UNITED STATES SECURITIES AND EXCHANGE COMMISSION
respectively. ranges from one to five years. Stock Options Share Awards Investments up to 50 basis points. At other intangible assets not subject to amortization is as follows: Segment Information 14. is described in Note 9. Net cash provided by operating activities was operating cash flows. flow. depend most heavily on these judgments and estimates. As of is described in Note 9. subject to foreign currency exchange risk. 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. June 30, 2007. of fiscal 2008 were as follows: Exhibits 31.1 Section 1350 Certifications_________________[X]xACT OF 1934 o For the Quarterly Period Ended March 31, 2007or[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 _______________________Coach, Inc.COACH, INC. incorporation or organization)Identification No.) th Street, New York, NY 10001[xü] Yes [ ]o No[xü] Accelerated Filer [ ]o Non-accelerated filer [ ]o [ ][xü] NoApril 27,November 2, 2007, the Registrant had 371,134,524368,135,937 outstanding shares of common stock, which is the Registrant’s only class of common stock.3936 pages excluding exhibits. FORM 10-Q –- FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets –- At March 31,September 29, 2007 and July 1, 2006June 30, 2007 4 –- For the Quarters and Nine Months Ended March 31,April 1,September 30, 20065 Consolidated Statements of Stockholders’ Equity – For the period July 2, 2005 to March 31, 20076–- For the Nine MonthsQuarters Ended March 31,April 1,September 30, 200676 Notes to Condensed Consolidated Financial Statements 87 ITEM 2. and Results of Operations 2322 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 3532 ITEM 4. Controls and Procedures 3633 –- OTHER INFORMATION ITEM 1. Legal Proceedings 3633 ITEM 1A. Risk Factors 3734 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 3734 ITEM 4. Submission of Matters to a Vote of Security Holders 3734 ITEM 5. Other Information 3734 ITEM 6. Exhibits and Reports on Form 8-K35 37 SIGNATURE 3936statements”,statements,” based on current expectations, that involve risks and uncertainties that could cause our actual results to differ materially from our management’s current expectations. These forward-looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “intend”, “estimate”,“may,” “will,” “should,” “expect,” “intend,” “estimate,” “are positioned to”, “continue”, “project”, “guidance”, “forecast”, “anticipated”,to,” “continue,” “project,” “guidance,” “target,” “forecast,” “anticipated,” or comparable terms. Future results will vary from historical results and historical growth is not indicative of future trends, which will depend upon a number of factors, including but not limited to: (i) the successful execution of our growth strategies; (ii) the effect of existing and new competition in the marketplace; (iii) our exposure to international risks, including currency fluctuations; (iv) changes in economic or political conditions in the markets where we sell or source our products; (v) our ability to successfully anticipate consumer preferences for accessories and fashion trends; (vi) our ability to control costs; (vii) the effect of seasonal and quarterly fluctuations in our sales on our operating results; (viii) our ability to protect against infringement of our trademarks and other proprietary rights; and such other risk factors as set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2006.June 30, 2007. Coach, Inc. assumes no obligation to update or revise any such forward-looking statements, which speak only as of their date, even if experience, future events or changes make it clear that any projected financial or operating results will not be realized. Current Assets: Cash and cash equivalents $ 786,556 $ 556,956 Short-term investments 448,800 628,860 Trade accounts receivable, less allowances of $9,355 and $6,579, respectively 148,942 107,814 Inventories 363,049 291,192 Other current assets 138,550 155,374 Total current assets 1,885,897 1,740,196 Property and equipment, net 400,807 368,461 Goodwill 228,465 213,794 Indefinite life intangibles 12,013 11,865 Other non-current assets 151,849 115,196 Total assets $ 2,679,031 $ 2,449,512 Current Liabilities: Accounts payable $ 95,438 $ 109,309 Accrued liabilities 306,401 298,452 Current portion of long-term debt 285 235 Total current liabilities 402,124 407,996 Long-term debt 2,580 2,865 Deferred income taxes 23,030 36,448 Non-current tax liabilities 122,387 - Other liabilities 123,077 91,849 Total liabilities 673,198 539,158 Commitments and contingencies (Note 6) - - 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 - 372,529,949 and 372,521,112 shares, respectively 3,725 3,725 Additional paid-in-capital 1,080,737 978,664 Retained earnings 920,533 940,757 Accumulated other comprehensive income (loss) 838 (12,792 ) Total stockholders' equity 2,005,833 1,910,354 Total liabilities and stockholders' equity $ 2,679,031 $ 2,449,512 CONDENSED CONSOLIDATED BALANCE SHEETS(amounts in thousands, except share data) July 1, ASSETS Current Assets: Cash and cash equivalents $ 222,316 $ 143,388 Short-term investments 713,858 394,177 Trade accounts receivable, less allowances of $10,121 and $6,000, respectively 124,858 84,361 Inventories 249,818 233,494 Other current assets 155,414 119,062 Total current assets 1,466,264 974,482 Property and equipment, net 344,659 298,531 Goodwill 222,891 227,811 Indefinite life intangibles 11,957 12,007 Other noncurrent assets 97,424 113,689 Total assets $ 2,143,195 $ 1,626,520 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 62,113 $ 79,819 Accrued liabilities 275,916 261,835 Current portion of long-term debt 235 170 Total current liabilities 338,264 341,824 Long-term debt 2,865 3,100 Other liabilities 96,620 92,862 Total liabilities 437,749 437,786 Commitments and contingencies (Note 7) 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 - 371,059,185 and 369,830,906 shares, respectively 3,711 3,698 Additional paid-in-capital 928,602 775,209 Retained earnings 780,145 417,087 Accumulated other comprehensive loss (7,012 ) (7,260 ) Total stockholders' equity 1,705,446 1,188,734 Total liabilities and stockholders' equity $ 2,143,195 $ 1,626,520 See accompanying Notes to Condensed Consolidated Financial StatementsCOACH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME Net sales $ 676,718 $ 529,421 Cost of sales 158,497 123,416 Gross profit 518,221 406,005 Selling, general and administrative expenses 279,463 225,351 Operating income 238,758 180,654 Interest income, net 14,996 6,589 Income before provision for income taxes and discontinued operations 253,754 187,243 Provision for income taxes 98,968 72,004 Income from continuing operations 154,786 115,239 Income from discontinued operations, net of income taxes (Note 13) 20 10,377 Net income $ 154,806 $ 125,616 Net income per share Basic Continuing operations $ 0.42 $ 0.31 Discontinued operations 0.00 0.03 Net income $ 0.42 $ 0.34 Diluted Continuing operations $ 0.41 $ 0.31 Discontinued operations 0.00 0.03 Net income $ 0.41 $ 0.34 Shares used in computing net income per share Basic 372,186 368,171 Diluted 379,285 373,672 April 1, Net sales $ 625,303 $ 479,718 $ 1,960,327 $ 1,533,512 Cost of sales 138,893 103,519 446,617 345,464 Gross profit 486,410 376,199 1,513,710 1,188,048 Selling, general and administrative expenses 259,783 222,523 765,714 645,512 Operating income 226,627 153,676 747,996 542,536 Interest income, net 12,988 10,118 27,465 22,995 Income before provision for income taxes and discontinued operations 239,615 163,794 775,461 565,531 Provision for income taxes 92,225 62,122 298,335 214,486 Income from continuing operations 147,390 101,672 477,126 351,045 Income from discontinued operations, net of income taxes (Note 2) 2,574 7,174 25,927 25,590 Net income $ 149,964 $ 108,846 $ 503,053 $ 376,635 Net income per share Basic Continuing operations $ 0.40 $ 0.26 $ 1.29 $ 0.92 Discontinued operations 0.01 0.02 0.07 0.07 Net income $ 0.41 $ 0.28 $ 1.36 $ 0.99 Diluted Continuing operations $ 0.39 $ 0.26 $ 1.27 $ 0.90 Discontinued operations 0.01 0.02 0.07 0.07 Net income $ 0.40 $ 0.28 $ 1.34 $ 0.96 Shares used in computing net income per share Basic 370,264 383,739 369,039 381,330 Diluted 379,289 391,453 376,334 390,637 Net income $ 154,806 $ 125,616 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 24,728 18,832 Provision for bad debt 1,972 1,755 Share-based compensation 16,406 12,702 Excess tax benefit from share-based compensation (20,923 ) (7,546 ) Decrease in deferred tax assets 19,252 10,212 Decrease in deferred tax liabilities (17,014 ) (16,883 ) Other, net 6,126 (1,184 ) Changes in operating assets and liabilities: Increase in trade accounts receivable (43,100 ) (35,476 ) Increase in inventories (71,857 ) (67,361 ) Increase in other assets (11,203 ) (18,402 ) Increase in other liabilities 12,184 5,572 (Decrease) increase in accounts payable (13,871 ) 6,354 Increase in accrued liabilities 67,735 46,554 Net cash provided by operating activities 125,241 80,745 Purchases of property and equipment (38,724 ) (36,268 ) Proceeds from dispositions of property and equipment - 123 Purchases of investments (103,375 ) (113,239 ) Proceeds from maturities and sales of investments 283,435 146,325 Net cash provided by (used in) investing activities 141,336 (3,059 ) Repurchase of common stock (132,284 ) (149,999 ) Repayment of long-term debt (235 ) (170 ) Net borrowings on revolving credit facility - 7,380 Proceeds from exercise of stock options 74,619 26,379 Excess tax benefit from share-based compensation 20,923 7,546 Adjustment to excess tax benefit from share-based compensation - (16,658 ) Net cash used in financing activities (36,977 ) (125,522 ) Increase (decrease) in cash and cash equivalents 229,600 (47,836 ) Cash and cash equivalents at beginning of period 556,956 143,388 Cash and cash equivalents at end of period $ 786,556 $ 95,552 Supplemental Information: Cash paid for income taxes $ 3,200 $ 41,456 Cash paid for interest $ 14 $ 25 Non-cash investing activity - property and equipment obligations incurred $ 34,375 $ 5,341 See accompanying COACH, INCCOACH, INC.CONSOLIDATEDSTATEMENTS OFSTOCKHOLDERS'EQUITY(amounts inthousands) Accumulated Common Additional Other Paid-in- Comprehensive Equity Equity Capital Income (Loss) Income (Loss) Balances at July 2, 2005 $ 1,055,920 $ - $ 3,784 $ 566,262 $ 484,971 $ 903 378,430 Net income 494,277 - - - 494,277 - $ 494,277 Shares issued for stock options and employee benefit plans 78,444 - 105 78,339 - - 10,456 Share-based compensation 69,190 - - 69,190 - - Excess tax benefit from share-based compensation 99,337 - - 99,337 - - Repurchase of common stock (600,271 ) - (191 ) (37,919 ) (562,161 ) - (19,055 ) Changes in derivatives balances, net of tax (4,488 ) - - - - (4,488 ) (4,488 ) Translation adjustments, net of tax (3,780 ) - - - - (3,780 ) (3,780 ) Minimum pension liability, net of tax 105 - - - - 105 105 Comprehensive income $ 486,114 Balances at July 1, 2006 1,188,734 - 3,698 775,209 417,087 (7,260 ) 369,831 (Unaudited): Net income 503,053 - - - 503,053 - $ 503,053 Shares issued for stock options and employee benefit plans 93,616 - 63 93,553 - - 6,230 Share-based compensation 41,553 - - 41,553 - - Excess tax benefit from share-based compensation 44,899 - - 44,899 - - Adjustment to excess tax benefit from share- based compensation (16,658 ) - - (16,658 ) - - Repurchase of common stock (149,999 ) - (50 ) (9,954 ) (139,995 ) - (5,002 ) Changes in derivatives balances, net of tax 4,067 - - - - 4,067 4,067 Translation adjustments (3,819 ) - - - - (3,819 ) (3,819 ) Comprehensive income $ 503,301 Balances at March 31, 2007 $ 1,705,446 $ - $ 3,711 $ 928,602 $ 780,145 $ (7,012 ) 371,059 Seeaccompanying Notes toCondensedConsolidatedFinancialStatementsCOACH, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in thousands)(unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 503,053 $ 376,635 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 59,558 48,034 Provision for bad debt 2,458 1,740 Share-based compensation 41,553 51,286 Excess tax benefit from share-based compensation (44,899 ) (80,392 ) Decrease (increase) in deferred tax assets 10,700 (12,350 ) (Decrease) increase in deferred tax liabilities (16,700 ) 8,766 Other noncash credits, net (2,353 ) (11,856 ) Changes in operating assets and liabilities: Increase in trade accounts receivable (42,955 ) (46,756 ) Increase in inventories (16,324 ) (26,046 ) Increase in other assets (27,647 ) (23,002 ) Increase in other liabilities 15,631 10,127 Decrease in accounts payable (17,706 ) (10,144 ) Increase in accrued liabilities 57,969 115,315 Net cash provided by operating activities 522,338 401,357 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (98,352 ) (99,563 ) Proceeds from dispositions of property and equipment 156 - Purchases of investments (1,513,948 ) (942,284 ) Proceeds from maturities of investments 1,193,741 635,703 Net cash used in investing activities (418,403 ) (406,144 ) CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of common stock (149,999 ) (113,799 ) Repayment of long-term debt (170 ) (150 ) Borrowings on revolving credit facility 57,048 55,560 Repayments of revolving credit facility (57,048 ) (66,016 ) Proceeds from exercise of stock options 96,921 78,646 Excess tax benefit from share-based compensation 44,899 80,392 Adjustment to excess tax benefit from share-based compensation (16,658 ) - Net cash (used in) provided by financing activities (25,007 ) 34,633 Increase in cash and cash equivalents 78,928 29,846 Cash and cash equivalents at beginning of period 143,388 154,566 Cash and cash equivalents at end of period $ 222,316 $ 184,412 Cash paid for income taxes $ 309,207 $ 145,001 Cash paid for interest $ 598 $ 122 Noncash investing activity - property and equipment obligations incurred $ 26,851 $ 12,281 See accompanying Notes to Condensed Consolidated Financial StatementsCOACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands, except per share data)1. BASIS OF PRESENTATION AND ORGANIZATIONJuly 1, 2006June 30, 2007 (“fiscal 2006”2007”).and nine months ended March 31,September 29, 2007 are not necessarily indicative of results to be expected for the entire fiscal year, which will end on June 30, 200728, 2008 (“fiscal 2007”2008”).2. DISCONTINUED OPERATIONS In March 2007, theexited its corporate accounts business in order to better control the location and image of the brand where Coach product is sold. Through the corporate accounts business, Coach sold products primarily to distributors for gift-giving and incentive programs. The results of the corporate accounts business, previously included in the Indirect segment, have been segregated from continuing operations and reported as discontinued operations in the Condensed Consolidated Statements of Income for all periods presented. As the Company uses a centralized approach to cash management, interest income was not allocated to the corporate accounts business.maintains several share-based compensation plans which are more fully described below. The following table summarizes results ofshows the corporate accounts business: March 31, April 1, March 31, April 1, 2007 2006 2007 2006 Net sales $ 8,149 $ 18,141 $ 63,363 $ 63,634 Income before provision for income taxes 4,219 11,760 42,503 41,951 Income from discontinued operations 2,574 7,174 25,927 25,590 COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited) The consolidated balance sheet at March 31, 2007 includes approximately $428 of accounts receivable, net and approximately $4,004 of accrued liabilities, related to the corporate accounts business. The net book value of the fixed assets related to the corporate accounts business was $0 prior to the exiting of the business. Accordingly, no gain or loss was recognized upon disposal of the fixed assets. The Consolidated Statement of Cash Flows includes the corporate accounts business for all periods presented.3. SHARE-BASED PAYMENT PLANS During the third quarter of fiscal 2007 and fiscal 2006, total compensation cost charged against income for share-based paymentthese plans was $15,467 and $21,206, respectively, including $44 and $277, respectively,the related to discontinued operations. The total income tax benefitbenefits recognized in the income statement from these plans, duringstatement: Share-based compensation expense $ 16,406 $ 12,702 Income tax benefit related to share-based compensation expense 6,239 4,954 thirdfirst quarter of fiscal 20072008 and fiscal 2006, was $6,088 and $8,492, respectively, including $17 and $108, respectively, related to discontinued operations. During the first nine months of fiscal 2007, and fiscal 2006, total compensation cost charged against income for share-based payment plans was $41,553 and $51,286, respectively, including $434 and $1,181, respectively, related to discontinued operations. The total income tax benefit recognized in the income statement from these plans, during the first nine months of fiscal 2007 and fiscal 2006, was $16,368 and $20,536, respectively, including $169 and $461, respectively, related to discontinued operations.OptionsStock options and share awards that are granted as part of the annual compensation process generally vest ratably over three years. ShareOther stock option and share awards, granted primarily for retention purposes, are subject to forfeiture until completion of the vesting period, which is generally three years, is complete.COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited)March 31,September 29, 2007 and changes during the period then ended is as follows: Average Exercise Price (in years) Outstanding at July 1, 2006 30,817 $ 23.48 Granted 7,210 32.32 Exercised (6,804 ) 19.42 Forfeited or expired (817 ) 29.92 Outstanding at March 31, 2007 30,406 $ 26.31 6.93 $ 721,983 Exercisable at March 31, 2007 13,299 $ 22.91 5.31 $ 360,988 Outstanding at June 30, 2007 29,376 $ 27.36 Granted 3,119 45.13 Exercised (2,890 ) 26.02 Forfeited or expired (238 ) 32.23 Outstanding at September 29, 2007 29,367 $ 29.34 6.85 $ 527,508 Exercisable at September 29, 2007 15,645 $ 25.46 5.62 $ 341,262 March 31,September 29, 2007: Weighted- Average Weighted- Number Weighted- Remaining Average Exercisable at Average Range of Contractual Exercise March 31, Exercise Price 2007 Price $2.00 - 5.00 753 4.16 $ 4.20 753 $ 4.20 $5.01 - 10.00 1,452 4.99 6.69 1,452 6.69 $10.01 - 20.00 8,203 6.78 15.77 4,318 15.75 $20.01 - 30.00 7,431 8.28 29.25 1,637 27.88 $30.01 - 40.00 11,630 6.68 34.22 5,139 34.66 $40.01 - 50.00 937 5.90 45.09 - - 30,406 6.93 $ 26.31 13,299 $ 22.91 $2.00 - 5.00 530 3.58 $ 4.07 530 $ 4.07 $5.01 - 10.00 878 4.82 6.39 878 6.39 $10.01 - 20.00 6,528 6.24 15.57 5,195 16.36 $20.01 - 30.00 6,539 7.67 29.28 2,793 28.74 $30.01 - 40.00 10,339 6.39 34.17 5,513 34.86 $40.01 - 50.00 4,463 8.35 45.47 736 44.99 $50.01 - 51.56 90 9.55 50.40 - - 29,367 6.85 $ 29.34 15,645 $ 25.46 COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited) April 1, 2007 2006 Expected lives (years) 2.3 2.8 Expected volatility 30.0 % 35.0 % Risk-free interest rate 4.9 % 4.2 % Dividend yield - % - % Expected lives (years) 2.58 2.45 Expected volatility 31.68 % 30.02 % Risk-free interest rate 4.54 % 4.92 % Dividend yield 0.00 % 0.00 % nine monthsquarter of fiscal 20072008 and fiscal 2006 were $7.082007 was $11.10 and $8.47,$6.98, respectively. The total intrinsic valuevalues of options exercised during the first nine monthsquarter of fiscal 20072008 and fiscal 2006 were $138,8812007 was $57,550 and $225,086,$31,947, respectively. The total cash received from these option exercises was $96,921$74,619 and $78,646,$26,379, respectively, and the actual for the tax deductions from these option exercises was $50,114$22,341 and $86,162,$11,272, respectively.March 31,September 29, 2007, $86,752$97,665 of total unrecognized compensation cost related to non-vested stock option awards is expected to be recognized over a weighted-average period of 1.61.26 years.COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited)March 31,September 29, 2007: Non-vested at July 1, 2006 1,329 $ 22.06 Granted 309 33.27 Vested (212 ) 15.16 Forfeited (26 ) 30.37 Non-vested at March 31, 2007 1,400 $ 25.59 Non-vested at June 30, 2007 1,326 $ 26.10 Granted 483 45.14 Vested (241 ) 16.36 Forfeited (26 ) 29.23 Non-vested at September 29, 2007 1,542 $ 33.54 nine monthsquarter of fiscal 20072008 and fiscal 2006 were $7,4612007 was $10,928 and $27,106,$4,386, respectively. At March 31,September 29, 2007, $17,239$31,258 of total unrecognized compensation cost related to non-vested share awards is expected to be recognized over a weighted-average period of 1.51.21 years. Balances at July 1, 2006 $ 3,698 $ 775,209 $ 417,087 $ (7,260 ) $ 1,188,734 Net income 125,616 125,616 Shares issued for stock options and employee benefit plans 20 24,270 24,290 Share-based compensation 12,702 12,702 Excess tax benefit from share-based compensation 7,546 7,546 Adjustment to excess tax benefit from share- based compensation (16,658 ) (16,658 ) Repurchase of common stock (50 ) (9,954 ) (139,995 ) (149,999 ) Changes in derivatives balances, net of tax 3,788 3,788 Translation adjustments (3,907 ) (3,907 ) Balances at September 30, 2006 $ 3,668 $ 793,115 $ 402,708 $ (7,379 ) $ 1,192,112 Balances at June 30, 2007 $ 3,725 $ 978,664 $ 940,757 $ (12,792 ) $ 1,910,354 Net income 154,806 154,806 Shares issued for stock options and employee benefit plans 30 70,765 70,795 Share-based compensation 16,406 16,406 Excess tax benefit from share-based compensation 20,923 20,923 Repurchase of common stock (30 ) (6,021 ) (126,233 ) (132,284 ) Adjustment to adopt FIN 48 (48,797 ) (48,797 ) Changes in derivatives balances, net of tax (1,136 ) (1,136 ) Translation adjustments 14,766 14,766 Balances at September 29, 2007 $ 3,725 $ 1,080,737 $ 920,533 $ 838 $ 2,005,833 Net income $ 154,806 $ 125,616 Changes in derivative balances, net of tax (1,136 ) 3,788 Translation adjustments 14,766 (3,907 ) Comprehensive income $ 168,436 $ 125,497 Cumulative translation adjustments $ 2,316 $ (12,450 ) 25 1,161 SFAS 158 adjustment and minimum pension liability, net of taxes of $981 and $981 (1,503 ) (1,503 ) Accumulated other comprehensive income (loss) $ 838 $ (12,792 ) INVESTMENTSAs the Company has both the ability and the intent to hold these securities until maturity, allThese investments are comprised of auction rate securities, classified as held to maturityavailable-for-sale securities and stated at amortized cost.fair value. The following table shows the amortized cost, fair value and unrealized gains (losses)and losses of the Company’s investments at March 31,investments: Short-term investments: U.S. government and agency securities $ 13,400 $ 13,400 $ - $ 25,000 $ 25,000 $ - Corporate debt securities 68,450 68,450 - 206,675 206,675 - Municipal securities 366,950 366,950 - 397,185 397,185 - Short-term investments $ 448,800 $ 448,800 $ - $ 628,860 $ 628,860 $ - July 1, 2006:June 30, 2007, all auction rate securities are included in short-term investments as they are intended to meet the short-term working capital needs of the Company and the Company can sell or roll them over at each 7, 28 or 35 day auction cycle.COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollarssharesproceeds from maturities and sales of investments within the Condensed Consolidated Statement of Cash Flows. With respect to auction rate securities, the Company no longer treats a rollover at the auction date as a sale and repurchase of the security. The impact of this change on the Condensed Consolidated Statement of Cash Flows for the quarter ended September 30, 2006 was a revision of the presentation resulting in thousands, except per share data)(unaudited) Fair Fair Cost Value Cost Short-term investments: U.S. government and agency securities $ 111,699 $ 111,700 $ 1 $ 49,986 $ 49,641 $ (345 ) Corporate debt securities 292,435 292,435 - 198,191 197,529 (662 ) Municipal securities 309,724 309,725 1 146,000 146,000 - Short-term investments $ 713,858 $ 713,860 $ 2 $ 394,177 $ 393,170 $ (1,007 ) Securities with maturity dates within one year are classified as short-term investments. Securities with maturity dates greater than one year are classified as long-term investments. Actuala reduction of $157,325 in both the purchases of investments and the proceeds from maturities could differand sales of investments which had no impact on the net cash flows from contractual maturities, as some borrowers haveinvesting activities.right to call certain obligations.5. DEBT Coach’sCompany renewed its $100,000 revolving credit facility with certain lenders and Bank of America, N.A as the primary lender and administrative agent (the “Bank of America facility”), extending the facility expiration to July 26, 2012. At Coach’s request, the Bank of America facility can be expanded to $200,000. The facility can also be extended for two additional one-year periods, at Coach’s request.nine monthsquarter of fiscal 20072008 and fiscal 2006,2007, there were no borrowings under the Bank of America facility. As of March 31,September 29, 2007 and July 1, 2006,June 30, 2007, there were no outstanding borrowings under the Bank of America facility.106 to 2512.5 basis points based on any unused amounts of the Bank of America facility. Coach also paysfacility and interest of LIBOR plus 4520 to 10055 basis points on any outstanding borrowings. Both theMarch 31,September 29, 2007, the commitment fee was 106 basis points and the LIBOR margin was 4520 basis points.contain various covenants and customary eventsallow a maximum borrowing of default. Coach Japan has been in compliance with all covenants since7.4 billion yen, or approximately $64,400 at September 29, 2007. Interest is based on the inceptionTokyo Interbank Rate plus a margin of the facilities. Coach, Inc. is not a guarantor on any of these facilities.nine monthsquarter of fiscal 20072008 and fiscal 2006,2007, the peak borrowings under the Japanese credit facilities were $25,518$0 and $21,568,$12,761, respectively. As of March 31,September 29, 2007 and July 1, 2006, theJune 30, 2007, there were no outstanding borrowings under the Japanese facilities were $0.facilities.COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars6. Commitments and shares in thousands, except per share data)Contingencies(unaudited)6. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying value of goodwill for the period ended March 31, 2007, by operating segment, are as follows: Goodwill balance at July 1, 2006 $ 226,295 $ 1,516 $ 227,811 Foreign exchange impact (4,920 ) - (4,920 ) Goodwill balance at March 31, 2007 $ 221,375 $ 1,516 $ 222,891 The total carrying amount of intangible assets not subject to amortization is as follows: March 31, 2007 Trademarks $ 9,788 $ 9,788 Workforce 2,169 2,219 Total Indefinite Life Intangible Assets $ 11,957 $ 12,007 The $50 decrease in the carrying amount of intangible assets is due to currency translation.7. COMMITMENTS AND CONTINGENCIESMarch 31,September 29, 2007, the Company had letters of credit outstanding totaling $72,232.$91,043. Of this amount, $14,941$13,236 relates to the letter of credit obtained in connection with leases transferred to the Company by the Sara Lee Corporation, for which Sara Lee retains contingent liability.liability. Coach expects that it will be required to maintain the letter of credit through 2011. The remaining letters of credit, were issuedwhich expire at various dates through 2012, primarily collateralize the Company’s obligation to third parties for purchasesthe purchase of inventory.shouldwill not have a material effect on Coach’s financial position, results of operations or cash flows.8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES7. Derivative Instruments and HedgingitsCoach Japan’s U.S. dollar denominateddollar-denominated inventory purchases. Coach Japan enters into certain foreign currency derivative contracts, primarily foreign exchange forward contracts,zero-cost collar options, to manage these risks. These transactions are in accordance with Companythe Company’s risk management policies. Coach does not enter into derivative transactions for speculative or trading purposes.The effective portion of unrealized gains and losses on cash flow hedges are deferred as a component of accumulated other comprehensive income (loss) and recognized as a component of cost of sales when the related inventory is sold.COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited)March 31,September 29, 2007 and July 1, 2006June 30, 2007 was $13,145$8,497 and $2,578,$23,329, respectively. For the nine months ended March 31, 2007, changes in theThe fair value of contracts designatedopen foreign currency derivatives included in current liabilities at September 29, 2007 and effective as cash flow hedges resulted in an increase to equity as a benefit toJune 30, 2007 was $1,619 and $0, respectively.of $4,067,(loss), net of taxes. For the nine months ended April 1, 2006 changestax, as follows: Balance at beginning of period $ 1,161 $ (3,547 ) Net gains transferred to earnings (1,240 ) (2,724 ) Change in fair value, net of tax expense 104 7,432 Balance at end of period $ 25 $ 1,161 the fair value of contracts designated and effective as cash flow hedges resulted in a decrease to equity as a charge toaccumulated other comprehensive income at September 29, 2007 will be reclassified into earnings within the next 12 months. This amount will vary due to fluctuations in the yen exchange rate.$1,158, netgoodwill for the period ended September 29, 2007, by operating segment, is as follows: Goodwill balance at June 30, 2007 $ 212,278 $ 1,516 $ 213,794 Foreign exchange impact 14,671 - 14,671 Goodwill balance at September 29, 2007 $ 226,949 $ 1,516 $ 228,465 taxes. Trademarks $ 9,788 $ 9,788 Workforce 2,225 2,077 Total Indefinite Life Intangible Assets $ 12,013 $ 11,865 RETIREMENT PLANSIncome Taxes Service cost $ 179 $ 3 $ 545 $ 9 Interest cost 89 82 265 245 Expected return on plan assets (77 ) (64 ) (231 ) (191 ) Recognized actuarial loss 54 58 163 172 Net periodic pension cost $ 245 $ 79 $ 742 $ 235 Service cost $ 183 $ 183 Interest cost 95 88 Expected return on plan assets (79 ) (77 ) Recognized actuarial loss 65 54 Net periodic pension cost $ 264 $ 248 10. SEGMENT INFORMATION11.COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited) Direct-to- Corporate Consumer Net sales $ 480,916 $ 144,387 $ - $ 625,303 Operating income (loss) 203,337 90,178 (66,888 ) 226,627 Income (loss) before provision for income taxes and discontinued operations 203,337 90,178 (53,900 ) 239,615 Depreciation and amortization expense 14,066 1,897 4,679 20,642 Total assets 827,143 115,988 1,200,064 2,143,195 Additions to long-lived assets 22,331 1,785 10,362 34,478 Quarter Ended April 1, 2006 Net sales $ 373,738 $ 105,980 $ - $ 479,718 Operating income (loss) 162,489 65,862 (74,675 ) 153,676 Income (loss) before provision for income taxes and discontinued operations 162,489 65,862 (64,557 ) 163,794 Depreciation and amortization expense 10,907 1,314 4,188 16,409 Total assets 719,960 104,972 1,049,498 1,874,430 Additions to long-lived assets 6,142 (184 ) 36,696 42,654 Net sales $ 507,720 $ 168,998 $ - $ 676,718 Operating income (loss) 209,140 109,687 (80,069 ) 238,758 Income (loss) before provision for income taxes and discontinued operations 209,140 109,687 (65,073 ) 253,754 Depreciation and amortization expense 16,986 2,238 5,504 24,728 Total assets 995,783 179,550 1,503,698 2,679,031 Additions to long-lived assets 42,609 4,610 5,640 52,859 Net sales $ 404,220 $ 125,201 $ - $ 529,421 Operating income (loss) 166,419 76,873 (62,638 ) 180,654 Income (loss) before provision for income taxes and discontinued operations 166,419 76,873 (56,049 ) 187,243 Depreciation and amortization expense 12,891 1,625 4,316 18,832 Total assets 832,365 145,108 699,027 1,676,500 Additions to long-lived assets 23,983 1,477 10,808 36,268 COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited) Direct-to- Corporate Consumer Nine Months Ended March 31, 2007 Net sales $ 1,560,491 $ 399,836 $ - $ 1,960,327 Operating income (loss) 706,878 248,015 (206,897 ) 747,996 Income (loss) before provision for income taxes and discontinued operations 706,878 248,015 (179,432 ) 775,461 Depreciation and amortization expense 40,966 5,237 13,355 59,558 Total assets 827,143 115,988 1,200,064 2,143,195 Additions to long-lived assets 63,258 9,680 31,252 104,190 Net sales $ 1,192,090 $ 341,422 $ - $ 1,533,512 Operating income (loss) 531,339 211,739 (200,542 ) 542,536 Income (loss) before provision for income taxes and discontinued operations 531,339 211,739 (177,547 ) 565,531 Depreciation and amortization expense 31,840 4,081 12,113 48,034 Total assets 719,960 104,972 1,049,498 1,874,430 Additions to long-lived assets 47,628 5,544 46,391 99,563 March 31, April 1, March 31, April 1, Production variances $ 10,952 $ 5,686 $ 16,774 $ 9,735 Advertising, marketing and design (28,268 ) (23,259 ) (82,289 ) (68,227 ) Administration and information systems (36,753 ) (47,364 ) (102,823 ) (112,120 ) Distribution and customer service (12,819 ) (9,738 ) (38,559 ) (29,930 ) Total corporate unallocated $ (66,888 ) $ (74,675 ) $ (206,897 ) $ (200,542 ) Production variances $ 4,246 $ 2,914 Advertising, marketing and design (29,416 ) (25,696 ) Administration and information systems (43,920 ) (28,618 ) Distribution and customer service (10,979 ) (11,238 ) Total corporate unallocated $ (80,069 ) $ (62,638 ) GEOGRAPHIC AREA INFORMATIONGeographic InformationMarch 31,September 29, 2007, Coach operated 240267 retail stores and 9096 factory stores in the United States, fourfive retail stores in Canada, and 132141 department store shop-in-shops, retail stores and factory stores in Japan. Coach also operates distribution, product development and quality control locations in the United States, Italy, Hong Kong, China and South Korea. Geographic revenue information is based on the location of the customer. Geographic long-lived asset information is based on the physical location of the assets at the end of each period. Net sales $ 514,979 $ 114,526 $ 47,213 $ 676,718 Long-lived assets 390,414 301,095 6,789 698,298 Net sales $ 403,107 $ 99,538 $ 26,776 $ 529,421 Long-lived assets 286,254 294,019 4,387 584,660 COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited) Other Net sales $ 464,062 $ 126,711 $ 34,530 $ 625,303 Long-lived assets 307,328 296,208 5,334 608,870 Net sales $ 350,841 $ 109,015 $ 19,862 $ 479,718 Long-lived assets 244,371 285,127 3,124 532,622 Other Net sales $ 1,503,584 $ 364,405 $ 92,338 $ 1,960,327 Long-lived assets 307,328 296,208 5,334 608,870 Net sales $ 1,137,042 $ 309,252 $ 87,218 $ 1,533,512 Long-lived assets 244,371 285,127 3,124 532,622 11. EARNINGS PER SHARE Income from continuing operations $ 154,786 $ 115,239 Total weighted-average basic shares 372,186 368,171 Dilutive securities: Employee benefit and share award plans 725 1,447 Stock option programs 6,374 4,054 Total weighted-average diluted shares 379,285 373,672 Basic $ 0.42 $ 0.31 Diluted $ 0.41 $ 0.31 COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited) March 31, April 1, March 31, April 1, 2007 2006 2007 2006 Income from continuing operations $ 147,390 $ 101,672 $ 477,126 $ 351,045 Total weighted-average basic shares 370,264 383,739 369,039 381,330 Dilutive securities: Employee benefit and share award plans 817 1,526 1,044 1,725 Stock option programs 8,208 6,188 6,251 7,582 Total weighted-average diluted shares 379,289 391,453 376,334 390,637 Income from continuing operations per share: Basic $ 0.40 $ 0.26 $ 1.29 $ 0.92 Diluted $ 0.39 $ 0.26 $ 1.27 $ 0.90 March 31,September 29, 2007, options to purchase 9 shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise price of $50.00 was greater than the average market price of the common shares. At April 1, 2006, options to purchase 621864 shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise prices, ranging from $35.17$46.54 to $51.56, were greater than the average market price of the common shares.12. STOCK REPURCHASE PROGRAM13. Discontinued OperationsPurchasesIn March 2007, the Company exited its corporate accounts business in order to better control the location and image of the brand where Coach stock may be made from timeproduct is sold. Through the corporate accounts business, Coach sold products primarily to time, subject to market conditionsdistributors for gift-giving and at prevailing market prices, through open market purchases. Repurchased shares become authorized but unissued shares and may be issuedincentive programs. The results of the corporate accounts business, previously included in the futureIndirect segment, have been segregated from continuing operations and reported as discontinued operations in the Condensed Consolidated Statements of Income for general corporate and other purposes. The Company may terminate or limit the stock repurchase program at any time. The Coach Board of Directors has approved the following common stock repurchase programs:Date Share Repurchase ProgramsTotal Dollarwere Publicly AnnouncedAmount ApprovedExpiration Date of Plan September 17, 2001$80,000September 2004 January 30, 2003$100,000January 2006 August 12, 2004$200,000August 2006 May 11, 2005$250,000May 2007 May 9, 2006$500,000June 2007 October 20, 2006$500,000June 2008COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited) The Company did not repurchase any shares during the third quarter of fiscal 2007. During the third quarter of fiscal 2006,all periods presented. As the Company repurchaseduses a centralized approach to cash management, interest income was not allocated to the corporate accounts business. The following table summarizes results of the corporate accounts business: Net sales $ 102 $ 24,430 34 17,012 20 10,377 retired 500 shares at an average costapproximately $1,644 of $36.64 per share. Duringaccrued liabilities, related to the first nine monthscorporate accounts business. The net book value of fiscal 2007 and fiscal 2006, the Company repurchased and retired 5,002 and 3,464 shares, respectively,fixed assets related to the corporate accounts business was $0 prior to the exiting of common stock, at an average costthe business. Accordingly, no gain or loss was recognized upon disposal of $29.99 and $32.85, respectively, per share. Asthe fixed assets. The Condensed Consolidated Statement of March 31, 2007, $500,000 remained availableCash Flows includes the corporate accounts business for future repurchases under the existing program.13. COMPREHENSIVE INCOME Comprehensive income is comprised of net income, gains and losses from derivative instruments designated as cash flow hedges, net of tax, and the effects of foreign currency translation. Total comprehensive income is as follows: March 31, April 1, March 31, April 1, 2006 Net income $ 149,964 $ 108,846 $ 503,053 $ 376,635 Changes in derivative balances (278 ) 653 4,067 (1,158 ) Translation adjustments (666 ) 164 (3,819 ) (6,136 ) Comprehensive income $ 149,020 $ 109,663 $ 503,301 $ 369,341 During the quarter ended March 31, 2007 and April 1, 2006, $1,148 and $1,544, respectively, of unrealized gains were realized and reported in net income. During the nine months ended March 31, 2007 and April 1, 2006, $1,328 and $2,791, respectively, of unrealized gains were realized and reported in net income. The components of accumulated other comprehensive loss are as follows: March 31, July 1, Cumulative translation adjustments $ (6,325 ) $ (2,506 ) Unrealized gains (losses) on cash flow hedging derivatives, net of taxes of $(358) and $2,365 520 (3,547 ) Minimum pension liability, net of taxes of $743 and $743 (1,207 ) (1,207 ) Accumulated other comprehensive loss $ (7,012 ) $ (7,260 )
all periods presented.COACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited)RECENT ACCOUNTING DEVELOPMENTSRecent Accounting DevelopmentsFinancial Accounting Standards Board (“FASB”)FASB issued Statement of Financial Accounting Standards (“SFAS”) 155, “Accounting for Certain Hybrid Financial Instruments –an- an amendment of FASB Statements 133 and 140.” SFAS 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006.July 1, 2007. The Company does not expect the adoption of SFAS 155 todid not have a material impact on the Company’s consolidated financial statements. In June 2006, the FASB ratified the consensus reached on Emerging Issues Task Force (“EITF”) Issue 06-3, “How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation).” EITF 06-3 requires disclosure of a company’s accounting policy with respect to presentation of taxes collected on a revenue producing transaction between a seller and a customer. For taxes that are reported on a gross basis (included in revenues and costs), EITF 06-3 also requires disclosure of the amount of taxes included in the financial statements. EITF 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. As the Company did not modify its accounting policy of recording sales taxes collected on a net basis, the adoption of EITF 06-3 did not have an impact on the Company’s consolidated financial statements.–- an interpretation of FASB Statement 109,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for the fiscal yearsyear beginning after December 15, 2006.on July 1, 2007. The Company is currently evaluating the impact of adopting FIN 48 on the Company’s consolidated financial statements.financial statements issued forCoach’s fiscal yearsyear beginning after November 15, 2007, and interim periods within those fiscal years.June 29, 2008. The Company is currently evaluatingdoes not expect the impactadoption of SFAS 157 to have a material impact on the Company’s consolidated financial statements.–- an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS 158 requires an employer to recognize the funded status of a benefit plan, measured as the difference between plan assets at fair value and the projected benefit obligation, in its statement of financial position. This recognition provision and the related disclosures were effective as of the end of the fiscal year ended June 30, 2007. For a complete description of the Company’s adoption of SFAS 158, refer to the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007. SFAS 158 also requires an employer to measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position. ThisCOACH, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(dollars and shares in thousands, except per share data)(unaudited)statement measurement provision is effective as of the end of thefor Coach’s fiscal year ending after December 15, 2006, except for the requirement to measure plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position, which is effective for fiscal years ending after December 15, 2008. The Company is currently evaluating the impact of SFAS 158 on the Company’s consolidated financial statements. In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.” SAB 108 states that SEC registrants should use both a balance sheet approach and an income statement approach when quantifying and evaluating the materiality of a misstatement, contains guidance on correcting errors under the dual approach and provides transition guidance for correcting errors existing in prior years. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006.June 27, 2009. The Company does not expect the adoption of SAB 108the measurement provision to have a material impact on the Company’sits consolidated financial statements.–- Including an amendment of FASB Statement No. 115.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective as of the beginning of an entity’s firstfor Coach’s fiscal year that begins after November 15, 2007.will begin on June 29, 2008. The Company is currently evaluating the impact of SFAS 159 on the Company’s consolidated financial statements.womenmen and men.women. Our primary product offerings include handbags, women’s and men’s small leather goods,accessories, footwear, outerwear, business cases, weekendsunwear, watches, travel bags, jewelry and travel accessories, footwear, watches, outerwear, scarves, sun wear, jewelry, fragrancefragrance. Coach operates in two segments: Direct-to-Consumer and related accessories. We sell products directlyIndirect. The Direct-to-Consumer segment includes sales to consumers through Company-operated stores in North America and Japan, the Internet and catalogs and indirectly throughCoach catalogs. The Indirect segment includes sales to wholesale customers primarily in the U.S. and Asia. Coach seeks to deliver excellent business results and superior shareholder returns.Asia as well as licensing revenue. As Coach’s business model is based on multi-channel international distribution, our success does not depend solely on the performance of a single channel or geographic area.· Build market share in the growing North American women’s accessories market by leveraging our leadership position as a preferred brand for both self purchase and gifts. As part of this initiative, we continue to emphasize new usage occasions, such as weekend casual and evening. We also continue to introduce more sophisticated product to heighten our cachet, especially with our higher-end customers. Lastly, we continue to enhance the level of customer service in our stores by focusing on additional opportunities to deliver excellent customer service. · Rapidly grow our North American retail store base by adding stores within existing markets, opening in new markets in the U.S. and by accelerating store openings in Canada. We plan to add about 40 retail stores in North America in each of the next several years and believe that North America can support about 500 retail stores in total, including up to 20 in Canada. In addition, we will continue to expand select, highly productive retail and factory locations. · Expand market share with the Japanese consumer, driving growth in Japan primarily by opening new retail locations and expanding existing ones. We plan to add about 10 to 15 net new locations in fiscal 2008 and believe that Japan can support about 180 locations in total. We will also continue to expand key locations. · Raise brand awareness in emerging markets to build the foundation for substantial sales in the future. Specifically, Greater China, Korea and other emerging geographies are increasing in importance as the handbag and accessories category grows in these areas. In fiscal 2008, we intend to open approximately 30 net new locations, through distributors, in Greater China, Southeast Asia and the Middle East. This includes at least five more locations in major cities in mainland China, bringing the total number of locations in mainland China to at least 16. · Earnings per diluted share from continuing operations increased 32.3% to $0.41 per diluted share. · Net income from continuing operations increased 34.4% to $154.8 million. · Net sales increased 27.8% to $676.7 million. · Direct-to-consumer sales rose 25.6% to $507.7 million. · Comparable store sales in North America rose 19.3%, with retail stores up 10.8% and factory stores up 27.3%. · Coach Japan sales, when translated into U.S. dollars, rose 15.1% driven by expanded distribution and low-single-digit comparable store sales. This 15.1% increase includes a 1.4% negative impact from currency translation. · In North America, Coach opened 13 new retail stores and three new factory stores, bringing the total number of retail and factory stores to 272 and 96, respectively, at the end of the first quarter of fiscal 2008. We also expanded nine retail stores and four factory stores in North America. · In Japan, Coach opened four new locations, bringing the total number of Coach Japan-operated locations at the end of the first quarter of fiscal 2008 to 141. In addition, we expanded one location. · In Greater China, together with our distributors, Coach opened three new stores. Total net sales $ 676.7 100.0 % $ 529.4 100.0 $ 147.3 27.8 % Gross profit 518.2 76.6 406.0 76.7 112.2 27.6 Selling, general and administrative expenses 279.5 41.3 225.4 42.6 54.1 24.0 Operating income 238.8 35.3 180.7 34.1 58.1 32.2 Interest income, net 15.0 2.2 6.6 1.2 8.4 127.3 Provision for income taxes 99.0 14.6 72.0 13.6 27.0 37.5 154.8 22.9 115.2 21.8 39.6 34.4 0.0 0.0 10.4 2.0 (10.4 ) (100.0 ) Net income $ 154.8 22.9 % $ 125.6 23.7 $ 29.2 23.2 % Net income per share: Basic: Continuing operations $ 0.42 $ 0.31 $ 0.11 35.5 % Discontinued operations 0.00 0.03 (0.03 ) (100.0 ) Net income $ 0.42 $ 0.34 $ 0.08 23.5 % Diluted: Continuing operations $ 0.41 $ 0.31 $ 0.10 32.3 % Discontinued operations 0.00 0.03 (0.03 ) (100.0 ) Net income $ 0.41 $ 0.34 $ 0.07 20.6 % Direct-to-Consumer $ 507.7 $ 404.2 25.6% 75.0 % 76.4 % Indirect 169.0 125.2 35.0 25.0 23.6 Total net sales $ 676.7 $ 529.4 27.8% 100.0 % 100.0 % thirdfirst quarter of fiscal 2007, an increase in sales, combined with an improvement in operating margins, continued to drive net income and earnings per share growth. The highlights of the third quarter of fiscal 2007 were:Net income from continuing operations rose 45.0% to $147.4 million compared to $101.7 million in the prior year period.Earnings per share from continuing operations rose 49.6% to $0.39 per diluted share, compared with $0.26 per diluted share in the same period of the prior year.Net sales totaled $625.3 million, reflecting a 30.3% increase over prior year sales of $479.7 million.Direct-to-consumer sales rose 28.7% to $480.9 million during the third quarter of fiscal 2007, compared to $373.7 million in the third quarter of fiscal 2006.Comparable store sales in the U.S. rose 20.0%, with retail stores up 15.1% and factory stores up 26.6%.Coach Japan sales, when translated into U.S. dollars, rose 13.3% driven by new and expanded stores as well as low-single-digit comparable store sales. These increases in sales reflect a 1.4% decrease due to currency translation. In North America, during the third quarter of fiscal 2007, we opened seven new retail stores and expanded two factory stores, bringing the total number of retail and factory stores in North America to 244 and 90, respectively, at March 31, 2007, compared to 206 and 84, respectively, at April 1, 2006. In Japan, we opened five new locations and expanded three locations, bringing the total number of locations in Japan at March 31, 2007 to 132, compared to 112 at April 1, 2006.RESULTS OF OPERATIONSTHIRD QUARTER FISCAL 2007 COMPARED TO THIRD QUARTER FISCAL 2006 Results of operations for the third quarter of fiscal 2007 compared to the third quarter of fiscal 2006 are as follows: % of % of Total net sales $ 625.3 100.0 % $ 479.7 100.0 % $ 145.6 30.3 % Gross profit 486.4 77.8 376.2 78.4 110.2 29.3 Selling, general and administrative expenses 259.8 41.5 222.5 46.4 37.3 16.7 Operating income 226.6 36.2 153.7 32.0 73.0 47.5 Interest income, net 13.0 2.1 10.1 2.1 2.9 28.4 Provision for income taxes 92.2 14.7 62.1 12.9 30.1 48.5 Income from continuing operations 147.4 23.6 101.7 21.2 45.7 45.0 Income from discontinued operations, net of taxes 2.6 0.4 7.2 1.5 (4.6 ) (64.1 ) Net income $ 150.0 24.0 % $ 108.8 22.7 % $ 41.1 37.8 % Net income per share: Basic: Continuing operations $ 0.40 $ 0.26 $ 0.13 50.2 % Discontinued operations 0.01 0.02 (0.01 ) (62.8 ) Net income $ 0.41 $ 0.28 $ 0.12 42.8 % Diluted: Continuing operations $ 0.39 $ 0.26 $ 0.13 49.6 % Discontinued operations 0.01 0.02 (0.01 ) (63.0 ) Net income $ 0.40 $ 0.28 $ 0.12 42.2 % Net Sales Net sales by business segment in the third quarter of fiscal 2007 compared to the third quarter of fiscal 2006 are as follows: Percentage of Total Net Sales Rate of April 1, Increase 2006 (FY07 v. FY06) Direct-to-consumer $ 480.9 $ 373.7 28.7 % 76.9 % 77.9 % Indirect 144.4 106.0 36.2 23.1 22.1 Total net sales $ 625.3 $ 479.7 30.3 % 100.0 % 100.0 % Direct-to-Consumer Net sales increased 28.7% to $480.9 million during the third quarter of fiscal 2007 from $373.7 million during the same period in fiscal 2006, driven by increased comparable store sales, new store sales and expanded store sales. In North America, comparable store sales growth, sales from new stores and sales from expanded stores accounted for approximately $45 million, $31 million and $7 million, respectively, of the net sales increase. Since the end of the third quarter of fiscal 2006, Coach has opened 38 new retail stores and six net new factory stores, and expanded one retail store and seven factory stores in North America. In Japan, sales from new stores, expanded stores and comparable store sales growth accounted for approximately $11 million, $3 million and $2 million, respectively, of the net sales increase. Since the end of the third quarter of fiscal 2006, Coach has opened 20 net new locations and expanded 11 locations in Japan. Coach Japan’s reported net sales were negatively impacted by approximately $1 million as a result of foreign currency exchange. Sales growth in the Internet business accounted for the remaining sales increase. These sales increases were slightly offset by store closures.Indirect Net sales increased 36.2% to $144.4 million in the third quarter of fiscal 2007 from $106.0 million during the same period of fiscal 2006, driven by growth primarily in the U.S. wholesale and international wholesale divisions, which contributed increased sales of approximately $22 million and $7 million, respectively. Licensing revenue of approximately $5 million and $3 million in the third quarter of fiscal 2007 and fiscal 2006, respectively, is included in indirect sales.Operating Income Operating income increased 47.5% to $226.6 million in the third quarter of fiscal 2007 as compared to $153.7 million in the third quarter of fiscal 2006, driven by increases in net sales and gross profit, partially offset by an increase in selling, general and administrative expenses. Operating margin rose to 36.2% as compared to the 32.0% operating margin in the same period of the prior year. This 420 basis point improvement is attributable to increased net sales, as discussed above, and the leveraging of selling, general and administrative expenses. The following chart illustrates our operating margin performance: Fiscal 2007 34.1 % 42.3 % 36.2 % - - Fiscal 2006 31.3 % 40.8 % 32.0 % 34.3 % 35.1 % Gross profit increased 29.3% to $486.4 million in the third quarter of fiscal 2007 from $376.2 million during the same period of fiscal 2006. In addition, gross margin remained strong at 77.8% in the third quarter of fiscal 2007 as compared to 78.4% during the same period of fiscal 2006. Gross margin was negatively impacted by channel mix, as Coach Japan grew more slowly than the business as a whole while our factory store channel grew faster, as well as the fluctuation in currency translation rates. However, these negative impacts were partially offset by gains from supply chain initiatives and product mix shifts, reflecting increased penetration of higher margin collections. Selling, general and administrative expenses were $259.8 million in the third quarter of fiscal 2007 as compared to $222.5 million in the third quarter of fiscal 2006. However, as a percentage of net sales, selling, general and administrative expenses decreased to 41.5% during the third quarter of fiscal 2007 as compared to 46.4% during the third quarter of fiscal 2006, as we continue to leverage our expense base on higher sales. Selling expenses increased 27.9% to $178.7 million, or 28.6% of net sales, in the third quarter of fiscal 2007 from $139.7 million, or 29.1% of net sales, in the third quarter of fiscal 2006. The dollar increase in these expenses was primarily due to an increase in operating expenses of North America stores and Coach Japan. The increase in North America store expenses is primarily attributable to increased variable expenses related to higher sales as well as operating expenses associated with new and expanded stores. The increase in Coach Japan operating expenses was primarily driven by increased variable expenses related to higher sales and new store operating expenses. The remaining increase in selling expenses was primarily due to increased variable expenses to support sales growth in other channels. Advertising, marketing, and design costs increased 22.6% to $30.9 million, or 4.9% of net sales, in the third quarter of fiscal 2007, from $25.2 million, or 5.3% of net sales, during the same period of fiscal 2006. The dollar increase was primarily due to increased employee staffing costs and advertising and design expenditures. Distribution and consumer service expenses increased to $13.4 million in the third quarter of fiscal 2007 from $10.3 million during the same period of fiscal 2006. The dollar increase in these expenses was primarily due to higher sales volumes. However, as a percentage of net sales, distribution and consumer service expenses remained constant at 2.1% in the third quarter of fiscal 2007 and fiscal 2006. Efficiency gains at the distribution and consumer service facility were offset by an increase in our direct-to-consumer shipments as a percentage of total shipments. The cost per unit of these shipments is higher, primarily due to value added services, such as gift packaging. Administrative expenses decreased 22.4% to $36.8 million, or 5.9% of net sales, in the third quarter of fiscal 2007 from $47.4 million, or 9.9% of net sales, during the same period of fiscal 2006. The decrease in these expenses was primarily due to a decrease in share-based compensation expense and employee staffing costs.Interest Income, Net Net interest income was $13.0 million in the third quarter of fiscal 2007 as compared to $10.1 million in the third quarter of fiscal 2006. This increase was primarily due to higher returns on our investments as a result of higher interest rates and higher average cash balances.Provision for Income Taxes The effective tax rate was 38.5% in the third quarter of fiscal 2007 as compared to 37.9% in the third quarter of fiscal 2006. The increase in the effective tax rate is attributable to incremental income being taxed at higher rates.Income from Continuing Operations Net income from continuing operations was $147.4 million in the third quarter of fiscal 2007 as compared to $101.7 million in the third quarter of fiscal 2006. This 45.0% increase is attributable to increased net sales as well as significant operating margin improvement, as discussed above.Income from Discontinued Operations Net income from discontinued operations was $2.6were $24.4 million inand $10.4 million, respectively. In the thirdfirst quarter of fiscal 2007 as compared to $7.2 million in the third quarter of fiscal 2006. Net sales related to the corporate accounts business were $8.1 million in the third quarter of fiscal 2007 as compared to $18.1 million in the third quarter of fiscal 2006. The decrease in2008, net sales and net income is attributable to the exiting of the corporate accounts business in the third quarter of fiscal 2007.FIRST NINE MONTHS FISCAL 2007 COMPARED TO FIRST NINE MONTHS FISCAL 2006Cash Flow Results of operations for the first nine months of fiscal 2007 compared to the first nine months of fiscal 2006 are as follows: Total net sales $ 1,960.3 100.0 % $ 1,533.5 100.0 % $ 426.8 27.8 % Gross profit 1,513.7 77.2 1,188.0 77.5 325.7 27.4 Selling, general and administrative expenses 765.7 39.1 645.5 42.1 120.2 18.6 Operating income 748.0 38.2 542.5 35.4 205.5 37.9 Interest income, net 27.5 1.4 23.0 1.5 4.5 19.4 Provision for income taxes 298.3 15.2 214.5 14.0 83.8 39.1 Income from continuing operations 477.1 24.3 351.0 22.9 126.1 35.9 Income from discontinued operations, net of taxes 25.9 1.3 25.6 1.7 0.3 1.3 Net income $ 503.1 25.7 % $ 376.6 24.6 % $ 126.4 33.6 % Net income per share: Basic: Continuing operations $ 1.29 $ 0.92 $ 0.37 40.4 % Discontinued operations 0.07 0.07 0.00 4.7 Net income $ 1.36 $ 0.99 $ 0.38 38.0 % Diluted: Continuing operations $ 1.27 $ 0.90 $ 0.37 41.1 % Discontinued operations 0.07 0.07 0.00 5.2 Net income $ 1.34 $ 0.96 $ 0.37 38.6 % Net Sales Net sales by business segment in the first nine months of fiscal 2007 compared to the first nine months of fiscal 2006 are as follows: Percentage of Rate of March 31, April 1, Increase 2006 (FY07 v. FY06) Direct-to-consumer $ 1,560.5 $ 1,192.1 30.9 % 79.6 % 77.7 % Indirect 399.8 341.4 17.1 20.4 22.3 Total net sales $ 1,960.3 $ 1,533.5 27.8 % 100.0 % 100.0 % Direct-to-Consumer Net sales increased 30.9% to $1.6 billion during the first nine months of fiscal 2007 from $1.2 billion during the same period in fiscal 2006, driven by increased comparable store sales, new store sales and expanded store sales. In North America, comparable store sales growth, sales from new stores and sales from expanded stores accounted for approximately $178 million, $105 million and $23 million, respectively, of the net sales increase. Since the end of the third quarter of fiscal 2006, Coach has opened 38 new retail stores and six net new factory stores, and expanded one retail store and seven factory stores in North America. In Japan, sales from new stores, comparable store sales growth and sales from expanded stores accounted for approximately $35 million, $13 million and $6 million, respectively, of the net sales increase. Since the end of the third quarter of fiscal 2006, Coach has opened 20 net new locations and expanded 11 locations in Japan. Coach Japan’s reported net sales were negatively impacted by approximately $5 million as a result of foreign currency exchange. Sales growth in the Internet business accounted for the remaining sales increase. These sales increases were slightly offset by store closures.Indirect Net sales increased 17.1% to $399.8 million in the first nine months of fiscal 2007 from $341.4 million during the same period of fiscal 2006. This increase was driven by growth primarily in the U.S. wholesale division, which contributed increased sales of approximately $45 million as compared to the same period in the prior year. These sales increases were offset by an approximately $4 million decrease in sales in the international wholesale division, as shipments to our customers were curbed in consideration of slowing Japanese travel trends in our markets and to ensure healthy inventory levels. Licensing revenue of approximately $10 million and $7 million in the first nine months of fiscal 2007 and fiscal 2006, respectively, is included in indirect sales.Operating Income Operating income increased 37.9% to $748.0 million in the first nine months of fiscal 2007 as compared to $542.5 million in the first nine months of fiscal 2006, driven by increases in net sales and gross profit, partially offset by an increase in selling, general and administrative expenses. Operating margin rose to 38.2% as compared to the 35.4% operating margin in the same period of the prior year. This 280 basis point improvement is attributable to increased net sales, as discussed above, and the leveraging of selling, general and administrative expenses.Gross profit increased 27.4% to $1.5 billion in the first nine months of fiscal 2007 from $1.2 billion during the same period of fiscal 2006. Gross margin remained strong at 77.2% in the first nine months of fiscal 2007 as compared to 77.5% during the same period of fiscal 2006. Gross margin was negatively impacted by channel mix, as Coach Japan grew more slowly than the business as a whole while our factory store channel grew faster, as well as the fluctuation in currency translation rates. However, these negative impacts were partially offset by gains from supply chain initiatives and product mix shifts, reflecting increased penetration of higher margin collections. Selling, general and administrative expenses were $765.7 million in the first nine months of fiscal 2007 as compared to $645.5 million in the first nine months of fiscal 2006. However, as a percentage of net sales, selling, general and administrative expenses decreased to 39.1% during the first nine months of fiscal 2007 as compared to 42.1% during the same period of fiscal 2006, as we continue to leverage our expense base on higher sales. Selling expenses increased 24.9% to $532.3 million, or 27.2% of net sales, in the first nine months of fiscal 2007 from $426.2 million, or 27.8% of net sales, in the first nine months of fiscal 2006. The dollar increase in these expenses was primarily due to an increase in operating expenses of North America stores and Coach Japan. The increase in North America store expenses is primarily attributable to increased variable expenses related to higher sales as well as operating expenses associated with new and expanded stores. The increase in Coach Japan operating expenses was primarily driven by increased variable expenses related to higher sales and new store operating expenses. In addition, the impact of foreign currency exchange rates decreased reported expenses by approximately $2 million. The remaining increase in selling expenses was primarily due to increased variable expenses to support sales growth in other channels. Advertising, marketing, and design costs increased 19.4% to $90.3 million, or 4.6% of net sales, in the first nine months of fiscal 2007, from $75.6 million, or 4.9% of net sales, during the same period of fiscal 2006. The dollar increase was primarily due to increased employee staffing costs, and advertising and design expenditures. Distribution and consumer service expenses increased to $40.3 million in the first nine months of fiscal 2007 from $31.6 million during the same period of fiscal 2006. The dollar increase in these expenses was primarily due to higher sales volumes. As a percentage of net sales, distribution and consumer service expenses remained constant at 2.1% in the first nine months of fiscal 2007 and fiscal 2006. Efficiency gains at the distribution and consumer service facility were offset by an increase in our direct-to-consumer shipments as a percentage of total shipments. The cost per unit of these shipments is higher, primarily due to value added services, such as gift packaging. Administrative expenses decreased 8.3% to $102.8 million, or 5.2% of net sales, in the first nine months of fiscal 2007 from $112.1 million, or 7.3% of net sales, during the same period of fiscal 2006. The decrease in these expenses was primarily due to a decrease in share-based compensation expense. However, fiscal 2006 expenses were reduced by $2.0 million due to the receipt of business interruption proceeds related to our World Trade Center location. The Company did not receive any business interruption proceeds in fiscal 2007.Interest Income, NetNet interest income was $27.5 million in the first nine monthsof fiscal 2007 as compared to $23.0 million in the first nine monthsof fiscal 2006. This increase was primarily due to higher returns on our investments as a result of higher interest rates and higher average cash balances.Provision for Income Taxes The effective tax rate was 38.5% in the first nine months of fiscal 2007 as compared to 37.9% in the first nine months of fiscal 2006. The increase in the effective tax rate is attributable to incremental income being taxed at higher rates.Income from Continuing OperationsNet income from continuing operationswas $477.1 million in the first nine months of fiscal 2007 as compared to $351.0 million in the first nine months of fiscal 2006. This 35.9% increase is attributable to increased net sales as well as significant operating margin improvement, as discussed above.Income from Discontinued Operations Net income from discontinued operations was $25.9 million in the first nine months of fiscal 2007 as compared to $25.6 million in the first nine months of fiscal 2006. Net sales related to the corporate accounts business were $63.4 million in the first nine months of fiscal 2007 as compared to $63.6 million in the first nine months of fiscal 2006. The company exited the corporate accounts business in the third quarter of fiscal 2007.FINANCIAL CONDITIONLiquidity and Capital Resources$522.3$125.2 million in the first nine monthsquarter of fiscal 20072008 compared to $401.4$80.7 million in the first nine monthsquarter of fiscal 2006.2007. The year-to-year improvement of $121.0$44.5 million was primarily the result of an increase in earnings of $126.4$29.2 million. In addition, depreciation and amortization increased $11.5$5.9 million, primarily as a result of new and expanded stores in both North America and Japan. These cash inflows were offset by a $9.7 million decrease inJapan, and share-based compensation.compensation increased $3.7 million. The changes in operating assets and liabilities were attributable to normal operating conditions.was $418.4 million in the first nine monthsquarter of fiscal 2007 compared to $406.12007. The $144.4 million in the first nine months of fiscal 2006. The $12.3 million increase in net cash usedchange is attributable to a $13.6$147.0 million increase in the net purchasesproceeds from maturities of investments, offset by a $1.2$2.5 million decreaseincrease in capital expenditures, primarily related to the timing of payments primarily for new and renovated retailexpanded stores in North America and Japan. Coach’s future capital expenditures will depend on the timing and rate of expansion of our businesses, new store openings, store renovations and international expansion opportunities.byin financing activities was $25.0$37.0 million in the first nine monthsquarter of fiscal 20072008 as compared to $34.6$125.5 million generated from financing activities in the first nine monthsquarter of fiscal 2006.2007. The changedecrease of $59.6$88.5 million in net cash used primarily resulted fromis attributable to a $36.2$17.7 million increasedecrease in funds expended to repurchase common stock in the first nine monthsquarter of fiscal 20072008 as compared to the firstnine months quarter of fiscal 2006. In addition, there was a $35.5 million decrease in excess tax benefit from share-based compensation2007 and the non-recurrence of a $16.7 million decrease related to an adjustment to reverse a portion of the excess tax benefit previously recognized from share-based compensationrecorded in the fourthfirst quarter of fiscal 2006. These decreases were offset by an $18.3 million increase in2007 related to a previously recognized excess tax benefit. In addition, proceeds received from the exercise of stock options and the non-recurrenceexcess tax benefit from share-based compensation increased $48.2 million and $13.4 million, respectively. The impact of $10.5these changes was partially offset by a $7.4 million decrease in repaymentsnet borrowings on the Japaneserevolving credit facility in the prior year. Coach’sfirst quarter of fiscal 2008 compared to the first quarter of fiscal 2007.nine monthsquarter of fiscal 20072008 and fiscal 20062007, there were no borrowings under the Bank of America facility. As of March 31,September 29, 2007 and July 1, 2006,June 30, 2007, there were no outstanding borrowings under the Bank of America facility.106 to 2512.5 basis points based on any unused amounts of the Bank of America facility. Coach also paysfacility and interest of LIBOR plus 4520 to 10055 basis points on any outstanding borrowings. Both the commitment fee and the LIBOR margin are based on the Company’s fixed charge coverage ratio. At March 31,September 29, 2007, the commitment fee was 106 basis points and the LIBOR margin was 4520 basis points.$62.8$64.4 million at March 31,September 29, 2007. Interest is based on the Tokyo Interbank rateRate plus a margin of up to 50 basis points. These Japanese facilities contain various covenants and customary events of default. Coach Japan has been in compliance with all covenants since the inception of these facilities. Coach, Inc. is not a guarantor on these facilities.nine monthsquarter of fiscal 20072008 and fiscal 2006,2007, the peak borrowings under the Japanese credit facilities were $25.5 million$0 and $21.6$12.8 million, respectively. As of March 31,September 29, 2007 and July 1, 2006,June 30, 2007, the outstanding borrowings under the Japanese revolving credit facility agreementsfacilities were $0.ninethree months of fiscal 20072008 and fiscal 2006,2007, the Company repurchased and retired 5.03.0 million and 3.55.0 million shares, respectively, of common stock, at an average cost of $29.99$43.72 and $32.85,$29.99, respectively, per share.March 31,September 29, 2007, $500$368 million remained available for future repurchases under the existing program.20072008 capital expenditures will be approximately $160$200 million and will relate primarily to new stores and expansions both in North America and Japan as well as investments in corporate systems and infrastructure. In North America, we expect to open 40 new retail stores and seven netsix new factory stores, of which 2613 and five,three, respectively, were opened by the end of the first nine monthsquarter of fiscal 2007.2008. In Japan, we expect to open 1910 to 15 net new locations, in Japan, of which 15four were opened by the end of the first nine monthsquarter of fiscal 2007.2008. We will also continue to invest in department store and distributor locations. In addition, we will invest in corporate infrastructure and expand our Jacksonville distribution center. We intend to finance these investments from internally generated cash flows, on hand cash and by using funds from our Japanese revolving credit facilities.nine monthsquarter of fiscal 2007,2008, Coach purchased approximately $463$230 million of inventory, which was funded by operating cash flow and by using funds from our Japanese revolving credit facilities.July 1, 2006June 30, 2007 are those thatMarch 31,September 29, 2007, there have been no material changes to any of the critical accounting policies contained therein.Recent Accounting Developments In February 2006,therein, except for the adoption of the Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement 109,” which is discussed in Note 9 of the Condensed Consolidated Financial Statements.–an- an amendment of FASB Statements 133 and 140.” SFAS 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006.July 1, 2007. The Company does not expect the adoption of SFAS 155 todid not have a material impact on the Company’s consolidated financial statements. In June 2006, the FASB ratified the consensus reached on Emerging Issues Task Force (“EITF”) Issue 06-3, “How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation).” EITF 06-3 requires disclosure of a company’s accounting policy with respect to presentation of taxes collected on a revenue producing transaction between a seller and a customer. For taxes that are reported on a gross basis (included in revenues and costs), EITF 06-3 also requires disclosure of the amount of taxes included in the financial statements. EITF 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. As the Company did not modify its accounting policy of recording sales taxes collected on a net basis, the adoption of EITF 06-3 did not have an impact on the Company’s consolidated financial statements.–- an interpretation of FASB Statement 109,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is yearsyear beginning after December 15, 2006.on July 1, 2007. The Company is currently evaluating the impact of adopting FIN 48 on the Company’s consolidated financial statements.(GAAP), and expands disclosures about fair value measurements. This statement is effective for financial statements issued forCoach’s fiscal yearsyear beginning after November 15, 2007, and interim periods within those fiscal years.June 29, 2008. The Company is currently evaluatingdoes not expect the impactadoption of SFAS 157 to have a material impact on the Company’s consolidated financial statements.–- an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS 158 requires an employer to recognize the funded status of a benefit plan, measured as the difference between plan assets at fair value and the projected benefit obligation, in its statement of financial position. This recognition provision and the related disclosures were effective as of the end of the fiscal year ended June 30, 2007. For a complete description of the Company’s adoption of SFAS 158, refer to the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007. SFAS 158 also requires an employer to measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position. This statementmeasurement provision is effective as of the end of thefor Coach’s fiscal year ending after December 15, 2006, except for the requirement to measure plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position, which is effective for fiscal years ending after December 15, 2008. TheCompany is currently evaluating the impact of SFAS 158 on the Company’s consolidated financial statements. In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.” SAB 108 states that SEC registrants should use both a balance sheet approach and an income statement approach when quantifying and evaluating the materiality of a misstatement, contains guidance on correcting errors under the dual approach and provides transition guidance for correcting errors existing in prior years. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006.June 27, 2009. The Company does not expect the adoption of SAB 108the measurement provision to have a material impact on the Company’sits consolidated financial statements.–- Including an amendment of FASB Statement No. 115.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective as of the beginning of an entity’s firstfor Coach’s fiscal year that begins after November 15, 2007.will begin on June 29, 2008. The Company is currently evaluating the impact of SFAS 159 on the Company’s consolidated financial statements.during the first nine months of fiscal 2007 wereare purchased from independent manufacturers in countries other than the United States. These countries include China, India, Hungary, India,Indonesia, Italy, Korea, Mauritius, Singapore, Spain, Taiwan, and Turkey. Additionally, sales are made through international channels to third party distributors. However, substantially all purchases and sales involving international parties are denominated in U.S. dollars and therefore are not hedged by Coach using any derivative instruments.with respect to Coach Japan as a result of itsCoach Japan’s U.S. dollar denominated inventory purchases. Coach Japan enters into certain foreign currency derivative contracts, primarily foreign exchange forward contracts,zero-cost collar options, to manage these risks. These transactions are in accordance with Company risk management policies. Coach does not enter into derivative transactions for speculative or trading purposes.March 31,September 29, 2007 and July 1, 2006June 30, 2007 was $13.1$8.5 million and $2.6$23.3 million, respectively. ForThe fair value of open foreign currency derivatives included in current liabilities at September 29, 2007 and June 30, 2007 was $1.6 million and $0, respectively. The fair value of these contracts is sensitive to changes in yen exchange rates.nine months ended March 31,Company’s investment policy, which identifies allowable investments, specifies credit quality standards and limits the credit exposure of changesthe Company’s short term investments were equal to $448.8 million. As auction rate securities’ market price equals its fair value, there are no unrealized gains or losses associated with these investments.contracts designated and effective as cash flow hedges resulted in an increase to equity as a benefit to other comprehensive income of $4.1 million, net of taxes. For the nine months ended April 1, 2006, changesany outstanding borrowings in the fair valuefuture may be impacted by fluctuations in interest rates.contracts designated and effective as cash flow hedges resulted in a decrease to equity as a charge to other comprehensive income of $1.2 million, net of taxes.Interest Rate Coach faces minimal interest rate risk exposure in relation to itsSeptember 29, 2007, Coach’s outstanding long-term debt, of $3.1 million at March 31, 2007.including the current portion, was $2.9 million. A hypothetical 1%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.SeniorExecutive Vice President and Chief Financial Officer of the Company, has concluded that the Company's disclosure controls and procedures are effective as of March 31,September 29, 2007.July 1, 2006.Company did not repurchase sharesCompany’s share repurchases during the first quarter ended March 31, 2007. (in thousands, except per share data) Period 1 (7/1/07 - 8/4/07) - $ - - 500,000 Period 2 (8/5/07 - 9/1/07) 2,848 43.90 2,848 375,000 Period 3 (9/2/07 - 9/29/07) 178 40.90 178 368,000 Total 3,026 $ 43.72 3,026 (1) The Company repurchases its common shares under repurchase programs that were approved by the Board of Directors as follows: September 17, 2001 $80 million September 2004 January 30, 2003 $100 million January 2006 August 12, 2004 $200 million August 2006 May 11, 2005 $250 million May 2007 May 9, 2006 $500 million June 2007 October 20, 2006 $500 million June 2008 and Reports on Form 8-K (a) 31.1 Rule 13(a) –- 14(a)/15(d) –- 14(a) Certifications 32.1 (b)Reports on Form 8-KCurrent report on Form 8-K, filed with the Commission on August 9, 2006. This report contained the Company’s preliminary earnings results for the fourth quarter and full fiscal year 2006.Current report on Form 8-K, filed with the Commission on October 26, 2006. This report contained the Company’s preliminary earnings results for the first quarter of fiscal year 2007.Current report on Form 8-K, filed with the Commission on November 3, 2006. This report announced that Lew Frankfort, Chairman and Chief Executive Officer of the Company, entered into a trading plan with Goldman, Sachs & Co. to comply with Rule 10b5-1 of the Securities Exchange Act of 1934.Current report on Form 8-K, filed with the Commission on January 29, 2007. This report contained the Company’s preliminary earnings results for the second quarter and first half of fiscal year 2007.Current report on Form 8-K, filed with the Commission on February 14, 2007. This report announced that Lew Frankfort, Chairman and Chief Executive Officer of the Company, entered into a trading plan with Goldman, Sachs & Co. to comply with Rule 10b5-1 of the Securities Exchange Act of 1934.Current report on Form 8-K, filed with the Commission on April 24, 2007. This report contained the Company’s preliminary earnings results for the third quarter and first nine months of fiscal year 2007.COACH, INC. (Registrant)By: /s/ Michael F. Devine, IIIName: Michael F. Devine, IIITitle:Senior Vice President,Chief Financial Officer andChief Accounting OfficerMay 4,November 8, 200739