on March 2, 2015
10.1Purchase Agreement among Stuart Weitzman Topco LLC, Stuart Weitzman Intermediate LLC and Coach, dated January 5, 2015, which is incorporated by reference from Exhibit 1010.1 to Coach’s Quarterly Report on Form 10-Q for the period ended April 2, 2011December 27, 2014
10.2*10.2Letter Agreement between Stuart Weitzman and Coach, dated January 5, 2015, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended December 27, 2014
10.3 Revolving Credit Agreement, dated as of June 18, 2012, by and between Coach, certain lenders and JPMorgan Chase Bank, N.A., as administrative agent, which is incorporated by reference from Exhibit 10.2 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012
10.4Amendment No. 1 to the Revolving Credit Agreement, dated as of March 26, 2013, by and between Coach, certain lenders and JPMorgan Chase Bank N.A., as administrative agent, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended March 30, 2013
10.5Amendment No. 2 to the Revolving Credit Agreement, dated as of November 27, 2013, by and between Coach, certain lenders and JPMorgan Chase Bank N.A., as administrative agent, which is incorporated by reference from Exhibit 10.3 to Coach’s Quarterly Report on Form 10-Q for the period ended December 28, 2013
10.6Amendment No. 3 to the Revolving Credit Agreement, dated as of September 9, 2014, by and between Coach, certain lenders and JPMorgan Chase Bank N.A., as administrative agent, which is incorporated by reference from Exhibit 10.3 to Coach’s Quarterly Report on Form 10-Q for the period ended September 27, 2014
10.7Amendment and Restatement Agreement, dated as of March 18, 2015, by and between Coach, certain lenders and JPMorgan Chase Bank, N.A., as administrative agent, which amends and restates the Revolving Credit Agreement, dated as of June 18, 2012 (as amended by Amendment No. 1 dated March 26, 2013, Amendment No. 2 dated November 27, 2013 and Amendment No. 3 dated September 9, 2014) , which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended March 28, 2015
10.8~ Limited Liability Company Agreement, dated April 10, 2013, by and between Coach Legacy Yards LLC, an affiliate of Coach, and Podium Fund Tower C SPV LLC, which is incorporated herein by reference from Exhibit 10.3 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2013

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ExhibitDescription
10.9~ Development Agreement, dated April 10, 2013, by and between Coach Legacy Yards LLC, an affiliate of Coach, and ERY Developer LLC, which is incorporated herein by reference from Exhibit 10.4 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2013
10.10
Guaranty Agreement, dated April 10, 2013, by Coach, Inc., to and for the benefit of
ERY Developer LLC and Podium Fund Tower C SPV LLC, which is incorporated herein by reference from Exhibit 10.5 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2013
10.11
Purchase and Sale Agreement, dated April 10, 2013, by and between 504-514 West 34th Street Corp. and 516 West 34th Street LLC, both subsidiaries of Coach, and ERY 34th Street Acquisition LLC, which is incorporated herein by reference from Exhibit 10.6 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2013
10.12
 Coach, Inc. 2000 Stock Incentive Plan, which is incorporated by reference from Exhibit 10.10 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003
10.4 
10.13
 Coach, Inc. Performance-Based Annual Incentive Plan, which is incorporated by reference from Appendix A to the Registrant’s Definitive Proxy Statement for the 20052008 Annual Meeting of Stockholders, filed on September 28, 200519, 2008
10.5 
10.14
 Coach, Inc. 2000 Non-Employee Director Stock Plan, which is incorporated by reference from Exhibit 10.13 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003
10.6 
10.15
 Coach, Inc. Non-Qualified Deferred Compensation Plan for Outside Directors, which is incorporated by reference from Exhibit 10.14 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003
10.7 
10.16
 Coach, Inc. 2001 Employee Stock Purchase Plan, which is incorporated by reference from Exhibit 10.15 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2002

TABLE OF CONTENTS

Exhibit No.Description
10.8
10.17
 Coach, Inc. 2004 Stock Incentive Plan, which is incorporated by reference from Appendix A to the Registrant’s Definitive Proxy Statement for the 2004 Annual Meeting of Stockholders, filed on September 29, 2004
10.9
10.18
Coach, Inc. 2010 Stock Incentive Plan, which is incorporated by reference from Appendix A to the Registrant’s Definitive Proxy Statement for the 2010 Annual Meeting of Stockholders, filed on September 24, 2010
10.19
Amendment to the Coach, Inc. 2010 Stock Incentive Plan, which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 22, 2014
10.20
Coach, Inc. Amended and Restated 2010 Stock Incentive Plan, which is incorporated herein by reference from Appendix B to the Registrant’s Definitive Proxy Statement for the 2014 Annual Meeting of Stockholders, filed on September 26, 2014
10.21*†
Form of Stock Option Grant Notice and Agreement under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan
10.22*†
Form of Restricted Stock Unit Award Grant Notice and Agreement under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan
10.23*†
Form of Performance Restricted Stock Unit Agreement Grant Notice and Agreement under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan
10.24*†
Form of Stock Option Grant Notice and Agreement for Outside Directors under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan
10.25*†
Form of Restricted Stock Unit Grant Notice and Agreement for Outside Directors under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan
10.26
Coach, Inc. 2013 Performance-Based Annual Incentive Plan, which is incorporated herein by reference from Appendix B to the Registrant’s Definitive Proxy Statement for the 2013 Annual Meeting of Stockholders, filed on September 27, 2013
10.27
 Employment Agreement dated June 1, 2003 between Coach and Lew Frankfort, which is incorporated by reference from Exhibit 10.20 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003
10.10Employment Agreement dated June 1, 2003 between Coach and Reed Krakoff, which is incorporated by reference from Exhibit 10.21 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003
10.11Branding Agreement dated August 5, 2010 between Coach and Reed Krakoff, which is incorporated by reference from Exhibit 10.10 to Coach’s Annual Report on Form 10-K for the fiscal year ended July 3, 2010
10.12
10.28
 Amendment to Employment Agreement, dated August 22, 2005, between Coach and Lew Frankfort, which is incorporated by reference from Exhibit 10.23 to Coach’s Annual Report on Form 10-K for the fiscal year ended July 2, 2005
10.13
10.29
 Amendment to Employment Agreement, dated August 22, 2005,May 7, 2012, between Coach and Reed Krakoff,Lew Frankfort, which is incorporated herein by reference from Exhibit 10.1 to Coach’s Current Report on Form 8-K filed on May 8, 2012
10.30
Amendment to Employment Agreement, dated December 23, 2013, between Coach and Lew Frankfort, which is incorporated by reference from Exhibit 10.2310.1 to Coach’s AnnualCurrent Report on Form 10-K for the fiscal year ended8-K filed on December 23, 2013
10.31
Amendment to Employment Agreement, dated June 30, 2014, between Coach and Lew Frankfort, which is incorporated by reference from Exhibit 10.1 to Coach’s Current Report on Form 8-K filed on July 2, 20052014

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10.14
ExhibitDescription
10.32
 Performance Restricted Stock Unit Award Grant Notice and Agreement, dated August 6, 2009, between Coach and Lew Frankfort, which is incorporated by reference from Exhibit 10.13 to Coach’s Annual Report on Form 10-K for the fiscal year ended July 3, 2010
10.15Employment Agreement dated November 8, 2005 between Coach and Michael Tucci, which is incorporated by reference from Exhibit 10.1 to Coach’s Quarterly Report on Form 10-Q for the period ended December 31, 2005
10.16Employment Agreement dated November 8, 2005 between Coach and Michael F Devine, III, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended December 31, 2005
10.17Amendment to Employment Agreement, dated March 11, 2008, between Coach and Reed Krakoff, which is incorporated herein by reference from Exhibit 10.16 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2008
10.18Amendment to Employment Agreement, dated August 5, 2008, between Coach and Michael Tucci, which is incorporated herein by reference from Exhibit 10.16 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2008
10.19Performance Restricted Stock Unit Award Grant Notice and Agreement, dated August 5, 2010, between Coach and Jerry Stritzke, which is incorporated herein by reference from Exhibit 10.19 to Coach’s Annual Report on Form 10-K for the fiscal year ended July 3, 2010
10.20Coach, Inc. 2010 Stock Incentive Plan, which is incorporated by reference from Appendix A to the Registrant’s Definitive Proxy Statement for the 2010 Annual Meeting of Stockholders, filed on September 24, 2010
10.21Amendment to Employment Agreement, dated May 7, 2012, between Coach and Lew Frankfort, which is incorporated herein by reference from Exhibit 10.1 to Coach’s Current Report on Form 8-K filed on May 8, 2012
10.22Amendment to Employment Agreement, dated May 7, 2012, between Coach and Reed Krakoff, which is incorporated herein by reference from Exhibit 10.2 to Coach’s Current Report on Form 8-K filed on May 8, 2012
10.33

TABLE OF CONTENTS

Exhibit No.Description
10.23Amendment to Employment Agreement, dated May 7, 2012, between Coach and Michael Tucci, which is incorporated herein by reference from Exhibit 10.3 to Coach’s Current Report on Form 8-K filed on May 8, 2012
10.24Performance Restricted Stock Unit Award Grant Notice and Agreement, dated August 4, 2011, between Coach and Michael Tucci, which is incorporated herein by reference from Exhibit 10.1 to Coach’s Quarterly Report on Form 10-Q for the fiscal period ended October 1, 2011
10.25 Employment Offer Letter, dated July 19, 2011, between Coach and Jane Nielsen, which is incorporated herein by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the fiscal period ended October 1, 2011
10.26
10.34
 ConsultingLetter Agreement, dated October 7, 2011February 13, 2013, between Coach and Michael F. Devine, III,Victor Luis, which is incorporated herein by reference from Exhibit 10.110.29 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2013
10.35
Employment Offer Letter, dated September 2, 2014, between Coach and Gebhard Rainer, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended September 27, 2014
10.36
Employment Offer Letter, dated January 26, 2015, between Coach and Ian Bickley, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended March 28, 2015
10.37
Employment Offer Letter, dated January 26, 2015, between Coach and Andre Cohen, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended March 28, 2015
10.38
Letter Agreement, dated June 22, 2015, between Coach and Sarah Dunn, which is incorporated by reference from Exhibit 10.3 to Coach’s Current Report on Form 8-K, filed on October 7, 2011June 22, 2015
10.27
10.39
Letter Agreement, dated June 22, 2015, between Coach and Todd Kahn, which is incorporated by reference from Exhibit 10.2 to Coach’s Current Report on Form 8-K, filed on June 22, 2015
10.40
Letter Agreement, dated June 22, 2015, between Coach and Jane Nielsen, which is incorporated by reference from Exhibit 10.4 to Coach’s Current Report on Form 8-K, filed on June 22, 2015
10.41 Sponsor Agreement, dated November 24, 2011, between Coach, Inc. and J.P. Morgan Securities (Asia Pacific) Limited, as sponsor, which is incorporated herein by reference from Exhibit 4.1 to Coach’s Current Report on Form 8-K filed on November 25, 2011
12* Computation of Ratio of Earnings to Fixed Charges
18 Letter re: change in accounting principle, which is incorporated herein by reference from Exhibit 18 to Coach’s Quarterly Report on Form 10-Q for the period ended October 2, 2010
21.1* List of Subsidiaries of Coach, Inc.
23.1* Consent of Deloitte & Touche LLP
31.1* Rule 13(a)-14(a)/15(d)-14(a) Certifications
32.1* Section 1350 Certifications
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase
101.LAB* XBRL Taxonomy Extension Label Linkbase
101.PRE* XBRL Taxonomy Extension Presentation Linkbase
101.DEF* XBRL Taxonomy Extension Definition Linkbase

*Filed herewith
~The Registrant has requested confidential treatment for certain portions of this Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
Management contract or compensatory plan or arrangement.

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