10-K 1 v350111_10k.htm FORM 10-K

  

  

 

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



 

FORM 10-K



 

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

For the Fiscal Year Ended June 29, 2013

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 34th 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.Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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. o

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

     
Large accelerated filer x   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).Yes o No x

The aggregate market value of Coach, Inc. common stock held by non-affiliates as of December 28, 2012 (the last business day of the most recently completed second fiscal quarter) was approximately $15.1 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 2, 2013, the Registrant had 281,933,908 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

 
Documents   Form 10-K Reference
Proxy Statement for the 2013 Annual Meeting of Stockholders   Part III, Items 10 – 14
 

 


 
 

TABLE OF CONTENTS

COACH, INC.

TABLE OF CONTENTS

 
  Page Number
PART I
 

Item 1.

Business

    2  

Item 1A.

Risk Factors

    12  

Item 1B.

Unresolved Staff Comments

    20  

Item 2.

Properties

    21  

Item 3.

Legal Proceedings

    21  

Item 4.

Mine Safety Disclosures

    22  
PART II
 

Item 5.

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

    23  

Item 6.

Selected Financial Data

    26  

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of
Operations

    29  

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

    49  

Item 8.

Financial Statements and Supplementary Data

    50  

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

    50  

Item 9A.

Controls and Procedures

    50  

Item 9B.

Other Information

    50  
PART III
 

Item 10.

Directors, Executive Officers and Corporate Governance

    51  

Item 11.

Executive Compensation

    51  

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    51  

Item 13.

Certain Relationships and Related Transactions, and Director Independence

    51  

Item 14.

Principal Accountant Fees and Services

    51  
PART IV
 

Item 15.

Exhibits, Financial Statement Schedules

    52  
Signatures     53  

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SPECIAL NOTE ON FORWARD-LOOKING INFORMATION

This document and the documents incorporated by reference in this document contain certain forward-looking statements 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 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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In this Form 10-K, references to “Coach,” “we,” “our,” “us” and the “Company” refer to Coach, Inc., including consolidated subsidiaries. The fiscal years ended June 29, 2013 (“fiscal 2013”), June 30, 2012 (“fiscal 2012”) and July 2, 2011 (“fiscal 2011”) were each 52-week periods. The fiscal year ending June 28, 2014 (“fiscal 2014”) will be also be a 52-week period.

PART I

ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

Founded in 1941, Coach 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 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.

Coach’s international expansion strategy is to enter into joint ventures and distributor relationships to build market presence and capability. To further accelerate brand awareness, aggressively grow market share and to exercise greater control of our brand, Coach may subsequently acquire 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.
In fiscal 2011, the Company purchased a non-controlling interest in a joint venture with Hackett Limited to expand the Coach business in Europe. Through the joint venture, the Company opened retail locations in Spain, Portugal and Great Britain in fiscal 2011, in France and Ireland in fiscal 2012 and in Germany in fiscal 2013. In July 2013 (fiscal 2014), the Company purchased Hackett Limited’s 50% interest in the joint venture.
Coach acquired the domestic retail businesses from its distributors as follows:
Fiscal 2009: Hong Kong, Macau and mainland China (“Coach China”).
Fiscal 2012: Singapore and Taiwan.
Fiscal 2013: Malaysia and Korea.

FINANCIAL INFORMATION ABOUT SEGMENTS

See the Segment Information note presented in the Notes to the Consolidated Financial Statements.

NARRATIVE DESCRIPTION OF BUSINESS

Coach has grown from a family-run workshop in a Manhattan loft to a leading American marketer of fine accessories and gifts for women and men. Coach is one of the most recognized fine accessories brands in the U.S. and in targeted international markets. We offer premium lifestyle accessories to a loyal and growing customer base and provide consumers with fresh, compelling 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. 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 has created 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.

Coach offers a number of key differentiating elements that set it 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 accessible luxury products that are relevant, extremely well made and provide excellent value.

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A Market Leadership Position With Growing Global Share — Coach is a global leader in premium handbags and accessories. In North America, Coach is the leading brand. In Japan, Coach is the leading imported luxury handbag and accessories brand by units sold. Coach is also gaining traction in China, other Asian markets, Europe, and Latin America.

A Loyal And Involved Consumer — Coach consumers have a strong 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 Global Distribution Model — Coach products are available in image-enhancing locations globally wherever our consumer chooses to shop including: retail stores and factory outlets, directly operated shop-in-shops, online, and department and speciality stores. This allows Coach to maintain a dynamic balance as results do not depend solely on the performance of a single channel or geographic area.

Innovation And A Consumer-Centric Focus — Coach listens to its consumer through rigorous consumer research and strong consumer orientation. To truly understand globalization and its impact on Coach, we also need to understand the local context in each market, learning about our consumer wherever Coach is sold. Coach works to anticipate the consumer’s changing needs by keeping the product assortment fresh and compelling.

We believe our unique positioning, characterized by these differentiating elements, is a key competitive advantage. 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.

PRODUCTS

Coach's product offerings include women’s and men’s bags, accessories, footwear, wearables, jewelry, travel bags, sunwear, watches and fragrance. The following table shows the percent of net sales that each product category represented:

     
  Fiscal Year Ended
     June 29,
2013
  June 30,
2012
  July 2,
2011
Women's Handbags     58 %      61 %      63 % 
Women's Accessories     23       24       25  
Men's     11       8       5  
All Other Products     8       7       7  
Total     100 %      100 %      100 % 

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 bag collections include business cases, computer bags, messenger-style bags and totes. Men’s small leather goods consist primarily of wallets, card cases and belts. Novelty accessories include time management and electronic accessories.

All Other Products consist of the following:

Footwear — Jimlar Corporation (“Jimlar”) has been Coach's footwear licensee since 1999. Footwear is distributed through select Coach retail stores, coach.com and about 1,050 U.S. department stores and military locations. Footwear sales are comprised primarily of women’s styles.

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Wearables — This category is comprised 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.

Jewelry — This category is comprised of bracelets, necklaces, rings and earrings offered in sterling silver, leather and non-precious metals.

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

Sunwear — Luxottica Group SPA (“Luxottica”) has been Coach’s eyewear licensee since 2012. This collection is a collaborative effort that combines the Coach aesthetic for fashion accessories with the latest fashion directions in sunglasses. Coach sunglasses are sold in Coach retail stores and coach.com, department stores, select sunglass retailers and optical retailers in major markets.

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.

Fragrance — Starting in the spring of 2010, Estée Lauder Companies Inc. (“Estée Lauder”), through its subsidiary, Aramis Inc., became Coach's fragrance licensee. Fragrance is distributed through Coach retail stores, coach.com, about 4,660 U.S. department and specialty stores and 1,400 international locations. Coach offers four women’s fragrance collections and one men’s fragrance collection. The women's fragrance collections include eau de perfume spray, eau de toilette spray, purse spray, body lotion and body splashes.

DESIGN AND MERCHANDISING

In fiscal 2013, Reed Krakoff, President, Executive Creative Director, announced his intention to not renew his contract and it is expected that in the first quarter of fiscal year 2014 he will depart from the Company in connection with the sale of the Reed Krakoff business. In June 2013, the Company announced that Stuart Vevers will assume the position of Executive Creative Director, joining Coach in the first quarter of fiscal 2014.

Coach's New York-based design team 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, which are a valuable resource for new product concepts. Coach designers are also supported by a strong merchandising team that analyzes sales, market trends and consumer preferences to identify business opportunities that help guide each season's design process. Merchandisers also analyze, edit, add and delete products to maximize sales across all channels. The product category teams, each comprised of design, merchandising/product development and sourcing specialists help Coach execute design concepts that are consistent with the brand's strategic direction.

Coach's 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 Coach brand.

SEGMENTS

In fiscal 2013, the Company changed its reportable segments to a geographic focus, recognizing the expansion and growth of sales through its international markets. This is consistent with organizational changes announced during fiscal 2012.

Prior to this change, the Company was organized and reported its results based on directly-operated and indirect business units. The Company has recently experienced substantial growth in its international business, while at the same time has converted formerly wholesale businesses in several key markets such as China, Taiwan and Korea to Company-operated businesses. Reflecting this growth and corresponding declines in indirect businesses relative to Company-operated, the Company implemented a realignment of its business units based on geography, consistent with the organizational changes.

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In fiscal 2013, the Company’s operations reflect five operating segments aggregated into two reportable segments:

North America, which includes sales to North American consumers through Company-operated stores, including the Internet, and sales to wholesale customers and distributors.
International, which includes sales to consumers through Company-operated stores in Japan and mainland China, including the Internet, Hong Kong, Macau, Singapore, Taiwan, Malaysia and Korea and sales to wholesale customers and distributors in 25 countries.

North America Segment

The North America segment consists of direct-to-consumer and indirect channels, and includes sales to consumers through Company-operated stores, including the Internet, and sales to wholesale customers and distributors. This segment represented approximately 69% of Coach's total net sales in fiscal 2013.

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 and customer preferences. Our flagship stores, which offer the broadest assortment of Coach products, are located in high-visibility locations such as New York, Chicago and San Francisco.

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 effortless New York style at the retail level.

The number of Coach retail stores and their total and average square footage has remained relatively constant over the last three fiscal years:

     
  Fiscal Year Ended
     June 29,
2013
  June 30,
2012
  July 2,
2011
Retail stores     351       354       345  
Net (decrease) increase vs. prior year     (3 )      9       3  
% (decrease) increase vs. prior year     (0.8 )%      2.6 %      0.9 % 
Retail square footage     952,422       959,099       936,277  
Net (decrease) increase vs. prior year     (6,677 )      22,822       6,697  
% (decrease) increase vs. prior year     (0.7 )%      2.4 %      0.7 % 
Average square footage     2,713       2,709       2,714  

As we continue to optimize our current real estate positions at lease term over the next few years, the Company expects to close underperforming doors and expand locations in key markets, resulting in a slight decrease in total square footage and a slight increase in average store square footage.

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 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.

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The expansion in the number of North America Coach factory stores and their total and average square footage is shown in the following table:

     
  Fiscal Year Ended
     June 29,
2013
  June 30,
2012
  July 2,
2011
Factory stores     193       169       143  
Net increase vs. prior year     24       26       22  
% increase vs. prior year     14.2 %      18.2 %      18.2 % 
Factory square footage     982,202       789,699       649,094  
Net increase vs. prior year     192,503       140,605       100,297  
% increase vs. prior year     24.4 %      21.7 %      18.3 % 
Average square footage     5,089       4,673       4,539  

Over the next few years, we expect to see continued growth in factory store square footage, driven both by new distribution and expansions as we right size our most productive doors to accommodate broader expression of lifestyle assortment and increased volume.

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 74 million unique visits to the e-commerce websites in fiscal 2013, 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 our invitation-only factory flash site and third-party flash sites.

U.S. Wholesale — Coach began as a U.S. wholesaler to department stores and this channel remains 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. 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. The Company has implemented automatic replenishment with major accounts in an effort to optimize inventory across wholesale doors. Over the next few years, we expect to make significant investment in the elevation of store environments in this channel.

Coach'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, Saks Fifth Avenue, Lord & Taylor, The Bay, Bon Ton, Belk and Von Maur. Coach products are also available on macys.com, bloomingdales.com, dillards.com, nordstrom.com, lordandtaylor.com, thebay.com, bonton.com, belk.com and vonmaur.com.

International Segment

The International segment includes sales to consumers through Company-operated stores in Japan and mainland China, including the Internet, Hong Kong, Macau, Singapore, Taiwan, Malaysia and Korea, and sales to wholesale customers and distributors. The International segment represented approximately 31% of total net sales in fiscal 2013.

Our International Markets operate department store shop-in-shop locations and freestanding flagship, retail and factory stores as well as e-commerce websites. Flagship stores, which offer the broadest assortment of Coach products, are located in select shopping districts.

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The following table shows the number of international directly-operated locations and their total and average square footage:

     
  Fiscal Year Ended
     June 29,
2013
  June 30,
2012
  July 2,
2011
Coach Japan:
                          
Locations:     191       180       169  
Net increase vs. prior year     11       11       8  
% increase vs. prior year     6.1 %      6.5 %      5.0 % 
Square footage:     350,994       320,781       303,925  
Net increase vs. prior year     30,213       16,856       10,484  
% increase vs. prior year     9.4 %      5.5 %      3.6 % 
Average square footage     1,838       1,782       1,798  
Coach China (including Hong Kong and Macau), Singapore, Taiwan, Malaysia and Korea:
                          
Locations:     218       188       142  
Net increase vs. prior year     30       46       41  
% increase vs. prior year     16.0 %      32.4 %      40.6 % 
Square footage:     417,573       344,615       240,873  
Net increase vs. prior year     72,958       103,742       76,351  
% increase vs. prior year     21.2 %      43.1 %      46.4 % 
Average square footage     1,915       1,833       1,696  

Coach Japan plans to open new doors over the next several years, growing low to mid-single digits. The balance of Coach international (China, Asia and Europe) anticipate their owned-retail doors growing low double digit over the next few years.

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 25 countries. Coach's current network of international distributors serves the following domestic and/or travel retail markets: Aruba, Australia, Bahamas, Bahrain, Brazil, China, Colombia, France, Hong Kong, India, Indonesia, Japan, Korea, Kuwait, Macau, Malaysia, Mexico, New Zealand, Panama, Saudi Arabia, Singapore, Taiwan, Thailand, UAE, US & Territories, Venezuela and Vietnam.

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 less productive stores. Coach's most significant international wholesale customers are the DFS Group, Everrich DFS Corp, Lotte Group, Shilla Group and Vantage Point.

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

     
  Fiscal Year Ended
     June 29,
2013
  June 30,
2012
  July 2,
2011
International freestanding stores(1)     42       77       61  
International department store locations     87       87       109  
Other international locations     54       41       41  
Total international wholesale locations     183       205       211  

(1) Decline in fiscal 2013 reflects transition to Company-operated stores due to acquisitions. See Note “Acquisitions.”

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Other

Licensing — In our worldwide licensing relationships, Coach takes an active role in the design process and controls the marketing and distribution of products under the Coach brand. Licensing revenue of approximately $32.1 million and $28.5 million in fiscal 2013 and fiscal 2012, respectively, is included Other sales. (Other, which is not a reportable segment, consists of sales generated in ancillary channels). The licensing relationships as of June 29, 2013 are as follows:

     
    Date
Category   Partner   Introduction   Expiration
Footwear   Jimlar   Spring '99   2015
Eyewear   Luxottica   Spring '12   2016
Watches   Movado   Spring '98   2015
Fragrance   Estee Lauder   Spring '10   2015

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 and sunwear 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’s marketing strategy is to deliver a consistent and relevant message every time the consumer comes in contact with the Coach brand through our communications and visual merchandising. The Coach image is created and executed by our creative marketing, visual merchandising and public relations teams. Coach also has a sophisticated consumer and market research capability, which helps us assess consumer attitudes and 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.

Coach engages in several consumer communication initiatives, including direct marketing activities and national, regional and local advertising. Total expenses related to consumer communications in fiscal 2013 were $102.7 million, approximately 2% of net sales.

Coach’s wide range of direct marketing activities includes email contacts and catalogs targeted to promote sales to consumers in their preferred shopping venue. In addition to building brand awareness, the coach.com website serves as an effective brand communication 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 Coach's direct marketing strategy, the Company uses its database consisting of approximately 19 million households in North America and 8 million households in Asia. Email contacts and direct mail pieces are Coach's principal means of communication and are sent to selected households to stimulate consumer purchases and build brand awareness. The growing number of visitors to the coach.com e-commerce sites in the U.S., Canada, Japan and China provides an opportunity to increase the size of these databases.

In fiscal 2013, Coach had informational websites in Australia, Bahrain, Brazil, Chile, Colombia, France, Hong Kong, Indonesia, Ireland, Korea, Kuwait, Malaysia, Mexico, Panama, Peru, Portugal, Saudi Arabia, Singapore, Spain, Taiwan, Thailand, UAE, United Kingdom, Venezuela and Vietnam. In addition, the Company utilizes and continues to explore new technologies such as blogs and social networking websites, including Twitter, Facebook, and Sina Weibo, as a cost effective consumer communication opportunity to increase on-line and store sales, acquire new customers and build brand awareness.

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The Company also runs national, regional and local marketing campaigns in support of its major selling seasons.

MANUFACTURING

While all of our products are manufactured by independent manufacturers, we nevertheless 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 and quality control management offices in China, Hong Kong, Philippines 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 in the countries of our manufacturers to enhance control over decision making and ensure the speed with which we bring new product to market is maximized.

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. During fiscal 2013, approximately 69% of Coach's total net sales were generated from newly introduced products with no sales in the same quarter the previous year.

Our raw material suppliers, 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.

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 China, Vietnam, India, Philippines, Thailand, Italy and 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 2013, one vendor provided approximately 12% of Coach’s total units. No other individual vendor currently provides more than approximately 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.

DISTRIBUTION

Coach operates an 850,000 square foot distribution and consumer service facility in Jacksonville, Florida. 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's 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 in 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. The Company also operates distribution centers, through third-parties, in Japan, China, Hong Kong, Singapore, Taiwan, Malaysia, Korea and the Netherlands.

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.

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Complementing its ERP system are several other system solutions, each of which Coach believes is suitable for its needs. The data warehouse system summarizes the transaction information and provides a global platform for management reporting. The supply chain management systems support sales, procurement, inventory planning and reporting functions. In 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 internet business are supported by Coach’s order management system. Internationally, Coach is integrated with selected third-party providers to provide similar capabilities. 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.

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. Coach also owns and maintains worldwide registrations for trademarks in all relevant classes of products in each of the countries in which Coach products are sold. Major trademarks include Coach, Coach and lozenge design, Coach and tag design, Signature C design, Coach Op Art design and The Heritage Logo (Coach Leatherware Est. 1941). 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 or patent applications. 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 existence for as long as Coach continues to use and renew them. Coach has no material patents.

SEASONALITY

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. 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. Over the last several years, we have achieved higher levels of growth in the non-holiday quarters, which has reduced these seasonal fluctuations.

GOVERNMENT REGULATION

Most of Coach's imported products are subject to, duties, indirect 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 is not materially restricted by quotas or other government restrictions in the operation of its business, however customs duties do represent a material part of total 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, the Company operates a direct import business in many countries worldwide. As a result, Coach is subject to stringent government regulations and restrictions with respect to its cross-border activity either by the various customs and border protection agencies or by other government agencies which control the quality and safety of the Company’s products. Coach maintains an internal global trade and customs organization to help manage its import/export activity.

COMPETITION

The premium handbag and accessories industry is highly competitive. The Company competes primarily with European and American luxury and accessible luxury brands as well as private label retailers, including some of Coach’s wholesale customers. Over the last several years the category has grown, encouraging the entry of new competitors as well as increasing the competition from existing competitors. This increased competition also drives consumer interest in this brand loyal category.

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

EMPLOYEES

As of June 29, 2013, Coach employed approximately 17,200 people, including both full and part time employees, but excluding seasonal and temporary employees. Of these employees, approximately 7,200 and 7,000 were full time and part time employees, respectively, in the retail field in North America; Japan; Hong Kong, Macau, and mainland China; Singapore; Taiwan; Malaysia and Korea. Approximately 70 of Coach’s employees are covered by a collective bargaining agreement. Coach believes that its relations with its employees are good, and has never encountered a strike or work stoppage.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

See the Segment Information note 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 at www.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 at www.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 Business of Coach 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.

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, 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 growth of our business depends on the successful execution of our growth strategies, including our efforts to expand 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 stores in China, Europe and other international markets, and we have entered into strategic agreements with various partners to expand our operations in South America. In addition, we have recently taken control of certain of our retail operations in Europe and the Asia-Pacific region, including the United Kingdom, Spain, Ireland, Portugal, France and Germany during calendar 2013, and 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 countries have different operational characteristics, including but not limited to employment and labor, transportation, logistics, real estate, 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.

We have recently undertaken a transformation to broaden Coach’s brand identification from primarily accessories, to instead being viewed as a global lifestyle brand, anchored in accessories. We plan to achieve this by building upon our strong management and design teams and enhancing and building out the Coach experience through expanded and new product categories, enhanced retail environments and integrated marketing communications. However, there is no assurance that such efforts will be successful in changing the perception of Coach from an accessories brand to a global lifestyle brand. Consequently, if our international expansion plans are unsuccessful, our transformation falls short, or we are unable to retain and/or attract key personnel, our financial results could be materially adversely affected.

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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’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, 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.

The success of our business depends on our ability to retain the value of the Coach brand and to respond to changing fashion and retail trends in a timely manner.

We believe that the Coach brand, established over 70 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. Any misstep in product quality or design, customer service, marketing, unfavorable publicity or excessive product discounting could negatively affect the image of our brand 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. 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 and retail environments that appeal to our customers, our sales and results of operations may be negatively impacted. Even if our products 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 adversely impact our business, financial condition, and results of operations.

We face risks associated with operating in international markets.

We operate on a global basis, with approximately 31% 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,
compliance with laws relating to foreign operations, including the Foreign Corrupt Practices Act, the U.K. Bribery Act, which in general concern the bribery of foreign public officials,
political or economic instability or changing macroeconomic conditions in our major markets,
natural and other disasters, and
changes in legal and regulatory requirements resulting in the imposition of new or more onerous trade restrictions, tariffs, embargoes, exchange or other government controls.

We monitor 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. Sales to our international wholesale customers are denominated in U.S. dollars.

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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 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 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.

Computer system disruption and cyber 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. 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 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 and sensitivity to privacy breaches and cyber security threats 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 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 intellectual property. Lastly, we could face 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. In fiscal 2013, Coach had informational websites in 28 countries. Lastly, our e-commerce programs also include an invitation-only Coach Factory flash sale site and third-party flash sales sites. 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, (ii) 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

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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.

Our business is subject to the risks inherent in global sourcing activities.

As a Company 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,
compliance with labor laws and other foreign governmental regulations,
imposition of additional duties, taxes and other charges on imports or exports,
increases in the cost of labor, fuel, travel and transportation,
compliance with our Global Business Integrity Program,
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,
loss or impairment of key manufacturing or distribution sites,
inability to engage new independent manufacturers that meet the Company’s cost-effective sourcing model,
product quality issues,
political unrest, and
natural disasters, acts of war or terrorism and other external factors over which we have no control.

While 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, 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 on our website, coach.com. The 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 adversely affect our financial condition and results of operations.

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 and, if not remedied in a timely manner, could have an adverse impact on our business. We maintain a distribution center in Jacksonville, Florida, owned and operated by Coach. To support our growth in 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. We also operate distribution centers, through third-parties, in Japan, China, Hong Kong, Singapore, Taiwan, Malaysia, Korea and the Netherlands. The warehousing of Coach merchandise, store replenishment and processing direct-to-customer orders is handled by these centers and a prolonged disruption in any center’s operation could adversely affect our business and operations.

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 unlikely such cost pressure will abate if oil prices continue to increase. We may not be able to offset such increases in raw materials, labor or transportation costs through pricing measures or other means.

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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. 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 gross margin, overall profitability and efficacy of our brand.

Our North American wholesale business could suffer as a result of consolidations, liquidations, restructurings and other ownership changes in the retail industry.

Our wholesale business, consisting of the U.S. Wholesale business comprised approximately 5% of total net sales for fiscal 2013. Continued consolidation 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.

We rely on our 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, sunwear, watches and fragrance products. See Item 1 — “Business — Products” where discussed further. 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 out existing licensing partners if required, our inability to do so for any period of time could adversely affect our revenues and harm our business.

Our operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of Coach 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.

The dividend program requires the use of a modest 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.

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Fluctuations in our tax obligations and effective tax rate may result in volatility of our financial results and stock price.

We are subject to income taxes in many U.S. and foreign jurisdictions. We record tax expense based on our estimates of taxable income and required reserves for uncertain tax positions in multiple tax jurisdictions. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may result in a settlement 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. Further, proposed tax changes that may be enacted in the future could negatively impact our current or future tax structure and effective tax rates.

Provisions in Coach’s charter, bylaws and Maryland law may delay or prevent an acquisition of Coach by a third party.

Coach’s charter, bylaws and Maryland law contain provisions that could make it more difficult for a third party to acquire Coach without the consent of Coach’s Board. Coach’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 Coach has the authority to issue. In addition, Coach’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’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’s common stock or otherwise be in the best interest of Coach’s stockholders.

Coach’s bylaws can only be amended by Coach’s Board. Coach’s bylaws also provide that nominations of persons for election to Coach’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’s Board or by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures of Coach’s bylaws. Also, under Maryland law, business combinations, including issuances of equity securities, between Coach and any person who beneficially owns 10% or more of Coach’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’s Board.

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 calendar 2015. During fiscal 2013, the Company invested $93.9 million in the Hudson Yards joint venture. The Company expects to invest approximately $440 million in the joint venture over the next three years, with approximately $130 million to $160 million estimated in fiscal 2014, depending on construction progress. Outside of the joint venture, the Company is directly investing in aspects of the new corporate headquarters. In fiscal 2013, $24.8 million was included in capital expenditures and we expect $190 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, borrowings under its credit facility 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, together with the fact that we are in the early stages of construction of the project, certain of the costs associated with this project may be higher than estimated and it may take longer than expected to complete

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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.

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.

We cannot assure you that an active trading market for the HDRs on the Hong Kong Stock Exchange can 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 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 Stock and the HDRs representing them might not be the same, even allowing for currency differences. Fluctuations in the price of our Common Stock due to circumstances peculiar 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 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 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 Company 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

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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 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, as compared to their holdings in the HDRs immediately prior to such an offering.

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. A failure by any of those service providers to meet their contractual obligations, whether or not by culpable default, could detract from the continuing viability of the HDRs as an investment. Coach 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, Coach 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.

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

Our Common Stock is presently traded on the NYSE. Any HDR holder may at any time request that their HDRs be withdrawn and exchanged into Common Stock for trading on the NYSE. Upon the exchange of HDRs into 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 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 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 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 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's distribution, corporate and product development facilities as of June 29, 2013. 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     Distribution and consumer service       850,000  
New York, New York     Corporate, design, sourcing and product development       433,000 (1) 
Carlstadt, New Jersey     Corporate and product development       65,000  
Tokyo, Japan     Coach Japan regional management       32,000  
Dongguan, China     Sourcing, quality control and product development       27,000  
Shanghai, China     Coach China regional management       22,000  
Hong Kong     Sourcing and quality control       17,000  
Hong Kong     Coach Hong Kong regional management       14,000  
Ho Chi Minh City, Vietnam     Sourcing and quality control       11,000  
Taipei City, Taiwan     Coach Taiwan regional management       6,000  
Hong Kong     Sourcing and quality control       6,000  
Singapore     Coach Singapore regional management       3,000  
Seoul, South Korea     Sourcing       3,000  
Beijing, China     Coach China regional management       3,000  
Pampanga, Philippines     Sourcing and quality control       2,400  
Chennai, India     Sourcing and quality control       1,300  
Long An, Vietnam     Sourcing and quality control       1,000  
Luxembourg     Coach regional management       300  

(1) Includes 250,000 square feet related to Coach owned buildings.

As of June 29, 2013, Coach also occupied 351 retail and 193 factory leased stores located in North America, 191 Coach-operated department store shop-in-shops, retail stores and factory stores in Japan, 218 Coach-operated department store shop-in-shops, retail stores and factory stores in Hong Kong, Macau, mainland China, Singapore, Taiwan, Malaysia and Korea. These leases expire at various times through 2025. 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.

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, 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 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 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 closing prices per share of Coach’s common stock as reported on the New York Stock Exchange Composite Index.

       
  High   Low   Closing   Dividends Declared per Common Share
Fiscal 2013 Quarter ended:
                                   
September 29, 2012   $ 63.24     $ 48.24              $ 0.300  
December 29, 2012     60.33       52.20                0.300  
March 30, 2013     61.94       45.87                0.300  
June 29, 2013     60.12       48.76     $ 57.09       0.338  
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     $ 58.48       0.300  

As of August 2, 2013, there were 4,930 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.

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, 2013, to be filed with the Securities and Exchange Commission (The “Proxy Statement”), is incorporated herein by reference.

Performance Graph

The following graph compares the cumulative total stockholder return (assuming reinvestment of dividends) of Coach’s common stock with the cumulative total return of the S&P 500 Stock Index and the “peer set” companies listed below over the five-fiscal-year period ending June 28, 2013, the last trading day of Coach’s most recent fiscal year.

The Gap, Inc.,
Guess?, Inc.,

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L Brands, Inc.,
PVH Corp.,
Ralph Lauren Corporation,
Tiffany & Co.,
V.F. Corporation, and
Williams-Sonoma, Inc.

Coach management selected the “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.

  

[GRAPHIC MISSING]

  

           
  June-08   June-09   June-10   June-11   June-12   June-13
COH   $ 100.00     $ 93.33     $ 128.25     $ 227.23     $ 211.03     $ 210.61  
Peer Set   $ 100.00     $ 77.18     $ 117.44     $ 188.18     $ 201.95     $ 286.72  
S&P 500   $ 100.00     $ 73.79     $ 84.43     $ 110.35     $ 116.36     $ 140.32  

  

The graph assumes that $100 was invested on June 27, 2008 at the per share closing price in each of Coach’s common stock, the S&P 500 Stock Index and a peer 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.

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Stock Repurchase Program

The Company’s share repurchases during the fourth quarter of fiscal 2013 were 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 (3/31/13 – 5/4/13)         $           $ 1,361,627  
Period 11 (5/5/13 – 6/1/13)                       1,361,627  
Period 12 (6/2/13 – 6/29/13)                       1,361,627  
Total                        

(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 Approved   Expiration Date of Plan
October 23, 2012
  $ 1.5 billion       June 2015  

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ITEM 6. SELECTED FINANCIAL DATA (dollars and shares in thousands, 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 29, 2013 have 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)
     June 29,
2013(2)(4)
  June 30,
2012(2)(4)
  July 2,
2011(2)
  July 3,
2010
  June 27,
2009(2)(4)
Consolidated Statements of Income:
                                            
Net sales   $ 5,075,390     $ 4,763,180     $ 4,158,507     $ 3,607,636     $ 3,230,468  
Gross profit     3,698,148       3,466,078       3,023,541       2,633,691       2,322,610  
Selling, general and administrative expenses     2,173,607       1,954,089       1,718,617       1,483,520       1,350,697  
Operating income     1,524,541       1,511,989       1,304,924       1,150,171       971,913  
Net income     1,034,420       1,038,910       880,800       734,940       623,369  
Net income:
                                            
Per basic share   $ 3.66     $ 3.60     $ 2.99     $ 2.36     $ 1.93  
Per diluted share     3.61       3.53       2.92       2.33       1.91  
Weighted-average basic shares outstanding     282,494       288,284       294,877       311,413       323,714  
Weighted-average diluted shares outstanding     286,307       294,129       301,558       315,848       325,620  
Dividends declared per common share(3)   $ 1.238     $ 0.975     $ 0.675     $ 0.375     $ 0.075  
Consolidated Percentage of Net Sales Data:
                                            
Gross margin     72.9 %      72.8 %      72.7 %      73.0 %      71.9 % 
Selling, general and administrative expenses     42.8 %      41.0 %      41.3 %      41.1 %      41.8 % 
Operating margin     30.0 %      31.7 %      31.4 %      31.9 %      30.1 % 
Net income     20.4 %      21.8 %      21.2 %      20.4 %      19.3 % 
Consolidated Balance Sheet Data:
                                            
Working capital   $ 1,348,437     $ 1,086,368     $ 859,371     $ 773,605     $ 936,757  
Total assets     3,531,897       3,104,321       2,635,116       2,467,115       2,564,336  
Cash, cash equivalents and investments     1,332,231       923,215       712,754       702,398       806,362  
Inventory     524,706       504,490       421,831       363,285       326,148  
Long-term debt     485       985       23,360       24,159       25,072  
Stockholders' equity     2,409,158       1,992,931       1,612,569       1,505,293       1,696,042  

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  Fiscal Year Ended(1)
     June 29,
2013(2)(4)
  June 30,
2012(2)(4)
  July 2,
2011(2)
  July 3,
2010
  June 27,
2009(2)(4)
Coach Operated Store Data:
                                            
North American retail stores     351       354       345       342       330  
North American factory stores     193       169       143       121       111  
Coach Japan locations     191       180       169       161       155  
Coach China, Singapore, Taiwan, Korea and Malaysia locations     218       188       142       101       79  
Total stores open at fiscal year-end     953       891       799       725       675  
North American retail stores     952,422       959,099       936,277       929,580       893,037  
North American factory stores     982,202       789,699       649,094       548,797       477,724  
Coach Japan locations     350,994       320,781       303,925       293,441       280,428  
Coach China, Singapore, Taiwan, Korea and Malaysia locations     417,573       344,615       240,873       164,522       122,226  
Total store square footage at fiscal year-end     2,703,191       2,414,194       2,130,169       1,936,340       1,773,415  
Average store square footage at fiscal year-end:
                                            
North American retail stores     2,713       2,709       2,714       2,718       2,706  
North American factory stores     5,089       4,673       4,539       4,536       4,304  
Coach Japan locations     1,838       1,782       1,798       1,823       1,809  
Coach China, Singapore, Taiwan, Korea and Malaysia locations     1,915       1,833       1,696       1,629       1,547  

(1) Coach’s fiscal year ends on the Saturday closest to June 30. Fiscal years 2013, 2012, 2011, and 2009 were each 52-week years. Fiscal year 2010 was a 53-week year.
(2) During fiscal years 2013, 2012, 2011, and 2009, 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 item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for further information on the items related to fiscal 2013, fiscal 2012 and fiscal 2011.

         
  Fiscal 2013
           Net Income
     Gross Profit   SG&A   Operating Income   Amount   Per Diluted Share
As Reported:
(GAAP Basis)
  $ 3,698,148     $ 2,173,607     $ 1,524,541     $ 1,034,420     $ 3.61  
Excluding items affecting comparability     4,800       (48,402 )      53,202       32,568       0.11  
Adjusted:
(Non-GAAP Basis)
  $ 3,702,948     $ 2,125,205     $ 1,577,743     $ 1,066,988     $ 3.73  

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  Fiscal 2012
         Net Income
     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  

       
  Fiscal 2011
         Net Income
     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
         Net Income
     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(5)     (28,365 )      28,365       (1,241 )      0.00  
Adjusted: (Non-GAAP Basis)   $ 1,322,332     $ 1,000,278     $ 622,128     $ 1.91  

  

(3) 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 fiscal 2012, the Company increased the cash dividend to an annual rate $1.20 per share. During the fourth quarter of fiscal 2013, the Company increased the cash dividend to an expected annual rate $1.35 per share.
(4) The Company acquired its domestic retail businesses from its former distributors as follows: fiscal 2009 — Hong Kong, Macau and mainland China; fiscal 2012 — Singapore and Taiwan; fiscal 2013 — Malaysia and Korea.
(5) Adjusted for a $15,000 contribution to the Coach Foundation, a $13,400 restructuring charge and an $18,800 favorable tax settlement and other tax adjustments.

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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,” “we,” “us” and “our” refer to Coach, Inc., including consolidated subsidiaries.

EXECUTIVE OVERVIEW

Coach is a leading American design house of modern luxury accessories. Our product offerings include fine accessories and gifts for women and men, including handbags, men’s bags, women’s and men’s small leather goods, footwear, outerwear, watches, weekend and travel accessories, scarves, sunwear, fragrance, jewelry and related accessories. We are in the process of transforming Coach from an international accessories business to a global lifestyle brand, anchored in accessories. We plan to accomplish this strategy by building upon our strong management and design teams and enhancing and building out the Coach experience through expanded and new product categories, notably footwear and outerwear, enhanced retail environments and integrated marketing communications.

Coach operates in two segments: North America and International. The North America segment includes sales to North American consumers through Coach-operated stores (including Internet sales) and sales to wholesale customers and distributors. The International segment includes sales to consumers through Coach-operated stores in Japan and mainland China (including Internet sales), Hong Kong and Macau, Singapore, Taiwan, Malaysia, Korea, and sales to wholesale customers and distributors in 25 countries. As Coach’s business model is based on multi-channel global distribution, our success does not depend solely on the performance of a single channel or geographic area.

In order to sustain growth within our global business, we focus on three key growth strategies: transformation to a lifestyle brand, increased global distribution and improved store sales productivity. To that end we are focused on four key initiatives:

Transform from a leading international accessories Company into a global lifestyle brand, anchored in accessories, presenting a clear and compelling expression of the Coach woman and man across all product categories, store environments and brand imagery.
Focus on the Men’s opportunity for the brand, notably in North America and Asia, by drawing on our long heritage in the category. We are capitalizing on this opportunity by opening new standalone and dual gender stores and broadening the men’s assortment in existing stores.
Leverage the global opportunity for Coach by raising brand awareness and building market share in markets where Coach is under-penetrated, most notably in Asia and Europe. We are also developing the brand opportunity as we expand into South America and Central America.
Harness the growing power of the digital world, accelerating the development of our digital 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 coach.com, our invitation-only factory flash sites, our global e-commerce sites, marketing sites and social media.

We believe the growth strategies described above will allow us to deliver long-term superior returns on our investments and increased cash flows from operating activities. However, intensified competition, the promotional environment, along with the current macroeconomic environment, has created a challenging retail market. The Company believes strong long-term growth can be achieved through a combination of brand transformation including expanded product offerings, additional distribution, a focus on innovation to support productivity and disciplined expense control. With a strong balance sheet and significant cash position, and a business model that generates significant cash flow, we are in a position to invest in our brand while continuing to return capital to shareholders.

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SUMMARY — FISCAL 2013

The key metrics for fiscal 2013 were:

Net sales increased 6.6% to $5.08 billion.
North America sales rose 4.9% to $3.48 billion.
º Comparable store sales increased by 0.3% versus prior year.
º Coach closed three net retail stores and opened 24 new factory stores including 10 Men’s, bringing the total number of retail and factory stores to 351 and 193, respectively, at the end of fiscal 2013.
International sales rose 9.9% to $1.54 billion, reflecting new and expanded stores.
º Coach opened 30 net locations in China and 11 net locations in Japan. As of the end of fiscal 2013, the Company operated 191 locations in Japan, 126 in China, 48 in Korea, 27 in Taiwan, 10 in Malaysia, and seven in Singapore.
º International benefited from the results of the Company-operated Korea (47 retail and department stores) and Malaysia (10 retail stores) businesses acquired during the first quarter of fiscal 2013, and the Taiwan (26 retail and department stores) business, acquired during the third quarter of fiscal 2012.
Operating income increased 0.8% to $1.52 billion.
Net income decreased 0.4% to $1.03 billion.
Earnings per diluted share increased 2.3% to $3.61.
Coach’s Board increased the Company’s cash dividend by 12.5% to an expected annual rate of $1.35 per share starting with the dividend paid on July 1, 2013.

On a Non-GAAP basis, the key metrics for fiscal 2013 were:

Operating income increased 1.7% to $1.58 billion.
Net income increased 2.7% to $1.07 billion.
Earnings per diluted share increased 5.5% to $3.73.

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FISCAL 2013 COMPARED TO FISCAL 2012

The following table summarizes results of operations for fiscal 2013 compared to fiscal 2012:

           
  Fiscal Year Ended
     June 29, 2013   June 30, 2012   Variance
     (dollars in millions, except per share data)
     Amount   % of
net sales
  Amount   % of
net sales
  Amount   %
Net sales   $ 5,075.4       100.0 %    $ 4,763.2       100.0 %    $ 312.2       6.6 % 
Gross profit     3,698.1       72.9       3,466.1       72.8       232.0       6.7  
Selling, general and administrative expenses     2,173.6       42.8       1,954.1       41.0       219.5       11.2  
Operating income     1,524.5       30.0       1,512.0       31.7       12.5       0.8  
Provision for income taxes     486.1       9.6       466.8       9.8       19.3       4.1  
Net income     1,034.4       20.4       1,038.9       21.8       (4.5 )      (0.4 ) 
Net income per share:
                                                     
Basic   $ 3.66              $ 3.60              $ 0.06       1.6 % 
Diluted     3.61                3.53                0.08       2.3  

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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, selling, general and administrative expenses, operating income, income before provision for income taxes, provision for income taxes, net income and earnings per diluted share in fiscal 2013 and 2012 reflect certain items which affect the comparability of our results, as noted in the following tables. Refer to page 39 for a discussion on the Non-GAAP Measures.

COACH, INC.
  
GAAP TO NON-GAAP RECONCILIATION
For the Years Ended June 29, 2013 and June 30, 2012
(in millions, except per share data)

     
  June 29, 2013
     GAAP Basis
(As Reported)
  Restructuring and
Transformation
  Non-GAAP Basis
(Excluding Items)
Gross profit   $ 3,698.1     $ (4.8 )    $ 3,702.9  
Selling, general and administrative expenses   $ 2,173.6     $ 48.4     $ 2,125.2  
Operating income   $ 1,524.5     $ (53.2 )    $ 1,577.7  
Income before provision for income
taxes
  $ 1,520.5     $ (53.2 )    $ 1,573.7  
Provision for income taxes   $ 486.1     $ (20.6 )    $ 506.7  
Net income   $ 1,034.4     $ (32.6 )    $ 1,067.0  
Diluted net income per share   $ 3.61     $ (0.11 )    $ 3.73  

       
  June 30, 2012
     GAAP Basis
(As Reported)
  Tax
Adjustment
  Charitable
Contribution
  Non-GAAP Basis
(Excluding Items)
Selling, general and administrative expenses   $ 1,954.1     $     $ 39.2     $ 1,914.9  
Operating income   $ 1,512.0     $     $ (39.2 )    $ 1,551.2  
Income before provision for income taxes   $ 1,505.7     $     $ (39.2 )    $ 1,544.9  
Provision for income taxes   $ 466.8     $ (23.9 )    $ (15.3 )    $ 506.0  
Net income   $ 1,038.9     $ 23.9     $ (23.9 )    $ 1,038.9  
Diluted net income per share   $ 3.53     $ 0.08     $ (0.08 )    $ 3.53  

Fiscal 2013 Items

Restructuring and Transformation

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.

Additional actions are expected to continue into the first quarter of fiscal 2014, primarily related to the Reed Krakoff business.

Fiscal 2012 Items

Charitable Contributions and Tax Adjustments

During fiscal 2012, the Company decreased the provision for income taxes by $23.9 million, primarily as a result of recording the effect of a revaluation of certain deferred tax asset balances due to a change in

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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.

Currency Fluctuation Effects

The percentage increase in sales in fiscal 2013 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 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.

Net Sales

The following table presents net sales by reportable segment for fiscal 2013 compared to fiscal 2012:

         
     Fiscal Year Ended
     Total Net Sales   Rate of
Change
  Percentage of
Total Net Sales
     June 29,
2013
  June 30,
2012(1)
  June 29,
2013
  June 30,
2012(1)
     (dollars in millions)               
North America   $ 3,478.2     $ 3,316.9       4.9 %      68.5 %      69.7 % 
International     1,540.7       1,401.8       9.9       30.4       29.4  
Other(2)     56.5       44.5       27.0       1.1       0.9  
Total net sales   $ 5,075.4     $ 4,763.2       6.6       100.0 %      100.0 % 

(1) Prior year segment data has been restated to reflect the Company’s revised reportable segment structure. See Note “Segment Information” for a discussion of the change in reportable segments.
(2) Net sales in the other category, which is not a reportable segment, consists 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 the Internet. Coach excludes new locations from the comparable store base for the first year of operation. Similarly, stores that are expanded by 15% or more are also excluded from the comparable store base until the first anniversary of their reopening. Beginning in fiscal 2014, comparable store sales will not be adjusted for store expansions given our planned transformation related to capital investments.

North America

Net sales increased 4.9% to $3.48 billion during fiscal 2013 from $3.32 billion during fiscal 2012, primarily driven by sales from new and expanded stores and a 0.3% increase in comparable store sales, partially offset by decreased shipments into wholesale stores. Significant traffic improvement in the North American Internet business drove the slight comparable store sales increase. Since the end of fiscal 2012, Coach opened 24 factory stores, including 10 Men’s, closed three net retail stores, and expanded six factory and one retail store in North America.

International

Net sales increased 9.9% to $1.54 billion during fiscal 2013 from $1.40 billion during fiscal 2012, primarily driven by sales from new and acquisition-related stores. Strong comparable store sales performance in Asia, led by double-digit percentage growth in China, and increased shipments to international wholesale customers, driven by expanded distribution, were substantially offset by weak sales performance in Japan and by the negative foreign exchange impact of the Yen, which decreased net sales by $82.2 million. Since the end of fiscal 2012, International opened 42 net new stores (excluding those acquired as a result of the acquisitions), with 30 net new stores in mainland China, Hong Kong and Macau, 11 net new stores in Japan and one net new store in the other regions. Fiscal 2013 results include net sales of the Company-operated Malaysia and Korean businesses, which were acquired in the first quarter of 2013 as well as the benefit of a full year of net sales from Taiwan, which was purchased in the third quarter of fiscal 2012.

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Operating Income

Operating income increased 0.8% to $1.52 billion during fiscal 2013 as compared to $1.51 billion in fiscal 2012. Operating margin decreased to 30.0% as compared to 31.7% in fiscal 2012. Excluding items affecting comparability, operating income increased 1.7% to $1.58 billion, or operating margin was 31.1%, in fiscal 2013. Excluding items affecting comparability, operating income was $1.55 billion, or operating margin was 32.6%, in fiscal 2012.

Gross profit increased 6.7% to $3.70 billion in fiscal 2013 from $3.47 billion during fiscal 2012. Gross margin in fiscal 2013 was 72.9% as compared to 72.8% during fiscal 2012. Excluding items affecting comparability, gross profit increased 6.8% to $3.70 billion, or gross margin was 73.0%, in fiscal 2013.

Selling, general and administrative (“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, occupancy costs and supply costs, wholesale and retail account administration compensation globally and Coach international operating expenses. These expenses are affected by the number of Coach-operated stores open during any fiscal period. Advertising, marketing and design expenses include employee compensation, media space and production, advertising agency fees (primarily to support North America), 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 “corporate” functions including: executive, finance, human resources, legal and information systems departments, as well as corporate headquarters occupancy costs, consulting and software expenses.

Coach includes inbound product-related transportation costs from our service providers within cost of sales. The balance of the costs related to our distribution network is included within selling, general and administrative expenses.

SG&A expenses increased 11.2% to $2.17 billion in fiscal 2013 as compared to $1.95 billion in fiscal 2012, driven by an increase in selling expenses. As a percentage of net sales, SG&A expenses increased to 42.8% during fiscal 2013 as compared to 41.0% during fiscal 2012. Excluding items affecting comparability of $48.4 million in fiscal 2013, SG&A expenses were 41.9% as a percentage of net sales, in fiscal 2013. Excluding items affecting comparability of $39.2 million in fiscal 2012, SG&A expenses were 40.2% as a percentage of net sales, in fiscal 2012.

Selling expenses were $1.51 billion, or 29.8% of net sales, in fiscal 2013 compared to $1.36 billion, or 28.5% of net sales, in fiscal 2012. The dollar increase in selling expenses was due to International stores reflecting higher sales and new store openings, and higher North American Internet expenses reflecting higher sales. International selling expenses overall increased as a percentage of sales, due to the acquisitions of the Korea and Malaysia businesses and infrastructure investments to support Asia. China store expenses as a percentage of sales decreased primarily due to operating efficiencies and sales leverage.

Advertising, marketing, and design costs were $265.4 million, or 5.2% of net sales, in fiscal 2013, compared to $245.2 million, or 5.1% of net sales, during fiscal 2012. The dollar increase was primarily due to creative and design expenditures and marketing expenses related to digital media and consumer communications, which includes our digital strategy through coach.com, the launch of our Legacy line, marketing sites and social networking. The Company utilizes and continues to explore implementing new technologies such as our global web presence, with informational websites in 28 countries, social networking and blogs as cost-effective consumer communication opportunities to increase online and store sales and build brand awareness.

Distribution and consumer service expenses were $86.1 million, or 1.7% of net sales, in fiscal 2013, compared to $68.9 million, or 1.4% of net sales, in fiscal 2012. The increase in distribution and consumer service expenses is primarily the result of the change in sales mix to Internet purchases, resulting in increased packaging and shipping expense per dollar of sales.

Administrative expenses were $307.1 million, or 6.1% of net sales, in fiscal 2013 compared to $282.2 million, or 5.9% of net sales, during fiscal 2012. The dollar increase is due to the restructuring and transformation charges, increased equity compensation and systems investment to support international

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expansion. These increases were partially offset by the absence of a charitable contribution in fiscal 2013. Excluding items affecting comparability of $48.4 million in fiscal 2013, administrative expenses were $258.7 million, or 5.1% as a percentage of net sales, in fiscal 2013. Excluding items affecting comparability of $39.2 million in fiscal 2012, administrative expenses were $243.0 million, or 5.1% as a percentage of net sales, in fiscal 2012.

Provision for Income Taxes

The effective tax rate was 32.0% in fiscal 2013, as compared to the 31.0% effective tax rate in fiscal 2012. During fiscal 2013, the Company recognized a favorable tax settlement and the benefit of certain permanent adjustments related to executive compensation. During 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, the favorable completion of a multi-year transfer pricing agreement with Japan and a favorable tax settlement. Excluding the items affecting comparability (see page 39), the effective tax rate was 32.2% and 32.8% in fiscal 2013 and 2012, respectively. The decline reflects the favorable tax settlement and the benefit of certain permanent adjustments related to executive compensation, as well as the Company earning a higher proportion of its profits in lower tax rate jurisdictions.

Net Income

Net income decreased 0.4% to $1.03 billion in fiscal 2013 as compared to $1.04 billion in fiscal 2012. Excluding items of comparability, net income increased 2.7% to $1.07 billion in fiscal 2013, reflecting a 1.9% increase in income before provision for income taxes and the lower effective tax rate.

Net Income per Diluted Share

Net income per diluted share grew 2.3% to $3.61 in fiscal 2013 as compared to $3.53 in fiscal 2012. Excluding items of comparability, net income per diluted share grew 5.5% to $3.73 in fiscal 2013, reflecting share leverage due to repurchases of Coach’s common stock and the higher net income.

FISCAL 2012 COMPARED TO FISCAL 2011

The following table summarizes results of operations for fiscal 2012 compared to fiscal 2011:

           
  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  

Items Affecting Comparability

The Company’s reported results are presented in accordance with GAAP. The reported selling, general and administrative expenses, operating income, income before provision for income taxes, provision for income taxes, net income and earnings per diluted share in fiscal 2012 and 2011 reflect certain items which affect the comparability of our results, as noted in the following tables. Refer to page 39 for a discussion on the Non-GAAP Measures.

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COACH, INC.
GAAP TO NON-GAAP RECONCILIATION
For the Years Ended June 30, 2012 and July 2, 2011
(in millions, except per share data)

       
  June 30, 2012
     GAAP Basis
(As Reported)
  Tax
Adjustment
  Charitable Contribution   Non-GAAP Basis
(Excluding Items)
Selling, general and administrative expenses   $ 1,954.1     $     $ 39.2     $ 1,914.9  
Operating income   $ 1,512.0     $     $ (39.2 )    $ 1,551.2  
Income before provision for income
taxes
  $ 1,505.7     $     $ (39.2 )    $ 1,544.9  
Provision for income taxes   $ 466.8     $ (23.9 )    $ (15.3 )    $ 506.0  
Net income   $ 1,038.9     $ 23.9     $ (23.9 )    $ 1,038.9  
Diluted net income per share   $ 3.53     $ 0.08     $ (0.08 )    $ 3.53  

       
  July 2, 2011
     GAAP Basis
(As Reported)
  Tax
Adjustment
  Charitable Contribution   Non-GAAP Basis
(Excluding Items)
Selling, general and administrative
expenses
  $ 1,718.6     $     $ 25.7     $ 1,692.9  
Operating income   $ 1,304.9     $     $ (25.7 )    $ 1,330.6  
Income before provision for income taxes   $ 1,301.2     $     $ (25.7 )    $ 1,326.9  
Provision for income taxes   $ 420.4     $ (15.5 )    $ (10.2 )    $ 446.1  
Net income   $ 880.8     $ 15.5     $ (15.5 )    $ 880.8  
Diluted net income per share   $ 2.92     $ 0.05     $ (0.05 )    $ 2.92  

Fiscal 2012 and 2011 Items

Charitable Contributions and Tax Adjustments

During fiscal 2012, the Company decreased the provision for income taxes by $23.9 million, 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.

During fiscal 2011, the Company decreased the provision for income taxes 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.

Currency Fluctuation Effects

The percentage increase in sales in fiscal 2012 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, 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.

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Net Sales

The following table presents net sales by reportable segment for fiscal 2012 compared to fiscal 2011:

         
  Fiscal Year Ended
     Total Net Sales(1)   Rate of
Change
  Percentage of Total Net Sales(1)
     June 30,
2012
  July 2,
2011
  June 30,
2012
  July 2,
2011
     (dollars in millions)
North America   $ 3,316.9     $ 2,974.7       11.5 %      69.7 %      71.5 % 
International     1,401.8       1,147.4       22.2       29.4       27.6  
Other(2)     44.5       36.4       22.2       0.9       0.9  
Total net sales   $ 4,763.2     $ 4,158.5       14.5       100.0 %      100.0 % 

(1) Segment data has been restated to reflect the Company’s revised reportable segment structure. See Note “Segment Information” for a discussion of the change in reportable segments.
(2) Net sales in the other category, which is not a reportable segment, consists of sales generated in ancillary channels including licensing and disposition.

North America

Net sales increased 11.5% to $3.32 billion during fiscal 2012 from $2.97 billion during fiscal 2011, primarily driven by sales from new and expanded stores and a 6.6% increase in comparable store sales partially offset by decreased shipments into wholesale stores. During fiscal 2012, Coach opened 9 net new retail stores and 26 new factory stores, and expanded 10 factory stores in North America.

International

Net sales increased 22.2% to $1.40 billion during fiscal 2012 from $1.15 billion during fiscal 2011, primarily driven by sales from new and acquisition-related stores, increased shipments to wholesale customers, driven by expanded distribution, and double-digit percentage growth in China comparable store sales. Additionally, sales were helped by the 5.3% positive foreign exchange impact of the Yen, which increased Japan sales by $40.1 million. During fiscal 2012, Coach opened 11 net new locations and expanded three locations in Japan, and opened 30 net new stores in Hong Kong and mainland China. Fiscal 2012 results include net sales of the Company-operated Singapore and Taiwan businesses, which were acquired in the first quarter and third quarter of fiscal 2012, respectively.

Operating Income

Operating income increased 15.9% to $1.51 billion in fiscal 2012 as compared to $1.30 billion in fiscal 2011. Excluding items affecting comparability of $39.2 million in fiscal 2012 and $25.7 million in fiscal 2011, operating income increased 16.6% to $1.55 billion. Operating margin increased to 31.7% as compared to 31.4% in the prior year, as gross margin increased while SG&A expenses decreased as a percentage of sales. Excluding items affecting comparability, operating margin was 32.6% in fiscal 2012 as compared to 32.0% in fiscal 2011.

Gross profit increased 14.6% to $3.47 billion in fiscal 2012 from $3.02 billion in fiscal 2011. Gross margin was 72.8% in fiscal 2012 as compared to 72.7% during fiscal 2011. 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.

Selling, general and administrative (“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, occupancy costs and supply costs, wholesale and retail account administration compensation globally and Coach international operating expenses. These expenses are affected by the number of Coach-operated stores open during any fiscal period. Advertising, marketing and design expenses include employee compensation, media space and production, advertising agency fees (primarily to support North America), new product design costs, public relations and market research expenses. Distribution and consumer service expenses include warehousing, order fulfillment, shipping and

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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.

Coach includes inbound product-related transportation costs from our service providers within cost of sales. The balance of the costs related to our distribution network is included within selling, general and administrative expenses.

During fiscal 2012, SG&A expenses increased 13.7% to $1.95 billion, compared to $1.72 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. As a percentage of net sales, SG&A expenses were 41.0% and 41.3% during fiscal 2012 and fiscal 2011, respectively. Excluding items affecting comparability during fiscal 2012 and fiscal 2011, SG&A expenses as a percentage of net sales were 40.2% and 40.7%, respectively, as we leveraged our selling expense base on higher sales.

Selling expenses were $1.36 billion, or 28.5% of net sales compared to $1.18 billion, or 28.5% of net sales, during fiscal 2011. The dollar increase in selling expenses was due to higher operating expenses in Coach China and North American stores due to higher sales and new store openings. Coach Japan operating expenses decreased by $0.4 million in constant currency, but was more than offset by the impact of foreign currency exchange rates which increased reported expenses by approximately $15.2 million.

Advertising, marketing, and design costs were $245.2 million, or 5.1% of net sales, compared to $224.4 million, or 5.4% of net sales, during fiscal 2011. 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 development costs for new merchandising initiatives.

Distribution and consumer service expenses were $68.9 million, or 1.4% of net sales, compared to $58.2 million, or 1.4% 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. Excluding items affecting comparability of $39.2 in fiscal 2012 and $25.7 million in fiscal 2011, expenses were $243.0 million and $226.7 million, respectively, representing 5.1% and 5.5% of net sales, respectively. The dollar increase in administrative expenses was primarily due to increased headcount and systems investment, largely due to our international expansion.

Provision for Income Taxes

The effective tax rate was 31.0% in fiscal 2012 compared to 32.3% 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. Excluding the benefit from these items affecting comparability, the effective tax rate was 32.8% in fiscal 2012 and 33.6% in fiscal 2011. The decrease in the effective tax rate is also attributable to higher profitability in lower tax rate jurisdictions in which income is earned, due to the increased globalization of the Company, and a lower effective state tax rate.

Net Income

Net income was $1.04 billion in fiscal 2012 compared to $880.8 million in fiscal 2011. The increase was due to the higher operating income and a reduction of the effective tax rate.

Net Income per Diluted Share

Net income per diluted share grew 20.9% to $3.53 in fiscal 2012 as compared to $2.92 in fiscal 2011. This growth primarily reflected the higher net income.

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FISCAL 2013, FISCAL 2012 AND FISCAL 2011 ITEMS AFFECTING COMPARABILITY OF OUR FINANCIAL RESULTS

Non-GAAP Measures

The Company’s reported results are presented in accordance with GAAP. The reported gross profit, SG&A expenses, operating income, provision for income taxes, net income and earnings per diluted share in fiscal 2013 reflect certain items which affect the comparability of our results. Similarly, the reported SG&A expenses, operating income, and provision for income taxes in fiscal 2012 and 2011 reflect certain items which affect the comparability of our results. 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 used these non-GAAP measures when setting and assessing achievement of incentive compensation goals.

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, we believe excluding the items affecting comparability assists investors in developing expectations of future performance. 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 the Results of Operations section within Item 7. Management’s Discussion and Analysis.

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The comparisons of our financial results are affected by the following items included in our reported results:

     
  Fiscal Year Ended
     (dollars in millions, except per share data)
     June 29, 2013   June 30, 2012   July 2, 2011
Gross profit
                          
Restructuring and transformation charges(1)   $ (4.8)     $     $  
Total Gross profit impact   $ (4.8 )    $     $  
SG&A
                          
Restructuring and transformation charges(1)   $ 48.4     $     $  
Charitable foundation contribution(2)           39.2       25.7  
Total Operating income impact   $ 48.4     $ 39.2     $ 25.7  
Operating income
                          
Restructuring and transformation charges(1)   $ (53.2 )    $     $  
Charitable foundation contribution(2)           (39.2 )      (25.7 ) 
Total Operating income impact   $ (53.2 )    $ (39.2 )    $ (25.7 ) 
Provision for income taxes
                          
Restructuring and transformation charges(1)   $ (20.6 )    $     $  
Charitable foundation contribution(2)           (15.3 )      (10.2 ) 
Tax adjustments(2)           (23.9 )      (15.5 ) 
Total Provision for income taxes impact   $ (20.6 )    $ (39.2 )    $ (25.7 ) 
Net income
                          
Restructuring and transformation charges(1)   $ (32.6 )    $     $  
Charitable foundation contribution(2)           23.9       (15.5 ) 
Tax adjustments(2)           (23.9 )      15.5  
Total Net income impact   $ (32.6 )    $ 0.0     $ 0.0  
Diluted earnings per share
                          
Restructuring and transformation charges(1)   $ (0.11 )    $     $  
Charitable foundation contribution(2)           0.08       (0.05 ) 
Tax adjustments(2)           (0.08 )      0.05  
Total Diluted earnings per share impact   $ (0.11 )    $ 0.00     $ 0.00  

(1) Charges primarily related to corporate restructuring severance related expenses and impairment charges related to retail stores and inventory.
(2) Charitable contributions precisely offset the benefit of tax settlements and in fiscal 2012, a revaluation of certain Japan related deferred tax asset balances due to a change in Japan's corporate tax laws.

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FINANCIAL CONDITION

Cash Flows

     
  Fiscal Year Ended
(dollars in millions)   June 29,
2013
  June 30,
2012
  Change
Net cash provided by operating activities   $ 1,413,974     $ 1,221,689     $ 192,285  
Net cash used in investing activities     (570,500 )      (259,426 )      (311,074 ) 
Net cash used in financing activities     (689,106 )      (741,881 )      52,775  
Effect of exchange rate changes on cash and cash equivalents     (8,798 )      (2,949 )      (5,849 ) 
Net increase in cash and cash equivalents   $ 145,570     $ 217,433     $ (71,863 ) 

Net increase in cash and cash equivalents

The net increase in cash and cash equivalents declined $71.9 million in fiscal 2013 compared to fiscal 2012 primarily due to purchases of investments, lower proceeds and excess tax benefits related to share based awards,our investment in the Hudson Yards joint venture in fiscal year 2013, higher dividend payments, and higher capital expenditures. These were partially offset by lower share repurchases and increased cash provided by operations.

Net cash provided by operating activities

Net cash provided by operating activities increased $192.3 million primarily due to a $121.1 million year-over-year improvement in operating assets and liabilities, lower excess tax benefit related to share-based compensation of $41.2 million in fiscal 2013, and higher non-cash expense items of $34.5 million. The change in operating assets and liabilities benefitted primarily from the fiscal 2013 collection of an income tax refund and a year-over-year reduction in the growth of inventory and accounts receivable. The inventory benefit was due to lapping the significant growth in fiscal 2012 inventory, when compared to an unusually low balance at the end of fiscal 2011. The increase in non-cash expenses reflected higher depreciation and the non-cash portion of the fiscal 2013 restructuring charges, partially offset by the year-over-year change in the deferred income tax provision.

Net cash used in investing activities

Net cash used in investing activities was $570.5 in fiscal 2013 compared to $259.4 million in fiscal 2012, with the increase of $311.1 million driven by purchases of investments, investment in the Hudson Yards joint venture and higher planned capital investment. During fiscal 2013, the Company invested $100.8 million in a corporate debt securities portfolio through one of its subsidiaries outside of the U.S., consisting of high-credit quality U.S. and non-U.S. issued corporate debt securities, and $70.0 million in time deposits, with no similar investment activity in the prior fiscal year period. During fiscal 2013, the Company invested $93.9 million in a joint venture agreement with Related Parties, L.P. to develop a new office tower in Manhattan, known as Hudson Yards, that will serve as the Company’s headquarters. Purchases of property and equipment were $241.4 million in fiscal 2013, or $57.0 million higher than fiscal 2013, primarily reflecting store related capital expenditures, and $24.8 million of direct capital for our new corporate headquarters.

Net cash used in financing activities

Net cash used in financing activities was $689.1 million in fiscal 2013, or a decrease of $52.8 million as compared to the prior fiscal year period. This net decrease was primarily attributable to $300.0 million lower expenditures for common stock repurchases partially offset by $104.6 million lower net proceeds from share-based awards, $79.4 million higher dividend payments, and $41.2 million of lower excess tax benefits from share-based awards. The higher dividend payments were due to an increased dividend rate per share.

Revolving Credit Facilities

On June 18, 2012, the Company established a $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”) with an maturity date of June 2017. On March 26, 2013, the Company amended the JP Morgan facility to

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expand available aggregate revolving commitments to $700 million and to extend the maturity date to March 26, 2018. The JP Morgan facility is available to finance the seasonal working capital requirements and general corporate purposes of the Company and its subsidiaries. At Coach’s request and lenders’ consent, revolving commitments of the JP Morgan facility may be increased to $1 billion. At June 29, 2013 and during fiscal 2013, there were no outstanding borrowings under the JP Morgan facility.

Borrowings under the JP Morgan Facility 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 (1) the Prime Rate in effect on such day, (2) the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (3) the Adjusted LIBO Rate for a one month Interest Period on such day plus 1%). Additionally, Coach pays a commitment fee 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 29, 2013, the commitment fee was 7.5 basis points.

The JP Morgan facility contains various covenants and customary events of default. Coach is in compliance with all covenants of the JP Morgan facility.

Coach Japan maintains credit facilities with several Japanese financial institutions to provide funding for working capital and general corporate purposes, with maximum borrowing capacity of 5.3 billion yen, or approximately $53 million at June 29, 2013. Interest is based on the Tokyo Interbank rate plus a margin of 25 to 30 basis points. At June 29, 2013 and during fiscal 2013, there were no outstanding borrowings under these facilities.

Coach Shanghai Limited maintains a credit facility to provide funding for working capital and general corporate purposes, with a maximum borrowing capacity of 63.0 million Chinese renminbi, or approximately $10 million at June 29, 2013. Interest is based on the People's Bank of China rate. At June 29, 2013 and during fiscal 2013, there were no outstanding borrowings under this facility.

Both the Coach Japan and Coach Shanghai Limited credit facilities can be terminated at any time by either party, and there is no guarantee that they will be available to the Company in future periods.

Common Stock Repurchase Program

In January 2011, the Board approved a common stock repurchase program to acquire up to $1.5 billion of Coach’s outstanding common stock through June 2013. In October 2012, the Company’s Board of Directors approved a new common stock repurchase program to acquire up to $1.5 billion of Coach’s outstanding common stock through June 2015.

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 2013 and fiscal 2012, the Company repurchased and retired 7.1 million and 10.7 million shares, respectively, or $400.0 million and $700.0 million of common stock, respectively, at an average cost of $56.61 and $65.49, respectively. As of June 29, 2013, Coach had $1,361.6 million remaining in the stock repurchase program.

Liquidity and Capital Resources

Our sources of liquidity are the cash flows generated from our operations, our available cash and cash equivalents and short-term investments, our non-current investments, the $700 million available under our JP Morgan facility, the availability under our Japan and Shanghai credit facilities, and our other available financing options. More than two-thirds of our cash and short-term investments are 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. We believe that our existing sources of liquidity, as well as our ability to access capital markets, will be sufficient to support our operating, capital, and debt service requirements for the foreseeable future, including the ongoing development of our recently acquired businesses and our plans for further business expansion.

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We had no revolving credit borrowings outstanding under our credit facilities as of June 29, 2013. We may elect to draw on our credit facilities or other potential sources of financing for, among other things, a material acquisition, settlement of a material contingency (including uncertain tax positions), or a material adverse business or macroeconomic development, as well as for other general corporate business purposes.

We believe that our JP Morgan facility is adequately diversified with no undue concentrations in any one financial institution. As of June 29, 2013, there were nine financial institutions participating in the facility, with no one participant maintaining a maximum commitment percentage in excess of 16%. We have no reason at this time to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the facility in the event we elect to draw funds in the foreseeable future.

For the fiscal year ending June 28, 2014, the Company expects total capital expenditures to be approximately $280 million. Capital expenditures will be primarily for new stores in North America and Asia to support our global expansion. We will also continue to invest in department store and distributor locations and corporate infrastructure, primarily technology. 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 2013, Coach purchased approximately $1.4 billion of inventory, which was funded by on hand cash and operating cash flows.

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%. Upon completion of the office tower in 2015, the Company will retain a condominium interest serving as its new corporate headquarters. During fiscal 2013, the Company invested $93.9 million in the joint venture. The Company expects to invest approximately $440 million over the next three years. Depending on construction progress, the Company’s latest estimate contemplates an investment range of $130 million to $160 million in fiscal 2014. Outside of the joint venture, Coach is directly investing in aspects of the new corporate headquarters. In fiscal 2013, $24.8 million was included in capital expenditures and we expect an additional $190 million over the period of construction. The joint venture investments and capital expenditures (the purchase of the new headquarters) will be financed by the Company with cash on hand, borrowings under its credit facility and approximately $130 million of proceeds from the sale of its current headquarters buildings.

Management believes that cash flow from operations, on hand cash, cash equivalents and its credit lines will provide adequate funds for the foreseeable working capital needs, planned capital expenditures, dividend payments and the common stock repurchase program. Any future acquisitions or joint ventures, and other similar transactions may require additional capital. There can be no assurance that any such capital will be available to Coach on acceptable terms or at all. Coach’s 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 its 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’s control.

Commitments

Besides the credit facilities noted previously, at June 29, 2013 the Company had a separate $200 million letter of credit arrangement in place, and $14.9 million of letters of credit outstanding. These letters of credit, which expire at various dates through 2014, primarily collateralize the Company’s obligation to third parties for the purchase of inventory.

As previously noted, the Company expects to invest approximately $440 million in the joint venture over the next three years, with approximately $130 million to $160 million estimated in fiscal 2014, depending on

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construction progress. See Note “Subsequent Events” for information related to the fiscal 2014 sale of the Reed Krakoff business and the acquisition of our European joint venture.

Contractual Obligations

As of June 29, 2013, Coach’s contractual obligations are as follows:

           
(dollars in millions)   Total   Fiscal
2014
  Fiscal
2015 – 2016
  Fiscal
2017 – 2018
  Fiscal 2019
and Beyond
  Other(2)
Capital expenditure commitments   $ 7.9     $ 7.9     $     $     $     $  
Inventory purchase obligations     185.8       185.8                          
New corporate headquarters joint venture(1)     440.0       140.0       300.0                    
Operating leases     1,088.0       196.5       335.5       230.4       325.6        
Gross unrecognized tax benefits, including interest and penalties     166.1       2.0       4.0                   160.1  
Total   $ 1,887.8     $ 532.2     $ 639.5     $ 230.4     $ 325.6     $ 160.1  

(1) Payments are estimated and can vary based on construction progress.
(2) The amounts in “Other” represent future cash outlays for which we are unable to reasonably estimate the period of cash settlement.

The table above excludes the following: amounts included in current liabilities in the Consolidated Balance Sheet at June 29, 2013 as these items will be paid within one year; long-term liabilities not requiring cash payments and cash contributions for the Company’s pension plans.

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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 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. Actual results could differ from estimates in amounts that may be material to the financial statements. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results could 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’s accounting policies, please refer to the Notes to Consolidated Financial Statements.

Investments

Long-term investments primarily consist of high-credit quality U.S. and non-U.S. issued corporate debt securities, classified as available-for-sale, and recorded at fair value, with unrealized gains and losses recorded in other comprehensive income. Short-term investments consist primarily of time deposits with original maturities greater than three months and with maturities within one year of balance sheet date. Dividend and interest income are recognized when earned.

Investments in companies in which the Company has significant influence, but less than a controlling financial interest, are 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 should be considered, such as board representation and the rights to participate in the day-to-day operations of the business.

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, Coach 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.

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 determined by the first-in, first-out method. The Company reserves for slow-moving and aged inventory based on historical experience, current product demand and expected future demand. A decrease in product demand due to changing customer tastes, buying patterns or increased competition could impact Coach’s evaluation of its slow-moving and aged inventory and additional reserves might be required. At June 29, 2013, a 10% change in the reserve for slow-moving and aged inventory would have resulted in an insignificant change in inventory and cost of sales.

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-within-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

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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 historical estimates of these costs have not differed materially from actual results.

At June 29, 2013, 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.

Gift cards issued by the Company are recorded as a liability until they are redeemed, at which point revenue is recognized. The Company recognizes income for unredeemed gift cards when the likelihood of a gift card being redeemed by a customer is remote, which is approximately two years after the gift card is 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.

The Company accounts for sales taxes and other related taxes on a net basis, excluding such taxes from revenue.

Goodwill and Other Intangible Assets

Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized, but are assessed for impairment at least annually. The Company has no finite-lived intangible assets.

The Company uses a quantitative goodwill impairment test, which 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 net book 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 allocated in the same manner as the amount of goodwill 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 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 performed its annual impairment assessment of goodwill during the third quarter of each fiscal year. The Company determined that there was no impairment in fiscal 2013, fiscal 2012 or fiscal 2011.

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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 review of forecasted operating cash flows and the profitability of the related asset group. An impairment loss is recognized if the forecasted cash flows are less than the carrying amount of the asset. Similar to prior fiscal years, when assessing store assets for impairment in fiscal 2013, the Company analyzed the cash flows at an individual store-by-store level, which is the lowest level for identifiable cash flows. The Company recorded impairment losses of $16.6 million in fiscal 2013. The Company did not record any impairment losses in fiscal 2012 or fiscal 2011.

In determining future cash flows, we take various factors into account, including changes in merchandising strategy, the emphasis on retail store cost controls, the effects of macroeconomic trends such as consumer spending, the impacts of the experienced level of retail store managers and the level of advertising. 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.

Share-Based Compensation

The Company recognizes the cost of equity awards to employees and the non-employee Directors, based on the grant-date fair value of those awards. 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’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, a 10% change in the Black-Scholes value would have resulted in an insignificant change in fiscal 2013 share-based compensation expense.

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 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.

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 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. In fiscal 2013, the Company changed its policy for disclosure of valuation allowances related to deferred tax assets whose realization is deemed remote from a net to a gross basis.

In accordance with ASC 740-10, 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

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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

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 was effective for the Company’s fiscal year and interim periods beginning July 1, 2012. The adoption of this amendment did not have a material effect on the Company’s 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 was effective for the Company’s fiscal year beginning July 1, 2012. The adoption of this amendment did not have a material effect on the Company’s consolidated financial statements.

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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 foreign currency exchange rates or interest rates. Coach manages these exposures through operating and financing activities and, when appropriate, through the use of derivative financial instruments. The use of derivative financial instruments is in accordance with Coach’s risk management policies. Coach does not enter into derivative transactions for speculative or trading purposes.

The 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 terms and maturities and theoretical pricing models.

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 of Coach’s purchases and sales involving international parties, excluding international consumer sales, are denominated in U.S. dollars and, therefore, are not subject to foreign currency exchange risk. The Company is exposed to risk from foreign currency exchange rate fluctuations resulting from its foreign operating subsidiaries’ U.S. dollar denominated inventory purchases. To mitigate such risk, Coach Japan and Coach Canada enter into foreign currency derivative contracts, primarily zero-cost collar options. As of June 29, 2013 and June 30, 2012, foreign currency contracts designated as hedges with a notional amount of $193.4 million and $310.9 million, respectively, were outstanding.

Coach is also exposed to market risk from foreign currency exchange rate fluctuations with respect to various cross-currency intercompany and related party loans. These loans are denominated in various foreign currencies, with a total principal amount of $253.0 million and $286.4 million as of June 29, 2013 and June 30, 2012, respectively. To manage the exchange rate risk related to these loans, 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 exchange of the foreign currency and U.S. dollar based notional values at the maturity dates of the contracts, the latest of which is May 2014. As of June 29, 2013 and June 30, 2012, the total notional values of outstanding forward exchange and cross-currency swap contracts related to these loans were $147.6 million and $206.6 million, respectively.

The fair value of open foreign currency derivatives included in current assets at June 29, 2013 and June 30, 2012 was $4.5 million and $1.5 million, respectively. The fair value of open foreign currency derivatives included in current liabilities at June 29, 2013 and June 30, 2012 was $2.9 million and $4.1 million, respectively. The fair value of these contracts is sensitive to changes in foreign currency exchange rates.

Interest Rate

Coach is exposed to interest rate risk in relation to its investments and revolving credit facilities.

The Company’s investment portfolio is maintained in accordance with the Company’s investment policy, which defines our investment principles including credit quality standards and limits the credit exposure of any single issuer. The primary objective 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.

Beginning with the second quarter of fiscal 2013, the Company’s investment portfolio also consisted of high-credit quality U.S. and non-U.S. issued corporate debt securities, classified as available-for-sale, with a fair value of $99.5 million at June 29, 2013. These securities have maturity dates between calendar years 2014 and 2016. At June 29, 2013, $2.1 million of these securities were included in short-term investments within current assets, and $97.4 million were included as non-current investments within other assets in the consolidated balance sheet. Unrealized gains and losses are recorded within other comprehensive income.

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At June 29, 2013, the Company’s short-term investments, classified within current assets on the consolidated balance sheet also consisted of $70.0 million of time deposits with original maturities greater than three months. The Company held no short-term investments at June 30, 2012.

The Company’s non-current investments, classified as available-for-sale included a $6.0 million auction rate security at both June 29, 2013 and 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.

The Company’s cash and cash equivalents of $1,062.8 million and $917.2 million at June 29, 2013 and June 30, 2012, respectively, primarily consisted of a cash equivalent portfolio and corporate debt securities and U.S. government and agency securities. As the Company does not have the intent to sell and will not be required to sell these securities until maturity, cash equivalents are classified as held-to-maturity and stated at amortized cost.

As of June 29, 2013, the Company had no outstanding borrowings on its JP Morgan facility, the Coach Japan credit facilities, and the Coach Shanghai Limited credit facility. The fair value of any future borrowing may be impacted by fluctuations in interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See “Index to Financial Statements,” which is located on page 54 of this report.

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, has concluded that the Company’s disclosure controls and procedures are effective as of June 29, 2013.

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 in 1992. 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 29, 2013 and concluded that it is effective.

The Company’s independent auditors have issued an audit report on the Company’s internal control over financial reporting. The audit report appears on page 56 of this report.

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.

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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 2013 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 2013 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 2013 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 2013 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 ACCOUNTANT 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 2013 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.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements and Financial Statement Schedules

See “Index to Financial Statements” which is located on page 54 of this report.

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

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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.

 
Date: August 22, 2013  

By:

/s/ Lew Frankfort

Name: Lew Frankfort
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, 2013.

 
Signature   Title
/s/ Lew Frankfort

Lew Frankfort
  Chairman, Chief Executive Officer and Director
/s/ Victor Luis

Victor Luis
  President, Chief Commercial Officer and Director
/s/ Jane Nielsen

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

Susan Kropf
  Director
/s/ Gary Loveman

Gary Loveman
  Director
/s/ Ivan Menezes

Ivan Menezes
  Director
/s/ Irene Miller

Irene Miller
  Director
/s/ Michael Murphy

Michael Murphy
  Director
/s/ Stephanie Tilenius

Stephanie Tilenius
  Director
/s/ Jide Zeitlin

Jide Zeitlin
  Director

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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 29, 2013
 
COACH, INC.
 
New York, New York 10001

INDEX TO FINANCIAL STATEMENTS