Accounting question

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I have some accounting questions which need compare with 2 companies. And each questions should answer with 2 companies.

Accounting question
UNIT ED S T A TES SE C URIT IE S A ND E X CHANGE C OM MIS SIO N Wash in gto n , D .C . 2 0549 FO RM 1 0-K þ ANNUAL R EPO RT P U RSU ANT T O S E C TIO N 1 3 O R 1 5(d ) O F T H E S E C URIT IE S E X CHANGE A CT O F 1 934 For t h e F is ca l Y ea r E nded Ju ly 2 , 2 016 OR oo TR ANSIT IO N R EPO RT P U RSU ANT T O S E C TIO N 1 3 O R 1 5(d ) O F T H E S E C URIT IE S E X CHANGE A CT O F 1 934 Com mis sio n f ile n um ber: 1 -1 6153 Coach , I n c. (E xact n am e o f r e g is tr a n t a s s p ecif ie d in its c h arte r) Mary la n d 52-2 242751 (S ta te o r o th er ju ris d ic tio n o f in co rp ora tio n o r o rg an iz atio n) (I.R .S . E m plo yer I d en tif ic atio n N o.) 10 H udso n Y ard s, N ew Y ork , N Y 1 0001 (A ddre ss o f p rin cip al e x ecu tiv e o ffic es); ( Z ip C ode) (2 12) 5 94-1 850 (R eg is tr a n t’ s te le p hone n um ber, in clu din g a re a c o de) Secu rit ie s R eg is te red P ursu an t t o S ectio n 1 2(b ) o f t h e A ct: Tit le o f E ach C la ss: Nam e o f E ach E xch ange o n w hic h R eg is te red Com mon S to ck , p ar v alu e $ .0 1 p er s h are New Y ork S to ck E xch an ge Secu rit ie s R eg is te red P ursu an t t o S ectio n 1 2(g ) o f t h e A ct: N on e In dic ate b y c h eck m ark if th e r e g is tr a n t is a w ell- k now n s easo ned is su er, a s d efin ed in R ule 4 05 o f th e S ecu ritie s A ct.Y es þ N o o In dic ate b y c h eck m ark if th e r e g is tr a n t is n ot r e q uir e d to f ile r e p orts p urs u an t to S ectio n 1 3 o r S ectio n 1 5(d ) o f th e A ct.Y es o N o þ In dic ate b y c h eck m ark w heth er th e r e g is tr a n t ( 1 ) h as f ile d a ll r e p orts r e q uir e d to b e f ile d b y S ectio n 1 3 o r 1 5(d ) o f th e S ecu ritie s E xch an ge A ct o f 1 934 d urin g th e p re ced in g 1 2 m onth s ( o r f o r s u ch s h orte r p erio d th at th e r e g is tr a n t w as r e q uir e d to f ile s u ch r e p orts ), a n d ( 2 ) h as b een s u bje ct to s u ch f ilin g r e q uir e m en ts f o r th e p ast 9 0 d ay s. Y es þ N o o In dic ate b y c h eck m ark w heth er th e r e g is tr a n t h as s u bm itte d e le ctr o nic ally a n d p oste d o n its c o rp ora te W eb s ite , if a n y, e v ery I n te ra ctiv e D ata F ile r e q uir e d to b e s u bm itte d a n d p oste d p urs u an t to R ule 4 05 o f R eg ula tio n S -T ( § 232.4 05 o f th is c h ap te r) d urin g th e p re ced in g 1 2 m onth s ( o r f o r s u ch s h orte r p erio d th at th e r e g is tr a n t w as r e q uir e d to s u bm it a n d p ost s u ch f ile s). Y es þ N o o In dic ate b y c h eck m ark if d is clo su re o f d elin quen t f ile rs p urs u an t to I te m 4 05 o f R eg ula tio n S -K ( § 229.4 05 o f th is c h ap te r) is n ot c o nta in ed h ere in , a n d w ill n ot b e c o nta in ed , t o th e b est o f r e g is tr a n t’s k now le d ge, in d efin itiv e p ro xy o r in fo rm atio n s ta te m en ts in co rp ora te d b y r e fe re n ce in P art I II o f th is F orm 1 0-K o r a n y a m en dm en t to th is F orm 1 0-K . o In dic ate b y c h eck m ark w heth er th e r e g is tr a n t is a la rg e a ccele ra te d f ile r, a n a ccele ra te d f ile r, a n on-a ccele ra te d f ile r, o r a s m alle r r e p ortin g c o m pan y. S ee th e d efin itio ns o f “ la rg e a ccele ra te d f ile r” , “ accele ra te d f ile r” a n d “ sm alle r r e p ortin g c o m pan y” in R ule 1 2b-2 o f th e E xch an ge A ct. L arg e a ccele ra te d f ile r þ Accele ra te d f ile r o Non-a ccele ra te d f ile r o Sm alle r r e p ortin g c o m pan y o In dic ate b y c h eck m ark w heth er th e r e g is tr a n t is a s h ell C om pan y ( a s d efin ed in R ule 1 2b-2 o f th e A ct) .Y es o N o þ The a g gre g ate m ark et v alu e o f C oach , I n c. c o m mon s to ck h eld b y n on-a ffilia te s a s o f D ecem ber 2 6, 2 015 ( th e la st b usin ess d ay o f th e m ost r e cen tly c o m ple te d s eco nd f is cal q uarte r) w as a p pro xim ate ly $9.1 b illio n . F or p urp oses o f d ete rm in in g th is a m ount o nly , th e r e g is tr a n t h as e x clu ded s h are s o f c o m mon s to ck h eld b y d ir e cto rs a n d o ffic ers . E xclu sio n o f s h are s h eld b y a n y p ers o n s h ould n ot b e c o nstr u ed to in dic ate th at s u ch p ers o n p ossesses th e p ow er, d ir e ct o r in dir e ct, to c au se th e d ir e ctio n o f th e m an ag em en t o r p olic ie s o f th e r e g is tr a n t, o r th at s u ch p ers o n is c o ntr o lle d b y o r u nder c o m mon c o ntr o l w ith th e r e g is tr a n t. On August 5 , 2 016 , th e R eg is tr a n t h ad 278,9 42,8 60 s h are s o f c o m mon s to ck o uts ta n din g. DOCUM EN TS I N CORPO RATED B Y R EFE R EN CE Docu m en ts Form 1 0-K R efe ren ce Pro xy S ta te m en t f o r th e 2 016 A nnual M eetin g o f S to ck hold ers Part I II, I te m s 1 0 – 1 4 CO ACH , I N C. TABLE O F C O NTENTS Page N um ber PA RT I I te m 1 . Busin ess 2 I te m 1 A . Ris k F acto rs 12 I te m 1 B . Unre so lv ed S ta ff C om men ts 21 I te m 2 . Pro pertie s 22 I te m 3 . Leg al P ro ceed in gs 22 I te m 4 . Min e S afe ty D is c lo su re s 23 PA RT I I I te m 5 . Mark et f o r R eg is tra n t’s C om mon E quity , R ela te d S to ck hold er M atte rs a n d I s su er P urc h ase s o f E quity S ecu ritie s 24 I te m 6 . Sele cte d F in an cia l D ata 26 I te m 7 . Man ag em en t’s D is c u ssio n a n d A naly sis o f F in an cia l C onditio n a n d R esu lts o f O pera tio ns 29 I te m 7 A . Quan tita tiv e a n d Q ualita tiv e D is c lo su re s A bout M ark et R is k 51 I te m 8 . Fin an cia l S ta te m en ts a n d S upple m en ta ry D ata 52 I te m 9 . Chan ges i n a n d D is a g re em en ts w ith A cco unta n ts o n A cco untin g a n d F in an cia l D is c lo su re 52 I te m 9 A . Contro ls a n d P ro ced ure s 52 I te m 9 B . Oth er I n fo rm atio n 52 PA RT I II I te m 1 0. Dire cto rs , E xecu tiv e O ffic ers a n d C orp ora te G overn an ce 53 I te m 1 1. Execu tiv e C om pen sa tio n 53 I te m 1 2. Secu rity O wners h ip o f C erta in B en efic ia l O wners a n d M an ag em en t a n d R ela te d S to ck hold er M atte rs 53 I te m 1 3. Certa in R ela tio nsh ip s a n d R ela te d T ra n sa ctio ns, a n d D ire cto r I n dep en den ce 53 I te m 1 4. Prin cip al A cco untin g F ees a n d S erv ic es 53 PA RT I V I te m 1 5. Exhib its , F in an cia l S ta te m en t S ch ed ule s 54 S ig natu re s 55 i S P E CIA L N O TE O N F O RW ARD-L O OKIN G I N FO RM ATIO N This d ocu m en t, a n d t h e d ocu m en ts i n co rp ora te d b y r e fe re n ce i n t h is d ocu m en t, i n o ur p re ss r e le ase s a n d i n o ra l s ta te m en ts m ad e f ro m t im e t o t im e b y u s o r o n o ur b eh alf, c o nta in c erta in ” fo rw ard -lo okin g s ta te m en ts ” w ith in t h e m ean in g o f t h e P riv ate S ecu ritie s L itig atio n R efo rm A ct o f 1 995, a n d a re b ase d o n m an ag em en t’s c u rre n t e x pecta tio ns. T hese fo rw ard -lo okin g sta te m en ts c an b e id en tifie d b y th e u se o f fo rw ard -lo okin g te rm in olo gy su ch a s “ b elie v es,” “ m ay,” “ w ill,” “ sh ould ,” “ ex pect,” “ co nfid en ce,” “ tre n ds,” “ in te n d,” “ estim ate ,” “ o n tra ck ,” “ are p ositio ned to ,” “ o n c o urs e ,” “ o pportu nity ,” “ co ntin ue,” “ p ro je ct,” “ g uid an ce,” “ ta rg et,” “ fo re cast,” “ an tic ip ate d ,” “ p la n ,” “ p ote n tia l,” th e n eg ativ e o f th ese te rm s o r c o m para b le te rm s. T he C om pan y a ssu m es n o o blig atio n t o r e v is e o r u pdate a n y f o rw ard -lo okin g s ta te m en ts f o r a n y r e aso n, e x cep t a s r e q uire d b y l a w . Coach , In c.’s a ctu al re su lts c o uld d iffe r m ate ria lly fro m th e re su lts c o nte m pla te d b y th ese fo rw ard -lo okin g s ta te m en ts d ue to a n um ber o f im porta n t f a cto rs , i n clu din g t h ose d is c u sse d i n t h e s e ctio ns o f t h is F orm 1 0-K f ilin g e n title d “ R is k F acto rs ” a n d “ M an ag em en t’s D is c u ssio n a n d A naly sis o f F in an cia l C onditio n a n d R esu lts o f O pera tio ns.” T hese fa cto rs a re n ot n ecessa rily a ll o f th e im porta n t fa cto rs th at c o uld c au se a ctu al re su lts to d iffe r m ate ria lly fro m t h ose e x pre sse d i n a n y o f o ur f o rw ard -lo okin g s ta te m en ts . I N FO RM ATIO N R EG ARDIN G H ONG K ONG D EPO SIT ARY R ECEIP T S Coach ’s H ong K ong D ep osita ry R eceip ts a re tra d ed o n T he S to ck E xch an ge o f H ong K ong L im ite d u nder th e s y m bol 6 388. N eith er th e H ong K ong D ep osita ry R eceip ts n or th e H ong K ong D ep osita ry S hare s e v id en ced th ere b y h av e b een o r w ill b e re g is te re d u nder th e U .S . S ecu ritie s A ct o f 1 933, a s a m en ded (th e “ S ecu ritie s A ct” ), a n d m ay n ot b e o ffe re d o r so ld in th e U nite d S ta te s o r to , o r fo r th e a cco unt o f, a U .S . P ers o n (w ith in th e m ean in g o f R eg ula tio n S u nder th e S ecu ritie s A ct), a b se n t re g is tra tio n o r a n a p plic ab le e x em ptio n fro m th e re g is tra tio n re q uire m en ts . H ed gin g tra n sa ctio ns in volv in g t h ese s e cu ritie s m ay n ot b e c o nducte d u nle ss i n c o m plia n ce w ith t h e S ecu ritie s A ct. 1 In th is F orm 1 0-K , r e fe re n ces to “ w e,” “ our,” “ us,” ” C oach ” a nd th e “ C om pany” r e fe r to C oach , In c., in clu din g c o nso lid ate d s u bsid ia rie s. U nle ss th e c o nte xt r e q uir e s o th erw is e , r e fe re n ces t o t h e ” C oach b ra nd” d o n ot i n clu de t h e S tu art W eitz m an b ra nd a nd r e fe re n ces t o t h e ” S tu art W eitz m an b ra nd” d o n ot i n clu de t h e C oach b ra nd. T he f is c a l y ea r e n ded J u ly 2 , 2 016 ( ” fis c a l 2 016″) w as a 5 3-w eek p erio d, a nd t h e f is c a l y ea rs e n ded J u ne 2 7, 2 015 ( “ fis c a l 2 015”) a nd J u ne 2 8, 2 014 ( “ fis c a l 2 014″) w ere e a ch 5 2-w eek p erio ds. PA RT I I T EM 1 . B USIN ESS Coach , I n c. ( th e ” C om pan y”) i s a l e ad in g N ew Y ork d esig n h ouse o f m odern l u xury a ccesso rie s a n d l ife sty le b ra n ds. T he C oach b ra n d w as e sta b lis h ed i n N ew Y ork C ity in 1 941, a n d h as a ric h h erita g e o f p airin g e x cep tio nal le ath ers a n d m ate ria ls w ith in novativ e d esig n. T he S tu art W eitz m an b ra n d (” S tu art W eitz m an “) i s a l e ad er i n w om en ‘s d esig ner f o otw ear, a n d i s b uilt u pon t h e c o ncep t o f c ra ftin g a b eau tifu lly -c o nstru cte d s h oe, m erg in g f a sh io n a n d f u nctio n. N ARRATIV E D ESC RIP T IO N O F C O ACH B RAND The C oach b ra n d i s o ne o f t h e m ost r e co gniz ed f in e a ccesso rie s b ra n ds i n b oth N orth A m eric a a n d i n t a rg ete d i n te rn atio nal m ark ets . T he C oach b ra n d o ffe rs p re m iu m l ife sty le a ccesso rie s t o a n e n gag ed c u sto m er b ase a n d p ro vid es c o nsu m ers w ith f re sh , c o m pellin g a n d i n novativ e p ro ducts t h at a re e x tre m ely w ell m ad e, a t a n a ttra ctiv e p ric e. O ur p ro duct o ffe rin g u se s a b ro ad r a n ge o f h ig h q uality l e ath ers , f a b ric s a n d m ate ria ls . I n r e sp onse t o o ur c u sto m er’s d em an ds f o r b oth fa sh io n a n d fu nctio n, th e C oach b ra n d o ffe rs u pdate d s ty le s a n d m ultip le p ro duct c ate g orie s w hic h a d dre ss a n in cre asin g s h are o f o ur c u sto m er’s a ccesso ry w ard ro be. W e p re se n t a s o phis tic ate d , m odern a n d in vitin g e n viro nm en t to s h ow case o ur p ro duct a sso rtm en t a n d re in fo rc e a c o nsis te n t b ra n d p ositio nin g w here v er th e c o nsu m er m ay s h op. W e u tiliz e a fle x ib le , c o st-e ffe ctiv e g lo bal s o urc in g m odel, in w hic h in dep en den t m an ufa ctu re rs s u pply o ur p ro ducts , a llo w in g u s t o e ffic ie n tly b rin g o ur b ro ad r a n ge o f p ro ducts t o m ark et. We o ffe r a n um ber o f k ey d iffe re n tia tin g e le m en ts , i n clu din g: A D is tin ctiv e B ra nd — T he C oach b ra n d r e p re se n ts a b le n d o f c la ssic A m eric an s ty le w ith a d is tin ctiv e N ew Y ork s p irit, o ffe rin g a d esig n t h at i s k now n fo r a d is tin guis h in g c o m bin atio n o f sty le a n d fu nctio n. C oach b ra n d o ffe rs life sty le p ro ducts th at a re re le v an t, e x tre m ely w ell m ad e a n d p ro vid e ex celle n t v alu e. A M ark et L ea dersh ip P ositio n W ith G ro w in g In te rn atio nal R eco gnitio n — T he C oach b ra n d is a g lo bal le ad er in p re m iu m h an dbag s a n d life sty le accesso rie s. O ur lo ng-s ta n din g re p uta tio n a n d d is tin ctiv e im ag e h av e b een c o nsis te n tly d ev elo ped a cro ss a n e x pan din g n um ber o f p ro ducts , sa le s ch an nels a n d i n te rn atio nal m ark ets . A L oya l A nd I n vo lv ed C onsu m er — C onsu m ers h av e m ain ta in ed a s tro ng e m otio nal c o nnectio n w ith t h e C oach b ra n d. P art o f o ur e v ery day m is sio n i s t o co ntin ue t o c u ltiv ate c o nsu m er r e la tio nsh ip s b y s tre n gth en in g t h is s e n tim en t a n d b ra n d l o yalty . A M ulti-C hannel G lo bal D is tr ib utio n M odel — P ro ducts a re a v aila b le in im ag e-e n han cin g e n viro nm en ts g lo bally w here v er o ur c o nsu m er c h oose s to sh op in clu din g: re ta il a n d o utle t sto re s, d ire ctly o pera te d c o ncessio n sh op-in -s h ops, o nlin e, a n d d ep artm en t a n d sp ecia lty sto re s. T his a llo w s u s to main ta in a d ynam ic b ala n ce a s r e su lts d o n ot d ep en d s o le ly o n t h e p erfo rm an ce o f a s in gle c h an nel o r g eo gra p hic a re a. O ur s to re s s h ow case o ur p ro ducts an d e n han ce th e s h oppin g e x perie n ce w hile re in fo rc in g th e im ag e o f o ur b ra n d. T he m odern lu xury s to re d esig n c re ate s a d is tin ctiv e e n viro nm en t to dis p la y o ur p ro ducts . W e c o ntin ue to b e c o m mitte d to th e e le v atio n a n d e n han cem en t o f o ur in -s to re im ag ery th ro ugh s tra te g ic in vestm en ts in C oach bra n ded s to re s a n d w hole sa le lo catio ns. F urth erm ore , s to re a sso cia te s a re tra in ed to m ain ta in h ig h s ta n dard s o f v is u al p re se n ta tio n, m erc h an dis in g a n d cu sto m er s e rv ic e. In nova tio n W ith A C onsu m er-C en tr ic F ocu s — W e lis te n to o ur c o nsu m ers th ro ugh rig oro us c o nsu m er re se arc h a n d s tro ng c o nsu m er o rie n ta tio n. T o tru ly u nders ta n d g lo baliz atio n a n d its re la te d im pact, w e u nders ta n d th e lo cal c o nte x t in e ach m ark et, le arn in g a b out o ur c o nsu m er w here v er o ur pro ducts a re s o ld . T he C oach b ra n d w ork s t o a n tic ip ate t h e c o nsu m er’s c h an gin g n eed s b y k eep in g t h e p ro duct a sso rtm en t f re sh a n d c o m pellin g. N ARRATIV E D ESC RIP T IO N O F S T UART W EIT ZM AN B RAND Stu art W eitz m an i s a l e ad in g g lo bal w om en ‘s p re m iu m f o otw ear b ra n d, w ith a s tro ng o pportu nity f o r g ro w th b oth w ith in N orth A m eric a a n d i n te rn atio nal m ark ets . T he d esig n t e am , u nder M r. S tu art W eitz m an , i s r e sp onsib le f o r c o ncep tu aliz in g a n d d ire ctin g t h e d esig n o f a ll p ro ducts , a n d w ork s c lo se ly w ith i ts m an ufa ctu rin g p artn ers , p rim arily in S pain , to c o nstru ct a b ro ad m ix o f fo otw ear s ty le s. T hese m an ufa ctu re rs in a g gre g ate s u pport a b ro ad m ix o f m ate ria ls a n d s e aso nal i n flu x o f n ew , f a sh io n o rie n te d s ty le s, w hic h a llo w s t h e S tu art W eitz m an b ra n d t o q uic k ly m eet m ark etp la ce d em an ds a n d c h an gin g c o nsu m er p re fe re n ces. S tu art W eitz m an p ro ducts , w hic h su bsta n tia lly co nsis t o f fo otw ear, are so ld p rim arily th ro ugh d ep artm en t sto re s in N orth A m eric a an d i n te rn atio nal lo catio ns, w ith in n um ero us in dep en den t th ird p arty d is trib uto rs a n d w ith in S tu art W eitz m an o pera te d s to re s (in clu din g th e In te rn et) in th e U nite d S ta te s, C an ad a a n d E uro pe. 2 G ENERAL D EVELO PM ENT O F B USIN ESS Founded i n 1 941, C oach I n c. w as a cq uire d b y S ara L ee C orp ora tio n ( “ S ara L ee”) i n 1 985. I n J u ne 2 000, t h e C om pan y w as i n co rp ora te d i n t h e s ta te o f M ary la n d. I n O cto ber 2 000, C oach w as l is te d o n t h e N ew Y ork S to ck E xch an ge a n d s o ld a p pro xim ate ly 6 8 m illio n s h are s o f c o m mon s to ck , s p lit a d ju ste d , r e p re se n tin g 1 9.5 % o f th e th en o uts ta n din g s h are s. In A pril 2 001, S ara L ee c o m ple te d a d is trib utio n o f its re m ain in g o w ners h ip in C oach v ia a n e x ch an ge o ffe r, w hic h a llo w ed S ara L ee s to ck hold ers t o t e n der S ara L ee c o m mon s to ck f o r C oach c o m mon s to ck . The C om pan y’s in te rn atio nal e x pan sio n stra te g y h as b een to e n te r in to jo in t v en tu re s a n d d is trib uto r re la tio nsh ip s to b uild m ark et p re se n ce a n d c ap ab ility . T o f u rth er a ccele ra te b ra n d a w are n ess, a g gre ssiv ely g ro w m ark et s h are a n d t o e x erc is e g re ate r c o ntro l o f o ur b ra n d, C oach h as h is to ric ally a cq uire d i ts p artn er’s i n te re sts . • In J u ne 2 001, C oach J a p an w as in itia lly fo rm ed a s a jo in t v en tu re w ith S um ito m o C orp ora tio n. O n J u ly 1 , 2 005, w e p urc h ase d S um ito m o’s 5 0% in te re st i n C oach J a p an . • In f is c al 2 011, t h e C om pan y p urc h ase d a n on-c o ntro llin g i n te re st i n a j o in t v en tu re w ith H ack ett L im ite d t o e x pan d t h e C oach b usin ess i n E uro pe. Thro ugh t h e j o in t v en tu re , t h e C om pan y o pen ed r e ta il l o catio ns i n S pain , P ortu gal a n d t h e U nite d K in gdom i n f is c al 2 011, i n F ra n ce a n d I re la n d i n fis c al 2 012 a n d i n G erm an y i n f is c al 2 013. I n t h e b eg in nin g o f f is c al 2 014, t h e C om pan y p urc h ase d H ack ett L im ite d ’s r e m ain in g 5 0% i n te re st i n t h e jo in t v en tu re , a n d h as c o ntin ued t o e x pan d i ts p re se n ce i n E uro pe. • Coach a cq uire d t h e d om estic r e ta il b usin esse s f ro m i ts d is trib uto rs a s f o llo w s: – Fis c al 2 009: H ong K ong, M acau a n d m ain la n d C hin a ( “ G re ate r C hin a”). – Fis c al 2 012: S in gap ore a n d T aiw an . – Fis c al 2 013: M ala y sia a n d S outh K ore a. On M ay 4 , 2 015, th e C om pan y c o m ple te d th e a cq uis itio n o f S tu art W eitz m an , a lu xury w om en ‘s fo otw ear c o m pan y, to c o m ple m en t its c u rre n t le ad ers h ip p ositio n in p re m iu m h an dbag s a n d a ccesso rie s. T he o pera tin g re su lts o f th e S tu art W eitz m an b ra n d h av e b een c o nso lid ate d in th e C om pan y’s o pera tin g re su lts c o m men cin g o n M ay 4 , 2 015. D urin g th e fo urth q uarte r o f fis c al 2 016, th e C om pan y a cq uire d th e S tu art W eitz m an C an ad ia n re ta il d is trib uto r. S E G M ENTS In f is c al 2016 , t h e C om pan y h as th re e r e p orta b le s e g m en ts : • North A m eric a, w hic h i s c o m pose d o f C oach b ra n d s a le s t o N orth A m eric an c o nsu m ers t h ro ugh s to re s, i n clu din g t h e I n te rn et, a n d s a le s t o w hole sa le cu sto m ers . T his s e g m en t r e p re se n te d a p pro xim ate ly 53 % o f C oach ‘s t o ta l n et s a le s i n f is c al 2016 . • In te rn atio nal, w hic h i s c o m pose d o f C oach b ra n d s a le s t o c o nsu m ers t h ro ugh s to re s a n d c o ncessio n s h op-in -s h ops i n J a p an , m ain la n d C hin a, H ong Kong, M acau , S in gap ore , T aiw an , M ala y sia , S outh K ore a, t h e U nite d K in gdom , F ra n ce, I re la n d, S pain , P ortu gal, G erm an y, I ta ly , A ustria , B elg iu m , th e N eth erla n ds a n d S w itz erla n d. A dditio nally , In te rn atio nal in clu des C oach b ra n d sa le s to c o nsu m ers th ro ugh th e In te rn et in Ja p an , m ain la n d Chin a, t h e U nite d K in gdom a n d S outh K ore a, a s w ell a s s a le s t o w hole sa le c u sto m ers a n d d is trib uto rs i n a p pro xim ate ly 55 c o untrie s. T his s e g m en t re p re se n te d a p pro xim ate ly 38 % o f t o ta l n et s a le s i n f is c al 2016 . • Stu art W eitz m an , w hic h in clu des w orld w id e s a le s g en era te d b y th e S tu art W eitz m an b ra n d, p rim arily th ro ugh d ep artm en t s to re s in N orth A m eric a an d in te rn atio nal lo catio ns, w ith in n um ero us in dep en den t th ird p arty d is trib uto rs a n d w ith in S tu art W eitz m an o pera te d sto re s (in clu din g th e In te rn et) i n t h e U nite d S ta te s, C an ad a a n d E uro pe. T his s e g m en t r e p re se n te d a p pro xim ate ly 8 % o f t o ta l n et s a le s i n f is c al 2016 . Oth er, w hic h i s n ot a r e p orta b le s e g m en t, c o nsis ts o f C oach b ra n d s a le s a n d e x pen se s g en era te d i n l ic en sin g a n d d is p ositio n c h an nels , a n d r e p re se n te d a p pro xim ate ly o f 1 % o f t o ta l n et s a le s i n f is c al 2016 . C oach B ra nd N orth A m eric a S eg m en t North A m eric a n R eta il S to re s — C oach r e ta il s to re s a re l o cate d i n b oth r e g io nal s h oppin g c en te rs a n d m etro polita n a re as t h ro ughout t h e U .S ., C an ad a a n d P uerto R ic o . T he r e ta il s to re s c arry a n a sso rtm en t o f p ro ducts d ep en din g o n t h eir s iz e, l o catio n a n d c u sto m er p re fe re n ces. O ur f la g sh ip s to re s, w hic h o ffe r t h e b ro ad est a sso rtm en t o f C oach b ra n d p ro ducts , a re l o cate d i n h ig h-v is ib ility l o catio ns. 3 In f is c al 2 016, w e h av e r e d uced t h e n um ber o f r e ta il s to re s a n d t o ta l s q uare f o ota g e, a s w e c o ntin ue t o o ptim iz e o ur r e al e sta te p ositio n. W e e x pect t h is t re n d t o c o ntin ue i n t h e n ex t f is c al y ear w ith t h e a n tic ip ate d n et c lo su re o f a p pro xim ate ly 1 0-1 5 N orth A m eric a r e ta il s to re s i n t h e f is c al y ear e n din g J u ly 1 , 2 017 ( ” fis c al 2 017″). F urth erm ore , w e e x pect t o c o ntin ue i n vestin g i n t h e e le v atio n o f o ur e x is tin g s to re e n viro nm en ts . The c h an ge i n t h e n um ber o f N orth A m eric a C oach r e ta il s to re s a n d t h eir t o ta l a n d a v era g e s q uare f o ota g e i s s h ow n i n t h e f o llo w in g t a b le : Fis c a l Y ea r E nded 7/2 /2 016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 R eta il s to re s 228 258 332 Net d ecre ase v s. p rio r y ear (3 0 ) (7 4 ) (1 9 ) % d ecre ase v s. p rio r y ear (1 1.6 )% (2 2.3 )% (5 .4 )% R eta il s q uare f o ota g e 659,3 76 728,8 33 910,0 03 Net d ecre ase v s. p rio r y ear (6 9,4 57 ) (1 81,1 70 ) (4 2,4 19 ) % d ecre ase v s. p rio r y ear (9 .5 )% (1 9.9 )% (4 .5 )% A vera g e s q uare f o ota g e 2,8 92 2,8 25 2,7 41 North A m eric a n O utle t S to re s — C oach b ra n d’s o utle t sto re s se rv e a s a n e ffic ie n t m ean s to se ll m an ufa ctu re d -fo r-o utle t p ro duct, in clu din g o utle t e x clu siv es, a n d to a le sse r e x te n t, d is c o ntin ued re ta il in ven to ry o uts id e th e re ta il c h an nel. T hese sto re s o pera te u nder th e C oach b ra n d n am e a n d a re g eo gra p hic ally p ositio ned p rim arily i n e sta b lis h ed o utle t c en te rs t h at a re g en era lly i n c lo se p ro xim ity t o m ajo r m ark ets a n d C oach b ra n ded r e ta il l o catio ns. Our o utle t s to re d esig n, v is u al p re se n ta tio ns a n d c u sto m er s e rv ic e l e v els s u pport a n d r e in fo rc e t h e b ra n d’s i m ag e. T hro ugh t h ese o utle t s to re s, w e t a rg et v alu e-o rie n te d c u sto m ers . Over th e n ex t fe w y ears , w e g en era lly e x pect to s e e n o s ig nific an t g ro w th in o utle t s to re s q uare fo ota g e a s w e c o ntin ue to o ptim iz e o ur re al e sta te p ositio n a cro ss c h an nels b y e x pan din g o ur m ost p ro ductiv e s to re s to a cco m modate a b ro ad er e x pre ssio n o f life sty le a sso rtm en t w hile c o ntin uin g to a sse ss o pportu nitie s t o c o nso lid ate s ta n dalo ne M en ‘s l o catio ns i n to c o re s to re s. The c h an ge i n t h e n um ber o f N orth A m eric a C oach o utle t s to re s a n d t h eir t o ta l a n d a v era g e s q uare f o ota g e i s s h ow n i n t h e f o llo w in g t a b le : Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 O utle t s to re s 204 204 207 Net ( d ecre ase ) i n cre ase v s. p rio r y ear — (3 ) 14 % ( d ecre ase ) i n cre ase v s. p rio r y ear — % (1 .4 )% 7.3 % O utle t s q uare f o ota g e 1,2 32,7 70 1,1 89,0 18 1,1 32,7 14 Net i n cre ase v s. p rio r y ear 43,7 52 56,3 04 150,5 12 % i n cre ase v s. p rio r y ear 3.7 % 5.0 % 15.3 % A vera g e s q uare f o ota g e 6,0 43 5,8 29 5,4 72 In te rn et — W e v ie w o ur w ww.c o ach .c o m w eb site a s a k ey c o m munic atio ns v eh ic le f o r t h e b ra n d t o p ro m ote t ra ffic i n r e ta il s to re s a n d d ep artm en t s to re l o catio ns a n d b uild b ra n d a w are n ess, a s w ell a s a n a d ditio nal c h an nel to s e ll C oach b ra n d p ro ducts d ire ctly to c u sto m ers . W ith a p pro xim ate ly 5 7 m illio n u niq ue v is its t o w ww.c o ach .c o m i n f is c al 2016 , o ur o nlin e s to re p ro vid es a s h ow case e n viro nm en t w here c o nsu m ers c an b ro w se t h ro ugh a s e le cte d o ffe rin g o f t h e la te st s ty le s a n d c o lo rs . O ur e -c o m merc e p ro gra m s a ls o in clu de o ur in vita tio n-o nly o utle t In te rn et s a le s s ite , w here w e h av e c o nsid era b ly re d uced th e n um ber o f p ro m otio nal e v en ts s in ce f is c al 2 014. 4 North A m eric a W hole sa le — T he C oach b ra n d b eg an a s a U .S . w hole sa le r t o d ep artm en t s to re s a n d t h is c h an nel c o ntin ues t o r e m ain a p art o f o ur o vera ll c o nsu m er re ach . T oday, w e w ork c lo se ly w ith o ur p artn ers to e n su re a c le ar a n d c o nsis te n t p ro duct p re se n ta tio n. W e e n han ce o ur p re se n ta tio n th ro ugh th e c re atio n o f sh op-in -s h ops w ith p ro prie ta ry C oach b ra n d fix tu re s w ith in th e d ep artm en t sto re e n viro nm en t. W e c u sto m ta ilo r o ur a sso rtm en ts th ro ugh w hole sa le p ro duct p la n nin g a n d a llo catio n p ro cesse s t o m atc h t h e a ttrib ute s o f o ur d ep artm en t s to re c o nsu m ers i n e ach l o cal m ark et. W e c o ntin ue t o c lo se ly m an ag e in ven to rie s in th is c h an nel g iv en th e c u rre n t h ig hly p ro m otio nal e n viro nm en t a t p oin t-o f-s a le . W e u tiliz e a u to m atic re p le n is h m en t w ith m ajo r a cco unts i n a n e ffo rt t o o ptim iz e i n ven to ry a cro ss w hole sa le d oors . Over t h e n ex t y ear, w e e x pect t o c o ntin ue i n vestin g i n t h e e le v atio n o f s h op-in -s h op e n viro nm en ts , w hile a ls o e le v atin g C oach b ra n d’s p ositio nin g i n t h e N orth A m eric an w hole sa le c h an nel b y ra tio naliz in g th e d is trib utio n fo otp rin t, in clu din g th e c lo su re o f a b out 2 5% o f d oors fro m fis c al 2 016 y ear-e n d l e v els a n d a r e d uctio n i n m ark dow n a llo w an ces. As o f Ju ly 2 , 2 016 , C oach b ra n d’s p ro ducts a re so ld in a p pro xim ate ly 1 ,0 00 w hole sa le lo catio ns in th e U .S . a n d C an ad a. O ur m ost sig nific an t U .S . w hole sa le c u sto m ers a re M acy ’s ( in clu din g B lo om in gdale ‘s ), D illa rd ‘s , B on T on, L ord & T ay lo r, T he B ay, N ord stro m , B elk a n d V on M au r. C oach p ro ducts a re a ls o a v aila b le o n t h ese c u sto m ers ‘ w eb site s. As o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , w e d id n ot h av e a n y c u sto m ers w ho in div id ually a cco unte d fo r m ore th an 1 0% o f th e N orth A m eric a s e g m en t’s t o ta l n et s a le s. C oach B ra nd I n te rn atio nal S eg m en t Our I n te rn atio nal M ark ets o pera te d ep artm en t s to re c o ncessio n s h op-in -s h op lo catio ns a n d fre esta n din g fla g sh ip , re ta il a n d o utle t s to re s a s w ell a s e – c o m merc e w eb site s. F la g sh ip s to re s, w hic h o ffe r t h e b ro ad est a sso rtm en t o f C oach p ro ducts , a re l o cate d i n s e le ct h ig h-v is ib ility s h oppin g d is tric ts . We e x pect o ur I n te rn atio nal s e g m en t t o r e fle ct m odest g ro w th i n s to re c o unt o ver t h e n ex t f e w y ears , p artic u la rly w ith in m ain la n d C hin a a n d E uro pe. The f o llo w in g t a b le s h ow s t h e n um ber o f i n te rn atio nal d ire ctly -o pera te d l o catio ns a n d t h eir t o ta l a n d a v era g e s q uare f o ota g e: Fis c a l Y ea r E nded 7/2 /2 016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 C oach I n te rn atio nal: L ocatio ns: 522 503 475 Net i n cre ase v s. p rio r y ear 19 28 66 % i n cre ase v s. p rio r y ear 3.8 % 5.9 % 16.1 % S quare f o ota g e: 1,0 86,3 15 1,0 30,6 95 918,9 95 Net i n cre ase v s. p rio r y ear 55,6 20 111,7 00 150,4 28 % i n cre ase v s. p rio r y ear 5.4 % 12.2 % 19.6 % A vera g e s q uare f o ota g e 2,0 81 2,0 49 1,9 35 In te rn atio nal W hole sa le — O ur in te rn atio nal s e g m en t a ls o in clu des s a le s to in te rn atio nal w hole sa le d is trib uto rs a n d a u th oriz ed re ta ile rs . T ra v el re ta il r e p re se n ts t h e l a rg est p ortio n o f o ur s a le s i n t h is c h an nel. H ow ev er, w e c o ntin ue t o d riv e g ro w th b y e x pan din g o ur d is trib utio n t o r e ach l o cal c o nsu m ers i n n ew m ark ets . C oach h as d ev elo ped r e la tio nsh ip s w ith a s e le ct g ro up o f d is trib uto rs w ho s e ll C oach p ro ducts t h ro ugh d ep artm en t s to re s a n d f re esta n din g r e ta il l o catio ns in ap pro xim ate ly 55 c o untrie s. C oach ‘s c u rre n t n etw ork o f in te rn atio nal d is trib uto rs se rv e th e fo llo w in g m ark ets : A ustra lia , A ustria , B ah am as, B ah ra in , B elg iu m , B ra zil, C am bodia , C an ad a, C hile , G re ate r C hin a, C olo m bia , D en m ark , D om in ic an R ep ublic , F in la n d, F ra n ce, G erm an y, G re ece, Ic ela n d, I n dia , In donesia , Ire la n d, Is ra el, Ita ly , J a p an , S outh K ore a, K uw ait, L eb an on, L uxem bourg , M ala y sia , M ex ic o , N eth erla n ds, N ew Z eala n d, N ig eria , N orw ay, P an am a, P eru , P hilip pin es, P ortu gal, Q ata r, R ussia , S au di A ra b ia , S in gap ore , S lo vak ia , S pain , S w ed en , S w itz erla n d, T aiw an , T haila n d, T urk ey, th e U nite d A ra b E m ira te s, t h e U nite d K in gdom , U ru guay , U .S . & T errito rie s, V en ezu ela a n d V ie tn am . For l o catio ns n ot i n f re esta n din g s to re s, t h e C oach b ra n d h as c re ate d s h op-in -s h ops a n d o th er i m ag e e n han cin g e n viro nm en ts t o i n cre ase b ra n d a p peal a n d s tim ula te g ro w th . W e w ill c o ntin ue t o s e ek o pportu nitie s f o r p ro ductiv ity i m pro vem en ts i n t h is c h an nel b y o pen in g l a rg er i m ag e-e n han cin g l o catio ns, e x pan din g e x is tin g s to re s a n d c lo sin g l e ss p ro ductiv e s to re s. C oach ‘s m ost s ig nific an t i n te rn atio nal w hole sa le c u sto m ers a re t h e D FS G ro up, T ru e A llia n ce, A l T ay er I n sig nia , L otte G ro up a n d E verric h D FS C orp . C oach ‘s p ro ducts a re s o ld i n a p pro xim ate ly 6 00 i n te rn atio nal w hole sa le l o catio ns. As o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , w e d id n ot h av e a n y c u sto m ers w ho i n div id ually a cco unte d f o r m ore t h an 1 0% o f t h e I n te rn atio nal s e g m en t’s t o ta l n et s a le s. 5 S tu art W eitz m an S eg m en t The S tu art W eitz m an b ra n d is s o ld p rim arily th ro ugh a p pro xim ate ly 6 20 N orth A m eric a a n d in te rn atio nal w hole sa le lo catio ns, a s w ell a s n um ero us i n dep en den t th ird p arty d is trib uto rs . Its m ost s ig nific an t w hole sa le c u sto m ers in clu de N ord stro m , S ak s, B lo om in gdale s a n d N eim an M arc u s. F urth erm ore , S tu art W eitz m an p ro ducts a re a ls o s o ld i n f re esta n din g f la g sh ip a n d r e ta il s to re s i n N orth A m eric a a n d E uro pe, a n d e -c o m merc e w eb site s. • As o f Ju ly 2 , 2 016 , S tu art W eitz m an h ad 75 d ire ctly o pera te d s to re s w ith a t o ta l s q uare f o ota g e o f 117,8 20 a n d a n a v era g e s q uare f o ota g e o f 1 ,5 71 (in clu din g 1 4 r e ta il s to re s r e la te d t o o ur C an ad ia n r e ta il d is trib uto r a cq uis itio n i n t h e f o urth q uarte r o f f is c al 2 016). • As o f Ju ne 2 7, 2 015 , S tu art W eitz m an h ad 5 4 d ire ctly o pera te d s to re s w ith a t o ta l s q uare f o ota g e o f 9 1,1 01 a n d a n a v era g e s q uare f o ota g e o f 1 ,6 87. We e x pect o ur S tu art W eitz m an s e g m en t t o r e fle ct m odest g ro w th i n n ew s to re c o unt a n d s q uare f o ota g e o ver t h e n ex t f e w y ears a s w e g ro w o ur b usin ess d om estic ally a n d i n te rn atio nally . As o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , w e d id n ot h av e a n y c u sto m ers w ho i n div id ually a cco unte d f o r m ore t h an 1 0% o f t h e S tu art W eitz m an s e g m en t’s t o ta l n et s a le s. See N ote 1 5, ” S eg m en t I n fo rm atio n” f o r m ore i n fo rm atio n a b out t h e C om pan y’s s e g m en ts . O th er Lic en sin g — I n o ur w orld w id e l ic en sin g r e la tio nsh ip s, C oach t a k es a n a ctiv e r o le i n t h e d esig n p ro cess a n d c o ntro ls t h e m ark etin g a n d d is trib utio n o f p ro ducts u nder t h e C oach b ra n d. L ic en sin g r e v en ue w as a p pro xim ate ly $ 29.7 m illio n a n d $ 31.9 m illio n i n f is c al 2016 a n d f is c al 2015 , r e sp ectiv ely . O ur k ey l ic en sin g r e la tio nsh ip s a s o f Ju ly 2 , 2 016 a re a s f o llo w s: Date Cate g ory Partn er In tr o ductio n Expir a tio n Footw ear (1 ) Jim la r C orp ora tio n 1999 2017 Eyew ear Luxottic a 2012 2020 Watc h es Movad o 1998 2020 Fra g ra n ce In te rp arfu m s 2015 2026 ( 1 ) Upon t h e e x pira tio n o f t h e f o otw ear l ic en se i n J u ne 2 017, i t i s t h e C om pan y’s i n te n tio n t o b rin g a ll o f t h e C oach b ra n d w om en ‘s f o otw ear b usin ess i n – house . Pro ducts m ad e u nder l ic en se a re , i n m ost c ase s, s o ld t h ro ugh a ll o f t h e c h an nels d is c u sse d a b ove a n d, w ith t h e C om pan y’s a p pro val, t h ese l ic en se es h av e t h e r ig ht t o d is trib ute p ro ducts s e le ctiv ely t h ro ugh s e v era l o th er c h an nels , i n clu din g: s h oes i n d ep artm en t s to re s a lo ns, w atc h es i n s e le cte d j e w elry s to re s a n d e y ew ear a n d su nw ear in se le cte d o ptic al re ta ile rs . T hese v en ues p ro vid e a d ditio nal, y et c o ntro lle d , e x posu re o f o ur b ra n ds. O ur lic en sin g p artn ers p ay r o yaltie s o n t h eir n et s a le s o f o ur b ra n ded p ro ducts . H ow ev er, s u ch r o yaltie s a re n ot m ate ria l t o o ur b usin ess a s t h ey c u rre n tly c o m pris e l e ss t h an 1 % o f t h e C om pan y’s t o ta l n et s a le s. T he l ic en sin g a g re em en ts g en era lly g iv e C oach t h e r ig ht t o t e rm in ate t h e l ic en se i f s p ecifie d s a le s t a rg ets a re n ot a ch ie v ed . Oth er a ls o c o nsis ts o f C oach b ra n d s a le s g en era te d i n d is p ositio n c h an nels . 6 PR O DUCTS The f o llo w in g t a b le s h ow s n et s a le s f o r e ach p ro duct c ate g ory r e p re se n te d ( in m illio ns): F is c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 Am ount % o f t o ta l net s a le s Am ount % o f t o ta l net s a le s Am ount % o f t o ta l net s a le s W om en ‘s H an dbag s $ 2,3 92.9 53 % $ 2,3 89.6 57 % $ 2,8 26.1 59 % M en ‘s 725.7 16 680.4 16 691.8 14 W om en ‘s A ccesso rie s 721.6 16 709.4 17 860.3 18 A ll O th er P ro ducts 306.9 7 369.2 9 428.0 9 C oach b ra n d $ 4,1 47.1 92 % $ 4,1 48.6 99 % $ 4,8 06.2 100 % S tu art W eitz m an b ra n d (1 ) 344.7 8 43.0 1 — — T ota l S ale s $ 4,4 91.8 100 % $ 4,1 91.6 100 % $ 4,8 06.2 100 % ( 1 ) The s ig nific an t m ajo rity o f s a le s f o r t h e S tu art W eitz m an b ra n d i s a ttrib uta b le t o w om en ‘s f o otw ear. Wom en ’s H andbags — W om en ’s h an dbag c o lle ctio ns f e atu re c la ssic ally i n sp ire d d esig ns a s w ell a s f a sh io n d esig ns. T hese c o lle ctio ns a re d esig ned t o m eet t h e f a sh io n a n d f u nctio nal r e q uire m en ts o f o ur b ro ad a n d d iv ers e c o nsu m er b ase . Men ’s — M en ’s in clu des b ag c o lle ctio ns (in clu din g b usin ess c ase s, c o m pute r b ag s, m esse n ger-s ty le b ag s, b ack pack s a n d to te s), s m all le ath er g oods ( in clu din g w alle ts , c ard c ase s a n d b elts ), f o otw ear, n ovelty a ccesso rie s ( in clu din g t im e m an ag em en t a n d e le ctro nic a ccesso rie s) a n d r e ad y-to -w ear. Wom en ’s A ccesso rie s — W om en ’s a ccesso rie s in clu de s m all le ath er g oods a n d n ovelty a ccesso rie s. W om en ’s s m all le ath er g oods, w hic h c o m ple m en t o ur h an dbag s, i n clu de m oney p ie ces, w ris tle ts a n d c o sm etic c ase s. K ey r in gs a n d c h arm s a re a ls o i n clu ded i n t h is c ate g ory . All O th er P ro ducts ( e x clu din g t h e S tu art W eitz m an b ra n d) c o nsis t o f t h e f o llo w in g: • Footw ear — J im la r C orp ora tio n h as b een C oach b ra n d’s f o otw ear l ic en se e s in ce 1 999. F ootw ear i s d is trib ute d t h ro ugh s e le ct C oach r e ta il s to re s o ur In te rn et s a le s s ite s a n d U .S . d ep artm en t s to re s a n d m ilita ry l o catio ns. F ootw ear s a le s a re c o m pris e d p rim arily o f w om en ’s s ty le s. • Weara b le s — T his c ate g ory is c o m pris e d o f c erta in w om en ‘s s e aso nal life sty le a p pare l c o lle ctio ns, in clu din g o ute rw ear, re ad y-to -w ear a n d c o ld weath er a ccesso rie s, s u ch a s g lo ves, s c arv es a n d h ats . T hese p ro ducts c o nta in a f a sh io n a sso rtm en t i n a ll c o m ponen ts o f t h is c ate g ory . • Je w elry — T his c ate g ory i s c o m pris e d o f b ra cele ts , n eck la ces, r in gs a n d e arrin gs o ffe re d i n s te rlin g s ilv er, l e ath er a n d n on-p re cio us m eta ls . • Sunw ear — L uxottic a G ro up S PA (“ L uxottic a”) h as b een C oach ’s e y ew ear lic en se e sin ce 2 012. T his c o lle ctio n is a c o lla b ora tiv e e ffo rt th at co m bin es th e C oach a esth etic fo r fa sh io n a ccesso rie s w ith th e la te st fa sh io n d ire ctio ns, p rim arily in s u ngla sse s. O ur s u ngla sse s a re s o ld in re ta il sto re s a n d o n o ur I n te rn et s a le s s ite s, d ep artm en t s to re s w orld w id e, s e le ct s u ngla ss r e ta ile rs a n d o ptic al r e ta ile rs i n m ajo r g lo bal m ark ets . • Watc h es — M ovad o G ro up, In c. (“ M ovad o”) h as b een C oach ‘s w atc h lic en se e s in ce 1 998 a n d h as d ev elo ped a d is tin ctiv e c o lle ctio n o f w atc h es in sp ire d p rim arily b y w om en ‘s c o lle ctio ns w ith s e le ct m en ‘s s ty le s. T he C oach w atc h c o lle ctio n is c u rre n tly s o ld in C oach re ta il s to re s a n d o n o ur In te rn et s a le s s ite s, d ep artm en t s to re s w orld w id e, a n d s e le ct w atc h r e ta ile rs i n m ajo r g lo bal m ark ets . • Fra g ra n ce — I n te rp arfu m s S A ( ” In te rp arfu m s”) h as b een C oach ‘s f ra g ra n ce l ic en se e s in ce 2 015. F ra g ra n ce i s d is trib ute d t h ro ugh C oach b ra n d r e ta il sto re s, o ur In te rn et s a le s s ite s, d ep artm en t a n d s p ecia lty s to re s w orld w id e, a n d s e le ct p erfu m erie s in m ajo r g lo bal m ark ets . C oach o ffe rs w om en ‘s fra g ra n ce c o lle ctio ns w hic h i n clu de e au d e p erfu m e s p ra y , e au d e t o ile tte s p ra y , p urs e s p ra y , a n d b ody l o tio n. 7 DESIG N A ND M ERCH ANDIS IN G Coach b ra n d’s d esig n te am , le d b y th e E xecu tiv e C re ativ e D ire cto r, M r. S tu art V ev ers , a n d S tu art W eitz m an b ra n d’s d esig n te am , c u rre n tly le d b y M r. S tu art W eitz m an , a re r e sp onsib le f o r c o ncep tu aliz in g a n d d ire ctin g t h e d esig n o f a ll p ro ducts . D esig ners h av e a ccess t o t h e C om pan y’s e x te n siv e a rc h iv es o f p ro duct d esig ns c re ate d s in ce e ach b ra n d’s i n cep tio n, w hic h a re a v alu ab le r e so urc e f o r n ew p ro duct c o ncep ts . O ur d esig ners a re a ls o s u pporte d b y a s tro ng m erc h an dis in g t e am t h at a n aly zes s a le s, m ark et t re n ds a n d c o nsu m er p re fe re n ces t o i d en tify m ark et o pportu nitie s t h at h elp g uid e e ach s e aso n’s d esig n p ro cess a n d c re ate a g lo bally r e le v an t p ro duct a sso rtm en t. M erc h an dis e rs a ls o m an ag e t h e p ro duct l ife c y cle t o m ax im iz e s a le s a n d p ro fita b ility a cro ss a ll c h an nels . T he p ro duct c ate g ory te am s, e ach c o m pris e d o f d esig n, m erc h an dis in g/p ro duct d ev elo pm en t a n d so urc in g sp ecia lis ts h elp e ach b ra n d e x ecu te d esig n c o ncep ts t h at a re c o nsis te n t w ith t h e b ra n d’s s tra te g ic d ire ctio n. Our d esig n a n d m erc h an dis in g t e am s a ls o w ork i n c lo se c o lla b ora tio n w ith a ll o f o ur l ic en sin g p artn ers t o e n su re t h at t h e l ic en se d p ro ducts ( e .g ., w atc h es, f o otw ear, e y ew ear a n d fra g ra n ce u nder th e C oach b ra n d) a re c o ncep tu aliz ed a n d d esig ned to a d dre ss th e in te n ded m ark et o pportu nity a n d c o nvey th e d is tin ctiv e p ers p ectiv e a n d l ife sty le a sso cia te d w ith o ur b ra n ds. MARK ETIN G Our g lo bal m ark etin g s tra te g y i s t o d eliv er a c o nsis te n t, r e le v an t a n d m ulti-la y ere d m essa g e e v ery t im e t h e c o nsu m er c o m es i n c o nta ct w ith o ur b ra n ds t h ro ugh o ur c o m munic atio ns a n d v is u al m erc h an dis in g. O ur im ag e is c re ate d a n d e x ecu te d b y o ur c re ativ e m ark etin g, v is u al m erc h an dis in g a n d p ublic r e la tio ns te am s, a s w ell a s w ith o uts id e c re ativ e a g en cie s. W e a ls o h av e a s o phis tic ate d c o nsu m er a n d m ark et re se arc h c ap ab ility , w hic h h elp s u s a sse ss c o nsu m er a ttitu des a n d t re n ds. In c o nju nctio n w ith p ro m otin g a c o nsis te n t g lo bal i m ag e, w e u se o ur e x te n siv e c u sto m er d ata b ase a n d c o nsu m er k now le d ge t o t a rg et s p ecific p ro ducts a n d c o m munic atio ns t o s p ecific c o nsu m ers t o e ffic ie n tly s tim ula te s a le s a cro ss a ll d is trib utio n c h an nels . We e n gag e in s e v era l c o nsu m er c o m munic atio n in itia tiv es, in clu din g d ire ct m ark etin g a ctiv itie s a n d n atio nal, re g io nal a n d lo cal a d vertis in g. T ota l e x pen se s a ttrib uta b le t o t h e C om pan y’s m ark etin g-re la te d e v en ts i n f is c al 2016 w ere $ 202.2 m illio n, o r a p pro xim ate ly 5 % o f n et s a le s, c o m pare d t o $ 160.9 m illio n i n f is c al 2 015, o r a p pro xim ate ly 4 % o f n et s a le s. Our w id e ra n ge o f d ire ct m ark etin g a ctiv itie s in clu de e m ail c o nta cts a n d c ata lo gs ta rg ete d to p ro m ote s a le s to c o nsu m ers in th eir p re fe rre d s h oppin g v en ue. I n a d ditio n t o b uild in g b ra n d a w are n ess a n d d riv in g o nlin e r e v en ue, o ur w eb site s s e rv e a s a n e ffe ctiv e b ra n d c o m munic atio n v eh ic le b y p ro vid in g a s h ow case e n viro nm en t w here c o nsu m ers c an b ro w se th ro ugh a s tra te g ic o ffe rin g o f th e la te st s ty le s a n d c o lo rs , w hic h d riv es s to re tra ffic a n d e n ab le s th e c o lle ctio n o f c u sto m er d ata . As p art o f o ur d ire ct m ark etin g s tra te g y, w e u se d ata b ase s p rim arily c o nsis tin g o f a p pro xim ate ly 3 2 m illio n h ouse h old s i n N orth A m eric a, a p pro xim ate ly 1 3 m illio n h ouse h old s in A sia a n d a p pro xim ate ly 7 76,0 00 h ouse h old s in E uro pe. E m ail c o nta cts a n d d ire ct m ail p ie ces a re a n im porta n t p art o f o ur c o m munic atio n a n d a re s e n t t o s e le cte d h ouse h old s t o s tim ula te c o nsu m er p urc h ase s a n d b uild b ra n d a w are n ess. V is ito rs t o o ur e -c o m merc e s ite s i n t h e U .S ., C an ad a, J a p an , m ain la n d C hin a, t h e U nite d K in gdom a n d S outh K ore a p ro vid e a n o pportu nity t o i n cre ase t h e s iz e o f t h ese d ata b ase s, a s w ell a s p oin t o f s a le t ra n sa ctio ns g lo bally e x cep t w here r e stric te d . In f is c al 2016 , C oach h ad i n fo rm atio nal w eb site s i n M ex ic o , H ong K ong, K ore a, M ala y sia , S in gap ore , T aiw an , F ra n ce, S pain a n d S au di A ra b ia , a s w ell a s a g lo bal i n fo rm atio nal w eb site w here c u sto m ers f ro m v ario us o th er c o untrie s a re d ire cte d . I n a d ditio n, t h e C om pan y u tiliz es a n d c o ntin ues t o e x plo re d ig ita l t e ch nolo gie s su ch a s b lo gs a n d so cia l m ed ia w eb site s, in clu din g T w itte r, F aceb ook, In sta g ra m , P in te re st, W eC hat a n d S in a W eib o, a s a c o st e ffe ctiv e c o nsu m er c o m munic atio n o pportu nity t o i n cre ase o n-lin e a n d s to re s a le s, a cq uire n ew c u sto m ers a n d b uild b ra n d a w are n ess. The C oach b ra n d a n d S tu art W eitz m an b ra n d a ls o ru n n atio nal, re g io nal a n d lo cal m ark etin g c am paig ns in s u pport o f m ajo r s e llin g s e aso ns. A s a k ey p illa r o f t h e t ra n sfo rm atio n p la n , C oach b ra n d h as e x pan ded i ts m ark etin g i n itia tiv es t o m ore c le arly m essa g e t h e b ra n d’s u niq ue m odern l u xury p ositio nin g, r o ote d i n a 7 5 y ear h is to ry o f a u th en tic ity a n d c ra fts m an sh ip , a u gm en te d b y E xecu tiv e C re ativ e D ire cto r S tu art V ev ers ‘s m odern i n te rp re ta tio n o f A m eric an f a sh io n. W e p la n t o c o ntin ue t o s u pport t h is s tra te g y i n t h e f u tu re t h ro ugh a n i n cre ase d p re se n ce i n r e le v an t f a sh io n, m ed ia e v en ts a n d p ublic atio ns. MANUFA CTURIN G Coach c are fu lly b ala n ces i ts c o m mitm en ts t o a l im ite d n um ber o f “ b ette r b ra n d” p artn ers w ith d em onstra te d i n te g rity , q uality a n d r e lia b le d eliv ery . O ur m an ufa ctu re rs a re l o cate d i n m an y c o untrie s, i n clu din g V ie tn am , m ain la n d C hin a, t h e P hilip pin es, I n dia , T haila n d, I ta ly , S pain , H ong K ong, M yan m ar a n d t h e U nite d S ta te s. C oach c o ntin ues t o e v alu ate n ew m an ufa ctu rin g s o urc es a n d g eo gra p hie s t o d eliv er t h e f in est q uality p ro ducts a t t h e l o w est c o st a n d h elp l im it t h e i m pact o f m an ufa ctu rin g i n i n fla tio nary m ark ets . D urin g f is c al 2016 , t h e C oach b ra n d h ad t w o v en dors , b oth l o cate d i n V ie tn am , w ho i n div id ually p ro vid ed o ver 1 0% o f t h e b ra n d’s t o ta l u nits ( o r a p pro xim ate ly 2 8% i n t h e a g gre g ate ). D urin g f is c al 2016 , S tu art W eitz m an h ad t w o v en dors , b oth l o cate d i n S pain , w ho i n div id ually p ro vid ed o ver 1 0% o f t h e b ra n ds t o ta l u nits ( o r a p pro xim ate ly 3 0% i n t h e a g gre g ate ). No o th er i n div id ual v en dor c u rre n tly p ro vid es m ore t h an a p pro xim ate ly 1 0% o f e ith er b ra n d’s t o ta l u nits . 8 Befo re p artn erin g w ith a n ew v en dor, C oach e v alu ate s e ach f a cility b y c o nductin g a q uality a n d b usin ess p ra ctic e s ta n dard s a u dit. P erio dic e v alu atio ns o f e x is tin g, p re v io usly a p pro ved fa cilitie s a re c o nducte d o n a ra n dom b asis . W e b elie v e th at o ur m an ufa ctu rin g p artn ers a re in m ate ria l c o m plia n ce w ith C oach ’s i n te g rity s ta n dard s. These in dep en den t m an ufa ctu re rs e ach o r in a g gre g ate s u pport a b ro ad m ix o f p ro duct ty pes, m ate ria ls a n d a s e aso nal in flu x o f n ew , fa sh io n o rie n te d s ty le s, w hic h a llo w s u s t o m eet s h ifts i n m ark etp la ce d em an d a n d c h an ges i n c o nsu m er p re fe re n ces. Our r a w m ate ria l s u pplie rs , i n dep en den t m an ufa ctu re rs a n d l ic en sin g p artn ers , m ust a ch ie v e a n d m ain ta in h ig h q uality s ta n dard s, w hic h a re a n i n te g ra l p art o f o ur id en tity . O ne o f o ur k ey s to s u ccess lie s in th e rig oro us s e le ctio n o f ra w m ate ria ls . W e h av e lo ngsta n din g re la tio nsh ip s w ith p urv ey ors o f fin e l e ath ers a n d h ard w are . A lth ough o ur p ro ducts a re m an ufa ctu re d b y i n dep en den t m an ufa ctu re rs , w e m ain ta in a l e v el o f o vers ig ht i n t h e s e le ctio n o f t h e r a w m ate ria ls th at a re u se d in a ll o f o ur p ro ducts . C om plia n ce w ith q uality c o ntro l s ta n dard s is m onito re d th ro ugh o n-s ite q uality in sp ectio ns a t in dep en den t m an ufa ctu rin g f a cilitie s. We m ain ta in c o ntro l o f t h e s u pply c h ain p ro cess f ro m d esig n t h ro ugh m an ufa ctu re . W e a re a b le t o d o t h is b y q ualify in g r a w m ate ria l s u pplie rs a n d b y m ain ta in in g s o urc in g m an ag em en t o ffic es i n V ie tn am , C hin a, H ong K ong t h e P hilip pin es a n d S pain t h at w ork c lo se ly w ith o ur i n dep en den t m an ufa ctu re rs . T his b ro ad -b ase d , g lo bal m an ufa ctu rin g s tra te g y i s d esig ned t o o ptim iz e t h e m ix o f c o st, l e ad t im es a n d c o nstru ctio n c ap ab ilitie s. DIS T RIB UTIO N In N orth A m eric a, th e C om pan y o pera te s a n 8 50,0 00 s q uare fo ot d is trib utio n a n d c o nsu m er s e rv ic e fa cility in J a ck so nville , F lo rid a fo r C oach b ra n d p ro ducts . T his a u to m ate d f a cility u se s a b ar c o de s c an nin g w are h ouse m an ag em en t s y ste m . C oach ‘s d is trib utio n c en te r e m plo yees u se h an dheld s c an ners t o r e ad p ro duct b ar c o des, w hic h a llo w th em to m ore a ccu ra te ly p ro cess a n d p ack o rd ers , tra ck s h ip m en ts , m an ag e in ven to ry a n d g en era lly p ro vid e e x celle n t s e rv ic e to o ur c u sto m ers . C oach b ra n d p ro ducts a re p rim arily s h ip ped to C oach re ta il s to re s a n d w hole sa le c u sto m ers v ia e x pre ss d eliv ery p ro vid ers a n d c o m mon c arrie rs , a n d d ire ct t o c o nsu m ers v ia e x pre ss d eliv ery p ro vid ers . Outs id e o f N orth A m eric a, th e C om pan y h as e sta b lis h ed re g io nal d is trib utio n c en te rs , th ro ugh th ird -p artie s, in S han ghai, C hin a a n d O ld en zaal, T he N eth erla n ds fo r C oach b ra n d p ro ducts . C oach a ls o o pera te s lo cal d is trib utio n c en te rs , th ro ugh th ird -p artie s, in J a p an , C hin a, H ong K ong, M acau , S outh K ore a, T aiw an , M ala y sia a n d S in gap ore f o r C oach b ra n d p ro ducts a s w ell a s i n t h e U nite d S ta te s, C an ad a a n d S pain f o r S tu art W eitz m an b ra n d p ro ducts . IN FO RM ATIO N S Y ST EM S The fo undatio n o f C oach ‘s in fo rm atio n s y ste m s is its E nte rp ris e R eso urc e P la n nin g (“ E R P”) s y ste m . W ith in th e C oach b ra n d, th is in te g ra te d s y ste m s u pports fin an ce a n d a cco untin g, p ro cu re m en t, in ven to ry c o ntro l, sa le s a n d sto re re p le n is h m en t. T he sy ste m fu nctio ns a s a c en tra l re p osito ry fo r o ur t ra n sa ctio nal in fo rm atio n. C om ple m en tin g o ur c u rre n t E R P sy ste m a re se v era l o th er so lu tio ns. T he C om pan y’s d ata w are h ouse sy ste m su m mariz es th e t ra n sa ctio n in fo rm atio n a n d p ro vid es a g lo bal p la tfo rm fo r m an ag em en t re p ortin g. T he s u pply c h ain m an ag em en t s y ste m s s u pport p ro duct d ev elo pm en t, p ro cu re m en t, i n ven to ry p la n nin g a n d r e p ortin g f u nctio ns. Under t h e C oach b ra n d, i n N orth A m eric a, p ro duct f u lfillm en t i s f a cilita te d b y o ur h ig hly a u to m ate d w are h ouse m an ag em en t s y ste m a n d e le ctro nic d ata i n te rc h an ge sy ste m , w hile th e u niq ue re q uire m en ts o f o ur In te rn et b usin ess are su pporte d b y C oach ’s o rd er m an ag em en t an d e-c o m merc e sy ste m s. I n te rn atio nally , th e C oach b ra n d se le ctiv ely re lie s o n th e w are h ouse an d d is trib utio n sy ste m s o w ned b y th e th ird -p artie s th at o pera te certa in o f o ur i n te rn atio nal d is trib utio ns c en te rs . A dditio nally , th e p oin t-o f-s a le s y ste m s u pports a ll in -s to re tra n sa ctio ns, d is trib ute s m an ag em en t re p ortin g to e ach s to re , a n d c o lle cts s a le s a n d p ay ro ll in fo rm atio n o n a d aily b asis . T his d aily c o lle ctio n o f s to re s a le s a n d in ven to ry in fo rm atio n re su lts in e arly id en tific atio n o f b usin ess tre n ds a n d p ro vid es a d eta ile d b ase lin e fo r s to re in ven to ry re p le n is h m en t. U pdate s a n d u pgra d es o f th ese s y ste m s a re m ad e o n a p erio dic b asis in o rd er t o e n su re t h at w e c o nsta n tly i m pro ve o ur f u nctio nality . Stu art W eitz m an w are h ouse a n d d is trib utio n f u lfillm en t i s f a cilita te d b y t h e b ra n d’s w are h ouse m an ag em en t s y ste m i n N orth A m eric a a n d E uro pe. S tu art W eitz m an ‘s r e ta il p oin t-o f-s a le s y ste m s u pports a ll i n -s to re t ra n sa ctio ns, i n clu din g d aily m an ag em en t s a le s r e p ortin g, p ay ro ll, s a le s t a x , a n d s to re i n ven to ry m an ag em en t. As d is c u sse d f u rth er w ith in N ote 3 , ” R estru ctu rin g A ctiv itie s,” o n A pril 2 6, 2 016, t h e C om pan y a n nounced a s e rie s o f o pera tio nal e ffic ie n cy i n itia tiv es f o cu se d o n c re atin g a n a g ile a n d s c ala b le b usin ess m odel, i n clu din g t h e r e p la cin g a n d u pdatin g o ur c o re t e ch nolo gy p la tfo rm s a n d t h e r e tire m en t o f c erta in i n fo rm atio n s y ste m s, i n clu din g S tu art W eitz m an . TRADEM ARK S A ND P A TENTS Coach o w ns a ll o f t h e m ate ria l w orld w id e t ra d em ark r ig hts u se d i n c o nnectio n w ith t h e p ro ductio n, m ark etin g a n d d is trib utio n o f a ll C oach b ra n ded a n d S tu art W eitz m an b ra n ded p ro ducts . I n a d ditio n, i t l ic en se s t ra d em ark s a n d c o pyrig hts u se d i n c o nnectio n w ith t h e p ro ductio n, m ark etin g a n d d is trib utio n o f c erta in c ate g orie s o f g oods a n d l im ite d e d itio n c o lla b ora tiv e s p ecia l p ro je cts . C oach a ls o o w ns a n d m ain ta in s w orld w id e r e g is tra tio ns f o r t ra d em ark s i n a ll r e le v an t c la sse s o f p ro ducts i n e ach o f t h e c o untrie s i n w hic h a ll o f i ts p ro ducts a re s o ld . M ajo r t ra d em ark s i n clu de C OACH, C OACH N EW Y ORK, C OACH a n d H ors e & C arria g e 9 D esig n, C OACH a n d S to ry P atc h D esig n, C OACH a n d L ozen ge D esig n, C OACH a n d T ag D esig n, S ig natu re C D esig n, a n d O p A rt C D esig n, C OACH L EATH ERW ARE E ST. 1 941, S W 1, I N O UR S H OES, a n d S T U ART W EIT ZM AN. C oach i s n ot d ep en den t o n a n y o ne p artic u la r t ra d em ark o r d esig n p ate n t a lth ough C oach b elie v es t h at t h e C oach a n d S tu art W eitz m an n am es a re i m porta n t f o r i ts b usin ess. I n a d ditio n, C oach o w ns s e v era l d esig n p ate n ts a n d u tility p ate n ts fo r its C oach a n d S tu art W eitz m an b ra n ded p ro ducts . C oach a g gre ssiv ely p olic es its tra d em ark s a n d tra d e d re ss, a n d p urs u es in frin gers b oth d om estic ally a n d in te rn atio nally . It a ls o p urs u es c o unte rfe ite rs d om estic ally a n d in te rn atio nally th ro ugh le ad s g en era te d in te rn ally , a s w ell a s th ro ugh its n etw ork o f i n vestig ato rs , t h e C oach h otlin e a n d b usin ess p artn ers a ro und t h e w orld . The C om pan y e x pects t h at i ts m ate ria l t ra d em ark s w ill r e m ain i n f u ll f o rc e a n d e ffe ct f o r a s l o ng a s w e c o ntin ue t o u se a n d r e n ew t h em . SE ASO NALIT Y Seaso nality p rim arily i m pacts t h e C oach b ra n d. B ecau se C oach b ra n d’s p ro ducts a re f re q uen tly g iv en a s g ifts , w e e x perie n ce s e aso nal v aria tio ns i n n et s a le s, o pera tin g c ash flo w s a n d w ork in g c ap ita l re q uire m en ts , p rim arily re la te d to se aso nal h olid ay sh oppin g. D urin g th e firs t fis c al q uarte r, w e b uild i n ven to ry f o r t h e h olid ay s e llin g s e aso n. I n t h e s e co nd f is c al q uarte r, w ork in g c ap ita l r e q uire m en ts a re r e d uced s u bsta n tia lly a s w e g en era te h ig her n et s a le s a n d o pera tin g i n co m e, e sp ecia lly d urin g t h e h olid ay m onth s o f N ovem ber a n d D ecem ber. Flu ctu atio ns i n n et s a le s, o pera tin g i n co m e a n d o pera tin g c ash f lo w s o f t h e C om pan y i n a n y f is c al q uarte r m ay b e a ffe cte d b y t h e t im in g o f w hole sa le s h ip m en ts a n d o th er e v en ts a ffe ctin g r e ta il s a le s, i n clu din g a d vers e w eath er c o nditio ns o r o th er m acro eco nom ic e v en ts . GOVERNM ENT R EG ULATIO N Most o f C oach ‘s i m porte d p ro ducts a re s u bje ct t o d utie s, i n dire ct t a x es, q uota s a n d n on-ta riff t ra d e b arrie rs t h at m ay l im it t h e q uan tity o f p ro ducts t h at w e m ay im port in to th e U .S . a n d o th er c o untrie s o r m ay im pact th e c o st o f s u ch p ro ducts . C oach is n ot m ate ria lly re stric te d b y q uota s o r o th er g overn m en t r e stric tio ns i n t h e o pera tio n o f i ts b usin ess, h ow ev er c u sto m s d utie s d o r e p re se n t a c o m ponen t o f t o ta l p ro duct c o st. T o m ax im iz e o pportu nitie s, w e o pera te c o m ple x s u pply c h ain s t h ro ugh f o re ig n t ra d e z o nes, b onded l o gis tic p ark s a n d o th er s tra te g ic i n itia tiv es s u ch a s f re e t ra d e a g re em en ts . A dditio nally , C oach o pera te s a d ire ct i m port b usin ess i n m an y c o untrie s w orld w id e. A s a r e su lt, C oach i s s u bje ct t o s trin gen t g overn m en t r e g ula tio ns a n d r e stric tio ns w ith r e sp ect t o i ts c ro ss-b ord er a ctiv ity e ith er b y t h e v ario us c u sto m s a n d b ord er p ro te ctio n a g en cie s o r b y o th er g overn m en t a g en cie s w hic h c o ntro l t h e q uality a n d s a fe ty o f C oach ’s p ro ducts . C oach m ain ta in s a n i n te rn al g lo bal t ra d e a n d c u sto m s o rg an iz atio n t o h elp m an ag e i ts i m port/e x port a ctiv ity . CO M PE TIT IO N The g lo bal p re m iu m m en ‘s a n d w om en ‘s h an dbag , a ccesso rie s a n d fo otw ear c ate g orie s a re h ig hly c o m petitiv e. C oach , In c. c o m pete s p rim arily w ith E uro pean a n d A m eric an lu xury a n d a ccessib le lu xury b ra n ds a s w ell a s p riv ate la b el re ta ile rs . O ver th e la st se v era l y ears th ese in dustrie s h av e g ro w n, e n co ura g in g t h e e n try o f n ew c o m petito rs a s w ell a s i n cre asin g t h e c o m petitio n f ro m e x is tin g c o m petito rs . T his i n cre ase d c o m petitio n d riv es i n te re st i n t h ese b ra n d l o yal c ate g orie s. EM PL O YEES As o f Ju ly 2 , 2 016 , C oach b ra n d e m plo yed a p pro xim ate ly 1 5,1 00 g lo bally , in clu din g b oth fu ll a n d p art tim e e m plo yees, b ut e x clu din g s e aso nal a n d t e m pora ry e m plo yees. O f t h ese e m plo yees, a p pro xim ate ly 8 ,6 00 a n d 3 ,9 00 w ere f u ll t im e a n d p art t im e e m plo yees, r e sp ectiv ely , i n t h e g lo bal r e ta il f ie ld . As o f Ju ly 2 , 2 016 , S tu art W eitz m an e m plo yed a p pro xim ate ly 7 00 p eo ple g lo bally , in clu din g b oth fu ll a n d p art-tim e e m plo yees, b ut e x clu din g s e aso nal a n d t e m pora ry e m plo yees. O f t h ese e m plo yees, a p pro xim ate ly 4 00 w ere e m plo yees i n t h e g lo bal r e ta il f ie ld . Coach b elie v es t h at i ts r e la tio ns w ith i ts e m plo yees a re g ood, a n d h as n ev er e n co unte re d a s trik e o r w ork s to ppag e. F IN ANCIA L I N FO RM ATIO N A BO UT G EO GRAPH IC A REAS See t h e N ote 1 5, ” S eg m en t I n fo rm atio n” p re se n te d i n t h e N ote s t o t h e C onso lid ate d F in an cia l S ta te m en ts f o r g eo gra p hic i n fo rm atio n. 10 A VAIL ABLE I N FO RM ATIO N Our A nnual R ep orts o n F orm 1 0-K , Q uarte rly R ep orts o n F orm 1 0-Q , C urre n t R ep orts o n F orm 8 -K , a n d a ll a m en dm en ts t o t h ese r e p orts f ile d o r f u rn is h ed p urs u an t to Sectio n 13(a ) or 15(d ) of th e Secu ritie s Exch an ge A ct of 1934, are av aila b le fre e of ch arg e on our in vesto r w eb site , lo cate d at w ww.c o ach .c o m /in vesto rs u nder th e c ap tio n “ S E C F ilin gs” , a s s o on a s re aso nab ly p ra ctic ab le a fte r th ey a re file d w ith o r fu rn is h ed to th e S ecu ritie s a n d E xch an ge C om mis sio n. T hese r e p orts a re a ls o a v aila b le o n t h e S ecu ritie s a n d E xch an ge C om mis sio n’s w eb site a t www.s e c.g ov. N o i n fo rm atio n c o nta in ed o n a n y o f o ur w eb site s i s i n te n ded t o b e i n clu ded a s p art o f, o r i n co rp ora te d b y r e fe re n ce i n to , t h is A nnual R ep ort o n F orm 1 0-K . The C om pan y h as in clu ded th e C hie f E xecu tiv e O ffic er (“ C EO ”) a n d C hie f F in an cia l O ffic er c ertific atio ns re g ard in g its p ublic d is c lo su re re q uire d b y S ectio n 3 02 o f th e S arb an es-O xle y A ct o f 2 002 a s E xhib it 3 1.1 to th is re p ort o n F orm 1 0-K . A dditio nally , th e C om pan y file d w ith th e N ew Y ork S to ck E xch an ge (“ N YSE ”) th e C EO ’s c ertific atio n re g ard in g th e C om pan y’s c o m plia n ce w ith th e N YSE ’s C orp ora te G overn an ce L is tin g S ta n dard s (“ L is tin g S ta n dard s” ) p urs u an t t o S ectio n 3 03A .1 2(a ) o f t h e L is tin g S ta n dard s, w hic h i n dic ate d t h at t h e C EO w as n ot a w are o f a n y v io la tio ns o f t h e L is tin g S ta n dard s b y t h e C om pan y. 11 I T EM 1 A . R IS K F A CTO RS Yo u s h ould c o nsid er c a re fu lly a ll o f th e in fo rm atio n s e t fo rth o r in co rp ora te d b y r e fe re n ce in th is d ocu m en t a nd, in p artic u la r, th e fo llo w in g r is k f a cto rs a sso cia te d w ith t h e b usin ess o f t h e C om pany a nd f o rw ard -lo okin g i n fo rm atio n i n t h is d ocu m en t. P le a se a ls o s e e “ Specia l N ote o n F orw ard -L ookin g I n fo rm atio n” a t t h e b eg in nin g o f t h is r e p ort. T he r is k s d esc rib ed b elo w a re n ot t h e o nly o nes w e f a ce. A dditio nal r is k s n ot p re se n tly k n ow n t o u s o r t h at w e c u rre n tly d eem i m mate ria l m ay a ls o h ave a n a dverse e ffe ct o n u s. I f a ny o f t h e r is k s b elo w a ctu ally o ccu r, o ur b usin ess, r e su lts o f o pera tio ns, c a sh f lo w s o r f in ancia l c o nditio n c o uld s u ffe r. T he s u ccessfu l e x ecu tio n o f o ur m ulti-y ea r t r a nsfo rm atio n a nd o pera tio nal e ffic ie n cy i n itia tiv es i s k ey t o t h e l o ng-te rm g ro w th o f o ur b usin ess. Durin g th e fo urth q uarte r o f fis c al 2 014, w e a n nounced a m ulti-y ear s tra te g ic p la n w ith th e o bje ctiv e o f tra n sfo rm in g th e b ra n d a n d re in vig ora tin g g ro w th , w hic h w ill e n ab le th e C om pan y to re tu rn to ‘b est-in -c la ss’ p ro fita b ility . K ey o pera tio nal a n d c o st e le m en ts in o rd er to fu nd a n d e x ecu te th is p la n i n clu ded : ( i) t h e i n vestm en t i n c ap ita l i m pro vem en ts i n o ur s to re s a n d w hole sa le l o catio ns t o d riv e c o m para b le s a le s i m pro vem en t; ( ii) t h e o ptim iz atio n a n d s tre am lin in g o f o ur o rg an iz atio nal m odel as w ell as th e clo su re o f underp erfo rm in g sto re s in N orth A m eric a, an d se le ct In te rn atio nal sto re s, (iii) th e r e alig nm en t o f in ven to ry le v els a n d m ix to re fle ct o ur e le v ate d p ro duct s tra te g y a n d c o nsu m er p re fe re n ces; (iv ) th e in vestm en t in in cre m en ta l a d vertis in g c o sts to e le v ate c o nsu m er p erc ep tio n o f o ur C oach b ra n d, d riv e sa le s g ro w th a n d pro m ote o ur n ew stra te g y; a n d (v ) th e sig nific an t sc ale -b ack o f o ur p ro m otio nal c ad en ce in a n in cre ase d g lo bal p ro m otio nal e n viro nm en t, p artic u la rly w ith in o ur o utle t In te rn et s a le s s ite . T he C om pan y’s e x ecu tio n o f th ese k ey o pera tio nal an d co st m easu re s w as co nclu ded d urin g fis c al 2 016. T he C om pan y b elie v es th at lo ng-te rm g ro w th w ill b e re aliz ed th ro ugh th ese t ra n sfo rm atio nal e ffo rts o ver t im e. T here i s n o a ssu ra n ce t h at s u ch e ffo rts w ill b e s u ccessfu l i n a ch ie v in g l o ng-te rm g ro w th o r c h an gin g t h e p erc ep tio n o f t h e C om pan y f ro m a n a ccesso rie s b ra n d t o a g lo bal l ife sty le b ra n d. Durin g t h e f o urth q uarte r o f f is c al 2 016, w e a n nounced a p la n t o e n han ce o rg an iz atio nal e ffic ie n cy, u pdate c o re t e ch nolo gy p la tfo rm s a n d s tre am lin e t h e C om pan y’s s u pply c h ain n etw ork . These i n itia tiv es w ere u nderta k en a s a r e su lt o f a s tra te g ic r e v ie w o f t h e C om pan y’s c o rp ora te s tru ctu re w hic h f o cu se d o n c re atin g a n a g ile a n d sc ala b le b usin ess m odel. T he c h arg es u nder th is p la n b eg an in th e fo urth q uarte r o f fis c al 2 016 a n d w e a n tic ip ate th ey w ill b e s u bsta n tia lly c o m ple te b y t h e e n d o f f is c al y ear 2 017. There i s n o a ssu ra n ce t h ese a ctio ns w ill b e s u ccessfu l i n a ch ie v in g o ur i n te n ded r e su lts . Actu al c o sts in cu rre d a n d th e tim elin e o f th ese in itia tiv es m ay d iffe r fro m o ur e x pecta tio ns. R efe r to P art II, Ite m 7 , ” M an ag em en t’s D is c u ssio n a n d A naly sis o f F in an cia l C onditio n a n d R esu lts o f O pera tio ns” a n d N ote 3 , ” R estru ctu rin g A ctiv itie s” f o r f u rth er i n fo rm atio n r e g ard in g t h ese i n itia tiv es. If t h e e x ecu tio n o f o ur p la n s o r s tra te g ie s f a ll s h ort, o ur b usin ess, f in an cia l c o nditio n a n d r e su lts o f o pera tio n c o uld b e m ate ria lly a d vers e ly a ffe cte d . T he g ro w th o f o ur b usin ess d ep en ds o n th e s u ccessfu l e x ecu tio n o f o ur g ro w th s tr a te g ie s, in clu din g o ur e ffo rts to e x pand in te rn atio nally in to a g lo bal l ife sty le b ra nd. Our g ro w th d ep en ds o n th e c o ntin ued s u ccess o f e x is tin g p ro ducts , a s w ell a s th e s u ccessfu l d esig n a n d in tro ductio n o f n ew p ro ducts . O ur a b ility to c re ate n ew p ro ducts a n d t o s u sta in e x is tin g p ro ducts i s a ffe cte d b y w heth er w e c an s u ccessfu lly a n tic ip ate a n d r e sp ond t o c o nsu m er p re fe re n ces a n d f a sh io n t re n ds. T he f a ilu re t o d ev elo p a n d l a u nch s u ccessfu l n ew p ro ducts c o uld h in der t h e g ro w th o f o ur b usin ess. A ls o , a n y d ela y i n t h e d ev elo pm en t o r l a u nch o f a n ew p ro duct c o uld r e su lt i n o ur c o m pan y n ot b ein g t h e f irs t t o b rin g p ro duct t o m ark et, w hic h c o uld c o m pro m is e o ur c o m petitiv e p ositio n. Additio nally , o ur c u rre n t g ro w th s tra te g y i n clu des p la n s t o e x pan d i n a n um ber o f i n te rn atio nal r e g io ns, i n clu din g A sia a n d E uro pe. W e c u rre n tly p la n t o o pen a d ditio nal C oach a n d S tu art W eitz m an s to re s i n m ain la n d C hin a, E uro pe a n d o th er i n te rn atio nal m ark ets , b oth d ire ctly a n d t h ro ugh s tra te g ic p artn ers . O ur b ra n ds m ay n ot b e w ell-e sta b lis h ed o r w id ely s o ld i n s o m e o f t h ese m ark ets , a n d w e m ay h av e l im ite d e x perie n ce o pera tin g d ire ctly o r w ork in g w ith o ur p artn ers th ere . In ad ditio n, so m e of th ese m ark ets hav e diffe re n t opera tio nal ch ara cte ris tic s, in clu din g but not lim ite d to em plo ym en t an d la b or, t ra n sp orta tio n, l o gis tic s, r e al e sta te , e n viro nm en ta l r e g ula tio ns a n d l o cal r e p ortin g o r l e g al r e q uire m en ts . Furth erm ore , c o nsu m er d em an d a n d b eh av io r, a s w ell a s t a ste s a n d p urc h asin g t re n ds m ay d iffe r i n t h ese c o untrie s, a n d a s a r e su lt, s a le s o f o ur p ro duct m ay n ot b e s u ccessfu l, o r t h e m arg in s o n t h ose s a le s m ay n ot b e i n l in e w ith t h ose w e c u rre n tly a n tic ip ate . F urth er, s u ch m ark ets w ill h av e u pfro nt i n vestm en t c o sts t h at m ay n ot b e a cco m pan ie d b y s u ffic ie n t r e v en ues t o a ch ie v e t y pic al o r e x pecte d o pera tio nal a n d f in an cia l p erfo rm an ce a n d t h ere fo re m ay b e d ilu tiv e t o o ur b ra n ds i n t h e s h ort-te rm . I n m an y o f t h ese c o untrie s, t h ere i s s ig nific an t c o m petitio n t o a ttra ct a n d r e ta in e x perie n ced a n d t a le n te d e m plo yees. Conse q uen tly , if o ur in te rn atio nal e x pan sio n p la n s a re u nsu ccessfu l, o r w e a re u nab le to re ta in a n d/o r a ttra ct k ey p ers o nnel, o ur b usin ess, fin an cia l c o nditio n a n d r e su lts o f o pera tio n c o uld b e m ate ria lly a d vers e ly a ffe cte d . 12 W e f a ce r is k s a sso cia te d w ith o pera tin g i n i n te rn atio nal m ark ets . We o pera te o n a g lo bal b asis , w ith a p pro xim ate ly 45% o f o ur n et s a le s c o m in g fro m o pera tio ns o uts id e o f U nite d S ta te s. W hile g eo gra p hic d iv ers ity h elp s to re d uce th e C om pan y’s e x posu re to ris k s in a n y o ne c o untry , w e a re s u bje ct to ris k s a sso cia te d w ith in te rn atio nal o pera tio ns, in clu din g, b ut n ot l im ite d t o : • politic al o r e co nom ic in sta b ility o r c h an gin g m acro eco nom ic c o nditio ns in o ur m ajo r m ark ets , in clu din g th e im pact o f (1 ) th e U nite d K in gdom votin g to le av e th e E uro pean U nio n in its re fe re n dum o n J u ne 2 3, 2 016 a n d (2 ) th e o utc o m e o f th e 2 016 U .S . P re sid en tia l e le ctio n. O n J u ne 2 3, 2016, th e U nite d K in gdom (U .K .) h eld a re fe re n dum in w hic h v ote rs a p pro ved a n e x it fro m th e E uro pean U nio n (E .U .) , c o m monly re fe rre d to a s “B re x it.” A s a r e su lt o f t h e r e fe re n dum , i t i s e x pecte d t h at t h e B ritis h g overn m en t w ill b eg in n eg otia tin g t h e t e rm s o f t h e U .K .’s f u tu re r e la tio nsh ip with t h e E .U . A lth ough i t i s u nknow n w hat t h ose t e rm s w ill b e, i t i s p ossib le t h at t h ere w ill b e i n cre ase d r e g ula to ry a n d l e g al c o m ple x itie s, i n clu din g pote n tia lly d iv erg en t n atio nal l a w s a n d r e g ula tio ns b etw een t h e U .K . a n d E .U . Bre x it m ay a ls o c au se d is ru ptio n a n d c re ate u ncerta in ty s u rro undin g our b usin ess, in clu din g a ffe ctin g o ur re la tio nsh ip w ith o ur e x is tin g a n d fu tu re c u sto m ers , s u pplie rs a n d e m plo yees, w hic h c o uld h av e a n a d vers e effe ct o n o ur b usin ess, f in an cia l r e su lts a n d o pera tio ns; • ch an ges in e x ch an ge ra te s fo r fo re ig n c u rre n cie s, w hic h m ay a d vers e ly a ffe ct th e re ta il p ric es o f o ur p ro ducts , re su lt in d ecre ase d in te rn atio nal co nsu m er d em an d, o r i n cre ase o ur s u pply c o sts i n t h ose m ark ets , w ith a c o rre sp ondin g n eg ativ e i m pact o n o ur g ro ss m arg in r a te s; • co m plia n ce w ith l a w s r e la tin g t o f o re ig n o pera tio ns, i n clu din g t h e F ore ig n C orru pt P ra ctic es A ct ( F C PA ) a n d t h e U .K . B rib ery A ct, w hic h i n g en era l co ncern t h e b rib ery o f f o re ig n p ublic o ffic ia ls ; • ch an ges i n t o uris t s h oppin g p atte rn s, p artic u la rly t h at o f t h e C hin ese c o nsu m er; • natu ra l a n d o th er d is a ste rs ; • ch an ges in le g al a n d re g ula to ry re q uire m en ts , in clu din g, b ut n ot lim ite d to s a fe g uard m easu re s, a n ti-d um pin g d utie s, c arg o re stric tio ns to p re v en t te rro ris m , r e stric tio ns o n t h e t ra n sfe r o f c u rre n cy, c lim ate c h an ge l e g is la tio n, p ro duct s a fe ty r e g ula tio ns o r o th er c h arg es o r r e stric tio ns, r e su ltin g i n th e i m positio n o f n ew o r m ore o nero us t ra d e r e stric tio ns, t a riffs , e m barg oes, e x ch an ge o r o th er g overn m en t c o ntro ls ; a n d • th e r e p atria tio n o f f o re ig n c ash . E co nom ic c o nditio ns c o uld m ate ria lly a dverse ly a ffe ct o ur f in ancia l c o nditio n, r e su lts o f o pera tio ns a nd c o nsu m er p urc h ase s o f l u xury i te m s. Our re su lts can b e im pacte d b y a n um ber o f m acro eco nom ic fa cto rs , in clu din g b ut n ot lim ite d to co nsu m er co nfid en ce an d sp en din g le v els , u nem plo ym en t, c o nsu m er c re d it a v aila b ility , ra w m ate ria ls c o sts , fu el a n d e n erg y c o sts (in clu din g o il p ric es), g lo bal fa cto ry p ro ductio n, c o m merc ia l re al e sta te m ark et c o nditio ns, c re d it m ark et c o nditio ns a n d t h e l e v el o f c u sto m er t ra ffic i n m alls a n d s h oppin g c en te rs . Dem an d f o r o ur p ro ducts , a n d c o nsu m er s p en din g i n t h e p re m iu m h an dbag , f o otw ear a n d a ccesso rie s c ate g orie s g en era lly , i s s ig nific an tly i m pacte d b y t re n ds i n c o nsu m er c o nfid en ce, g en era l b usin ess c o nditio ns, i n te re st r a te s, f o re ig n c u rre n cy e x ch an ge r a te s, t h e a v aila b ility o f c o nsu m er c re d it, a n d t a x atio n. C onsu m er p urc h ase s o f d is c re tio nary l u xury i te m s, s u ch a s t h e C om pan y’s p ro ducts , t e n d t o d eclin e d urin g r e cessio nary p erio ds o r p erio ds o f s u sta in ed h ig h u nem plo ym en t, w hen d is p osa b le i n co m e i s l o w er. Unfa v ora b le e co nom ic c o nditio ns m ay a ls o re d uce c o nsu m ers ’ w illin gness a n d a b ility to tra v el to m ajo r c itie s a n d v acatio n d estin atio ns in w hic h o ur s to re s a re l o cate d . In a d ditio n, t h e s u ccess o f o ur r e ta il s to re s l o cate d w ith in m alls a n d s h oppin g c en te rs m ay b e i m pacte d b y ( 1 ) t h e l o catio n o f t h e s to re w ith in t h e m all o r s h oppin g c en te r, ( 2 ) s u rro undin g t e n an ts o r v acan cie s; ( 3 ) i n cre ase d c o m petitio n i n a re as w here m alls o r s h oppin g c en te rs a re l o cate d ; ( 4 ) t h e a m ount s p en t o n a d vertis in g a n d p ro m otio n t o a ttra ct c o nsu m ers t o t h e m all; a n d ( 5 ) a s h ift t o w ard s o nlin e s h oppin g r e su ltin g i n a d ecre ase i n m all t ra ffic . O ur b usin ess m ay b e s u bje ct t o i n cre a se d c o sts d ue t o e x cess i n ven to rie s a nd a d eclin e i n p ro fita bility a s a r e su lt o f i n cre a sin g p re ssu re o n m arg in s i f w e m is ju dge t h e d em and f o r o ur p ro ducts . Our in dustry is s u bje ct to s ig nific an t p ric in g p re ssu re c au se d b y m an y fa cto rs , in clu din g in te n se c o m petitio n a n d a h ig hly p ro m otio nal e n viro nm en t, f ra g m en ta tio n in th e re ta il in dustry , p re ssu re fro m re ta ile rs to re d uce th e c o sts o f p ro ducts , a n d c h an ges in c o nsu m er s p en din g p atte rn s. If w e m is ju dge th e m ark et f o r o ur p ro ducts w e m ay b e f a ced w ith s ig nific an t e x cess i n ven to rie s f o r s o m e p ro ducts a n d m is se d o pportu nitie s f o r o th er p ro ducts . I f t h at o ccu rs , w e m ay b e f o rc ed t o r e ly o n d estru ctio n, d onatio n, m ark dow ns o r p ro m otio nal s a le s t o d is p ose o f e x cess, s lo w -m ovin g i n ven to ry , w hic h m ay n eg ativ ely i m pact o ur g ro ss m arg in , o vera ll p ro fita b ility a n d e ffic acy o f o ur b ra n ds. 13 In cre ase s i n o ur c o sts , s u ch a s r a w m ate ria ls , l a b or o r f re ig ht c o uld n eg ativ ely i m pact o ur g ro ss m arg in . L ab or c o sts a t m an y o f o ur m an ufa ctu re rs h av e b een i n cre asin g s ig nific an tly a n d, a s t h e m id dle c la ss i n d ev elo pin g c o untrie s c o ntin ues t o g ro w , i t i s u nlik ely t h at s u ch c o st p re ssu re w ill a b ate . F urth erm ore , t h e c o st o f tra n sp orta tio n m ay flu ctu ate s ig nific an tly if o il p ric es s h ow v ola tility . W e m ay n ot b e a b le to o ffs e t s u ch in cre ase s in ra w m ate ria ls , la b or o r t ra n sp orta tio n c o sts t h ro ugh p ric in g m easu re s o r o th er m ean s. S ig nific a nt c o m petitio n i n o ur i n dustr y c o uld a dverse ly a ffe ct o ur b usin ess. We f a ce i n te n se c o m petitio n i n t h e p ro duct l in es a n d m ark ets i n w hic h w e o pera te . O ur c o m petito rs a re E uro pean a n d A m eric an l u xury b ra n ds, a s w ell a s p riv ate la b el re ta ile rs , in clu din g s o m e o f th e C om pan y’s w hole sa le c u sto m ers . T here is a ris k th at o ur c o m petito rs m ay d ev elo p n ew p ro ducts o r p ro duct c ate g orie s th at a re m ore p opula r w ith o ur c u sto m ers . W e m ay b e u nab le to a n tic ip ate th e tim in g a n d s c ale o f s u ch p ro duct in tro ductio ns b y c o m petito rs , w hic h c o uld h arm o ur b usin ess. O ur a b ility t o c o m pete a ls o d ep en ds o n t h e s tre n gth o f o ur b ra n d, w heth er w e c an a ttra ct a n d r e ta in k ey t a le n t, a n d o ur a b ility t o p ro te ct o ur t ra d em ark s a n d d esig n p ate n ts . A f a ilu re t o c o m pete e ffe ctiv ely c o uld a d vers e ly a ffe ct o ur g ro w th a n d p ro fita b ility . A cq uis itio ns m ay n ot b e s u ccessfu l i n a ch ie vin g i n te n ded b en efits , c o st s a vin gs a nd s y n erg ie s a nd m ay d is ru pt c u rre n t o pera tio ns. One c o m ponen t o f o ur g ro w th s tra te g y i s a cq uis itio ns, s u ch a s o ur a cq uis itio n o f S tu art W eitz m an H old in gs, L LC d urin g f is c al 2 015. O ur m an ag em en t t e am h as an d w ill co nsid er g ro w th stra te g ie s an d ex pecte d sy nerg ie s w hen co nsid erin g an y acq uis itio n, an d w hile w e co ntin ually re v ie w p ote n tia l a cq uis itio n o pportu nitie s, th ere c an b e n o a ssu ra n ce th at w e w ill b e a b le to id en tify s u ita b le c an did ate s o r c o nsu m mate th ese tra n sa ctio ns o n a ccep ta b le t e rm s. The in te g ra tio n p ro cess o f a n y n ew ly a cq uire d c o m pan y m ay b e c o m ple x , c o stly a n d tim e-c o nsu m in g. T he p ote n tia l d iffic u ltie s o f in te g ra tin g th e o pera tio ns o f a n a cq uire d b usin ess, s u ch a s S tu art W eitz m an , a n d r e aliz in g o ur e x pecta tio ns f o r a n a cq uis itio n, i n clu din g t h e b en efits t h at m ay b e r e aliz ed , i n clu de, a m ong o th er t h in gs: • fa ilu re o f t h e b usin ess t o p erfo rm a s p la n ned f o llo w in g t h e a cq uis itio n o r a ch ie v e a n tic ip ate d r e v en ue o r p ro fita b ility t a rg ets ; • dela y s, u nex pecte d c o sts o r d iffic u ltie s i n c o m ple tin g t h e i n te g ra tio n o f a cq uire d c o m pan ie s o r a sse ts ; • hig her th an e x pecte d c o sts , lo w er th an e x pecte d c o st s a v in gs o r s y nerg ie s a n d/o r a n eed to a llo cate re so urc es to m an ag e u nex pecte d o pera tin g diffic u ltie s; • diffic u ltie s a ssim ila tin g t h e o pera tio ns a n d p ers o nnel o f a cq uire d c o m pan ie s i n to o ur o pera tio ns; • div ers io n o f t h e a tte n tio n a n d r e so urc es o f m an ag em en t o r o th er d is ru ptio ns t o c u rre n t o pera tio ns; • th e i m pact o n o ur o r a n a cq uire d b usin ess’ i n te rn al c o ntro ls a n d c o m plia n ce w ith t h e r e q uire m en ts u nder t h e S arb an es-O xle y A ct o f 2 002; • unan tic ip ate d i s su es i n i n te g ra tin g m an ufa ctu rin g, l o gis tic s, i n fo rm atio n, c o m munic atio ns a n d o th er s y ste m s; • unan tic ip ate d c h an ges i n a p plic ab le l a w s a n d r e g ula tio ns; • unan tic ip ate d c h an ges i n t h e c o m bin ed b usin ess d ue t o p ote n tia l d iv estitu re s o r o th er r e q uire m en ts i m pose d b y a n titru st r e g ula to rs ; • re ta in in g k ey c u sto m ers , s u pplie rs a n d e m plo yees; • re ta in in g a n d o bta in in g r e q uire d r e g ula to ry a p pro vals , l ic en se s a n d p erm its ; • opera tin g r is k s i n here n t i n t h e a cq uire d b usin ess a n d o ur b usin ess; • co nsu m ers ’ f a ilu re t o a ccep t p ro duct o ffe rin gs b y u s o r o ur l ic en se es; • assu m ptio n o f l ia b ilitie s n ot i d en tifie d i n d ue d ilig en ce; a n d • oth er u nan tic ip ate d i s su es, e x pen se s a n d l ia b ilitie s. Our f a ilu re t o s u ccessfu lly c o m ple te t h e i n te g ra tio n o f a n y a cq uire d b usin ess, i n clu din g S tu art W eitz m an , a n d a n y a d vers e c o nse q uen ces a sso cia te d w ith f u tu re a cq uis itio n a ctiv itie s, c o uld h av e a n a d vers e e ffe ct o n o ur b usin ess, f in an cia l c o nditio n a n d o pera tin g r e su lts . Com ple te d a cq uis itio ns m ay r e su lt i n a d ditio nal g oodw ill a n d/o r a n i n cre ase i n o th er i n ta n gib le a sse ts o n o ur b ala n ce s h eet. W e a re r e q uire d a n nually , o r a s f a cts a n d c irc u m sta n ces e x is t, t o t e st g oodw ill a n d o th er i n ta n gib le a sse ts t o d ete rm in e i f i m pairm en t h as o ccu rre d . I f t h e t e stin g p erfo rm ed i n dic ate s t h at i m pairm en t h as o ccu rre d , w e a re re q uire d to re co rd a n on-c ash im pairm en t c h arg e fo r th e d iffe re n ce b etw een th e c arry in g v alu e o f th e g oodw ill o r o th er i n ta n gib le a sse ts a n d t h e i m plie d f a ir v alu e o f t h e g oodw ill o r t h e f a ir v alu e o f o th er i n ta n gib le a sse ts i n t h e p erio d t h e d ete rm in atio n i s m ad e. W e d ete rm in ed t h ere w as n o im pairm en t in fis c al 2 016, fis c al 2 015 a n d fis c al 2 014; h ow ev er, w e c an not a ccu ra te ly p re d ic t th e a m ount a n d tim in g o f a n y im pairm en t o f a sse ts . S hould th e v alu e o f g oodw ill o r o th er in ta n gib le a sse ts b eco m e im paire d , th ere c o uld b e a m ate ria l a d vers e e ffe ct o n o ur fin an cia l c o nditio n a n d r e su lts o f o pera tio ns. 14 C om pute r s y ste m d is ru ptio n a nd c yb er s e cu rity t h re a ts , i n clu din g a p riv a cy o r d ata s e cu rity b re a ch , c o uld d am age o ur r e la tio nsh ip s w ith o ur c u sto m ers, h arm o ur r e p uta tio n, e x pose u s t o l itig atio n a nd a dverse ly a ffe ct o ur b usin ess. We d ep en d o n d ig ita l te ch nolo gie s fo r th e s u ccessfu l o pera tio n o f o ur b usin ess, in clu din g c o rp ora te e m ail c o m munic atio ns to a n d fro m e m plo yees, c u sto m ers a n d s to re s, th e d esig n, m an ufa ctu re a n d d is trib utio n o f o ur fin is h ed g oods, d ig ita l m ark etin g e ffo rts , c o lle ctio n a n d re te n tio n o f c u sto m er d ata , e m plo yee i n fo rm atio n, t h e p ro cessin g o f c re d it c ard t ra n sa ctio ns, o nlin e e -c o m merc e a ctiv itie s a n d o ur i n te ra ctio n w ith t h e p ublic i n t h e s o cia l m ed ia s p ace. T he p ossib ility o f a c y ber-a tta ck o n a n y o ne o r a ll o f t h ese s y ste m s i s a s e rio us t h re at. T he r e ta il i n dustry , i n p artic u la r, h as b een t h e t a rg et o f m an y r e cen t c y ber-a tta ck s. A s p art o f o ur b usin ess m odel, w e c o lle ct, r e ta in , a n d t ra n sm it c o nfid en tia l i n fo rm atio n o ver p ublic n etw ork s. I n a d ditio n t o o ur o w n d ata b ase s, w e u se t h ird p arty s e rv ic e p ro vid ers t o s to re , p ro cess a n d t ra n sm it t h is i n fo rm atio n o n o ur b eh alf. A lth ough w e c o ntra ctu ally r e q uire t h ese s e rv ic e p ro vid ers t o i m ple m en t a n d u se r e aso nab le s e cu rity m easu re s, w e c an not c o ntro l t h ird p artie s a n d c an not g uara n te e t h at a s e cu rity b re ach w ill n ot o ccu r i n t h e f u tu re e ith er a t th eir lo catio n o r w ith in th eir s y ste m s. W e a ls o s to re a ll d esig ns, g oods s p ecific atio ns, p ro je cte d s a le s a n d d is trib utio n p la n s fo r o ur fin is h ed p ro ducts d ig ita lly . W e h av e c o nfid en tia l s e cu rity m easu re s in p la ce to p ro te ct b oth o ur p hysic al fa cilitie s a n d d ig ita l s y ste m s fro m a tta ck s. D esp ite th ese e ffo rts , h ow ev er, w e m ay b e v uln era b le to ta rg ete d o r ra n dom s e cu rity b re ach es, a cts o f v an dalis m , c o m pute r v iru se s, m is p la ced o r lo st d ata , p ro gra m min g a n d/o r h um an e rro rs , o r o th er s im ila r e v en ts . Aw are n ess an d se n sitiv ity to p riv acy b re ach es an d cy ber se cu rity th re ats b y co nsu m ers , em plo yees an d la w m ak ers is at an all-tim e h ig h. A ny m is a p pro pria tio n o f c o nfid en tia l o r p ers o nally i d en tifia b le i n fo rm atio n g ath ere d , s to re d o r u se d b y u s, b e i t i n te n tio nal o r a ccid en ta l, c o uld h av e a m ate ria l i m pact o n t h e o pera tio n o f o ur b usin ess, i n clu din g s e v ere ly d am ag in g o ur r e p uta tio n a n d o ur r e la tio nsh ip s w ith o ur c u sto m ers , e m plo yees a n d i n vesto rs . W e m ay a ls o i n cu r s ig nific an t c o sts i m ple m en tin g a d ditio nal s e cu rity m easu re s t o p ro te ct a g ain st n ew o r e n han ced d ata s e cu rity o r p riv acy t h re ats , o r t o c o m ply w ith s ta te , fe d era l a n d in te rn atio nal la w s g overn in g th e u nau th oriz ed d is c lo su re o f c o nfid en tia l in fo rm atio n a s w ell a s in cre ase d c y ber s e cu rity p ro te ctio n c o sts s u ch a s o rg an iz atio nal c h an ges, d ep lo yin g a d ditio nal p ers o nnel a n d p ro te ctio n t e ch nolo gie s, t ra in in g e m plo yees, a n d e n gag in g t h ird p arty e x perts a n d c o nsu lta n ts a n d lo st re v en ues re su ltin g fro m u nau th oriz ed u se o f p ro prie ta ry in fo rm atio n in clu din g o ur in te lle ctu al p ro perty . L astly , w e c o uld fa ce s iz ab le f in es, s ig nific an t b re ach -n otific atio n c o sts a n d i n cre ase d l itig atio n a s a r e su lt o f c y ber s e cu rity b re ach es. In a d ditio n, w e m ain ta in e -c o m merc e s ite s i n t h e U .S ., C an ad a, U .K ., J a p an , m ain la n d C hin a a n d S outh K ore a a n d h av e p la n s f o r a d ditio nal e -c o m merc e s ite s in o th er p arts o f th e w orld . A dditio nally , C oach h as in fo rm atio nal w eb site s in v ario us c o untrie s, a s d esc rib ed in Ite m I, “B usin ess.” L astly , o ur e – c o m merc e p ro gra m s a ls o i n clu de a n i n vita tio n-o nly C oach o utle t f la sh s a le s ite . G iv en t h e r o bust n atu re o f o ur e -c o m merc e p re se n ce a n d d ig ita l s tra te g y, i t i s i m pera tiv e th at w e a n d o ur e -c o m merc e p artn ers m ain ta in u nin te rru pte d o pera tio n o f o ur: (i) c o m pute r h ard w are , (ii) so ftw are sy ste m s, (iii) c u sto m er m ark etin g d ata b ase s, a n d ( iv ) a b ility t o e m ail o ur c u rre n t a n d p ote n tia l c u sto m ers . D esp ite o ur p re v en ta tiv e e ffo rts , o ur s y ste m s a re v uln era b le f ro m t im e-to – t im e t o d am ag e, d is ru ptio n o r i n te rru ptio n f ro m , a m ong o th er t h in gs, p hysic al d am ag e, n atu ra l d is a ste rs , i n ad eq uate s y ste m c ap acity , s y ste m i s su es, s e cu rity b re ach es, e m ail b lo ck in g l is ts , c o m pute r v iru se s o r p ow er o uta g es. A ny m ate ria l d is ru ptio ns i n o ur e -c o m merc e p re se n ce o r i n fo rm atio n t e ch nolo gy s y ste m s c o uld h av e a m ate ria l a d vers e e ffe ct o n o ur b usin ess, f in an cia l c o nditio n a n d r e su lts o f o pera tio ns. T he s u ccess o f o ur b usin ess d ep en ds o n o ur a bility to r e ta in th e v a lu e o f th e C oach b ra nd a nd th e S tu art W eitz m an b ra nd a nd to r e sp ond to c h angin g f a sh io n a nd r e ta il t r e n ds i n a t im ely m anner. We b elie v e t h at t h e C oach b ra n d, e sta b lis h ed 7 5 y ears a g o, i s r e g ard ed a s A m eric a’s p re em in en t d esig ner, p ro ducer, a n d m ark ete r o f f in e a ccesso rie s a n d g ifts fo r w om en a n d m en . W e a ttrib ute th e p ro m in en ce o f th e C oach b ra n d to th e u niq ue c o m bin atio n o f o ur o rig in al A m eric an a ttitu de a n d d esig n, o ur h erita g e o f fin e le ath er g oods a n d c u sto m fa b ric s, o ur s u perio r p ro duct q uality a n d d ura b ility a n d o ur c o m mitm en t to c u sto m er s e rv ic e. F urth erm ore , th e S tu art W eitz m an b ra n d i s v ie w ed a s a l e ad in g d esig n h ouse o f w om en ‘s l u xury f o otw ear w ith in N orth A m eric a, w ith a s tro ng o pportu nity f o r g ro w th g lo bally , a n d is b uilt u pon th e id ea o f c ra ftin g a b eau tifu lly -c o nstru cte d s h oe, m erg in g fa sh io n a n d fu nctio n. A ny m is ste p in p ro duct q uality o r d esig n, c u sto m er s e rv ic e, m ark etin g, u nfa v ora b le p ublic ity o r e x cessiv e p ro duct d is c o untin g c o uld n eg ativ ely a ffe ct t h e i m ag e o f o ur b ra n ds w ith o ur c u sto m ers . F urth erm ore , t h e p ro duct l in es w e h av e h is to ric ally m ark ete d a n d t h ose t h at w e p la n t o m ark et i n t h e f u tu re a re b eco m in g i n cre asin gly s u bje ct t o r a p id ly c h an gin g f a sh io n t re n ds a n d c o nsu m er p re fe re n ces, in clu din g th e in cre asin g s h ift to d ig ita l b ra n d e n gag em en t a n d s o cia l m ed ia c o m munic atio n. If w e d o n ot a n tic ip ate a n d r e sp ond p ro m ptly t o c h an gin g c u sto m er p re fe re n ces a n d f a sh io n t re n ds i n t h e d esig n, p ro ductio n, a n d s ty lin g o f o ur p ro ducts , a s w ell a s c re ate c o m pellin g m ark etin g c am paig ns t h at a p peal t o o ur c u sto m ers , o ur s a le s a n d r e su lts o f o pera tio ns m ay b e n eg ativ ely i m pacte d . O ur s u ccess a ls o d ep en ds i n p art o n o ur a b ility to e x ecu te o n o ur p la n s a n d s tra te g ie s, in clu din g o ur T ra n sfo rm atio n P la n a n d o pera tio nal e ffic ie n cy in itia tiv es. E ven if o ur p ro ducts , m ark etin g c am paig ns a n d re ta il e n viro nm en ts d o m eet c h an gin g c u sto m er p re fe re n ces a n d/o r s ta y a h ead o f c h an gin g fa sh io n tre n ds, o ur b ra n d im ag e c o uld b eco m e t a rn is h ed o r u ndesira b le in th e m in ds o f o ur c u sto m ers o r ta rg et m ark ets , w hic h c o uld m ate ria lly a d vers e ly im pact o ur b usin ess, fin an cia l c o nditio n, a n d r e su lts o f o pera tio ns. 15 O ur b usin ess i s e x pose d t o f o re ig n c u rre n cy e x ch ange r a te f lu ctu atio ns. We m onito r o ur g lo bal fo re ig n c u rre n cy e x posu re . In o rd er to m in im iz e th e im pact o n e arn in gs o f fo re ig n c u rre n cy ra te m ovem en ts , w e h ed ge o ur s u bsid ia rie s’ U .S . d olla r-d en om in ate d in ven to ry p urc h ase s in Ja p an an d C an ad a an d E uro -d en om in ate d in ven to ry p urc h ase s in S pain , as w ell as th e C om pan y’s c ro ss c u rre n cy d en om in ate d in te rc o m pan y lo an p ortfo lio . W e c an not e n su re , h ow ev er, th at th ese h ed ges w ill fu lly o ffs e t th e im pact o f fo re ig n c u rre n cy ra te m ovem en ts . A dditio nally , o ur in te rn atio nal s u bsid ia rie s p rim arily u se lo cal c u rre n cie s a s th e fu nctio nal c u rre n cy a n d tra n sla te th eir fin an cia l r e su lts fro m th e lo cal c u rre n cy to U .S . d olla rs . If th e U .S . d olla r s tre n gth en s a g ain st th ese s u bsid ia rie s’ fo re ig n c u rre n cie s, th e tra n sla tio n o f th eir fo re ig n c u rre n cy d en om in ate d t ra n sa ctio ns m ay d ecre ase c o nso lid ate d n et s a le s a n d p ro fita b ility . O ur c o ntin ued i n te rn atio nal e x pan sio n w ill i n cre ase o ur e x posu re t o f o re ig n c u rre n cy f lu ctu atio ns. T he m ajo rity o f t h e C om pan y’s p urc h ase s a n d s a le s i n volv in g i n te rn atio nal p artie s, e x clu din g i n te rn atio nal c o nsu m er s a le s, a re d en om in ate d i n U .S . d olla rs . As a re su lt o f o pera tin g re ta il s to re s o uts id e o f th e U .S ., w e a re a ls o e x pose d to m ark et ris k fro m flu ctu atio ns in fo re ig n c u rre n cy e x ch an ge ra te s. F or e x am ple , th e a n nouncem en t o f B re x it c au se d sig nific an t v ola tility in th e g lo bal sto ck m ark ets a n d c u rre n cy e x ch an ge ra te flu ctu atio ns. A su bsta n tia l w eak en in g o f f o re ig n c u rre n cie s a g ain st t h e U .S . d olla r c o uld i m pact c o nsu m ers ’ w illin gness o r a b ility t o t ra v el a b ro ad a n d/o r p urc h ase o ur p ro ducts w hile t ra v elin g, a s w ell a s re q uire u s to ra is e o ur re ta il p ric es o r re d uce o ur p ro fit m arg in in v ario us lo catio ns o uts id e o f th e U .S . In a d ditio n, o ur sa le s a n d p ro fita b ility c o uld b e n eg ativ ely i m pacte d i f c o nsu m ers i n t h ose m ark ets w ere u nw illin g t o p urc h ase o ur p ro ducts a t i n cre ase d p ric es. O ur s to ck p ric e m ay p erio dic a lly f lu ctu ate b ase d o n t h e a ccu ra cy o f o ur e a rn in gs g uid ance o r o th er f o rw ard -lo okin g s ta te m en ts r e g ard in g o ur f in ancia l p erfo rm ance, i n clu din g o ur a bility t o r e tu rn v a lu e t o i n vesto rs. Our b usin ess a n d l o ng-ra n ge p la n nin g p ro cess i s d esig ned t o m ax im iz e o ur l o ng-te rm s tre n gth , g ro w th , a n d p ro fita b ility , a n d n ot t o a ch ie v e a n e arn in gs t a rg et i n a n y p artic u la r f is c al q uarte r. W e b elie v e t h at t h is l o nger-te rm f o cu s i s i n t h e b est i n te re sts o f t h e C om pan y a n d o ur s to ck hold ers . A t t h e s a m e t im e, h ow ev er, w e re co gniz e th at it is h elp fu l to p ro vid e in vesto rs w ith g uid an ce a s to o ur fo re cast o f n et s a le s, e arn in gs p er s h are a n d o th er fin an cia l m etric s o r p ro je ctio ns. W hile w e g en era lly e x pect to p ro vid e u pdate s to o ur fin an cia l g uid an ce w hen w e re p ort o ur re su lts e ach fis c al q uarte r, w e d o n ot h av e a n y r e sp onsib ility t o u pdate a n y o f o ur f o rw ard -lo okin g s ta te m en ts a t s u ch t im es o r o th erw is e . I n a d ditio n, a n y l o nger-te rm g uid an ce t h at w e p ro vid e i s b ase d o n g oals t h at w e b elie v e, a t t h e t im e g uid an ce i s g iv en , a re r e aso nab ly a tta in ab le f o r g ro w th a n d p erfo rm an ce o ver a n um ber o f y ears . H ow ev er, s u ch l o ng-ra n ge t a rg ets a re m ore d iffic u lt to p re d ic t th an o ur c u rre n t q uarte r a n d fis c al y ear e x pecta tio ns. If, o r w hen , w e a n nounce a ctu al re su lts th at d iffe r fro m th ose th at h av e b een p re d ic te d b y u s, o uts id e i n vestm en t a n aly sts , o r o th ers , o ur s to ck p ric e c o uld b e a d vers e ly a ffe cte d . I n vesto rs w ho r e ly o n t h ese p re d ic tio ns w hen m ak in g i n vestm en t d ecis io ns w ith r e sp ect t o o ur s e cu ritie s d o s o a t t h eir o w n r is k . W e t a k e n o r e sp onsib ility f o r a n y l o sse s s u ffe re d a s a r e su lt o f s u ch c h an ges i n o ur s to ck p ric e. We p erio dic ally r e tu rn v alu e t o i n vesto rs t h ro ugh p ay m en t o f q uarte rly d iv id en ds. I n vesto rs m ay h av e a n e x pecta tio n t h at w e w ill c o ntin ue t o p ay o ur q uarte rly d iv id en d at certa in le v els . T he m ark et p ric e o f o ur se cu ritie s co uld b e ad vers e ly affe cte d if o ur cash d iv id en d ra te d iffe rs fro m in vesto rs ’ e x pecta tio ns. S ee “ If w e a re u nable t o p ay q uarte rly d iv id en ds a t i n te n ded l e vels , o ur r e p uta tio n a nd s to ck p ric e m ay b e h arm ed ” f o r a d ditio n d is c u ssio n o f o ur q uarte rly d iv id en d. F ailu re t o a deq uate ly p ro te ct o ur i n te lle ctu al p ro perty a nd c u rb t h e s a le o f c o unte rfe it m erc h andis e c o uld i n ju re o ur b ra nds a nd n eg ativ ely a ffe ct s a le s. We b elie v e o ur tra d em ark s, c o pyrig hts , p ate n ts , a n d o th er in te lle ctu al p ro perty rig hts a re e x tre m ely im porta n t to o ur su ccess a n d o ur c o m petitiv e p ositio n. W e d ev ote s ig nific an t re so urc es to th e re g is tra tio n a n d p ro te ctio n o f o ur tra d em ark s a n d to a n ti-c o unte rfe itin g e ffo rts w orld w id e. In s p ite o f o ur e ffo rts , c o unte rfe itin g still o ccu rs a n d if w e a re u nsu ccessfu l in c h alle n gin g a th ird -p arty ’s rig hts re la te d to tra d em ark , c o pyrig ht, o r p ate n t th is c o uld a d vers e ly a ffe ct o ur f u tu re s a le s, f in an cia l c o nditio n, a n d r e su lts o f o pera tio ns. W e a re a g gre ssiv e i n p urs u in g e n titie s i n volv ed i n t h e t ra ffic k in g a n d s a le o f c o unte rfe it m erc h an dis e t h ro ugh l e g al a ctio n o r o th er a p pro pria te m easu re s. W e c an not g uara n te e t h at t h e a ctio ns w e h av e t a k en t o c u rb c o unte rfe itin g a n d p ro te ct o ur i n te lle ctu al p ro perty w ill b e a d eq uate t o p ro te ct t h e b ra n d a n d p re v en t c o unte rfe itin g i n t h e f u tu re . O ur t ra d em ark a p plic atio ns m ay f a il t o r e su lt i n re g is te re d tra d em ark s o r p ro vid e th e s c o pe o f c o vera g e s o ught. F urth erm ore , o ur e ffo rts to e n fo rc e o ur in te lle ctu al p ro perty rig hts a re o fte n m et w ith d efe n se s a n d c o unte rc la im s a tta ck in g th e v alid ity a n d e n fo rc eab ility o f o ur in te lle ctu al p ro perty rig hts . U npla n ned in cre ase s in le g al fe es a n d o th er c o sts a sso cia te d w ith d efe n din g o ur i n te lle ctu al p ro perty r ig hts c o uld r e su lt i n h ig her o pera tin g e x pen se s. F in ally , m an y c o untrie s’ l a w s d o n ot p ro te ct i n te lle ctu al p ro perty r ig hts t o t h e s a m e d eg re e a s U .S . l a w s. O ur b usin ess i s s u bje ct t o t h e r is k s i n here n t i n g lo bal s o urc in g a ctiv itie s. As a C om pan y e n gag ed i n s o urc in g o n a g lo bal s c ale , w e a re s u bje ct t o t h e r is k s i n here n t i n s u ch a ctiv itie s, i n clu din g, b ut n ot l im ite d t o : • unav aila b ility o f, o r s ig nific an t f lu ctu atio ns i n t h e c o st o f, r a w m ate ria ls ; • co m plia n ce b y u s a n d o ur i n dep en den t m an ufa ctu re rs a n d s u pplie rs w ith l a b or l a w s a n d o th er f o re ig n g overn m en ta l r e g ula tio ns; 16 • im positio n o f a d ditio nal d utie s, t a x es a n d o th er c h arg es o n i m ports o r e x ports ; • in cre ase s i n t h e c o st o f l a b or, f u el ( in clu din g v ola tility i n t h e p ric e o f o il), t ra v el a n d t ra n sp orta tio n; • co m plia n ce w ith o ur G lo bal B usin ess I n te g rity P ro gra m ; • co m plia n ce b y o ur i n dep en den t m an ufa ctu re rs a n d s u pplie rs w ith o ur G lo bal O pera tin g P rin cip le s a n d/o r S upplie r C ode o f C onduct, a s a p plic ab le ; • co m plia n ce w ith U .S . l a w s r e g ard in g t h e i d en tific atio n a n d r e p ortin g o n t h e u se o f “ co nflic t m in era ls ” s o urc ed f ro m t h e D em ocra tic R ep ublic o f t h e Congo i n t h e C om pan y’s p ro ducts a n d t h e F C PA a n d U .K . B rib ery A ct, a s a p plic ab le ; • dis ru ptio ns o r d ela y s i n s h ip m en ts ; • lo ss o r i m pairm en t o f k ey m an ufa ctu rin g o r d is trib utio n s ite s; • in ab ility t o e n gag e n ew i n dep en den t m an ufa ctu re rs t h at m eet t h e C om pan y’s c o st-e ffe ctiv e s o urc in g m odel; • pro duct q uality i s su es; • politic al u nre st; • unfo re se en p ublic h ealth c ris e s, s u ch a s p an dem ic a n d e p id em ic d is e ase s; • natu ra l d is a ste rs o r o th er e x tre m e w eath er e v en ts , w heth er a s a r e su lt o f c lim ate c h an ge o r o th erw is e ; a n d • acts o f w ar o r t e rro ris m a n d o th er e x te rn al f a cto rs o ver w hic h w e h av e n o c o ntro l. We a re su bje ct to la b or la w s g overn in g re la tio nsh ip s w ith e m plo yees, in clu din g m in im um w ag e re q uire m en ts , o vertim e, w ork in g c o nditio ns, a n d c itiz en sh ip re q uire m en ts . C om plia n ce w ith th ese la w s m ay le ad to in cre ase d co sts an d o pera tio nal co m ple x ity an d m ay in cre ase o ur ex posu re to g overn m en ta l i n vestig atio ns o r l itig atio n. In a d ditio n, w e r e q uire o ur i n dep en den t m an ufa ctu re rs a n d s u pplie rs t o o pera te i n c o m plia n ce w ith a p plic ab le l a w s a n d r e g ula tio ns, a s w ell a s o ur G lo bal O pera tin g P rin cip le s a n d/o r S upplie r C ode o f C onduct; h ow ev er, w e d o n ot c o ntro l th ese m an ufa ctu re rs o r s u pplie rs o r th eir la b or, e n viro nm en ta l o r o th er b usin ess p ra ctic es. C opie s o f o ur G lo bal B usin ess In te g rity P ro gra m , G lo bal O pera tin g P rin cip le s a n d S upplie r C ode o f C onduct a re a v aila b le th ro ugh o ur w eb site , w ww.c o ach .c o m . T he v io la tio n o f l a b or, e n viro nm en ta l o r o th er l a w s b y a n i n dep en den t m an ufa ctu re r o r s u pplie r, o r d iv erg en ce o f a n i n dep en den t m an ufa ctu re r’s o r su pplie r’s la b or p ra ctic es fro m th ose g en era lly a ccep te d a s e th ic al o r a p pro pria te in th e U .S ., c o uld in te rru pt o r o th erw is e d is ru pt th e s h ip m en t o f o ur p ro ducts , h arm o ur tra d em ark s o r d am ag e o ur re p uta tio n. T he o ccu rre n ce o f a n y o f th ese e v en ts c o uld m ate ria lly a d vers e ly a ffe ct o ur b usin ess, f in an cia l c o nditio n a n d r e su lts o f o pera tio ns. We a re d ep en den t o n a l im ite d n um ber o f d is trib utio n a n d s o urc in g c en te rs . O ur a b ility t o m eet t h e n eed s o f o ur c u sto m ers a n d o ur r e ta il s to re s a n d e – c o m merc e s ite s d ep en ds o n t h e p ro per o pera tio n o f t h ese c en te rs . I f a n y o f t h ese c en te rs w ere t o s h ut d ow n o r o th erw is e b eco m e i n opera b le o r i n accessib le f o r a n y re aso n, w e c o uld s u ffe r a s u bsta n tia l lo ss o f in ven to ry a n d/o r d is ru ptio ns o f d eliv erie s to o ur re ta il a n d w hole sa le c u sto m ers . W hile w e h av e b usin ess c o ntin uity a n d c o ntin gen cy p la n s f o r o ur s o urc in g a n d d is trib utio n c en te r s ite s, s ig nific an t d is ru ptio n o f m an ufa ctu rin g o r d is trib utio n f o r a n y o f t h e a b ove r e aso ns c o uld i n te rru pt p ro duct s u pply , r e su lt i n a s u bsta n tia l l o ss o f i n ven to ry , i n cre ase o ur c o sts , d is ru pt d eliv erie s t o o ur c u sto m ers a n d o ur r e ta il s to re s, a n d, if n ot re m ed ie d in a tim ely m an ner, c o uld h av e a m ate ria l a d vers e im pact o n o ur b usin ess. B ecau se o ur d is trib utio n c en te rs in clu de a u to m ate d a n d c o m pute r c o ntro lle d e q uip m en t, th ey a re s u sc ep tib le to ris k s in clu din g p ow er in te rru ptio ns, h ard w are a n d s y ste m fa ilu re s, s o ftw are v iru se s, a n d s e cu rity b re ach es. W e m ain ta in a d is trib utio n c en te r in Ja ck so nville , F lo rid a, o pera te d b y C oach . T o su pport o ur g ro w th in m ain la n d C hin a a n d E uro pe, w e e sta b lis h ed d is trib utio n c en te rs i n S han ghai, C hin a a n d O ld en zaal, T he N eth erla n ds, o w ned a n d o pera te d b y a t h ird -p arty , a llo w in g u s t o b ette r m an ag e t h e l o gis tic s in th ese re g io ns w hile re d ucin g c o sts . W e a ls o o pera te d is trib utio n c en te rs , th ro ugh th ird -p artie s, in J a p an , m ain la n d C hin a, H ong K ong, M acau , S in gap ore , T aiw an , M ala y sia , T he U nite d S ta te s, S pain , C an ad a a n d S outh K ore a. T he w are h ousin g o f t h e C om pan y’s m erc h an dis e , s to re r e p le n is h m en t a n d p ro cessin g d ire ct-to -c u sto m er o rd ers i s h an dle d b y t h ese c en te rs a n d a p ro lo nged d is ru ptio n i n a n y c en te r’s o pera tio n c o uld m ate ria lly a d vers e ly a ffe ct o ur b usin ess a n d o pera tio ns. W e a re s u bje ct t o r is k s a sso cia te d w ith l e a sin g r e ta il s p ace s u bje ct t o l o ng-te rm a nd n on-c a ncela ble l e a se s. W e m ay b e u nable t o r e n ew l e a se s a t t h e e n d o f t h eir t e rm s. I f w e c lo se a l e a se d r e ta il s p ace, w e r e m ain o blig ate d u nder t h e a pplic a ble l e a se . We d o n ot o w n a n y o f o ur r e ta il s to re l o catio ns. W e l e ase o ur c o rp ora te -o w ned s to re s u nder l o ng-te rm , n on-c an cela b le l e ase s, w hic h u su ally h av e i n itia l t e rm s r a n gin g f ro m f iv e a n d t e n y ears , w ith r e n ew al o ptio ns t y pic ally i n f iv e y ear i n cre m en ts . W e b elie v e t h at t h e l e ase s w e e n te r i n to i n t h e f u tu re w ill l ik ely b e l o ng-te rm a n d n on-c an cela b le a n d h av e s im ila r r e n ew al o ptio ns. G en era lly , o ur l e ase s a re “ n et” l e ase s, w hic h r e q uire u s t o p ay o ur p ro portio nate s h are o f t h e c o st o f i n su ra n ce, t a x es, m ain te n an ce a n d u tilitie s. W e g en era lly c an not c an cel t h ese l e ase s a t o ur o ptio n. I f w e d ete rm in e t h at i t i s n o l o nger e co nom ic al t o o pera te a re ta il s to re s u bje ct to a le ase a n d d ecid e to c lo se it a s w e h av e d one in th e p ast a n d w ill d o in th e fu tu re , w e m ay re m ain o blig ate d u nder th e a p plic ab le l e ase f o r, a m ong o th er t h in gs, p ay m en t o f t h e b ase r e n t f o r t h e b ala n ce o f t h e l e ase t e rm . I n s o m e i n sta n ces, w e m ay b e 17 u nab le t o c lo se a n u nderp erfo rm in g r e ta il s to re d ue t o c o ntin uous o pera tio n c la u se s i n o ur l e ase a g re em en ts . I n a d ditio n, a s e ach o f o ur l e ase s e x pire , w e m ay b e u nab le to n eg otia te re n ew als , e ith er o n c o m merc ia lly a ccep ta b le te rm s o r a t a ll, w hic h c o uld c au se u s to c lo se re ta il s to re s in d esira b le lo catio ns. O ur i n ab ility to se cu re d esira b le re ta il sp ace o r fa v ora b le le ase te rm s c o uld im pact o ur a b ility to g ro w . L ik ew is e , o ur o blig atio n to c o ntin ue m ak in g le ase p ay m en ts i n r e sp ect o f l e ase s f o r c lo se d r e ta il s p aces c o uld h av e a m ate ria l a d vers e e ffe ct o n o ur b usin ess, f in an cia l c o nditio n a n d r e su lts o f o pera tio ns. O ur s u ccess d ep en ds, i n p art, o n a ttr a ctin g, d evelo pin g a nd r e ta in in g q ualifie d e m plo yees, i n clu din g k ey p erso nnel. The a b ility to s u ccessfu lly e x ecu te a g ain st o ur g oals is h eav ily d ep en den t o n a ttra ctin g, d ev elo pin g a n d re ta in in g q ualifie d e m plo yees, in clu din g o ur s e n io r m an ag em en t t e am . C om petitio n i n o ur i n dustry t o a ttra ct a n d r e ta in t h ese e m plo yees i s i n te n se a n d i s i n flu en ced b y: o ur a b ility t o o ffe r c o m petitiv e c o m pen sa tio n a n d b en efits , e m plo yee m ora le , o ur re p uta tio n, re cru itm en t b y o th er e m plo yers , p erc eiv ed in te rn al o pportu nitie s, n on-c o m petitio n a n d n on- s o lic ita tio n a g re em en ts a n d m acro u nem plo ym en t ra te s. O ur tra n sfo rm atio n p la n a n d o pera tio nal e ffic ie n cy in itia tiv es a n d th eir a tte n dan t o rg an iz atio nal c h an ges, a s w ell a s t h e i m pact o f B re x it, m ay i n te n sify t h is r is k . We d ep en d o n t h e g uid an ce o f o ur s e n io r m an ag em en t t e am a n d o th er k ey e m plo yees w ho h av e s ig nific an t e x perie n ce a n d e x pertis e i n o ur i n dustry a n d o ur o pera tio ns. I n r e cen t y ears , w e h av e e v olv ed o ur s e n io r l e ad ers h ip t e am a n d h av e f o cu se d o n r e ta in in g k ey r o le s. T he u nex pecte d l o ss o f o ne o r m ore o f o ur k ey p ers o nnel o r a n y n eg ativ e p ublic p erc ep tio n w ith re sp ect to th ese in div id uals c o uld h av e a m ate ria l a d vers e e ffe ct o n o ur b usin ess, re su lts o f o pera tio ns a n d fin an cia l c o nditio n. W e d o n ot m ain ta in k ey -p ers o n o r sim ila r life in su ra n ce p olic ie s o n a n y o f se n io r m an ag em en t te am o r o th er k ey p ers o nnel. O ur N orth A m eric a n w hole sa le b usin ess c o uld s u ffe r a s a r e su lt o f c o nso lid atio ns, l iq uid atio ns, r e str u ctu rin gs a nd o th er o w nersh ip c h anges i n t h e r e ta il i n dustr y . Our N orth A m eric an w hole sa le b usin ess c o m pris e d a p pro xim ate ly 4 % o f to ta l n et s a le s fo r fis c al 2016 . C ontin ued fra g m en ta tio n in th e re ta il in dustry c o uld fu rth er d ecre ase th e n um ber o f, o r c o ncen tra te th e o w ners h ip o f, s to re s th at c arry o ur a n d o ur lic en se es’ p ro ducts . F urth erm ore , a d ecis io n b y th e c o ntro llin g o w ner o f a g ro up o f s to re s o r a n y o th er s ig nific an t c u sto m er, w heth er m otiv ate d b y c o m petitiv e c o nditio ns, f in an cia l d iffic u ltie s o r o th erw is e , t o d ecre ase o r e lim in ate t h e a m ount o f m erc h an dis e p urc h ase d f ro m u s o r o ur l ic en sin g p artn ers c o uld r e su lt i n a n a d vers e e ffe ct o n t h e s a le s a n d p ro fita b ility w ith in t h is c h an nel. Additio nally , c erta in o f o ur w hole sa le c u sto m ers , p artic u la rly t h ose l o cate d i n t h e U .S ., h av e b eco m e h ig hly p ro m otio nal a n d h av e a g gre ssiv ely m ark ed d ow n t h eir m erc h an dis e . D esp ite o ur p la n ned r e d uctio n i n m ark dow n a llo w an ces d urin g f is c al 2 017, s u ch p ro m otio nal a ctiv ity c o uld n eg ativ ely i m pact o ur b ra n ds, w hic h c o uld a ffe ct o ur b usin ess, r e su lts o f o pera tio ns, a n d f in an cia l c o nditio n. A s w e o uts o urc e f u nctio ns, w e w ill b eco m e m ore d ep en den t o n t h e t h ir d p artie s p erfo rm in g t h ese f u nctio ns. As p art o f o ur lo ng-te rm s tra te g y, w e lo ok fo r o pportu nitie s to c o st e ffe ctiv ely e n han ce c ap ab ility o f b usin ess s e rv ic es. W hile w e b elie v e w e c o nduct a p pro pria te d ue d ilig en ce b efo re e n te rin g i n to a g re em en ts w ith t h ese t h ird p artie s, t h e f a ilu re o f a n y o f t h ese t h ird p artie s t o p ro vid e t h e e x pecte d s e rv ic es, p ro vid e t h em o n a t im ely b asis o r t o p ro vid e t h em a t t h e p ric es w e e x pect c o uld d is ru pt o r h arm o ur b usin ess. A ny s ig nific an t i n te rru ptio n i n t h e o pera tio ns o f t h ese s e rv ic e p ro vid ers , o ver w hic h w e h av e n o c o ntro l, c o uld a ls o h av e a n a d vers e e ffe ct o n o ur b usin ess. F urth erm ore , w e m ay b e u nab le t o p ro vid e t h ese s e rv ic es o r i m ple m en t s u bstitu te a rra n gem en ts o n a t im ely a n d c o st-e ffe ctiv e b asis o n t e rm s f a v ora b le t o u s. F lu ctu atio ns i n o ur t a x o blig atio ns a nd e ffe ctiv e t a x r a te m ay r e su lt i n v o la tility o f o ur f in ancia l r e su lts a nd s to ck p ric e. We a re su bje ct to in co m e ta x es in m an y ju ris d ic tio ns. W e re co rd ta x e x pen se b ase d o n o ur e stim ate s o f ta x ab le in co m e a n d re q uire d re se rv es fo r u ncerta in t a x p ositio ns i n m ultip le t a x j u ris d ic tio ns. A t a n y o ne t im e, m ultip le t a x y ears a re s u bje ct t o a u dit b y v ario us t a x in g j u ris d ic tio ns. T he r e su lts o f t h ese a u dits a n d n eg otia tio ns w ith ta x in g a u th oritie s m ay re su lt in a se ttle m en t w hic h d iffe rs fro m o ur o rig in al e stim ate . A s a re su lt, w e e x pect th at t h ro ughout t h e y ear t h ere c o uld b e o ngoin g v aria b ility i n o ur q uarte rly t a x r a te s a s e v en ts o ccu r a n d e x posu re s a re e v alu ate d . I n a d ditio n, o ur e ffe ctiv e t a x r a te i n a g iv en f in an cia l s ta te m en t p erio d m ay b e m ate ria lly i m pacte d b y c h an ges i n t h e m ix a n d l e v el o f e arn in gs. F urth er, p ro pose d t a x c h an ges t h at m ay b e e n acte d i n t h e f u tu re c o uld n eg ativ ely i m pact o ur c u rre n t o r f u tu re t a x s tru ctu re a n d e ffe ctiv e t a x r a te s. O ur o pera tin g r e su lts a re s u bje ct t o s e a so nal a nd q uarte rly f lu ctu atio ns, w hic h c o uld a dverse ly a ffe ct t h e m ark et p ric e o f t h e C om pany’s c o m mon s to ck . Seaso nality p rim arily i m pacts t h e C oach b ra n d. B ecau se C oach b ra n d’s p ro ducts a re f re q uen tly g iv en a s g ifts , w e h av e h is to ric ally r e aliz ed , a n d e x pect t o c o ntin ue to re aliz e, h ig her sa le s a n d o pera tin g in co m e in th e se co nd q uarte r o f o ur fis c al y ear, w hic h in clu des th e h olid ay m onth s o f N ovem ber a n d D ecem ber. P oor s a le s in th e C om pan y’s s e co nd fis c al q uarte r w ould h av e a m ate ria l a d vers e e ffe ct o n its fu ll y ear o pera tin g re su lts a n d re su lt in h ig her i n ven to rie s. In a d ditio n, flu ctu atio ns in n et s a le s, o pera tin g in co m e a n d o pera tin g c ash flo w s o f th e C om pan y in a n y fis c al q uarte r m ay b e a ffe cte d b y th e t im in g o f w hole sa le s h ip m en ts a n d o th er e v en ts a ffe ctin g r e ta il s a le s, i n clu din g a d vers e w eath er c o nditio ns o r o th er m acro eco nom ic e v en ts . 18 W e r e ly o n o ur l ic en sin g p artn ers t o p re se rv e t h e v a lu e o f o ur l ic en se s a nd t h e f a ilu re t o m ain ta in s u ch p artn ers c o uld h arm o ur b usin ess. We cu rre n tly hav e m ulti-y ear ag re em en ts with lic en sin g partn ers fo r our fo otw ear, ey ew ear, watc h es an d fra g ra n ce pro ducts . See Ite m 1 – “ Busin ess – P ro ducts ” fo r a d ditio nal d is c u ssio n o f o ur lic en sin g a rra n gem en ts . In th e fu tu re , w e m ay e n te r in to a d ditio nal lic en sin g a rra n gem en ts . T he r is k s a sso cia te d w ith o ur o w n p ro ducts a ls o a p ply t o o ur l ic en se d p ro ducts a s w ell a s u niq ue p ro ble m s t h at o ur l ic en sin g p artn ers m ay e x perie n ce, i n clu din g r is k s a sso cia te d w ith e ach l ic en sin g p artn er’s a b ility t o o bta in c ap ita l, m an ag e i ts l a b or r e la tio ns, m ain ta in r e la tio nsh ip s w ith i ts s u pplie rs , m an ag e i ts c re d it a n d b an kru ptc y r is k s, a n d m ain ta in c u sto m er r e la tio nsh ip s. W hile w e m ain ta in s ig nific an t c o ntro l o ver t h e p ro ducts p ro duced f o r u s b y o ur l ic en sin g p artn ers , a n y o f t h e f o re g oin g r is k s, o r t h e i n ab ility o f a n y o f o ur l ic en sin g p artn ers t o e x ecu te o n t h e e x pecte d d esig n a n d q uality o f t h e l ic en se d p ro ducts o r o th erw is e e x erc is e o pera tio nal a n d f in an cia l c o ntro l o ver i ts b usin ess, m ay r e su lt i n l o ss o f r e v en ue a n d c o m petitiv e h arm t o o ur o pera tio ns i n t h e p ro duct c ate g orie s w here w e h av e e n te re d in to s u ch lic en sin g a rra n gem en ts . F urth er, w hile w e b elie v e th at w e c o uld re p la ce o ur e x is tin g lic en sin g p artn ers if re q uire d , o ur i n ab ility t o d o s o f o r a n y p erio d o f t im e c o uld m ate ria lly a d vers e ly a ffe ct o ur r e v en ues a n d h arm o ur b usin ess. We a ls o m ay d ecid e n ot t o r e n ew o ur a g re em en ts w ith o ur l ic en sin g p artn ers . F or e x am ple , w e d o n ot i n te n d t o r e n ew o ur a g re em en t w ith o ur e x is tin g f o otw ear l ic en sin g p artn er w hen i t e x pire s i n l a te f is c al 2 017, a n d b rin g t h e c ate g ory i n -h ouse . W hile w e b elie v e w e h av e t h e i n fra stru ctu re a n d s y ste m s i n p la ce t o b rin g t h is c ate g ory i n -h ouse , w e m ay f a ce u nex pecte d d iffic u ltie s o r c o sts i n c o nnectio n w ith t h is p ro cess. I f w e a re u nable t o p ay q uarte rly d iv id en ds a t i n te n ded l e vels , o ur r e p uta tio n a nd s to ck p ric e m ay b e h arm ed . The d iv id en d p ro gra m re q uire s th e u se o f a m odera te p ortio n o f o ur c ash flo w . O ur a b ility to p ay d iv id en ds w ill d ep en d o n o ur a b ility to g en era te s u ffic ie n t c ash f lo w s f ro m o pera tio ns i n t h e f u tu re . T his a b ility m ay b e s u bje ct t o c erta in e co nom ic , f in an cia l, c o m petitiv e a n d o th er f a cto rs t h at a re b ey ond o ur c o ntro l. O ur B oard o f D ire cto rs ( “ B oard ”) m ay , a t i ts d is c re tio n, d ecre ase t h e i n te n ded l e v el o f d iv id en ds o r e n tire ly d is c o ntin ue t h e p ay m en t o f d iv id en ds a t a n y t im e. A ny f a ilu re t o p ay d iv id en ds a fte r w e h av e a n nounced o ur i n te n tio n t o d o s o m ay n eg ativ ely i m pact o ur r e p uta tio n, i n vesto r c o nfid en ce i n u s a n d n eg ativ ely i m pact o ur s to ck p ric e. C hanges in o ur c re d it p ro file o r d ete rio ra tio n in m ark et c o nditio ns m ay lim it o ur a ccess to th e c re d it a nd c a pita l m ark ets a nd a dverse ly im pact o ur f in ancia l r e su lts o r o ur b usin ess i n itia tiv es. We h av e m ain ta in ed a n d a ccesse d r e v olv in g c re d it f a cilitie s a n d i s su ed d eb t s e cu ritie s a s a s o urc e o f l iq uid ity , a lo ng w ith c ash f lo w s g en era te d f ro m o ur o pera tio ns, o ur a v aila b le c ash a n d c ash e q uiv ale n ts a n d s h ort-te rm in vestm en ts , o ur n on-c u rre n t in vestm en ts , a n d o th er a v aila b le fin an cin g o ptio ns. W e r e m ain c o m mitte d t o m ain ta in in g a s tro ng f in an cia l p ro file w ith a m ple l iq uid ity . O ur a b ility t o a ccess t h e c re d it a n d c ap ita l m ark ets i n t h e f u tu re a s a s o urc e o f f u ndin g, a n d t h e b orro w in g c o sts a sso cia te d w ith s u ch f in an cin g, i s d ep en den t u pon m ark et c o nditio ns a n d o ur c re d it r a tin g a n d o utlo ok. W e c o uld e x perie n ce d is ru ptio ns t o o ur o pera tio ns i n c o nnectio n w ith t h e r e lo ca tio n t o o ur n ew g lo bal c o rp ora te h ea dquarte rs. The C om pan y e n te re d i n to v ario us a g re em en ts r e la tin g t o t h e d ev elo pm en t o f t h e C om pan y’s n ew g lo bal c o rp ora te h ead quarte rs i n a n ew o ffic e b uild in g l o cate d a t 1 0 H udso n Y ard s i n N ew Y ork C ity . O n A ugust 1 , 2 016, t h e C om pan y s o ld i ts o w ners h ip i n te re st i n t h e b uild in g a n d s u bsta n tia lly a ll o f t h e r e la te d t e n an t im pro vem en ts fo r a p urc h ase p ric e o f a p pro xim ate ly $ 707 m illio n (n et o f a p pro xim ate ly $ 77 m illio n d ue to th e d ev elo per o f H udso n Y ard s) b efo re t ra n sa ctio n c o sts o f $ 26 m illio n, r e su ltin g i n a g ain o f a b out $ 30 m illio n, w hic h w ill b e a m ortiz ed t h ro ugh s e llin g, g en era l a n d a d m in is tra tiv e e x pen se s o ver t h e le ase te rm o f 2 0 y ears . T he C om pan y h as s im ulta n eo usly e n te re d in to a 2 0-y ear le ase fo r th e h ead quarte rs s p ace, c o m pris e d o f a p pro xim ate ly 6 94,0 00 s q uare f e et. R efe r t o N ote 1 1, ” C om mitm en ts a n d C ontin gen cie s,” a n d N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. W e b eg an o ccu pyin g t h e n ew b uild in g d urin g f is c al 2 016, w ith o ccu pan cy i n t h e n ew g lo bal h ead quarte rs e x pecte d t o b e c o m ple te i n t h e f irs t h alf o f f is c al 2 017. Due t o t h e i n here n t d iffic u lty i n e stim atin g c o sts a sso cia te d w ith p ro je cts o f t h is s c ale a n d n atu re , c erta in o f t h e c o sts a sso cia te d w ith t h is p ro je ct m ay b e h ig her th an e stim ate d a n d it m ay ta k e lo nger th an e x pecte d to c o m ple te th e p ro je ct. In a d ditio n, th e p ro cess o f m ovin g o ur h ead quarte rs is in here n tly c o m ple x a n d n ot p art o f o ur d ay t o d ay o pera tio ns. T hus, o ur m ove c o uld c au se s ig nific an t d is ru ptio n t o o ur o pera tio ns a n d c au se t h e t e m pora ry d iv ers io n o f m an ag em en t r e so urc es, a ll o f w hic h c o uld h av e a m ate ria l a d vers e e ffe ct o n o ur b usin ess. P ro vis io ns i n t h e C om pany’s c h arte r, b yla w s a nd M ary la nd l a w m ay d ela y o r p re ven t a n a cq uis itio n o f t h e C om pany b y a t h ir d p arty . The C om pan y’s c h arte r, b yla w s a n d M ary la n d l a w c o nta in p ro vis io ns t h at c o uld m ak e i t m ore d iffic u lt f o r a t h ird p arty t o a cq uire t h e C om pan y w ith out t h e c o nse n t o f o ur B oard . T he C om pan y’s c h arte r p erm its i ts B oard , w ith out s to ck hold er a p pro val, t o a m en d t h e c h arte r t o i n cre ase o r d ecre ase t h e a g gre g ate n um ber o f s h are s o f s to ck o r t h e n um ber o f s h are s o f s to ck o f a n y c la ss o r s e rie s t h at t h e C om pan y h as t h e a u th ority t o i s su e. I n a d ditio n, t h e C om pan y’s B oard m ay c la ssify o r re cla ssify a n y u nis su ed s h are s o f c o m mon s to ck o r p re fe rre d s to ck a n d m ay s e t th e p re fe re n ces, rig hts a n d o th er te rm s o f th e c la ssifie d o r r e cla ssifie d 19 s h are s. A lth ough t h e C om pan y’s B oard h as n o i n te n tio n t o d o s o a t t h e p re se n t t im e, i t c o uld e sta b lis h a s e rie s o f p re fe rre d s to ck t h at c o uld h av e t h e e ffe ct o f d ela y in g, d efe rrin g o r p re v en tin g a t ra n sa ctio n o r a c h an ge i n c o ntro l t h at m ig ht i n volv e a p re m iu m p ric e f o r t h e C om pan y’s c o m mon s to ck o r o th erw is e b e i n t h e b est i n te re st o f t h e C om pan y’s s to ck hold ers . The C om pan y’s b yla w s c an o nly b e a m en ded b y o ur B oard . T he C om pan y’s b yla w s a ls o p ro vid e th at n om in atio ns o f p ers o ns fo r e le ctio n to th e C om pan y’s B oard a n d t h e p ro posa l o f b usin ess t o b e c o nsid ere d a t a s to ck hold ers m eetin g m ay b e m ad e o nly i n t h e n otic e o f t h e m eetin g, b y t h e C om pan y’s B oard o r b y a s to ck hold er w ho i s e n title d t o v ote a t t h e m eetin g a n d h as c o m plie d w ith t h e a d van ce n otic e p ro ced ure s o f t h e C om pan y’s b yla w s. A ls o , u nder M ary la n d l a w , b usin ess c o m bin atio ns, i n clu din g i s su an ces o f e q uity s e cu ritie s, b etw een t h e C om pan y a n d a n y p ers o n w ho b en efic ia lly o w ns 1 0% o r m ore o f t h e C om pan y’s c o m mon s to ck o r a n a ffilia te o f s u ch p ers o n a re p ro hib ite d fo r a fiv e-y ear p erio d, b eg in nin g o n th e d ate s u ch p ers o n la st b eco m es a 1 0% s to ck hold er, u nle ss ex em pte d in acco rd an ce w ith th e sta tu te . A fte r th is p erio d, a co m bin atio n o f th is ty pe m ust b e ap pro ved b y tw o su per-m ajo rity s to ck hold er v ote s, u nle ss s o m e c o nditio ns a re m et o r t h e b usin ess c o m bin atio n i s e x em pte d b y t h e C om pan y’s B oard . R is k s r ela tin g t o o ur H ong K ong D ep osita ry R eceip ts ( “ H DRs” ) A n a ctiv e t r a din g m ark et f o r t h e H ong K ong D ep osita ry R eceip ts o n t h e H ong K ong S to ck E xch ange m ig ht n ot d evelo p o r b e s u sta in ed a nd t h eir t r a din g p ric es m ig ht f lu ctu ate s ig nific a ntly . We c an not a ssu re y ou t h at a n a ctiv e t ra d in g m ark et f o r t h e H DRs o n t h e H ong K ong S to ck E xch an ge w ill d ev elo p o r b e s u sta in ed . I f a n a ctiv e t ra d in g m ark et o f t h e H DRs o n t h e H ong K ong S to ck E xch an ge d oes n ot d ev elo p o r i s n ot s u sta in ed , t h e m ark et p ric e a n d l iq uid ity o f t h e H DRs c o uld b e m ate ria lly a n d a d vers e ly a ffe cte d . A s a r e su lt, t h e m ark et p ric e f o r H DRs i n H ong K ong m ig ht n ot b e i n dic ativ e o f t h e t ra d in g p ric es o f C oach ’s c o m mon s to ck o n t h e N YSE , e v en a llo w in g f o r c u rre n cy d iffe re n ces. T he c h ara cte ris tic s o f t h e U .S . c a pita l m ark ets a nd t h e H ong K ong c a pita l m ark ets a re d iffe re n t. The N YSE a n d th e H ong K ong S to ck E xch an ge h av e d iffe re n t tra d in g h ours , tra d in g c h ara cte ris tic s (in clu din g tra d in g v olu m e a n d liq uid ity ), tra d in g a n d l is tin g r u le s, a n d i n vesto r b ase s ( in clu din g d iffe re n t l e v els o f r e ta il a n d i n stitu tio nal p artic ip atio n). A s a r e su lt o f t h ese d iffe re n ces, t h e t ra d in g p ric es o f c o m mon s to ck a n d t h e H DRs r e p re se n tin g t h em m ig ht n ot b e t h e s a m e, e v en a llo w in g f o r c u rre n cy d iffe re n ces. F lu ctu atio ns i n t h e p ric e o f o ur c o m mon s to ck d ue t o c irc u m sta n ces p artic u la r t o t h e U .S . c ap ita l m ark ets c o uld m ate ria lly a n d a d vers e ly a ffe ct t h e p ric e o f t h e H DRs. B ecau se o f t h e d iffe re n t c h ara cte ris tic s o f t h e U .S . a n d H ong K ong e q uity m ark ets , t h e h is to ric m ark et p ric es o f o ur c o m mon s to ck m ay n ot b e i n dic ativ e o f t h e p erfo rm an ce o f t h e H DRs. W e a re a c o rp ora tio n i n co rp ora te d i n t h e S ta te o f M ary la nd i n t h e U nite d S ta te s a nd o ur c o rp ora te g overn ance p ra ctic es a re p rin cip ally g overn ed b y U .S . f e d era l a nd M ary la nd s ta te l a w s a nd r e g ula tio ns. We a re a c o rp ora tio n in co rp ora te d in th e S ta te o f M ary la n d in th e U nite d S ta te s a n d o ur H DRs a re lis te d o n th e H ong K ong S to ck E xch an ge. O ur c o rp ora te g overn an ce p ra ctic es a re p rim arily g overn ed b y a n d s u bje ct t o U .S . f e d era l a n d M ary la n d l a w s a n d r e g ula tio ns. U .S . f e d era l a n d M ary la n d l a w s a n d r e g ula tio ns d iffe r in a n um ber o f re sp ects fro m c o m para b le la w s a n d re g ula tio ns in H ong K ong. T here a re c erta in d iffe re n ces b etw een th e sto ck hold er p ro te ctio n r e g im es i n M ary la n d a n d t h e U nite d S ta te s a n d i n H ong K ong. We h av e o bta in ed a r u lin g f ro m t h e S ecu ritie s a n d F utu re s C om mis sio n o f H ong K ong ( th e “ S FC ”) t h at w e w ill n ot b e r e g ard ed a s a p ublic C om pan y i n H ong K ong f o r t h e p urp ose s o f t h e C ode o n T ak eo vers a n d M erg ers a n d t h e S hare R ep urc h ase s C ode o f H ong K ong a n d h en ce, t h ese c o des w ill n ot a p ply t o u s. W e h av e a ls o o bta in ed a p artia l e x em ptio n f ro m t h e S FC i n r e sp ect o f t h e d is c lo su re o f i n te re st p ro vis io ns s e t o ut i n t h e S ecu ritie s a n d F utu re s O rd in an ce o f H ong K ong. I n a d ditio n, w e h av e b een g ra n te d w aiv ers o r e x em ptio ns b y t h e H ong K ong S to ck E xch an ge f ro m c erta in r e q uire m en ts u nder i ts l is tin g r u le s. N eith er o ur s to ck hold ers n or th e H DR h old ers w ill h av e th e b en efit o f th ose H ong K ong ru le s, re g ula tio ns a n d th e lis tin g ru le s o f th e H ong K ong S to ck E xch an ge f o r w hic h w e h av e a p plie d , a n d b een g ra n te d , w aiv ers o r e x em ptio ns b y t h e H ong K ong S to ck E xch an ge a n d S FC . Additio nally , i f a n y o f t h ese w aiv ers o r e x em ptio ns w ere t o b e r e v oked i n c irc u m sta n ces i n clu din g o ur n on-c o m plia n ce w ith a p plic ab le u nderta k in gs f o r a n y r e aso n, a d ditio nal l e g al a n d c o m plia n ce o blig atio ns m ig ht b e c o stly a n d t im e c o nsu m in g, a n d m ig ht r e su lt i n i s su es o f i n te rju ris d ic tio nal c o m plia n ce, w hic h c o uld a d vers e ly a ffe ct u s a n d H DR h old ers . As t h e S FC d oes n ot h av e e x tra -te rrito ria l j u ris d ic tio n o n a n y o f i ts p ow ers o f i n vestig atio n a n d e n fo rc em en t, i t w ill a ls o h av e t o r e ly o n t h e r e g ula to ry r e g im es o f M ary la n d s ta te a u th oritie s a n d t h e S E C t o e n fo rc e a n y c o rp ora te g overn an ce b re ach es c o m mitte d b y u s i n t h e U nite d S ta te s. I n vesto rs i n t h e H DRs s h ould b e a w are t h at i t c o uld b e d iffic u lt t o e n fo rc e a n y j u dgm en t o bta in ed o uts id e t h e U nite d S ta te s a g ain st u s o r a n y o f o ur a sso cia te s. Furth erm ore , p ro sp ectiv e i n vesto rs i n t h e H DRs s h ould b e a w are , a m ong o th er t h in gs, t h at t h ere a re U .S . f e d era l w ith hold in g a n d e sta te t a x i m plic atio ns f o r H DR h old ers . 20 H DR h old ers a re n ot s to ck hold ers o f t h e C om pany a nd m ust r e ly o n t h e d ep osita ry f o r t h e H DRs ( th e “ H DR D ep osita ry ” ) t o e x erc is e o n t h eir b eh alf t h e r ig hts t h at a re o th erw is e a va ila ble t o t h e s to ck hold ers o f t h e C om pany. HDR h old ers d o n ot h av e t h e r ig hts o f s to ck hold ers . T hey o nly h av e t h e c o ntra ctu al r ig hts s e t f o rth f o r t h eir b en efit u nder t h e d ep osit a g re em en t f o r t h e H DRs ( th e “ D ep osit A gre em en t” ). H old ers o f H DRs a re n ot p erm itte d t o v ote a t s to ck hold ers ’ m eetin gs, a n d t h ey m ay o nly v ote b y p ro vid in g i n stru ctio ns t o t h e H DR D ep osita ry . T here i s n o g uara n te e t h at h old ers o f H DRs w ill r e ceiv e v otin g m ate ria ls i n t im e t o i n stru ct t h e H DR D ep osita ry t o v ote a n d i t i s p ossib le t h at h old ers o f H DRs, o r p ers o ns w ho h old t h eir H ong K ong d ep osita ry s h are s t h ro ugh b ro kers , d eale rs o r o th er t h ird p artie s, w ill n ot h av e t h e o pportu nity t o e x erc is e a r ig ht t o v ote , a lth ough b oth w e a n d t h e H DR D ep osita ry w ill e n deav or t o m ak e a rra n gem en ts t o e n su re a s f a r a s p ra ctic ab le t h at a ll h old ers o f H DRs w ill b e a b le t o v ote . A s t h e H DR D ep osita ry o r i ts n om in ee w ill b e t h e r e g is te re d o w ner o f t h e c o m mon s to ck u nderly in g t h eir H DRs, h old ers o f H DRs m ust r e ly o n t h e H DR D ep osita ry ( o r i ts n om in ee) t o e x erc is e r ig hts o n t h eir b eh alf. I n a d ditio n, h old ers o f H DRs w ill a ls o i n cu r c h arg es o n a n y c ash d is trib utio n m ad e p urs u an t t o t h e D ep osit A gre em en t a n d o n t ra n sfe rs o f c ertific ate d H DRs. H old ers o f H DRs w ill e x perie n ce d ilu tio n i n t h eir i n dir e ct i n te re st i n t h e C om pany i n t h e e ven t o f a n e q uity o ffe rin g w hic h i s n ot e x te n ded t o t h em . If w e d ecid e t o u nderta k e a n e q uity o ffe rin g ( th at i s n ot a r ig hts o r o th er o ffe rin g t h at i s e x te n ded t o H DR h old ers ), H DR h old ers m ay s u ffe r a d ilu tio n i n t h eir i n dire ct o w ners h ip a n d v otin g i n te re st i n t h e c o m mon s to ck , a s c o m pare d t o t h eir h old in gs i n t h e H DRs i m med ia te ly p rio r t o s u ch a n o ffe rin g. H old ers o f H DRs w ill b e r e lia nt u pon t h e p erfo rm ance o f s e vera l s e rv ic e p ro vid ers. A ny b re a ch o f t h ose s e rv ic e p ro vid ers o f t h eir c o ntr a ctu al o blig atio ns c o uld h ave a dverse c o nse q uen ces f o r a n i n vestm en t i n H DRs. An i n vestm en t i n H DRs w ill d ep en d f o r i ts c o ntin uin g v ia b ility o n t h e p erfo rm an ce o f s e v era l s e rv ic e p ro vid ers , i n clu din g b ut n ot l im ite d t o t h e H DR D ep osita ry , t h e r e g is tra r f o r t h e H DRs, t h e c u sto dia n a n d a n y s u b-c u sto dia n a p poin te d i n r e sp ect o f t h e u nderly in g c o m mon s to ck . A f a ilu re b y a n y o f t h ose s e rv ic e p ro vid ers to m eet th eir c o ntra ctu al o blig atio ns, w heth er o r n ot b y c u lp ab le d efa u lt, c o uld d etra ct fro m th e c o ntin uin g v ia b ility o f th e H DRs a s a n i n vestm en t. T he C om pan y w ill n ot h av e d ire ct c o ntra ctu al r e co urs e a g ain st t h e c u sto dia n , a n y s u b-c u sto dia n o r t h e r e g is tra r; h en ce t h e p ote n tia l f o r r e d re ss i n c irc u m sta n ces o f d efa u lt w ill b e l im ite d . H ow ev er, t h e C om pan y a n d t h e H DR D ep osita ry h av e e x ecu te d a d eed p oll i n f a v or o f H DR h old ers i n r e la tio n t o t h e e x erc is e b y t h em o f t h eir r ig hts a s H DR h old ers u nder t h e D ep osit A gre em en t a g ain st t h e C om pan y o r t h e H DR D ep osita ry . W ith dra w als a nd e x ch anges o f H DRs i n to c o m mon s to ck t r a ded o n t h e N YSE m ig ht a dverse ly a ffe ct t h e l iq uid ity o f t h e H DRs. Our c o m mon sto ck is p re se n tly tra d ed o n th e N YSE . A ny H DR h old er m ay a t a n y tim e re q uest th at th eir H DRs b e w ith dra w n a n d e x ch an ged in to c o m mon s to ck f o r t ra d in g o n t h e N YSE . U pon t h e e x ch an ge o f H DRs i n to c o m mon s to ck , t h e r e le v an t H DRs w ill b e c an cele d . I n t h e e v en t t h at a s u bsta n tia l n um ber o f H DRs a re w ith dra w n a n d e x ch an ged in to C om mon S to ck a n d su bse q uen tly c an cele d , th e liq uid ity o f th e H DRs o n th e H ong K ong S to ck E xch an ge m ig ht b e a d vers e ly a ffe cte d . T he t im e r e q uir e d f o r H DRs t o b e e x ch anged i n to c o m mon s to ck ( a nd v ic e v ersa ) m ig ht b e l o nger t h an e x pecte d a nd i n vesto rs m ig ht n ot b e a ble t o s e ttle o r e ffe ct a ny s a le s o f t h eir s e cu ritie s d urin g t h is p erio d. There is n o d ire ct tra d in g o r se ttle m en t b etw een th e N YSE a n d th e H ong K ong S to ck E xch an ge o n w hic h th e c o m mon sto ck a n d th e H DRs a re r e sp ectiv ely t ra d ed . I n a d ditio n, t h e t im e d iffe re n ces b etw een H ong K ong a n d N ew Y ork a n d u nfo re se en m ark et c irc u m sta n ces o r o th er f a cto rs m ay d ela y t h e e x ch an ge o f H DRs in to c o m mon s to ck (a n d v ic e v ers a ). In vesto rs w ill b e p re v en te d fro m s e ttlin g o r e ffe ctin g th e s a le o f th eir s e cu ritie s a cro ss th e v ario us s to ck e x ch an ges d urin g s u ch p erio ds o f d ela y. In a d ditio n, th ere is n o a ssu ra n ce th at a n y e x ch an ge o f H DRs in to c o m mon s to ck (a n d v ic e v ers a ) w ill b e c o m ple te d i n a cco rd an ce w ith t h e t im elin es i n vesto rs m ig ht a n tic ip ate . I n vesto rs a re s u bje ct t o e x ch ange r a te r is k b etw een H ong K ong d olla rs a nd U .S . d olla rs. The v alu e o f a n i n vestm en t i n t h e H DRs q uote d i n H ong K ong d olla rs a n d t h e v alu e o f d iv id en d p ay m en ts i n r e sp ect o f t h e H DRs c o uld b e a ffe cte d b y f lu ctu atio ns i n t h e U .S . d olla r/H ong K ong d olla r e x ch an ge r a te . W hile t h e H ong K ong d olla r i s c u rre n tly l in ked t o t h e U .S . d olla r u sin g a s p ecifie d t ra d in g b an d, n o a ssu ra n ce c an b e g iv en t h at t h e H ong K ong g overn m en t w ill m ain ta in t h e t ra d in g b an d a t i ts c u rre n t l im its o r a t a ll. IT EM 1 B . U NRESO LVED S T AFF C O M MENTS None. 21 I T EM 2 . P R O PE RTIE S The fo llo w in g ta b le s e ts fo rth th e lo catio n, u se a n d s iz e o f th e C om pan y’s k ey d is trib utio n, c o rp ora te a n d p ro duct d ev elo pm en t fa cilitie s a s o f Ju ly 2 , 2 016 . T he m ajo rity o f t h e p ro pertie s a re l e ase d , w ith t h e l e ase s e x pirin g a t v ario us t im es t h ro ugh 2 027, s u bje ct t o r e n ew al o ptio ns. L oca tio n Use Appro xim ate Square F oota ge J a ck so nville , F lo rid a North A m eric a d is trib utio n a n d c o nsu m er s e rv ic e 850,0 00 N ew Y ork , N ew Y ork Corp ora te , d esig n, s o urc in g a n d p ro duct d ev elo pm en t 285,0 00 (1 ) C arls ta d t, N ew J e rs e y Corp ora te o ffic es 65,0 00 N ew Y ork , N ew Y ork Stu art W eitz m an c o rp ora te , d esig n, s o urc in g a n d p ro duct d ev elo pm en t 37,5 00 T okyo, J a p an Coach J a p an r e g io nal m an ag em en t 32,3 00 S han ghai, C hin a Gre ate r C hin a ( in clu din g H ong K ong, M acau , a n d m ain la n d C hin a) r e g io nal m an ag em en t 23,0 00 H ong K ong Coach I n c. r e g io nal m an ag em en t 20,2 00 S outh K ore a Coach S outh K ore a r e g io nal m an ag em en t 18,0 00 S han ghai, C hin a Coach A sia s h are d s e rv ic e c en te r 17,7 00 H ong K ong Corp ora te s o urc in g a n d q uality c o ntro l 17,0 00 (2 ) D ongguan , C hin a Corp ora te s o urc in g, q uality c o ntro l a n d p ro duct d ev elo pm en t 16,7 00 A lic an te , S pain Stu art W eitz m an r e g io nal m an ag em en t, s o urc in g a n d q uality c o ntro l 13,3 00 H o C hi M in h C ity , V ie tn am Corp ora te s o urc in g a n d q uality c o ntro l 10,2 00 F ort L au derd ale , F lo rid a Stu art W eitz m an c o rp ora te m an ag em en t 12,1 00 L ondon Coach E uro pe r e g io nal m an ag em en t 8,0 00 T aip ei C ity , T aiw an Coach T aiw an r e g io nal m an ag em en t 6,4 00 M ala y sia Coach M ala y sia r e g io nal m an ag em en t 3,8 00 S in gap ore Coach S in gap ore r e g io nal m an ag em en t 2,9 00 B eijin g, C hin a Gre ate r C hin a r e g io nal m an ag em en t 2,8 00 C la rk , P hilip pin es Corp ora te s o urc in g a n d q uality c o ntro l 2,4 00 ( 1 ) Rep re se n ts a C oach -o w ned lo catio n. A s o f Ju ly 2 , 2 016 , th e C om pan y p osse sse d a n e q uity m eth od in vestm en t in H udso n Y ard s re la te d to a n e n tity fo rm ed d urin g f is c al 2 013 f o r t h e p urp ose o f d ev elo pin g a n ew o ffic e t o w er i n M an hatta n , t h e H udso n Y ard s j o in t v en tu re , w ith t h e C om pan y o w nin g le ss th an 4 3% o f th e jo in t v en tu re . O n A ugust 1 , 2 016, th e C om pan y s o ld its in vestm en ts , a n d e x ecu te d a n a g re em en t to le ase b ack a p pro xim ate ly 694,0 00 s q uare f e et o f o ffic e s p ace f o r a 2 0-y ear t e rm . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. T he p ro perty a sso cia te d w ith t h is jo in t v en tu re i s n ot i n clu ded i n t h e s q uare f o ota g e a b ove. ( 2 ) Rep re se n ts a C oach -o w ned l o catio n. As o f Ju ly 2 , 2 016 , th e C om pan y a ls o o ccu pie d 228 C oach re ta il a n d 204 C oach o utle t le ase d s to re s lo cate d in N orth A m eric a, 522 C oach -o pera te d c o ncessio n s h op-in -s h ops w ith in d ep artm en t s to re s, C oach re ta il a n d o utle t s to re s in o ur in te rn atio nal lo catio ns, a n d 75 S tu art W eitz m an s to re s g lo bally . T hese le ase s e x pire a t v ario us tim es th ro ugh 2 036. C oach c o nsid ers th ese p ro pertie s to b e in g en era lly g ood c o nditio n a n d b elie v es th at its fa cilitie s a re a d eq uate f o r i ts o pera tio ns a n d p ro vid e s u ffic ie n t c ap acity t o m eet i ts a n tic ip ate d r e q uire m en ts . I T EM 3 . L EG AL P R O CEEDIN G S The C om pan y i s i n volv ed i n v ario us r o utin e l e g al p ro ceed in gs a s b oth p la in tiff a n d d efe n dan t i n cid en t t o t h e o rd in ary c o urs e o f i ts b usin ess, i n clu din g p ro ceed in gs t o p ro te ct C oach I n c.’s i n te lle ctu al p ro perty r ig hts , l itig atio n i n stitu te d b y p ers o ns a lle g ed t o h av e b een i n ju re d b y a d vertis in g c la im s o r u pon p re m is e s w ith in t h e C om pan y’s c o ntro l, a n d l itig atio n w ith p re se n t o r f o rm er e m plo yees. As p art o f C oach ’s p olic in g p ro gra m f o r i ts i n te lle ctu al p ro perty r ig hts , f ro m t im e t o t im e, t h e C om pan y f ile s l a w su its i n t h e U .S . a n d a b ro ad a lle g in g a cts o f tra d em ark c o unte rfe itin g, tra d em ark in frin gem en t, p ate n t in frin gem en t, tra d e d re ss in frin gem en t, c o pyrig ht in frin gem en t, u nfa ir c o m petitio n, tra d em ark d ilu tio n a n d/o r s ta te o r fo re ig n la w c la im s. A t a n y g iv en p oin t in tim e, C oach m ay h av e a n um ber o f s u ch a ctio ns p en din g. T hese a ctio ns o fte n re su lt in s e iz u re o f c o unte rfe it m erc h an dis e a n d/o r o ut o f 22 c o urt se ttle m en ts w ith defe n dan ts . Fro m tim e to tim e, defe n dan ts w ill ra is e , eith er as affirm ativ e defe n se s or as co unte rc la im s, th e in valid ity or u nen fo rc eab ility o f c erta in o f C oach ’s i n te lle ctu al p ro pertie s. Alth ough th e C om pan y’s litig atio n a s a d efe n dan t is ro utin e a n d in cid en ta l to th e c o nduct o f C oach ’s b usin ess, a s w ell a s fo r a n y b usin ess o f its s iz e, s u ch l itig atio n c an r e su lt i n l a rg e m oneta ry a w ard s w hen a c iv il j u ry i s a llo w ed t o d ete rm in e c o m pen sa to ry a n d/o r p unitiv e d am ag es. The C om pan y b elie v es t h at t h e o utc o m e o f a ll p en din g l e g al p ro ceed in gs i n t h e a g gre g ate w ill n ot h av e a m ate ria l e ffe ct o n t h e C om pan y’s b usin ess o r c o nso lid ate d f in an cia l s ta te m en ts . IT EM 4 . M IN E S A FE TY D IS C LO SU RES Not a p plic ab le . 23 PA RT I I I T EM 5 . M ARK ET F O R R EG IS T RANT’S C O M MON E Q UIT Y, R ELATED S T O CK HOLDER M ATTERS A ND I S SU ER P U RCH ASE S O F E Q UIT Y S E CURIT IE S M ark et a nd D iv id en d I n fo rm atio n Coach I n c.’s c o m mon s to ck i s l is te d o n t h e N ew Y ork S to ck E xch an ge a n d i s t ra d ed u nder t h e s y m bol “ C OH.” C oach ’s H ong K ong D ep osita ry R eceip ts h av e b een l is te d o n t h e H ong K ong S to ck E xch an ge s in ce D ecem ber 2 011 a n d t h e i s su an ce f ro m t im e-to -tim e o f t h ese H ong K ong D ep osita ry R eceip ts h as n ot b een re g is te re d u nder th e S ecu ritie s A ct, o r w ith a n y s e cu ritie s re g ula to ry a u th ority o f a n y s ta te o r o th er ju ris d ic tio n o f th e U nite d S ta te s a n d is b ein g m ad e p urs u an t t o R eg ula tio n S o f t h e S ecu ritie s A ct. A cco rd in gly , t h ey m ay n ot b e r e -o ffe re d , r e so ld , p le d ged o r o th erw is e t ra n sfe rre d i n t h e U nite d S ta te s o r t o , o r f o r t h e a cco unt o f, a “ U .S . p ers o n” ( w ith in t h e m ean in g o f R eg ula tio n S p ro m ulg ate d u nder t h e S ecu ritie s A ct), u nle ss t h e s e cu ritie s a re r e g is te re d u nder t h e S ecu ritie s A ct o r p urs u an t to a n e x em ptio n fro m , o r in a tra n sa ctio n n ot s u bje ct to , th e re g is tra tio n re q uire m en ts o f th e S ecu ritie s A ct, a n d h ed gin g t ra n sa ctio ns i n volv in g t h e H ong K ong D ep osita ry R eceip ts m ay n ot b e c o nducte d u nle ss i n c o m plia n ce w ith t h e S ecu ritie s A ct. N o a d ditio nal c o m mon s to ck w as i s su ed , n or c ap ita l r a is e d t h ro ugh t h is l is tin g. The f o llo w in g t a b le s e ts f o rth , f o r t h e f is c al p erio ds i n dic ate d , t h e h ig h, l o w a n d c lo sin g p ric es p er s h are o f t h e C om pan y’s c o m mon s to ck a s r e p orte d o n t h e N ew Y ork S to ck E xch an ge C om posite I n dex . Hig h Low Clo sin g Div id en ds D ecla red p er Com mon S hare F is c a l 2 016 Q uarte r e n ded : S ep te m ber 2 6, 2 015 $ 35.9 8 $ 27.6 2 $ 0.3 375 D ecem ber 2 6, 2 015 33.4 5 27.2 2 0.3 375 M arc h 2 6, 2 016 39.9 5 30.0 6 0.3 375 J u ly 2 , 2 016 42.1 3 36.6 4 $ 40.7 3 0.3 375 F is c a l 2 015 Q uarte r e n ded : S ep te m ber 2 7, 2 014 $ 37.7 0 $ 33.3 9 $ 0.3 375 D ecem ber 2 7, 2 014 37.6 0 32.7 2 0.3 375 M arc h 2 8, 2 015 43.8 7 35.6 5 0.3 375 J u ne 2 7, 2 015 43.4 5 34.0 0 $ 36.1 2 0.3 375 As o f August 5 , 2 016 , t h ere w ere 3 ,9 01 h old ers o f r e co rd o f C oach ’s c o m mon s to ck . Any fu tu re d ete rm in atio n to p ay c ash d iv id en ds w ill b e a t th e d is c re tio n o f C oach ’s B oard a n d w ill b e d ep en den t u pon C oach ’s fin an cia l c o nditio n, o pera tin g r e su lts , c ap ita l r e q uire m en ts a n d s u ch o th er f a cto rs a s t h e B oard d eem s r e le v an t. The i n fo rm atio n u nder t h e p rin cip al h ead in g “ S ecu ritie s A uth oriz ed F or I s su an ce U nder E quity C om pen sa tio n P la n s” i n t h e C om pan y’s d efin itiv e P ro xy S ta te m en t f o r t h e A nnual M eetin g o f S to ck hold ers t o b e h eld o n N ovem ber 1 0, 2 016, t o b e f ile d w ith t h e S ecu ritie s a n d E xch an ge C om mis sio n ( T he “ P ro xy S ta te m en t” ), i s i n co rp ora te d h ere in b y r e fe re n ce. 24 P erfo rm ance G ra ph The f o llo w in g g ra p h c o m pare s t h e c u m ula tiv e t o ta l s to ck hold er r e tu rn ( a ssu m in g r e in vestm en t o f d iv id en ds) o f t h e C om pan y’s c o m mon s to ck w ith t h e c u m ula tiv e t o ta l r e tu rn o f t h e S & P 5 00 S to ck I n dex a n d t h e “ p eer s e t” c o m pan ie s l is te d b elo w o ver t h e f iv e-fis c al-y ear p erio d e n din g Ju ly 2 , 2 016 , th e la st t ra d in g d ay o f C oach ’s m ost r e cen t f is c al y ear. T he g ra p h a ssu m es t h at $ 100 w as i n veste d o n J u ly 2 , 2 011 a t t h e p er s h are c lo sin g p ric e i n e ach o f C oach ’s c o m mon s to ck , t h e S & P 5 00 S to ck I n dex a n d a p eer s e t i n dex c o m pile d b y u s t ra ck in g t h e p eer g ro up c o m pan ie s l is te d b elo w , a n d t h at a ll d iv id en ds w ere r e in veste d . T he s to ck p erfo rm an ce s h ow n i n t h e g ra p h i s n ot i n te n ded t o f o re cast o r b e i n dic ativ e o f f u tu re p erfo rm an ce. • L B ra n ds, I n c., • PV H C orp ., • Ralp h L au re n C orp ora tio n, • Tiffa n y & C o., • V.F . C orp ora tio n, • Este e L au der, I n c., • Kate S pad e & C om pan y, • Aberc ro m bie & F itc h C o., a n d • Mic h ael K ors H old in gs L im ite d Fis c a l 2 011 Fis c a l 2 012 Fis c a l 2 013 Fis c a l 2 014 Fis c a l 2 015 Fis c a l 2 016 C O H $100.0 0 $89.9 9 $89.8 2 $55.7 7 $60.6 0 $71.0 9 P eer S et $100.0 0 $116.5 9 $166.5 7 $213.0 0 $243.6 1 $228.2 5 S & P 5 00 $100.0 0 $103.9 4 $125.3 4 $156.2 4 $170.8 8 $174.8 6 25 I T EM 6 . S E LECTED F IN ANCIA L D ATA The s e le cte d h is to ric al f in an cia l d ata p re se n te d b elo w a s o f a n d f o r e ach o f t h e f is c al y ears i n t h e f iv e-y ear p erio d e n ded Ju ly 2 , 2 016 h as b een d eriv ed f ro m C oach ’s a u dite d C onso lid ate d F in an cia l S ta te m en ts . T he fin an cia l d ata s h ould b e re ad in c o nju nctio n w ith Ite m 7 , “ M an ag em en t’s D is c u ssio n a n d A naly sis o f F in an cia l C onditio n a n d R esu lts o f O pera tio ns,” th e C onso lid ate d F in an cia l S ta te m en ts a n d N ote s th ere to a n d o th er fin an cia l d ata in clu ded e ls e w here h ere in . Fis c a l Y ea r E nded (1 ) July 2 , 2016 (2 )(5 ) Ju ne 2 7, 2015 (3 )(5 ) Ju ne 2 8, 2014 (4 )(5 ) Ju ne 2 9, 2013 (4 )(5 ) Ju ne 3 0, 2012 (4 )(5 ) (m illio ns, e x cep t p er s h are d ata ) C onso lid ate d S ta te m en ts o f I n co m e: Net s a le s $ 4,4 91.8 $ 4,1 91.6 $ 4,8 06.2 $ 5,0 75.4 $ 4,7 63.2 Gro ss p ro fit 3,0 51.3 2,9 08.6 3,2 97.0 3,6 98.1 3,4 66.1 Sellin g, g en era l a n d a d m in is tra tiv e (” S G & A”) e x pen se s 2,3 97.8 2,2 90.6 2,1 76.9 2,1 73.6 1,9 54.1 Opera tin g i n co m e 653.5 618.0 1,1 20.1 1,5 24.5 1,5 12.0 Net i n co m e 460.5 402.4 781.3 1,0 34.4 1,0 38.9 Net i n co m e: Per b asic s h are $ 1.6 6 $ 1.4 6 $ 2.8 1 $ 3.6 6 $ 3.6 0 Per d ilu te d s h are $ 1.6 5 $ 1.4 5 $ 2.7 9 $ 3.6 1 $ 3.5 3 Weig hte d -a v era g e b asic s h are s o uts ta n din g 277.6 275.7 277.8 282.5 288.3 Weig hte d -a v era g e d ilu te d s h are s outs ta n din g 279.3 277.2 280.4 286.3 294.1 Div id en ds d ecla re d p er c o m mon s h are $ 1.3 50 $ 1.3 50 $ 1.3 50 $ 1.2 38 $ 0.9 75 C onso lid ate d P ercen ta ge o f N et S ale s D ata : Gro ss m arg in 67.9 % 69.4 % 68.6 % 72.9 % 72.8 % SG & A e x pen se s 53.4 % 54.6 % 45.3 % 42.8 % 41.0 % Opera tin g m arg in 14.5 % 14.7 % 23.3 % 30.0 % 31.7 % Net i n co m e 10.3 % 9.6 % 16.3 % 20.4 % 21.8 % C onso lid ate d B ala nce S heet D ata : Work in g c ap ita l $ 1,3 46.2 $ 1,6 71.8 $ 1,0 42.1 $ 1,3 48.4 $ 1,0 86.4 Tota l a sse ts 4,8 92.7 4,6 66.9 3,6 63.1 3,5 31.9 3,1 04.3 Cash , c ash e q uiv ale n ts a n d i n vestm en ts 1,8 78.0 1,9 31.8 1,3 53.1 1,3 32.2 923.2 In ven to ry 459.2 485.1 526.2 524.7 504.5 Tota l d eb t 876.2 890.4 140.5 1.0 23.4 Sto ck hold ers ‘ e q uity 2,6 82.9 2,4 89.9 2,4 20.6 2,4 09.2 1,9 92.9 26 Fis c a l Y ea r E nded (1 ) July 2 , 2016 (2 ) Ju ne 2 7, 2015 (3 ) Ju ne 2 8, 2014 (4 ) Ju ne 2 9, 2013 (4 ) Ju ne 3 0, 2012 (4 ) C oach O pera te d S to re D ata : S to re s o pen a t f is c al y ear-e n d: North A m eric an r e ta il s to re s 228 258 332 351 354 North A m eric an o utle t s to re s 204 204 207 193 169 Coach I n te rn atio nal 522 503 475 409 368 Stu art W eitz m an s to re s 75 54 — — — T ota l s to re s o pen a t f is c al y ear-e n d 1,0 29 1,0 19 1,0 14 953 891 S to re s q uare f o ota g e a t f is c al y ear-e n d: North A m eric an r e ta il s to re s 659,3 76 728,8 33 910,0 03 952,4 22 959,0 99 North A m eric an o utle t s to re s 1,2 32,7 70 1,1 89,0 18 1,1 32,7 14 982,2 02 789,6 99 Coach I n te rn atio nal 1,0 86,3 15 1,0 30,6 95 918,9 95 768,5 67 665,3 96 Stu art W eitz m an s to re s 117,8 20 91,1 01 — — — T ota l s to re s q uare f o ota g e a t f is c al y ear-e n d 3,0 96,2 81 3,0 39,6 47 2,9 61,7 12 2,7 03,1 91 2,4 14,1 94 A vera g e s to re s q uare f o ota g e a t f is c al y ear-e n d: North A m eric an r e ta il s to re s 2,8 92 2,8 25 2,7 41 2,7 13 2,7 09 North A m eric an o utle t s to re s 6,0 43 5,8 29 5,4 72 5,0 89 4,6 73 Coach I n te rn atio nal 2,0 81 2,0 49 1,9 35 1,8 79 1,8 08 Stu art W eitz m an s to re s 1,5 71 1,6 87 — — — ( 1 ) The C om pan y’s f is c al y ear e n ds o n t h e S atu rd ay c lo se st t o J u ne 3 0. F is c al y ear 2 016 w as a 5 3-w eek y ear. F is c al y ears 2 015, 2 014, 2 013 a n d 2 012 w ere each 5 2-w eek y ears . ( 2 ) The C om pan y a cq uire d t h e S tu art W eitz m an C an ad a d is trib uto r i n t h e f o urth q uarte r o f f is c al 2 016 ( w hic h i n clu ded t h e i m pact o f a n a d ditio nal 1 4 r e ta il sto re s). ( 3 ) The C om pan y a cq uire d S tu art W eitz m an i n t h e f o urth q uarte r o f f is c al 2 015. ( 4 ) The C om pan y a cq uire d its in te rn atio nal b usin esse s fro m its fo rm er d is trib uto rs a s fo llo w s: fis c al 2 014 — th e re m ain in g 5 0% in te re st in E uro pe; fis c al 2013 — M ala y sia a n d S outh K ore a; f is c al 2 012 — S in gap ore a n d T aiw an . 27 ( 5 ) For a ll fis c al y ears p re se n te d b elo w , th e C om pan y re co rd ed c erta in ite m s w hic h a ffe ct th e c o m para b ility o f o ur re su lts . S ee ite m 7 , “ M an ag em en t’s Dis c u ssio n a n d A naly sis o f F in an cia l C onditio n a n d R esu lts o f O pera tio ns,” f o r f u rth er i n fo rm atio n o n t h e i te m s r e la te d t o f is c al 2 016, f is c al 2 015, a n d fis c al 2 014. D urin g fis c al 2 013, th e C om pan y in cu rre d c h arg es re co rd ed in S G & A e x pen se s a n d c o st o f sa le s o f $ 48.4 m illio n a n d $ 4.8 m illio n, re sp ectiv ely , r e la tin g t o t h e s tra te g ic r e asse ssm en t o f t h e R eed K ra k off b usin ess, s tre am lin in g o ur o rg an iz atio nal m odel a n d r e asse ssin g t h e f le et o f o ur re ta il sto re s a n d in ven to rie s. D urin g fis c al 2 012, th e C om pan y d ecre ase d its p ro vis io n fo r in co m e ta x es b y $ 23.9 m illio n, p rim arily a s a re su lt o f re co rd in g t h e e ffe ct o f a r e v alu atio n o f c erta in d efe rre d t a x a sse t b ala n ces d ue t o a c h an ge i n J a p an ‘s c o rp ora te t a x l a w s a n d t h e f a v ora b le s e ttle m en t o f a multi-y ear tra n sfe r p ric in g a g re em en t w ith in J a p an . T he C om pan y u se d th e n et in co m e fa v ora b ility to c o ntrib ute a n a g gre g ate $ 39.2 m illio n to th e Coach F oundatio n. T he f o llo w in g t a b le r e co ncile s t h e C om pan y’s r e p orte d r e su lts o n a U .S . G AAP b asis t o o ur a d ju ste d r e su lts t h at e x clu de t h ese i te m s: Net I n co m e Fis c a l 2 016 Gro ss P ro fit SG & A E xpen se s Opera tin g In co m e Am ount Per D ilu te d S hare As R ep orte d : ( G AAP B asis ) $ 3,0 51.3 $ 2,3 97.8 $ 653.5 $ 460.5 $ 1.6 5 Exclu din g N on-G AAP C harg es 1.1 (1 22.0 ) 123.1 91.2 0.3 3 Adju ste d : ( N on-G AAP B asis ) $ 3,0 52.4 $ 2,2 75.8 $ 776.6 $ 551.7 $ 1.9 8 Net I n co m e Fis c al 2 015 Gro ss P ro fit SG & A E xpen se s Opera tin g I n co m e Am ount Per D ilu te d S hare As R ep orte d : ( G AAP B asis ) $ 2,9 08.6 $ 2,2 90.6 $ 618.0 $ 402.4 $ 1.4 5 Exclu din g N on-G AAP C harg es 9.7 (1 60.8 ) 170.5 128.8 0.4 7 Adju ste d : ( N on-G AAP B asis ) $ 2,9 18.3 $ 2,1 29.8 $ 788.5 $ 531.2 $ 1.9 2 Net I n co m e Fis c al 2 014 Gro ss P ro fit SG & A E xpen se s Opera tin g I n co m e Am ount Per D ilu te d S hare As R ep orte d : ( G AAP B asis ) $ 3,2 97.0 $ 2,1 76.9 $ 1,1 20.1 $ 781.3 $ 2.7 9 Exclu din g N on-G AAP C harg es 82.2 (4 9.3 ) 131.5 88.3 0.3 1 Adju ste d : ( N on-G AAP B asis ) $ 3,3 79.2 $ 2,1 27.6 $ 1,2 51.6 $ 869.6 $ 3.1 0 Net I n co m e Fis c al 2 013 Gro ss P ro fit SG & A E xpen se s Opera tin g I n co m e Am ount Per D ilu te d S hare As R ep orte d : ( G AAP B asis ) $ 3,6 98.1 $ 2,1 73.6 $ 1,5 24.5 $ 1,0 34.4 $ 3.6 1 Exclu din g N on-G AAP C harg es 4.8 (4 8.4 ) 53.2 32.6 0.1 1 Adju ste d : ( N on-G AAP B asis ) $ 3,7 02.9 $ 2,1 25.2 $ 1,5 77.7 $ 1,0 67.0 $ 3.7 3 Net I n co m e Fis c al 2 012 Gro ss P ro fit SG & A E xpen se s Opera tin g I n co m e Am ount Per D ilu te d S hare As R ep orte d : ( G AAP B asis ) $ 3,4 66.1 $ 1,9 54.1 $ 1,5 12.0 $ 1,0 38.9 $ 3.5 3 Exclu din g N on-G AAP C harg es — (3 9.2 ) 39.2 — — Adju ste d : ( N on-G AAP B asis ) $ 3,4 66.1 $ 1,9 14.9 $ 1,5 51.2 $ 1,0 38.9 $ 3.5 3 28 IT EM 7 . M ANAG EM ENT’S D IS C USSIO N A ND A NALYSIS O F F IN ANCIA L C O NDIT IO N A ND R ESU LTS O F O PE RATIO NS The fo llo w in g d is c u ssio n o f C oach ’s fin an cia l co nditio n an d re su lts o f o pera tio ns sh ould b e re ad to geth er w ith C oach ’s co nso lid ate d fin an cia l s ta te m en ts a n d n ote s t o t h ose s ta te m en ts , i n clu ded e ls e w here i n t h is d ocu m en t. W hen u se d h ere in , t h e t e rm s “ C om pan y,” ” C oach ,” “ w e,” “ u s” a n d “ o ur” r e fe r t o C oach , In c., in clu din g c o nso lid ate d su bsid ia rie s. U nle ss th e c o nte x t re q uire s o th erw is e , re fe re n ces to th e “C oach b ra n d” d o n ot in clu de th e S tu art W eitz m an b ra n d a n d r e fe re n ces t o t h e ” S tu art W eitz m an b ra n d” d o n ot i n clu de t h e C oach b ra n d. E XECUTIV E O VERVIE W The f is c al y ear e n ded Ju ly 2 , 2 016 w as a 5 3-w eek p erio d, a n d t h e f is c al y ears e n ded Ju ne 2 7, 2 015 a n d Ju ne 2 8, 2 014 w ere e ach 5 2-w eek p erio ds. Coach , I n c. i s a l e ad in g N ew Y ork d esig n h ouse o f m odern l u xury a ccesso rie s a n d l ife sty le b ra n ds. T he C oach b ra n d w as e sta b lis h ed i n N ew Y ork C ity i n 1 941, a n d h as a r ic h h erita g e o f p airin g e x cep tio nal l e ath ers a n d m ate ria ls w ith i n novativ e d esig n. C oach , I n c. a cq uire d S tu art W eitz m an , a l e ad er i n w om en ‘s d esig ner f o otw ear, d urin g t h e f o urth q uarte r o f f is c al 2 015. Coach , In c. o pera te s in th re e s e g m en ts : N orth A m eric a (C oach b ra n d), In te rn atio nal (C oach b ra n d), a n d S tu art W eitz m an . T he N orth A m eric a s e g m en t i n clu des s a le s o f C oach b ra n d p ro ducts to N orth A m eric an c u sto m ers th ro ugh C oach -o pera te d s to re s (in clu din g th e In te rn et) a n d s a le s to N orth A m eric an w hole sa le c u sto m ers . T he I n te rn atio nal s e g m en t i n clu des s a le s o f C oach b ra n d p ro ducts t o c u sto m ers t h ro ugh C oach -o pera te d s to re s a n d c o ncessio n s h op-in – s h ops in J a p an , m ain la n d C hin a, H ong K ong, M acau , S in gap ore , T aiw an , M ala y sia , S outh K ore a, th e U nite d K in gdom , F ra n ce, Ire la n d, S pain , P ortu gal, G erm an y, Ita ly , A ustria , B elg iu m , th e N eth erla n ds a n d S w itz erla n d. A dditio nally , In te rn atio nal in clu des s a le s to c o nsu m ers th ro ugh th e In te rn et in J a p an , m ain la n d C hin a, th e U nite d K in gdom a n d S outh K ore a, a s w ell a s s a le s to w hole sa le c u sto m ers a n d d is trib uto rs in a p pro xim ate ly 55 c o untrie s. T he S tu art W eitz m an se g m en t in clu des w orld w id e sa le s g en era te d b y th e S tu art W eitz m an b ra n d, p rim arily th ro ugh d ep artm en t sto re s in N orth A m eric a an d i n te rn atio nal l o catio ns, a n d w ith in S tu art W eitz m an o pera te d s to re s ( in clu din g t h e I n te rn et) i n t h e U nite d S ta te s, C an ad a a n d E uro pe. O th er, w hic h i s n ot a r e p orta b le s e g m en t, c o nsis ts o f s a le s a n d e x pen se s g en era te d b y t h e C oach b ra n d i n l ic en sin g a n d d is p ositio n c h an nels . A s t h e C om pan y’s b usin ess m odel i s b ase d o n m ulti-c h an nel a n d b ra n d g lo bal d is trib utio n, o ur s u ccess d oes n ot d ep en d s o le ly o n t h e p erfo rm an ce o f a s in gle c h an nel o r g eo gra p hic a re a. We a re f o cu se d o n d riv in g l o ng-te rm g ro w th a n d b est i n c la ss p ro fita b ility t h ro ugh t h e f o llo w in g k ey i n itia tiv es: Driv e b ra nd r e le va nce • Tra n sfo rm th e C oach b ra n d in to a m odern lu xury b ra n d b y c o ntin uin g to e v olv e a cro ss th e k ey c o nsu m er to uch poin ts o f p ro duct, sto re s a n d mark etin g. • Rein vig ora te g ro w th a n d b ra n d re le v an ce th ro ugh o ur d iffe re n tia te d p ositio nin g, w hic h c o m bin es o ur h is to ry o f h erita g e a n d c ra fts m an sh ip w ith Stu art V ev ers ‘s m odern c re ativ e v is io n. • Rais e b ra n d a w are n ess a n d i n cre ase m ark et s h are f o r t h e S tu art W eitz m an b ra n d g lo bally , b uild in g u pon t h e c o m pan y’s s tro ng m om en tu m a n d c o re bra n d e q uitie s o f f u sin g f a sh io n w ith f it. Gro w o ur b usin ess i n te rn atio nally • Contin ue t o i n cre ase t h e C oach b ra n d’s p en etra tio n i n te rn atio nally , m ost n ota b ly i n m ain la n d C hin a a n d E uro pe. • Support t h e d ev elo pm en t o f t h e S tu art W eitz m an b ra n d, p artic u la rly i n A sia . Harn ess t h e p ow er o f t h e d ig ita l w orld • Contin ue t o a ccele ra te t h e d ev elo pm en t o f o ur d ig ita l p ro gra m s a n d c ap ab ilitie s w orld -w id e, r e fle ctin g t h e c h an ge i n c o nsu m er s h oppin g b eh av io r glo bally . Build a n i n fr a str u ctu re t o s u pport f u tu re g ro w th i n itia tiv es • Cre ate a n a g ile a n d s c ala b le b usin ess m odel t o s u pport s u sta in ab le /fu tu re g ro w th f o r C oach , I n c. 29 Tra nsfo rm atio n P la n Durin g th e fo urth q uarte r o f fis c al 2 014, C oach , In c. a n nounced a m ulti-y ear s tra te g ic p la n w ith th e o bje ctiv e o f tra n sfo rm in g th e C oach b ra n d a n d r e in vig ora tin g g ro w th , w hic h w e b elie v e w ill e n ab le th e C om pan y to re tu rn to ‘b est-in -c la ss’ p ro fita b ility . T his T ra n sfo rm atio n P la n w as b uilt o n th e c o re b ra n d e q uitie s o f q uality a n d c ra fts m an sh ip w ith th e a im o f e v olv in g o ur c o m petitiv e v alu e p ro positio n. W e b elie v e o ur s tra te g y o ffe rs s ig nific an t g ro w th o pportu nitie s i n h an dbag s a n d a ccesso rie s, a s w ell a s i n t h e b ro ad er s e t o f l ife sty le c ate g orie s t h at w e h av e o pera te d i n f o r s o m e t im e b ut h av e h is to ric ally b een l e ss d ev elo ped , i n clu din g f o otw ear a n d r e ad y-to -w ear. T his s tra te g y r e q uire d a n i n te g ra te d h olis tic a p pro ach , a cro ss p ro duct, s to re s a n d m ark etin g a n d p ro m otio nal a ctiv itie s, a n d e n ta ils th e ro ll-o ut o f c are fu lly c ra fte d a sp ira tio nal m ark etin g c am paig ns to d efin e th e C oach b ra n d a n d to d eliv er a fu lle r a n d m ore c o nsis te n t b ra n d e x pre ssio n. Key o pera tio nal a n d c o st m easu re s o f t h e T ra n sfo rm atio n P la n i n clu ded : ( i) t h e i n vestm en t i n c ap ita l i m pro vem en ts i n o ur s to re s a n d w hole sa le l o catio ns t o d riv e c o m para b le s a le s i m pro vem en t; ( ii) t h e o ptim iz atio n a n d s tre am lin in g o f o ur o rg an iz atio nal m odel a s w ell a s t h e c lo su re o f u nderp erfo rm in g s to re s i n N orth A m eric a, a n d se le ct In te rn atio nal sto re s; (iii) th e re alig nm en t o f in ven to ry le v els a n d m ix to re fle ct o ur e le v ate d p ro duct stra te g y a n d c o nsu m er p re fe re n ces; ( iv ) t h e i n vestm en t i n i n cre m en ta l a d vertis in g c o sts t o e le v ate c o nsu m er p erc ep tio n o f o ur C oach b ra n d, d riv es s a le s g ro w th a n d p ro m ote o ur n ew s tra te g y, w hic h sta rte d in fis c al 2 015; a n d (v ) th e sig nific an t sc ale -b ack o f o ur p ro m otio nal c ad en ce in a n in cre ase d g lo bal p ro m otio nal e n viro nm en t, p artic u la rly w ith in o ur o utle t In te rn et s a le s s ite , w hic h b eg an in fis c al 2 014. T he C om pan y’s e x ecu tio n o f th ese k ey o pera tio nal a n d c o st m easu re s w as c o nclu ded d urin g f is c al 2 016, a n d w e b elie v e t h at l o ng-te rm g ro w th w ill b e r e aliz ed t h ro ugh t h ese t ra n sfo rm atio nal e ffo rts o ver t im e. F or f u rth er d is c u ssio n o f c h arg es i n cu rre d i n c o nnectio n w ith t h e T ra n sfo rm atio n P la n , s e e ” G AAP t o N on-G AAP R eco ncilia tio n,” h ere in . Opera tio nal E ffic ie n cy P la n On A pril 2 6, 2 016, t h e C om pan y a n nounced a s e rie s o f o pera tio nal e ffic ie n cy i n itia tiv es f o cu se d o n c re atin g a n a g ile a n d s c ala b le b usin ess m odel ( th e ” O pera tio nal E ffic ie n cy P la n “). T he s ig nific an t m ajo rity o f th e c h arg es u nder th is p la n w ill b e re co rd ed w ith in S G & A e x pen se s, a n d w ill b e s u bsta n tia lly c o m ple te b y th e e n d o f fis c al 2 017. T hese c h arg es a re a sso cia te d w ith o rg an iz atio nal e ffic ie n cie s, p rim arily re la te d to th e re d uctio n o f c o rp ora te s ta ffin g l e v els g lo bally , a s w ell a s a ccele ra te d d ep re cia tio n, m ain ly a sso cia te d w ith i n fo rm atio n s y ste m s r e tire m en t, t e ch nolo gy i n fra stru ctu re c h arg es r e la te d t o t h e i n itia l c o sts o f re p la cin g a n d u pdatin g o ur c o re te ch nolo gy p la tfo rm s, a n d in te rn atio nal s u pply c h ain a n d o ffic e lo catio n o ptim iz atio n. R efe r to N ote 3 , ” R estru ctu rin g A ctiv itie s,” a n d ” G AAP t o N on-G AAP R eco ncilia tio n” f o r f u rth er i n fo rm atio n. C urren t T ren ds a nd O utlo ok Glo bal c o nsu m er re ta il tra ffic re m ain s re la tiv ely w eak a n d in co nsis te n t, w hic h h as le d to a m ore p ro m otio nal e n viro nm en t in th e fra g m en te d re ta il i n dustry d ue t o i n cre ase d c o m petitio n a n d a d esire t o o ffs e t t ra ffic d eclin es w ith i n cre ase d l e v els o f c o nvers io n. W hile c erta in d ev elo ped g eo gra p hic r e g io ns a re w ith sta n din g t h ese p re ssu re s b ette r t h an o th ers , t h e l e v el o f c o nsu m er t ra v el a n d s p en din g o n d is c re tio nary i te m s r e m ain s c o nstra in ed d ue t o t h e e co nom ic u ncerta in ty . Politic al a n d e co nom ic in sta b ility o r c h an gin g m acro eco nom ic c o nditio ns th at e x is t in o ur m ajo r m ark ets , in clu din g th e im pact o f (1 ) th e U nite d K in gdom v otin g to le av e th e E uro pean U nio n in its re fe re n dum o n J u ne 2 3, 2 016 a n d (2 ) th e o utc o m e o f th e 2 016 U .S . P re sid en tia l e le ctio n, h av e fu rth er c o ntrib ute d t o t h is u ncerta in ty . O n J u ne 2 3, 2 016, t h e U nite d K in gdom ( U .K .) h eld a r e fe re n dum i n w hic h v ote rs a p pro ved a n e x it f ro m t h e E uro pean U nio n ( E .U .) , c o m monly r e fe rre d t o a s “ B re x it.” A s a r e su lt o f t h e r e fe re n dum , i t’s e x pecte d t h at t h e B ritis h g overn m en t w ill b eg in n eg otia tin g t h e t e rm s o f t h e U .K .’s f u tu re r e la tio nsh ip w ith t h e E .U . A lth ough i t i s u nknow n w hat t h ose t e rm s w ill b e, i t i s p ossib le t h at t h ere w ill b e i n cre ase d r e g ula to ry a n d l e g al c o m ple x itie s, i n clu din g p ote n tia lly d iv erg en t n atio nal l a w s a n d r e g ula tio ns b etw een t h e U .K . a n d E .U . Bre x it m ay a ls o c au se d is ru ptio n a n d c re ate u ncerta in ty s u rro undin g o ur b usin ess, i n clu din g a ffe ctin g o ur r e la tio nsh ip w ith o ur e x is tin g a n d f u tu re c u sto m ers , s u pplie rs a n d e m plo yees. Additio nal m acro eco nom ic e v en ts i n clu din g f o re ig n e x ch an ge r a te v ola tility i n v ario us p arts o f t h e w orld , r e cen t a n d e v olv in g i m pacts o f e co nom ic a n d g eo politic al e v en ts i n H ong K ong, M acau a n d m ain la n d C hin a ( ” G re ate r C hin a”), t h e i m pact o f t e rro ris t a cts ( p artic u la rly i n E uro pe), d is e ase e p id em ic s a n d a s lo w dow n i n e m erg in g m ark et g ro w th ( p artic u la rly i n A sia ) h av e c o ntrib ute d t o t h is u ncerta in ty . O ur r e su lts h av e b een n eg ativ ely i m pacte d b y f o re ig n e x ch an ge r a te f lu ctu atio ns, a n d w ill c o ntin ue t o f lu ctu ate w ith f u tu re v ola tility . Certa in o f o ur w hole sa le c u sto m ers , p artic u la rly th ose lo cate d in th e U .S ., h av e b eco m e h ig hly p ro m otio nal a n d h av e a g gre ssiv ely m ark ed d ow n th eir m erc h an dis e . D esp ite o ur p la n ned re d uctio n in m ark dow n a llo w an ces d urin g fis c al 2 017, s u ch p ro m otio nal a ctiv ity c o uld n eg ativ ely im pact o ur b ra n ds, w hic h c o uld a ffe ct o ur b usin ess, r e su lts o f o pera tio ns, a n d f in an cia l c o nditio n. O ver t h e n ex t y ear, w e e x pect t o c o ntin ue i n vestin g i n t h e e le v atio n o f s h op- i n -s h op e n viro nm en ts , a n d r a tio naliz in g t h e d is trib utio n f o otp rin t i n t h e N orth A m eric a w hole sa le c h an nel b y c lo sin g a b out 2 5% o f d oors f ro m f is c al 2 016 y ear-e n d l e v els . 30 Certa in l im ite d a n d r e cen t f a cto rs w ith in t h e U .S ., i n clu din g a n i m pro vem en t i n t h e l a b or a n d h ousin g m ark ets a n d m odest g ro w th i n o vera ll c o nsu m er s p en din g, s u ggest a p ote n tia l m odera te s tre n gth en in g i n t h e U .S . e co nom ic o utlo ok. I t i s s till, h ow ev er, t o o e arly t o u nders ta n d w hat k in d o f s u sta in ed i m pact t h is w ill h av e o n c o nsu m er d is c re tio nary s p en din g. I f t h e g lo bal m acro eco nom ic e n viro nm en t r e m ain s v ola tile o r w ors e n s, t h e c o nstra in ed l e v el o f w orld w id e c o nsu m er sp en din g a n d m odifie d c o nsu m ptio n b eh av io r m ay c o ntin ue to h av e a n eg ativ e e ffe ct o n o ur o utlo ok. A s a re su lt o f th ese fa cto rs , se v era l o rg an iz atio ns t h at m onito r t h e w orld ‘s e co nom y, i n clu din g t h e I n te rn atio nal M oneta ry F und, h av e m odestly d ecre ase d o vera ll g lo bal g ro w th f o re casts f o r t h e r e m ain der o f c ale n dar 2 016 a n d c ale n dar 2 017. We w ill c o ntin ue t o m onito r t h ese t re n ds a n d e v alu ate a n d a d ju st o ur o pera tin g s tra te g ie s a n d c o st m an ag em en t o pportu nitie s t o m itig ate t h e r e la te d i m pact o n o ur r e su lts o f o pera tio ns, w hile r e m ain in g f o cu se d o n t h e l o ng-te rm g ro w th o f o ur b usin ess a n d p ro te ctin g t h e v alu e o f o ur b ra n ds. Furth erm ore , r e fe r t o P art I , I te m 1 – ” B usin ess,” f o r a d ditio nal d is c u ssio n o n o ur e x pecte d s to re o pen in gs a n d c lo su re s w ith in e ach o f o ur s e g m en ts . F or a d eta ile d d is c u ssio n o f s ig nific an t r is k f a cto rs t h at h av e t h e p ote n tia l t o c au se o ur a ctu al r e su lts t o d iffe r m ate ria lly f ro m o ur e x pecta tio ns, s e e P art I , I te m 1 A – ” R is k F acto rs ” i n clu ded i n t h is A nnual R ep ort o n F orm 1 0-K . 31 F IS C AL 2016 C O M PA RED T O F IS C AL 2015 The f o llo w in g t a b le s u m mariz es r e su lts o f o pera tio ns f o r f is c al 2016 c o m pare d t o f is c al 2015 . A ll p erc en ta g es s h ow n i n t h e t a b le b elo w a n d t h e d is c u ssio n t h at f o llo w s h av e b een c alc u la te d u sin g u nro unded n um bers . Fis c a l Y ea r E nded July 2 , 2 016 Ju ne 2 7, 2 015 Varia n ce (m illio ns, e x cep t p er s h are d ata ) Am ount % o f net s a le s Am ount % o f net s a le s Am ount % N et s a le s $ 4,4 91.8 100.0 % $ 4,1 91.6 100.0 % $ 300.2 7.2 % G ro ss p ro fit 3,0 51.3 67.9 2,9 08.6 69.4 142.7 4.9 S G & A e x pen se s 2,3 97.8 53.4 2,2 90.6 54.6 107.2 4.7 O pera tin g i n co m e 653.5 14.5 618.0 14.7 35.5 5.7 I n te re st e x pen se , n et (2 6.9 ) (0 .6 ) (6 .4 ) (0 .2 ) (2 0.5 ) N M I n co m e b efo re p ro vis io n f o r i n co m e t a x es 626.6 14.0 611.6 14.6 15.0 2.5 P ro vis io n f o r i n co m e t a x es 166.1 3.7 209.2 5.0 (4 3.1 ) (2 0.6 ) N et i n co m e 460.5 10.3 402.4 9.6 58.1 14.4 N et i n co m e p er s h are : B asic $ 1.6 6 $ 1.4 6 $ 0.2 0 13.7 % D ilu te d $ 1.6 5 $ 1.4 5 $ 0.2 0 13.6 % N M – N ot m ean in gfu l G AAP t o N on-G AAP R eco ncilia tio n The C om pan y’s r e p orte d r e su lts a re p re se n te d i n a cco rd an ce w ith a cco untin g p rin cip le s g en era lly a ccep te d i n t h e U nite d S ta te s o f A m eric a ( “ G AAP”). T he r e p orte d r e su lts d urin g f is c al 2016 a n d 2015 r e fle ct c erta in i te m s, i n clu din g t h e i m pact o f t h e T ra n sfo rm atio n P la n , t h e O pera tio nal E ffic ie n cy P la n , a n d A cq uis itio n-R ela te d C osts , a s n ote d i n t h e f o llo w in g t a b le s. R efe r t o p ag e 4 3 f o r f u rth er d is c u ssio n o n t h e N on-G AAP M easu re s. CO ACH , I N C. GAAP T O N O N-G AAP R ECO NCIL IA TIO N For t h e Y ea rs E nded July 2 , 2 016 a nd June 2 7, 2 015 Ju ly 2 , 2 016 GAAP B asis (A s R ep orte d ) Tra n sfo rm atio n a n d Oth er A ctio n s Opera tio n al E ffic ie n cy Pla n Acq uis it io n -R ela te d Costs Non -G AAP B asis (E xclu din g I te m s) (m illio ns, e x cep t p er s h are d ata ) G ro ss p ro fit $ 3,0 51.3 $ — $ — $ (1 .1 ) $ 3,0 52.4 S G & A e x p en ses 2,3 97.8 44.1 43.9 34.0 2,2 75.8 O pera tin g in co m e 653.5 (4 4.1 ) (4 3.9 ) (3 5.1 ) 776.6 P ro vis io n f o r in co m e t a xes 166.1 (1 0.7 ) (1 0.3 ) (1 0.9 ) 198.0 N et in co m e 460.5 (3 3.4 ) (3 3.6 ) (2 4.2 ) 551.7 D ilu te d n et in co m e p er s h are 1.6 5 (0 .1 2 ) (0 .1 2 ) (0 .0 9 ) 1.9 8 32 Ju ne 2 7, 2 015 GAAP B asis (A s R ep orte d ) Tra n sfo rm atio n a n d Oth er A ctio ns Opera tio nal E ffic ie n cy Pla n Acq uis itio n-R ela te d Costs Non-G AAP B asis (E xclu din g I te m s) (m illio ns, e x cep t p er s h are d ata ) G ro ss p ro fit $ 2,9 08.6 $ (5 .0 ) $ — $ (4 .7 ) $ 2,9 18.3 S G &A e x pen ses 2,2 90.6 140.9 — 19.9 2,1 29.8 O pera tin g in co m e 618.0 (1 45.9 ) — (2 4.6 ) 788.5 P ro vis io n f o r in co m e ta x es 209.2 (3 8.1 ) — (3 .6 ) 250.9 N et in co m e 402.4 (1 07.8 ) — (2 1.0 ) 531.2 D ilu te d n et in co m e p er s h are 1.4 5 (0 .3 9 ) — (0 .0 8 ) 1.9 2 F is c al 2016 I te m s In f is c al 2016 , t h e C om pan y i n cu rre d p re -ta x c h arg es, a s f o llo w s: • Tra nsfo rm atio n a nd O th er A ctio ns – $44.1 m illio n u nder o ur C oach b ra n d T ra n sfo rm atio n P la n p rim arily d ue t o o rg an iz atio nal e ffic ie n cy c o sts , l e ase te rm in atio n c h arg es a n d a ccele ra te d d ep re cia tio n a s a r e su lt o f s to re r e n ovatio ns w ith in N orth A m eric a a n d s e le ct I n te rn atio nal s to re s; • Opera tio nal E ffic ie n cy P la n – $43.9 m illio n p rim arily re la te d to o rg an iz atio nal e ffic ie n cy c o sts a n d, to a le sse r e x te n t, n etw ork o ptim iz atio n c o sts ; an d • Acq uis itio n-R ela te d C osts – $35.1 m illio n to ta l c h arg es re la te d to th e a cq uis itio n o f S tu art W eitz m an H old in gs L LC , o f w hic h $27.6 m illio n is prim arily re la te d to ch arg es attrib uta b le to co ntin gen t p ay m en ts an d in te g ra tio n-re la te d activ itie s (o f w hic h $ 19.4 m illio n is re co rd ed w ith in unallo cate d c o rp ora te e x pen se s w ith in t h e C oach b ra n d a n d $ 8.2 m illio n i s r e co rd ed w ith in t h e S tu art W eitz m an s e g m en t, r e su ltin g i n a d ecre ase i n opera tin g in co m e o f $ 19.4 m illio n a n d $ 8.2 m illio n, re sp ectiv ely ), a n d $7.5 m illio n is re la te d to th e lim ite d life im pact o f p urc h ase a cco untin g, prim arily d ue t o t h e a m ortiz atio n o f t h e f a ir v alu e o f t h e o rd er b ack lo g a sse t, d is trib uto r r e la tio nsh ip s a n d i n ven to ry s te p -u p, a ll r e co rd ed w ith in t h e Stu art W eitz m an s e g m en t r e su ltin g i n a $ 7.5 m illio n d ecre ase i n o pera tin g i n co m e. Tota l T ra n sfo rm atio n P la n , O pera tio nal E ffic ie n cy P la n a n d A cq uis itio n-R ela te d C osts ta k en to geth er in cre ase d th e C om pan y’s S G & A e x pen se s b y $ 122.0 m illio n a n d c o st o f s a le s b y $1.1 m illio n , n eg ativ ely im pactin g n et in co m e b y $91.2 m illio n , o r $0.3 3 p er d ilu te d s h are . R efe r to th e ” E xecu tiv e O verv ie w ” h ere in a n d N ote 3 , ” R estru ctu rin g A ctiv itie s,” f o r f u rth er i n fo rm atio n r e g ard in g t h ese p la n s. Additio nal a ctio ns u nder o ur O pera tio nal E ffic ie n cy P la n w ill c o ntin ue i n to f is c al 2 017, w ith e x pecte d i n cre m en ta l c h arg es o f a ro und $ 20 m illio n t o $ 35 m illio n ( w hic h w ill p rim arily r e la te t o t h e c o sts o f r e p la cin g a n d u pdatin g t h e C om pan y’s c o re t e ch nolo gy p la tfo rm s, a s w ell a s o ffic e l o catio n a n d s u pply c h ain c o nso lid atio ns). F urth erm ore , th e C om pan y e x pects to in cu r a d ditio nal a g gre g ate S tu art W eitz m an p re -ta x A cq uis itio n-R ela te d C osts o f a ro und $ 20 m illio n i n f is c al 2 017, w hic h w ill p rim arily i n clu de t h e i m pact o f c o ntin gen t p ay m en ts , a n d t o a l e sse r e x te n t, o ffic e l e ase t e rm in atio n c h arg es. F is c al 2015 I te m s In f is c al 2 015, t h e C om pan y i n cu rre d c h arg es a s f o llo w s: • Tra nsfo rm atio n and O th er A ctio ns – $145.9 m illio n u nder o ur C oach b ra n d T ra n sfo rm atio n P la n d ue to accele ra te d d ep re cia tio n an d le ase te rm in atio n c h arg es a s a r e su lt o f s to re u pdate s a n d c lo su re s w ith in N orth A m eric a a n d s e le ct I n te rn atio nal s to re s, o rg an iz atio nal e ffic ie n cy c h arg es an d c h arg es r e la te d t o t h e d estru ctio n o f i n ven to ry ; • Acq uis itio n-R ela te d C osts – $24.6 m illio n to ta l a cq uis itio n-re la te d c o sts , o f w hic h $ 17.1 m illio n p rim arily re la te d to c o nsu ltin g a n d le g al c o sts re la te d t o t h e a cq uis itio n o f S tu art W eitz m an H old in gs L LC , a s w ell a s c o sts a ttrib uta b le t o c o ntin gen t p ay m en ts r e la te d t o t h e a cq uis itio n ( o f w hic h $15.8 m illio n is re co rd ed w ith in u nallo cate d c o rp ora te e x pen se s w ith in th e C oach b ra n d a n d $ 1.3 m illio n is re co rd ed w ith in th e S tu art W eitz m an se g m en t, r e su ltin g i n a d ecre ase i n o pera tin g i n co m e o f $ 15.8 m illio n a n d $ 1.3 m illio n, r e sp ectiv ely ), a n d $ 7.5 m illio n i s r e la te d t o t h e l im ite d l ife im pact o f p urc h ase a cco untin g, p rim arily d ue to th e a m ortiz atio n o f th e fa ir v alu e o f th e in ven to ry s te p -u p a n d o rd er b ack lo g a sse t, a ll re co rd ed with in t h e S tu art W eitz m an s e g m en t r e su ltin g i n a $ 7.5 m illio n d ecre ase i n o pera tin g i n co m e. These fis c al 2 015 a ctio ns ta k en to geth er in cre ase d th e C om pan y’s S G & A e x pen se s b y $ 160.8 m illio n a n d c o st o f s a le s b y $ 9.7 m illio n, n eg ativ ely i m pactin g n et i n co m e b y $ 128.8 m illio n, o r $ 0.4 7 p er d ilu te d s h are . 33 S um mary – F is c a l 2 016 Net sa le s in fis c al 2016 in cre ase d 7.2 % , p rim arily d ue to th e in clu sio n o f a fu ll fis c al y ear im pact o f th e S tu art W eitz m an b ra n d, co m pare d to a p pro xim ate ly t w o m onth s i n t h e p rio r f is c al y ear, c o ntrib utin g t o i n cre ase d n et s a le s o f $301.7 m illio n , a s w ell a s i n cre ase d r e v en ues f ro m t h e C oach b ra n d I n te rn atio nal b usin ess, p artia lly o ffs e t b y a d eclin e i n t h e N orth A m eric a b usin ess. T his i n cre ase i s i n clu siv e o f t h e f a v ora b le i m pact o f t h e 5 3rd w eek i n f is c al 2 016, w hic h re su lte d in in cre m en ta l n et re v en ues o f $ 84.4 m illio n. E xclu din g th e e ffe cts o f fo re ig n c u rre n cy, n et s a le s in cre ase d 9.1 % . O ur g ro ss p ro fit i n cre ase d by 4.9 % to $3.0 5 b illio n d urin g fis c al 2016 a s c o m pare d to $2.9 1 b illio n in fis c al 2015 . E xclu din g th e im pact o f o ur n on-G AAP c h arg es a s d esc rib ed i n t h e ” G AAP t o N on-G AAP R eco ncilia tio n” h ere in , g ro ss p ro fit i n cre ase d b y 4.6 % , to $3.0 5 b illio n . S G & A e x pen se s in cre ase d b y 4.7 % to $2.4 0 b illio n i n f is c al 2016 . E xclu din g n on-G AAP c h arg es, S G & A e x pen se s i n cre ase d b y 6.9 % t o $2.2 8 b illio n . Net i n co m e i n cre ase d 14.4 % i n f is c al 2016 a s c o m pare d t o f is c al 2015 , p rim arily d ue t o a d ecre ase o f $43.1 m illio n i n o ur p ro vis io n f o r i n co m e t a x es, a s w ell a s a n i n cre ase i n o pera tin g i n co m e o f $35.5 m illio n , p artia lly o ffs e t b y t h e i m pact o f i n cre ase d i n te re st e x pen se a ttrib uta b le t o o ur d eb t. N et i n co m e p er d ilu te d s h are in cre ase d 13.6 % , to $1.6 5 , p rim arily d ue to h ig her n et in co m e. E xclu din g n on-G AAP c h arg es, n et in co m e a n d n et in co m e p er d ilu te d s h are i n cre ase d 3 .8 % a n d 3.1 % , r e sp ectiv ely . T he i m pact o f t h e 5 3rd w eek c o ntrib ute d a p pro xim ate ly $ 0.0 7 t o n et i n co m e p er d ilu te d s h are . C urren cy F lu ctu atio n E ffe cts The c h an ge i n n et s a le s i n f is c al 2016 h as b een p re se n te d b oth i n clu din g a n d e x clu din g c u rre n cy f lu ctu atio n e ffe cts . N et S ale s Net sa le s in cre ase d 7.2 % o r $300.2 m illio n to $4.4 9 b illio n in fis c al 2016 , in clu siv e o f th e fa v ora b le im pact o f th e 5 3rd w eek in fis c al 2 016, w hic h r e su lte d i n i n cre m en ta l n et r e v en ues o f $ 84.4 m illio n. E xclu din g t h e e ffe cts o f f o re ig n c u rre n cy, n et s a le s i n cre ase d 9.1 % o r $382.1 m illio n . T his i n cre ase w as p rim arily d ue to th e in clu sio n o f a fu ll y ear im pact o f th e S tu art W eitz m an b ra n d a n d g ain s in th e In te rn atio nal b usin ess, p artia lly o ffs e t b y lo w er s a le s in N orth A m eric a. T he f o llo w in g t a b le p re se n ts n et s a le s b y r e p orta b le s e g m en t f o r f is c al 2016 c o m pare d t o f is c al 2015 : Fis c a l Y ea r E nded Tota l N et S ale s Rate o f Change Percen ta ge o f Tota l N et S ale s July 2 , 2016 Ju ne 2 7, 2015 July 2 , 2016 Ju ne 2 7, 2015 (m illio ns) N orth A m eric a $ 2,3 97.1 $ 2,4 67.5 (2 .9 ) % 53.4 % 58.9 % I n te rn atio nal 1,7 04.0 1,6 22.0 5.1 37.9 38.7 O th er (1 ) 46.0 59.1 (2 2.2 ) 1.0 1.4 C oach b ra n d $ 4,1 47.1 $ 4,1 48.6 — 92.3 % 99.0 % S tu art W eitz m an 344.7 43.0 NM 7.7 1.0 T ota l n et s a le s $ 4,4 91.8 $ 4,1 91.6 7.2 100.0 % 100.0 % ( 1 ) Net s a le s i n t h e O th er c ate g ory , w hic h i s n ot a r e p orta b le s e g m en t, c o nsis ts o f C oach b ra n d s a le s g en era te d i n l ic en sin g a n d d is p ositio n c h an nels . NM – N ot m ean in gfu l Net s a le s f o r t h e C oach b ra n d, w hic h i n clu des t h e N orth A m eric a a n d I n te rn atio nal s e g m en ts , a s w ell a s s a le s i n t h e O th er c ate g ory , r e m ain ed r e la tiv ely f la t i n f is c al 2 016 a s c o m pare d t o f is c al 2 015, a s d esc rib ed b elo w . E xclu din g t h e u nfa v ora b le i m pact o f f o re ig n c u rre n cy , n et s a le s i n cre ase d 1.8 % . North A m eric a N et S ale s d ecre ase d 2.9 % o r $ 70.4 m illio n t o $ 2.4 0 b illio n in fis c al 2016 . E xclu din g th e u nfa v ora b le im pact o f fo re ig n c u rre n cy d ue to t h e C an ad ia n d olla r, n et s a le s d ecre ase d $ 50.7 m illio n o r 2 .1 % . T he f o llo w in g d is c u ssio n i s p re se n te d e x clu din g t h e f a v ora b le i m pact o f t h e 5 3rd w eek t o n et s a le s o f $ 43.7 m illio n a n d t h e i m pact o f f o re ig n c u rre n cy. T he d ecre ase i n n et s a le s w as p rim arily d riv en b y l o w er c o m para b le s to re s a le s o f $ 70.0 m illio n o r 3 .3 % , p rim arily d ue to lo w er tra ffic , p artia lly o ffs e t b y h ig her tra n sa ctio n s iz e a n d im pro ved c o nvers io n. E xclu din g th e n eg ativ e im pact o f th e In te rn et b usin ess o n c o m para b le s to re s a le s, w hic h w as p rim arily a ttrib uta b le t o t h e i m pact o f r e d uced o utle t I n te rn et e v en ts , c o m para b le s to re s a le s d ecre ase d 3 .0 % . C om para b le s to re s a le s m easu re s a le s p erfo rm an ce a t s to re s t h at h av e b een o pen f o r a t l e ast 1 2 m onth s, a n d i n clu des s a le s f ro m t h e I n te rn et. C oach e x clu des n ew l o catio ns f ro m t h e c o m para b le s to re b ase f o r t h e f irs t t w elv e m onth s o f o pera tio n. C om para b le s to re s a le s h av e n ot b een a d ju ste d f o r s to re e x pan sio ns. A dditio nally , N orth A m eric a n et s a le s d eclin ed b y a p pro xim ate ly $ 14 34 m illio n d ue t o t h e n et i m pact o f s to re c lo su re s a n d o pen in gs. S in ce t h e e n d o f f is c al 2 015, N orth A m eric a c lo se d a n et 3 0 r e ta il s to re s. N orth A m eric a s a le s w ere a ls o n eg ativ ely i m pacte d b y l o w er w hole sa le s a le s o f a p pro xim ate ly $ 10.1 m illio n, d ue t o l o w er v olu m e o f s h ip m en ts . In te rn atio nal N et S ale s i n cre ase d 5.1 % o r $ 82.0 m illio n t o $ 1.7 0 b illio n i n f is c al 2016 . E xclu din g t h e u nfa v ora b le i m pact o f f o re ig n c u rre n cy, p rim arily w ith in A sia , n et s a le s i n cre ase d $ 139.9 m illio n o r 8 .6 % . T he f o llo w in g d is c u ssio n i s p re se n te d e x clu din g t h e f a v ora b le i m pact o f t h e 5 3rd w eek t o n et s a le s o f $ 32.1 m illio n a n d t h e i m pact o f f o re ig n c u rre n cy. T his i n cre ase w as p rim arily d ue t o a n i n cre ase o f $ 53.8 m illio n i n E uro pe d ue t o a n e x pan ded w hole sa le a n d s to re d is trib utio n n etw ork a n d h ig her c o m para b le s to re s a le s, a n i n cre ase i n G re ate r C hin a ( w hic h i n clu des H ong K ong a n d M acau ) o f $ 30.7 m illio n d ue t o n et n ew s to re s a n d p ositiv e c o m para b le s to re s a le s i n m ain la n d C hin a, p artia lly o ffs e t b y d eclin es i n H ong K ong a n d M acau d ue t o a c o ntin ued s lo w dow n i n in bound to uris t tra ffic , a n in cre ase in A sia (e x clu din g G re ate r C hin a a n d J a p an ) o f $ 14.7 m illio n d ue to th e im pact o f n et n ew s to re o pen in gs a n d a n i n cre ase i n J a p an o f $ 11.9 m illio n d ue t o o vera ll h ig her t ra n sa ctio n s iz e a n d i m pro ved l e v els o f c u sto m er c o nvers io n ( p artic u la rly i n r e ta il) c o ntrib utin g t o h ig her c o m para b le s to re s a le s. S in ce t h e e n d o f f is c al 2 015, w e o pen ed 1 9 n et n ew s to re s, w ith 1 3 n et n ew s to re s i n m ain la n d C hin a, H ong K ong a n d M acau a n d J a p an , a n d 6 n et n ew s to re s i n t h e o th er r e g io ns. Stu art W eitz m an N et S ale s in cre ase d $301.7 m illio n to $344.7 m illio n in fis c al 2 016, in clu din g th e fa v ora b le im pact o f th e 5 3rd w eek in fis c al 2 016, w hic h r e su lte d i n i n cre m en ta l n et r e v en ues o f $ 7.4 m illio n. T his i n cre ase w as d ue t o t h e i n clu sio n o f a f u ll f is c al y ear i m pact o f t h e S tu art W eitz m an b ra n d, c o m pare d t o a p pro xim ate ly t w o m onth s i n t h e p rio r f is c al y ear. G ro ss P ro fit Gro ss p ro fit i n cre ase d 4.9 % o r $142.7 m illio n t o $ 3.0 5 b illio n i n f is c al 2016 f ro m $ 2.9 1 b illio n i n f is c al 2015 . G ro ss m arg in f o r f is c al 2016 w as 67.9 % a s c o m pare d t o 69.4 % i n f is c al 2015 . E xclu din g N on-G AAP c h arg es o f $ 1.1 m illio n i n f is c al 2016 a n d $ 9.7 m illio n i n f is c al 2015 , a s d is c u sse d i n t h e ” G AAP t o N on-G AAP R eco ncilia tio n” h ere in , g ro ss p ro fit in cre ase d 4.6 % o r $134.1 m illio n to $3.0 5 b illio n fro m $ 2.9 2 b illio n in fis c al 2015 , a n d g ro ss m arg in w as 6 8.0 % i n f is c al 2016 a s c o m pare d t o 69.6 % i n f is c al 2015 . T he g ro ss m arg in d eclin e o f 1 50 b asis p oin ts ( o r 1 60 b asis p oin ts e x clu din g n on-G AAP i te m s) w as p rim arily d ue t o t h e u nfa v ora b le e ffe cts o f f o re ig n c u rre n cy o n t h e C oach b ra n d, a n d t h e i n clu sio n o f t h e S tu art W eitz m an b usin ess i n o ur f u ll y ear f is c al 2 016 r e su lts ( w hic h c o nta in s l o w er g ro ss m arg in s c o m pare d t o t h e C oach b ra n d). Gro ss p ro fit fo r th e C oach b ra n d, w hic h in clu des th e N orth A m eric a a n d In te rn atio nal s e g m en ts , a s w ell a s O th er a n d C orp ora te U nallo cate d re su lts , d ecre ase d 1 .4 % o r $ 39.8 m illio n t o $ 2.8 5 b illio n i n f is c al 2 016. F urth erm ore , g ro ss m arg in f o r t h e C oach b ra n d d ecre ase d 9 0 b asis p oin ts f ro m 6 9.6 % i n f is c al 2 015 t o 6 8.7 % i n t h e f is c al 2 016, i n clu siv e o f a n u nfa v ora b le 1 00 b asis p oin t f o re ig n c u rre n cy i m pact, a s d esc rib ed b elo w . North A m eric a G ro ss P ro fit decre ase d 6.1 % o r $ 96.2 m illio n to $ 1.4 8 b illio n in fis c al 2016 . G ro ss m arg in d ecre ase d 210 b asis p oin ts fro m 63.8 % in f i s c al 2015 to 61.7 % in fis c al 2016 . T he d ecre ase in g ro ss m arg in is p rim arily a ttrib uta b le to in cre ase d p ro m otio nal a ctiv ity , p rim arily in o ur o utle t a n d w hole sa le c h an nels , n eg ativ ely i m pactin g g ro ss m arg in b y 2 40 b asis p oin ts , p artia lly o ffs e t b y t h e i m pact o f a n i m pro ved m ix o f e le v ate d p ro duct s a le s a n d h ig her i n itia l m ark -u ps, p rim arily i n o ur o utle t s to re s, f a v ora b ly i m pactin g g ro ss m arg in b y 4 0 b asis p oin ts . In te rn atio nal G ro ss P ro fit i n cre ase d 3.0 % o r $37.4 m illio n t o $1.2 9 b illio n i n f is c al 2016 . G ro ss m arg in d ecre ase d 150 b asis p oin ts f ro m 77.0 % i n f is c al 2 015 to 75.5 % in fis c al 2016 . F ore ig n c u rre n cy n eg ativ ely im pacte d g ro ss m arg in b y 2 10 b asis p oin ts , p rim arily d ue to th e J a p an ese Y en . E xclu din g th e i m pact o f fo re ig n c u rre n cy, In te rn atio nal g ro ss m arg in in cre ase d 6 0 b asis p oin ts , p rim arily d ue to th e fa v ora b le e ffe cts o f d ecre ase d d uty c o sts , p ositiv ely i m pactin g g ro ss m arg in b y 7 0 b asis p oin ts . F urth erm ore , a n im pro ved m ix o f e le v ate d p ro duct s a le s, p artic u la rly in G re ate r C hin a a n d J a p an , p ositiv ely i m pacte d g ro ss m arg in b y 5 0 b asis p oin ts . T hese i n cre ase s w ere p artia lly o ffs e t b y a l e ss f a v ora b le g eo gra p hic m ix o f o ur s a le s, n eg ativ ely i m pactin g g ro ss m arg in b y 4 0 b asis p oin ts , p artic u la rly a s a r e su lt o f t h e g ro w th o f o ur E uro pe a n d i n te rn atio nal w hole sa le b usin esse s. Corp ora te U nallo ca te d G ro ss P ro fit in cre ase d $24.8 m illio n fro m $27.2 m illio n in fis c al 2015 to $52.0 m illio n in fis c al 2016 , p rim arily d ue to th e i m pact o f f a v ora b le i n ven to ry p ro ductio n v aria n ces, d ecre ase d t ra n sfo rm atio n-re la te d c h arg es a n d d ecre ase d i n ven to ry r e se rv e c h arg es. Stu art W eitz m an G ro ss P ro fit w as $202.4 m illio n in fis c al 2016 , a n d $19.9 in fis c al 2015 , d ue t o t h e i n clu sio n o f a f u ll f is c al y ear i m pact o f t h e S tu art W eitz m an b ra n d, c o m pare d t o a p pro xim ate ly t w o m onth s i n t h e p rio r f is c al y ear. F urth erm ore , g ro ss m arg in w as 58.7 % i n f is c al 2016 , c o m pare d t o 4 6.4 % i n t h e s h ort a cq uis itio n y ear o f f is c al 2015 ( w hic h i n clu ded t h e s h ort-te rm i m pact o f t h e a m ortiz atio n o f t h e f a ir v alu e o f t h e i n ven to ry s te p -u p). S ellin g, G en era l a nd A dm in is tr a tiv e E xpen se s SG & A e x pen se s a re c o m pris e d o f fo ur c ate g orie s: (i) s e llin g; (ii) a d vertis in g, m ark etin g a n d d esig n; (iii) d is trib utio n a n d c u sto m er s e rv ic e; a n d (iv ) a d m in is tra tiv e. S ellin g ex pen se s in clu de sto re em plo yee co m pen sa tio n, o ccu pan cy co sts , su pply co sts , w hole sa le an d re ta il acco unt ad m in is tra tio n c o m pen sa tio n g lo bally a n d C oach i n te rn atio nal o pera tin g e x pen se s. T hese e x pen se s a re a ffe cte d b y t h e n um ber o f s to re s o pen d urin g a n y f is c al p erio d a n d s to re p erfo rm an ce, a s c o m pen sa tio n a n d r e n t e x pen se s v ary 35 w ith s a le s. A dvertis in g, m ark etin g a n d d esig n e x pen se s i n clu de e m plo yee c o m pen sa tio n, m ed ia s p ace a n d p ro ductio n, a d vertis in g a g en cy f e es, n ew p ro duct d esig n c o sts , p ublic r e la tio ns a n d m ark et r e se arc h e x pen se s. D is trib utio n a n d c u sto m er s e rv ic e e x pen se s i n clu de w are h ousin g, o rd er f u lfillm en t, s h ip pin g a n d h an dlin g, c u sto m er s e rv ic e, e m plo yee c o m pen sa tio n a n d b ag re p air c o sts . A dm in is tra tiv e e x pen se s in clu de c o m pen sa tio n c o sts fo r “ co rp ora te ” fu nctio ns i n clu din g: e x ecu tiv e, fin an ce, h um an re so urc es, le g al a n d in fo rm atio n s y ste m s d ep artm en ts , a s w ell a s c o rp ora te h ead quarte rs o ccu pan cy c o sts , c o nsu ltin g f e es a n d s o ftw are e x pen se s. A dm in is tra tiv e e x pen se s a ls o i n clu de g lo bal e q uity c o m pen sa tio n e x pen se . The C om pan y in clu des in bound p ro duct-re la te d tra n sp orta tio n c o sts fro m o ur s e rv ic e p ro vid ers w ith in c o st o f s a le s. T he C om pan y, s im ila r to s o m e c o m pan ie s, i n clu des c erta in t ra n sp orta tio n-re la te d c o sts r e la te d t o o ur d is trib utio n n etw ork i n S G & A e x pen se s r a th er t h an i n c o st o f s a le s; f o r t h is r e aso n, o ur g ro ss m arg in s m ay n ot b e c o m para b le t o t h at o f e n titie s t h at i n clu de a ll c o sts r e la te d t o t h eir d is trib utio n n etw ork i n c o st o f s a le s. SG & A e x pen se s in cre ase d 4.7 % o r $107.2 m illio n to $2.4 0 b illio n in fis c al 2016 a s c o m pare d to $2.2 9 b illio n in fis c al 2015 . A s a p erc en ta g e o f n et s a le s, S G & A e x pen se s d ecre ase d t o 53.4 % d urin g f is c al 2016 a s c o m pare d t o 54.6 % d urin g f is c al 2015 . E xclu din g n on-G AAP a d ju stm en ts o f $122.0 m illio n i n f is c al 2016 a n d $ 160.8 m illio n i n f is c al 2 015, a s d is c u sse d i n t h e ” G AAP t o N on-G AAP R eco ncilia tio n” h ere in , S G & A e x pen se s i n cre ase d 6 .9 % o r $ 146.0 m illio n f ro m f is c al 2015 ; a n d S G & A e x pen se s a s a p erc en ta g e o f n et s a le s r e m ain ed r e la tiv ely f la t a t 5 0.7 % i n f is c al 2016 c o m pare d t o 5 0.8 % i n f is c al 2015 . Sellin g e x pen se s w ere $ 1.5 7 b illio n, o r 3 5.1 % o f n et s a le s, in fis c al 2016 c o m pare d to $ 1.5 3 b illio n, o r 3 6.6 % o f n et s a le s, in fis c al 2015 . T his $ 41.8 m illio n i n cre ase i s p rim arily d ue t o a $ 47.3 m illio n i n cre ase a ttrib uta b le t o t h e S tu art W eitz m an s e g m en t a s w ell a s i n cre ase s i n E uro pe a n d m ain la n d C hin a t o su pport g ro w th in th e b usin ess, p artia lly o ffs e t b y lo w er sto re -re la te d c o sts in Ja p an , A sia (e x clu din g G re ate r C hin a) a n d N orth A m eric a in clu din g d ecre ase d e m plo yee c o m pen sa tio n c o sts a n d o ccu pan cy c o sts , a s w ell a s th e im pact o f fa v ora b le fo re ig n c u rre n cy. E xclu din g N on-G AAP c h arg es o f $ 4.1 m illio n i n f is c al 2 015, s e llin g e x pen se s w ere 3 6.5 % o f n et s a le s. Advertis in g, m ark etin g, a n d d esig n c o sts w ere $ 285.7 m illio n, o r 6 .4 % o f n et s a le s, in fis c al 2016 , c o m pare d to $ 246.8 m illio n, o r 5 .9 % o f n et s a le s, d urin g f is c al 2015 . T his w as p rim arily d ue t o a n i n cre ase o f $ 25.4 m illio n a ttrib uta b le t o S tu art W eitz m an , a s w ell a s h ig her c o sts f o r C oach b ra n d m ark etin g a n d a d vertis in g-re la te d e v en ts , i n clu din g o ur f irs t t ru e N ew Y ork f a sh io n w eek s h ow i n t h e f irs t q uarte r o f f is c al 2 016, w hic h i n cre ase d b y $ 17.9 m illio n a s c o m pare d t o t h e s a m e p erio d p rio r y ear, p artia lly o ffs e t b y d ecre ase d e m plo yee-re la te d c o sts . Dis trib utio n a n d c u sto m er s e rv ic e e x pen se s w ere $ 67.7 m illio n, o r 1 .5 % o f n et s a le s i n f is c al 2016 , r e la tiv ely i n -lin e w ith f is c al 2015 e x pen se s o f $ 69.6 m illio n, o r 1 .7 % o f n et s a le s. Adm in is tra tiv e e x pen se s w ere $ 469.9 m illio n, o r 1 0.5 % o f n et s a le s, i n f is c al 2016 c o m pare d t o $ 441.5 m illio n, o r 1 0.5 % o f n et s a le s, d urin g f is c al 2015 . E xclu din g n on-G AAP a d ju stm en ts o f $ 122.0 m illio n i n f is c al 2016 a n d $ 156.7 m illio n i n f is c al 2015 , a d m in is tra tiv e e x pen se s w ere $ 347.9 m illio n, o r 7 .7 % o f n et sa le s, in fis c al 2016 a n d $ 284.8 m illio n, o r 6 .8 % o f n et sa le s, in fis c al 2015 . T he in cre ase is p rim arily d ue to th e im pact o f S tu art W eitz m an , c o ntrib utin g t o $ 55.5 m illio n o f t h is i n cre ase , a s w ell a s i n cre ase d C oach b ra n d i n fo rm atio n s y ste m c o sts a n d l itig atio n c o sts , p artia lly o ffs e t b y l o w er C oach b ra n d o ccu pan cy c o sts . O pera tin g I n co m e Opera tin g i n co m e i n cre ase d 5.7 % o r $35.5 m illio n t o $653.5 m illio n d urin g f is c al 2016 a s c o m pare d t o $618.0 m illio n i n f is c al 2015 . O pera tin g m arg in d ecre ase d to 14.5 % a s c o m pare d to 14.7 % in fis c al 2015 . E xclu din g n on-G AAP a d ju stm en ts o f $ 123.1 m illio n in fis c al 2016 a n d $ 170.5 m illio n in fis c al 2 015 , a s d is c u sse d in th e ” G AAP to N on-G AAP R eco ncilia tio n” h ere in , o pera tin g in co m e d ecre ase d 1 .5 % o r $ 11.9 m illio n to $ 776.6 m illio n fro m $ 788.5 m illio n i n f is c al 2015 ; a n d o pera tin g m arg in w as 1 7.3 % , i n f is c al 2016 a s c o m pare d t o 1 8.8 % i n f is c al 2015 . 36 The f o llo w in g t a b le p re se n ts o pera tin g i n co m e b y r e p orta b le s e g m en t f o r f is c al 2016 c o m pare d t o f is c al 2015 : Fis c a l Y ea r E nded Opera tin g I n co m e Varia n ce July 2 , 2 016 Ju ne 2 7, 2015 Am ount % (m illio ns) N orth A m eric a $ 737.3 $ 820.5 $ (8 3.2 ) (1 0.1 )% I n te rn atio nal 512.7 480.6 32.1 6.7 O th er (1 ) 22.9 30.1 (7 .2 ) (2 3.9 ) C orp ora te u nallo cate d (6 51.9 ) (7 08.6 ) 56.7 (8 .0 ) C oach b ra n d $ 621.0 $ 622.6 $ (1 .6 ) (0 .3 )% S tu art W eitz m an 32.5 (4 .6 ) 37.1 NM T ota l o pera tin g i n co m e $ 653.5 $ 618.0 $ 35.5 5.7 % ( 1 ) Opera tin g in co m e in th e O th er c ate g ory , w hic h is n ot a re p orta b le se g m en t, c o nsis ts o f C oach b ra n d sa le s g en era te d in lic en sin g a n d d is p ositio n ch an nels . NM – N ot m ean in gfu l Opera tin g in co m e fo r th e C oach b ra n d d ecre ase d 0.3 % o r $1.6 m illio n to $621.0 m illio n in fis c al 2016 . F urth erm ore , o pera tin g m arg in fo r th e C oach b ra n d r e m ain ed f la t a t 1 5.0 % i n f is c al 2016 w hen c o m pare d t o f is c al 2 015. E xclu din g n on-G AAP a d ju stm en ts , C oach b ra n d o pera tin g i n co m e t o ta le d $ 728.4 m illio n in fis c al 2016 , r e su ltin g i n a n o pera tin g m arg in o f 1 7.6 % . T his c o m pare d t o C oach b ra n d o pera tin g i n co m e o f $ 784.3 m illio n i n f is c al 2 015, o r a n o pera tin g m arg in o f 1 8.9 % . North A m eric a O pera tin g In co m e decre ase d 10.1 % o r $83.2 m illio n to $737.3 m illio n in fis c al 2016 , re fle ctin g th e d ecre ase in g ro ss p ro fit o f $ 96.2 m illio n w hic h w as p artia lly o ffs e t b y l o w er S G & A e x pen se s o f $ 13.0 m illio n. T he d ecre ase i n S G & A e x pen se s w as d ue t o l o w er s to re -re la te d c o sts , l a rg ely d riv en b y n et s to re c lo su re s, a s w ell a s d ecre ase d v aria b le s e llin g c o sts a s a re su lt o f lo w er s a le s in N orth A m eric a s to re s, th e In te rn et b usin ess a n d th e w hole sa le c h an nel. O pera tin g m arg in d ecre ase d 250 b asis p oin ts to 30.8 % in fis c al 2016 fro m 33.3 % d urin g th e s a m e p erio d in th e p rio r y ear d ue to lo w er g ro ss m arg in o f 2 10 b asis p oin ts a n d h ig her S G & A e x pen se a s a p erc en ta g e o f n et s a le s o f 4 0 b asis p oin ts . In te rn atio nal O pera tin g I n co m e in cre ase d 6.7 % o r $32.1 m illio n t o $512.7 m illio n i n f is c al 2016 , p rim arily r e fle ctin g a n i n cre ase i n g ro ss p ro fit o f $37.4 m illio n p artia lly o ffs e t b y h ig her S G & A ex pen se s o f $ 5.3 m illio n. T he in cre ase in S G & A ex pen se s is p rim arily re la te d to an in cre ase in em plo yee c o m pen sa tio n, d ep re cia tio n e x pen se r e la te d t o o ur n ew m odern l u xury i n vestm en ts a n d i n cre ase d o ccu pan cy c o sts i n E uro pe a n d G re ate r C hin a t o s u pport t h e g ro w th o f th e b usin ess, p artia lly o ffs e t b y lo w er e x pen se s in Ja p an a n d A sia (e x clu din g G re ate r C hin a) p rim arily d ue to d ecre ase d o ccu pan cy a n d e m plo yee c o m pen sa tio n c o sts , a s w ell a s f a v ora b le f o re ig n c u rre n cy e ffe cts . O pera tin g m arg in i n cre ase d 50 b asis p oin ts t o 30.1 % in fis c al 2016 fro m 29.6 % d urin g th e s a m e p erio d in th e p rio r y ear p rim arily d ue to lo w er o vera ll S G & A a s a p erc en ta g e o f n et s a le s w hic h in cre ase d o pera tin g m arg in b y 2 00 b asis p oin ts , p artia lly o ffs e t b y l o w er g ro ss m arg in o f 150 b asis p oin ts . Corp ora te U nallo ca te d O pera tin g E xp en se decre ase d $56.7 m illio n to $651.9 m illio n in fis c al 2016 , a d ecre ase o f 8.0 % fro m $708.6 m illio n in fis c al 2 015. T his d ecre ase w as p rim arily a ttrib uta b le t o l o w er n on-G AAP c h arg es i n cu rre d b y t h e C om pan y i n f is c al 2016 a s c o m pare d t o f is c al 2015 , a s d is c u sse d i n t h e ” G AAP t o N on-G AAP R eco ncilia tio n” h ere in . E xclu din g n on-G AAP a d ju stm en ts , u nallo cate d o pera tin g e x pen se s d ecre ase d b y $ 2.5 m illio n t o $ 544.5 m illio n. This d ecre ase is p rim arily d ue to m ore fa v ora b le in ven to ry p ro ductio n v aria n ces, lo w er C oach b ra n d o ccu pan cy c o sts a n d lo w er in ven to ry re se rv e c h arg es, p artia lly o ffs e t b y i n cre ase d i n fo rm atio n s y ste m a n d l e g al c o sts . Stu art W eitz m an O pera tin g In co m e in cre ase d $37.1 m illio n to $32.5 m illio n in fis c al 2016 , re su ltin g in a n o pera tin g m arg in o f 9 .4 % , c o m pare d to a n o pera tin g lo ss o f $4.6 m illio n in fis c al 2015 , in clu din g th e im pact o f n on-G AAP c h arg es a s d is c u sse d in th e ” G AAP to N on-G AAP R eco ncilia tio n” h ere in . E xclu din g n on-G AAP a d ju stm en ts , in clu din g a cq uis itio n a n d in te g ra tio n-re la te d c o sts a s w ell a s th e sh ort-te rm im pact o f p urc h ase a cco untin g, S tu art W eitz m an o pera tin g in co m e to ta le d $ 48.2 m illio n in fis c al 2016 , re su ltin g in a n o pera tin g m arg in o f 1 4.0 % . T his c o m pare d to S tu art W eitz m an o pera tin g i n co m e o f a p pro xim ate ly $ 4 m illio n i n f is c al 2015 . 37 P ro vis io n f o r I n co m e T axes The e ffe ctiv e t a x r a te w as 2 6.5 % i n f is c al 2016 , a s c o m pare d t o 3 4.2 % i n f is c al 2015 . E xclu din g n on-G AAP c h arg es a s d is c u sse d i n t h e ” G AAP t o N on- G AAP R eco ncilia tio n” h ere in , t h e e ffe ctiv e t a x r a te w as 2 6.4 % i n f is c al 2016 , a s c o m pare d t o 3 2.1 % i n f is c al 2015 . T he d ecre ase i n o ur e ffe ctiv e t a x r a te w as p rim arily a ttrib uta b le t o t h e e x pira tio n o f c erta in s ta tu te s p artia lly o ffs e t b y t h e i m pact o f c erta in o ngoin g a u dits , t h e b en efit o f a v aila b le f o re ig n t a x c re d its , a n d t h e g eo gra p hic m ix o f e arn in gs. N et I n co m e Net in co m e in cre ase d 14.4 % o r $ 58.1 m illio n to $460.5 m illio n in fis c al 2016 a s c o m pare d to $402.4 m illio n in fis c al 2015 . E xclu din g n on-G AAP c h arg es a s d is c u sse d i n t h e ” G AAP t o N on-G AAP R eco ncilia tio n” h ere in , n et i n co m e i n cre ase d 3 .8 % o r $ 20.5 m illio n t o $ 551.7 m illio n i n f is c al 2016 fro m $ 531.2 m illio n i n f is c al 2015 . T his i n cre ase w as p rim arily d ue t o l o w er p ro vis io n f o r i n co m e t a x es, p artia lly o ffs e t b y t h e i m pact o f i n cre ase d i n te re st e x pen se a ttrib uta b le t o o ur d eb t a s w ell a s l o w er o pera tin g i n co m e. E arn in gs p er S hare Net i n co m e p er d ilu te d s h are i n cre ase d 1 3.6 % t o $1.6 5 i n f is c al 2016 a s c o m pare d t o $1.4 5 i n f is c al 2015 . E xclu din g n on-G AAP c h arg es a s d is c u sse d i n t h e ” G AAP t o N on-G AAP R eco ncilia tio n” h ere in , n et i n co m e p er d ilu te d s h are i n cre ase d 3 .1 % o r $ 0.0 6 t o $ 1.9 8 i n f is c al 2016 f ro m $ 1.9 2 i n f is c al 2015 , d ue t o h ig her n et i n co m e. T he i m pact o f t h e 5 3rd w eek c o ntrib ute d a p pro xim ate ly $ 0.0 7 t o n et i n co m e p er d ilu te d s h are . F IS C AL 2015 C O M PA RED T O F IS C AL 2014 The f o llo w in g t a b le s u m mariz es r e su lts o f o pera tio ns f o r f is c al 2015 c o m pare d t o f is c al 2014 . A ll p erc en ta g es s h ow n i n t h e t a b le b elo w a n d t h e d is c u ssio n t h at f o llo w s h av e b een c alc u la te d u sin g u nro unded n um bers . Fis c al Y ear E nded Ju ne 2 7, 2 015 Ju ne 2 8, 2 014 Varia n ce (m illio ns, e x cep t p er s h are d ata ) Am ount % o f net s a le s Am ount % o f net s a le s Am ount % N et s a le s $ 4,1 91.6 100.0 % $ 4,8 06.2 100.0 % $ (6 14.6 ) (1 2.8 )% G ro ss p ro fit 2,9 08.6 69.4 3,2 97.0 68.6 (3 88.4 ) (1 1.8 ) S G & A e x pen se s 2,2 90.6 54.6 2,1 76.9 45.3 113.7 5.2 O pera tin g i n co m e 618.0 14.7 1,1 20.1 23.3 (5 02.1 ) (4 4.8 ) I n te re st i n co m e, n et (6 .4 ) (0 .2 ) 2.2 — (8 .6 ) N M I n co m e b efo re p ro vis io n f o r i n co m e t a x es 611.6 14.6 1,1 22.3 23.4 (5 10.7 ) (4 5.5 ) P ro vis io n f o r i n co m e t a x es 209.2 5.0 341.0 7.1 (1 31.8 ) (3 8.7 ) N et i n co m e 402.4 9.6 781.3 16.3 (3 78.9 ) (4 8.5 ) N et I n co m e p er s h are : Basic $ 1.4 6 $ 2.8 1 $ (1 .3 5 ) (4 8.1 )% Dilu te d $ 1.4 5 $ 2.7 9 $ (1 .3 3 ) (4 7.9 )% G AAP t o N on-G AAP R eco ncilia tio n The C om pan y’s re p orte d re su lts a re p re se n te d in a cco rd an ce w ith G AAP. T he re p orte d g ro ss p ro fit, S G & A e x pen se s, o pera tin g in co m e, in co m e b efo re p ro vis io n f o r i n co m e t a x es, p ro vis io n f o r i n co m e t a x es, n et i n co m e a n d e arn in gs p er d ilu te d s h are i n f is c al 2015 a n d 2014 r e fle ct c erta in i te m s, i n clu din g t h e i m pact o f th e T ra n sfo rm atio n P la n a n d A cq uis itio n-R ela te d C osts , a s n ote d in th e fo llo w in g re co ncilia tio n ta b le s. R efe r to p ag e 4 3 fo r a d is c u ssio n o n th e N on-G AAP M easu re s. 38 CO ACH , I N C. GAAP T O N O N-G AAP R ECO NCIL IA TIO N For t h e Y ea rs E nded June 2 7, 2 015 a nd June 2 8, 2 014 Ju ne 2 7, 2 015 GAAP B asis (A s R ep orte d ) Tra n sfo rm atio n a n d Oth er A ctio ns Acq uis itio n-R ela te d Costs Non-G AAP B asis (E xclu din g I te m s) (m illio ns, e x cep t p er s h are d ata ) Gro ss p ro fit $ 2,9 08.6 $ (5 .0 ) $ (4 .7 ) $ 2,9 18.3 SG & A e x pen se s 2,2 90.6 140.9 19.9 2,1 29.8 Opera tin g i n co m e 618.0 (1 45.9 ) (2 4.6 ) 788.5 Pro vis io n f o r i n co m e t a x es 209.2 (3 8.1 ) (3 .6 ) 250.9 Net i n co m e 402.4 (1 07.8 ) (2 1.0 ) 531.2 Dilu te d n et i n co m e p er s h are 1.4 5 (0 .3 9 ) (0 .0 8 ) 1.9 2 Ju ne 2 8, 2 014 GAAP B asis (A s R ep orte d ) Tra n sfo rm atio n a n d Oth er A ctio ns Acq uis itio n-R ela te d Costs Non-G AAP B asis (E xclu din g I te m s) (m illio ns, e x cep t p er s h are d ata ) Gro ss p ro fit $ 3,2 97.0 $ (8 2.2 ) $ — $ 3,3 79.2 SG & A e x pen se s 2,1 76.9 49.3 — 2,1 27.6 Opera tin g i n co m e 1,1 20.1 (1 31.5 ) — 1,2 51.6 Pro vis io n f o r i n co m e t a x es 341.0 (4 3.2 ) — 384.2 Net i n co m e 781.3 (8 8.3 ) — 869.6 Dilu te d n et i n co m e p er s h are 2.7 9 (0 .3 1 ) — 3.1 0 F is c al 2 015 I te m s In f is c al 2 015, t h e C om pan y i n cu rre d c h arg es a s f o llo w s: • Tra nsfo rm atio n and O th er A ctio ns – $145.9 m illio n u nder o ur C oach b ra n d T ra n sfo rm atio n P la n d ue to accele ra te d d ep re cia tio n an d le ase te rm in atio n c h arg es a s a r e su lt o f s to re u pdate s a n d c lo su re s w ith in N orth A m eric a a n d s e le ct I n te rn atio nal s to re s, o rg an iz atio nal e ffic ie n cy c h arg es, an d c h arg es r e la te d to t h e d estru ctio n o f i n ven to ry ; • Acq uis itio n-R ela te d C osts – $24.6 m illio n to ta l a cq uis itio n-re la te d c o sts , o f w hic h $ 17.1 m illio n p rim arily re la te d to c o nsu ltin g a n d le g al c o sts re la te d t o t h e a cq uis itio n o f S tu art W eitz m an H old in gs L LC ( o f w hic h $ 15.8 m illio n w as r e co rd ed w ith in u nallo cate d c o rp ora te e x pen se s w ith in t h e Coach b ra n d a n d $ 1.3 m illio n w as re co rd ed w ith in th e S tu art W eitz m an s e g m en t, re su ltin g in a d ecre ase in o pera tin g in co m e o f $ 15.8 m illio n a n d $1.3 m illio n, r e sp ectiv ely ), a n d $ 7.5 m illio n w as r e la te d t o t h e l im ite d l ife i m pact o f p urc h ase a cco untin g, p rim arily d ue t o t h e a m ortiz atio n o f t h e f a ir valu e o f th e in ven to ry s te p -u p a n d o rd er b ack lo g a sse t, a ll re co rd ed w ith in th e S tu art W eitz m an s e g m en t re su ltin g in a $ 7.5 m illio n d ecre ase in opera tin g i n co m e. These fis c al 2 015 a ctio ns ta k en to geth er in cre ase d th e C om pan y’s S G & A e x pen se s b y $ 160.8 m illio n a n d c o st o f s a le s b y $ 9.7 m illio n, n eg ativ ely i m pactin g n et i n co m e b y $ 128.8 m illio n, o r $ 0.4 7 p er d ilu te d s h are . F is c al 2 014 I te m s In f is c al 2 014, t h e C om pan y i n cu rre d r e stru ctu rin g a n d t ra n sfo rm atio n r e la te d c h arg es o f $131.5 m illio n u nder i ts T ra n sfo rm atio n P la n a n nounced i n t h e f o urth q uarte r o f f is c al 2 014. T he c h arg es r e co rd ed i n c o st o f s a le s a n d S G & A e x pen se s w ere $82.2 m illio n a n d $49.3 m illio n , re sp ectiv ely . T hese c h arg es, w hic h w ere p rim arily a sso cia te d w ith o ur N orth A m eric a b usin ess, r e la te d t o i n ven to ry a n d f le et r e la te d c o sts , i n clu din g i m pairm en t, a ccele ra te d d ep re cia tio n a n d s e v era n ce r e la te d t o s to re c lo su re s. 39 C urren cy F lu ctu atio n E ffe cts The c h an ge i n n et s a le s i n f is c al 2015 h as b een p re se n te d b oth i n clu din g a n d e x clu din g c u rre n cy f lu ctu atio n e ffe cts . N et S ale s Net s a le s d ecre ase d 1 2.8 % o r $ 614.6 m illio n to $ 4.1 9 b illio n in fis c al 2 015. E xclu din g th e e ffe cts o f fo re ig n c u rre n cy, n et s a le s d ecre ase d 1 0.6 % o r $ 511.3 m illio n, d riv en b y l o w er s a le s i n t h e N orth A m eric a b usin ess p artia lly o ffs e t b y g ain s i n t h e I n te rn atio nal b usin ess, a n d a $ 43.0 m illio n c o ntrib utio n d ue t o t h e a cq uis itio n o f S tu art W eitz m an . T he f o llo w in g t a b le p re se n ts n et s a le s b y r e p orta b le s e g m en t f o r f is c al 2 015 c o m pare d t o f is c al 2 014: Fis c al Y ear E nded Tota l N et S ale s Rate o f Chan ge Perc en ta g e o f T ota l N et S ale s Ju ne 2 7, 2015 Ju ne 2 8, 2014 Ju ne 2 7, 2015 Ju ne 2 8, 2014 (m illio ns) North A m eric a $ 2,4 67.5 $ 3,1 00.5 (2 0.4 ) % 58.9 % 64.5 % In te rn atio nal 1,6 22.0 1,6 44.2 (1 .3 ) 38.7 34.2 Oth er (1 ) 59.1 61.5 (3 .9 ) 1.4 1.3 Coach b ra n d $ 4,1 48.6 $ 4,8 06.2 (1 3.7 ) 99.0 100.0 Stu art W eitz m an 43.0 — NM 1.0 — Tota l n et s a le s $ 4,1 91.6 $ 4,8 06.2 (1 2.8 ) % 100.0 % 100.0 % ( 1 ) Net s a le s i n t h e O th er c ate g ory , w hic h i s n ot a r e p orta b le s e g m en t, c o nsis ts o f C oach b ra n d s a le s g en era te d i n l ic en sin g a n d d is p ositio n c h an nels . Com para b le s to re s a le s m easu re s a le s p erfo rm an ce a t s to re s th at h av e b een o pen fo r a t le ast 1 2 m onth s, a n d in clu des s a le s fro m th e In te rn et. C oach e x clu des n ew lo catio ns fro m th e c o m para b le s to re b ase fo r th e firs t tw elv e m onth s o f o pera tio n. C om para b le s to re s a le s h av e n ot b een a d ju ste d fo r s to re e x pan sio ns. North A m eric a N et S ale s d ecre ase d 2 0.4 % o r $ 633.0 m illio n t o $ 2.4 7 b illio n i n f is c al 2 015. E xclu din g t h e u nfa v ora b le i m pact o f f o re ig n c u rre n cy d ue t o t h e C an ad ia n d olla r, n et s a le s d ecre ase d $ 622.5 m illio n o r 2 0.1 % . T his d ecre ase w as p rim arily d riv en b y l o w er c o m para b le s to re s a le s o f $ 613.4 m illio n o r 2 2% d ue to lo w er tra ffic a s a re su lt o f a d ecre ase in p ro m otio nal a ctiv ity , p artia lly o ffs e t b y h ig her tra n sa ctio n s iz e. T he In te rn et b usin ess h ad a n eg ativ e i m pact o f a p pro xim ate ly 7 40 b asis p oin ts o n c o m para b le s to re s a le s w hic h w as a ttrib uta b le to th e C om pan y’s d ecis io n to b oth lim it a ccess a n d re d uce th e p ro m otio nal c ad en ce o n o ur o utle t I n te rn et s a le s s ite . N orth A m eric a s a le s w ere a ls o n eg ativ ely i m pacte d b y l o w er w hole sa le s a le s o f a p pro xim ate ly $ 53.9 m illio n d ue t o l o w er s h ip m en ts . T hese d ecre ase s w ere p artia lly o ffs e t b y a n et i n cre ase o f $ 32.4 m illio n r e la te d t o n et s a le s g en era te d b y n ew s to re o pen in gs w hic h w ere p artia lly o ffs e t b y t h e a b se n ce o f n et s a le s f o r t h ose s to re s t h at h ad c lo se d s in ce f is c al 2 014. I n f is c al 2 015, C oach c lo se d a n et 7 4 r e ta il s to re s a n d a n et t h re e o utle t s to re s, i n clu din g t h e c lo su re o f 1 1 M en ‘s o utle t s to re s. In te rn atio nal N et S ale s d ecre ase d 1 .3 % o r $ 22.2 m illio n t o $ 1.6 2 b illio n i n f is c al 2 015. E xclu din g t h e u nfa v ora b le i m pact o f f o re ig n c u rre n cy, p rim arily d ue t o t h e J a p an ese y en , n et s a le s i n cre ase d $ 70.8 m illio n o r 4 .3 % . T his i n cre ase w as p rim arily d ue t o g ro w th i n G re ate r C hin a ( w hic h i n clu des H ong K ong a n d M acau ) r e fle ctin g a n i n cre ase o f $ 50.5 m illio n p rim arily d ue t o n et n ew s to re s a n d p ositiv e c o m para b le s to re s a le s, a n i n cre ase o f $ 36.7 m illio n r e la te d t o n et n ew s to re o pen in gs a n d p ositiv e c o m para b le s to re s a le s o f o ur b usin ess i n E uro pe a n d a n i n cre ase o f $ 15.7 m illio n i n o ur i n te rn atio nal w hole sa le b usin ess p artia lly d ue t o h ig her s h ip m en ts . T hese i n cre ase s w ere p artia lly o ffs e t b y a d ecre ase i n n et s a le s i n J a p an o f $ 37.4 m illio n d ue t o l o w er t ra ffic a s a r e su lt o f l a p pin g th e p ull fo rw ard in d em an d in a d van ce o f th e A pril 2 014 c o nsu m ptio n ta x in cre ase . In fis c al 2 015, w e o pen ed 2 8 n et n ew s to re s, w ith 1 6 n et n ew s to re s i n m ain la n d C hin a, H ong K ong a n d M acau a n d J a p an , a n d 1 2 n et n ew s to re s i n t h e o th er r e g io ns. Stu art W eitz m an N et S ale s w ere $ 43.0 m illio n d urin g t h e C om pan y’s a p pro xim ate ly t w o m onth s o f o w ners h ip i n f is c al 2 015. G ro ss P ro fit Gro ss p ro fit d ecre ase d 1 1.8 % o r $ 388.4 m illio n t o $ 2.9 1 b illio n i n f is c al 2 015 f ro m $ 3.3 0 b illio n i n f is c al 2 014. G ro ss m arg in f o r f is c al 2 015 w as 6 9.4 % a s c o m pare d to 6 8.6 % in fis c al 2 014. E xclu din g n on-G AAP c h arg es o f $ 9.7 m illio n in fis c al 2 015 a n d $ 82.2 m illio n in fis c al 2 014, g ro ss p ro fit d ecre ase d 1 3.6 % o r $ 460.9 m illio n t o $ 2.9 2 b illio n f ro m $ 3.3 8 b illio n i n f is c al 2 014, a n d g ro ss m arg in w as 6 9.6 % i n f is c al 2 015 a s c o m pare d t o 7 0.3 % i n f is c al 2 014. E xclu din g n on-G AAP c h arg es, t h e g ro ss m arg in d ecre ase d 7 0 b asis p oin ts , a s d esc rib ed b elo w . 40 North A m eric a G ro ss P ro fit decre ase d 2 1.0 % o r $ 418.1 m illio n to $ 1.5 7 b illio n in fis c al 2 015. G ro ss m arg in d ecre ase d 5 0 b asis p oin ts fro m 6 4.3 % in f is c al 2 014 t o 6 3.8 % i n f is c al 2 015. T he d ecre ase i n g ro ss m arg in w as p rim arily a ttrib uta b le t o t h e i m pact o f d ecre ase d p ro m otio nal a ctiv ity o n a n e le v ate d p ro duct a sso rtm en t. S pecific ally , th e im pact o f a h ig her m ix o f e le v ate d p ro duct s a le s p rim arily in o ur o utle t s to re s, w hic h c o nta in ed h ig her a v era g e u nit c o sts , n eg ativ ely i m pacte d g ro ss m arg in b y 1 20 b asis p oin ts . T his d ecre ase w as m ostly o ffs e t b y l o w er p ro m otio nal a ctiv ity , m ain ly a s a r e su lt o f t h e s c ale – b ack o f p ro m otio nal e v en ts w ith in o ur o utle t c h an nel w hic h f a v ora b ly i m pacte d g ro ss m arg in b y 9 0 b asis p oin ts . In te rn atio nal G ro ss P ro fit decre ase d 3 .6 % o r $ 46.5 m illio n t o $ 1.2 5 b illio n i n f is c al 2 015. G ro ss m arg in d ecre ase d 1 80 b asis p oin ts f ro m 7 8.8 % i n f is c al 2 014 to 7 7.0 % in fis c al 2 015. T he d ecre ase in g ro ss m arg in w as p rim arily d ue to a le ss fa v ora b le g eo gra p hic m ix o f o ur s a le s a n d u nfa v ora b le e ffe cts o f f o re ig n c u rre n cy, w hic h i n a g gre g ate n eg ativ ely i m pacte d g ro ss m arg in b y 1 10 b asis p oin ts , p artic u la rly a s a r e su lt o f a d eclin e i n n et s a le s i n J a p an , c o uple d w ith th e g ro w th o f o ur in te rn atio nal w hole sa le b usin ess, a s w ell a s th e im pact o f s tro nger e le v ate d p ro duct s a le s w hic h c arrie d h ig her a v era g e u nit c o sts , n eg ativ ely i m pactin g g ro ss m arg in b y 6 0 b asis p oin ts a n d t o a l e sse r e x te n t i n cre ase d p ro m otio nal a ctiv ity . Stu art W eitz m an G ro ss P ro fit w as $19.9 m illio n d urin g t h e C om pan y’s a p pro xim ate ly t w o m onth s o f o w ners h ip i n f is c al 2 015. Corp ora te U nallo ca te d G ro ss P ro fit in cre ase d $ 55.1 m illio n fro m a lo ss o f $ 27.9 m illio n in fis c al 2 014 to a p ro fit o f $ 27.2 m illio n in fis c al 2 015, p rim arily d ue t o d ecre ase d t ra n sfo rm atio n-re la te d c h arg es, p artia lly o ffs e t b y i n cre ase d i n ven to ry r e se rv es a n d l e ss f a v ora b le p ro ductio n v aria n ces. S ellin g, G en era l a nd A dm in is tr a tiv e E xpen se s SG & A e x pen se s in cre ase d 5 .2 % o r $ 113.7 m illio n to $ 2.2 9 b illio n in fis c al 2 015 a s c o m pare d to $ 2.1 8 b illio n in fis c al 2 014. A s a p erc en ta g e o f n et s a le s, S G & A e x pen se s i n cre ase d t o 5 4.6 % d urin g f is c al 2 015 a s c o m pare d t o 4 5.3 % d urin g f is c al 2 014. E xclu din g N on-G AAP c h arg es o f $ 160.8 m illio n i n f is c al 2 015 a n d $ 49.3 m illio n in fis c al 2 014, S G & A e x pen se s in cre ase d $ 2.2 m illio n fro m fis c al 2 014; a n d S G & A e x pen se s a s a p erc en ta g e o f n et s a le s i n cre ase d , d ue t o d ele v era g in g a s n et s a le s d eclin ed , t o 5 0.8 % i n f is c al 2 015 f ro m 4 4.3 % i n f is c al 2 014. Sellin g e x pen se s w ere $ 1.5 3 b illio n, o r 3 6.6 % o f n et s a le s, in fis c al 2 015 c o m pare d to $ 1.5 5 b illio n, o r 3 2.2 % o f n et s a le s, in fis c al 2 014. T he $ 16.5 m illio n d ecre ase r e p re se n te d s lig htly l o w er s e llin g e x pen se s r e la te d t o o ur N orth A m eric a s to re s a n d I n te rn et b usin ess, w hic h w ere p artia lly o ffs e t b y i n cre ase s t o s u pport g ro w th i n o ur I n te rn atio nal b usin ess ( p rim arily i n E uro pe a n d G re ate r C hin a) a s w ell a s i n cre m en ta l S tu art W eitz m an s e llin g e x pen se s. E xclu din g N on-G AAP c h arg es o f $ 4.1 m illio n i n f is c al 2 015, s e llin g e x pen se s w ere 3 6.5 % o f n et s a le s. Advertis in g, m ark etin g, a n d d esig n c o sts w ere $ 246.8 m illio n, o r 5 .9 % o f n et s a le s, in fis c al 2 015, c o m pare d to $ 242.3 m illio n, o r 5 .0 % o f n et s a le s, d urin g fis c al 2 014. T he in cre ase w as th e re su lt o f h ig her c o sts fo r m ark etin g-re la te d e v en ts w hic h in cre ase d b y $ 28.8 m illio n a s c o m pare d to fis c al 2 014, p artia lly o ffs e t b y f e w er p ro m otio nal e v en ts m ad e b y t h e C om pan y, p rim arily a s a r e su lt o f t h e C om pan y’s d ecis io n t o l im it a ccess t o o ur o utle t I n te rn et s a le s s ite . Dis trib utio n a n d c o nsu m er s e rv ic e e x pen se s w ere $ 69.6 m illio n, o r 1 .7 % o f n et s a le s, i n f is c al 2 015, c o m pare d t o f is c al 2 014 e x pen se s o f $ 87.2 m illio n, o r 1 .8 % o f n et s a le s. T he d ecre ase w as p rim arily d ue t o l o w er v aria b le c o sts a s a r e su lt o f l o w er s a le s a sso cia te d w ith t h e C om pan y’s d ecis io n t o l im it a ccess t o o ur o utle t I n te rn et s a le s s ite . Adm in is tra tiv e e x pen se s w ere $ 441.5 m illio n, o r 1 0.5 % o f n et s a le s, i n f is c al 2 015 c o m pare d t o $ 300.5 m illio n, o r 6 .3 % o f n et s a le s, d urin g f is c al 2 014. E xclu din g n on-G AAP c h arg es o f $ 156.7 m illio n i n f is c al 2 015 a n d $ 49.3 m illio n i n f is c al 2 014, a d m in is tra tiv e e x pen se s w ere $ 284.8 m illio n, o r 6 .8 % o f n et s a le s, in fis c al 2 015 a n d $ 251.2 m illio n, o r 5 .2 % o f n et s a le s, in fis c al 2 014. T he in cre ase w as p rim arily d ue to h ig her in cen tiv e c o m pen sa tio n c o sts a n d a d ditio nal c o sts i n cu rre d p artic u la rly r e la te d t o i n fo rm atio n t e ch nolo gy. O pera tin g I n co m e Opera tin g i n co m e d ecre ase d 4 4.8 % o r $ 502.1 m illio n t o $ 618.0 m illio n d urin g f is c al 2 015 a s c o m pare d t o $ 1.1 2 b illio n i n f is c al 2 014. O pera tin g m arg in d ecre ase d t o 1 4.7 % a s c o m pare d t o 2 3.3 % i n f is c al 2 014. E xclu din g n on-G AAP c h arg es o f $ 170.5 m illio n i n f is c al 2 015 a n d $ 131.5 m illio n i n f is c al 2 014, o pera tin g i n co m e d ecre ase d 3 7.0 % o r $ 463.1 m illio n t o $ 788.5 m illio n f ro m $ 1.2 5 b illio n i n f is c al 2 014; a n d o pera tin g m arg in w as 1 8.8 % , i n f is c al 2 015 a s c o m pare d t o 2 6.0 % i n f is c al 2 014. 41 The f o llo w in g t a b le p re se n ts o pera tin g i n co m e b y r e p orta b le s e g m en t f o r f is c al 2 015 c o m pare d t o f is c al 2 014: Ju ne 2 7, 2015 Ju ne 2 8, 2014 Varia n ce Am ount % (m illio ns) N orth A m eric a $ 820.5 $ 1,1 64.1 $ (3 43.6 ) (2 9.5 )% I n te rn atio nal 480.6 555.7 (7 5.1 ) (1 3.5 ) O th er (1 ) 30.1 34.2 (4 .1 ) (1 2.0 ) C orp ora te u nallo cate d (7 08.6 ) (6 33.9 ) (7 4.7 ) 11.8 Coach b ra n d $ 622.6 $ 1,1 20.1 $ (4 97.5 ) (4 4.4 )% Stu art W eitz m an (4 .6 ) — (4 .6 ) NM Tota l o pera tin g i n co m e $ 618.0 $ 1,1 20.1 $ (5 02.1 ) (4 4.8 )% ( 1 ) Opera tin g in co m e in th e O th er c ate g ory , w hic h is n ot a re p orta b le se g m en t, c o nsis ts o f C oach b ra n d sa le s g en era te d in lic en sin g a n d d is p ositio n ch an nels . North A m eric a O pera tin g I n co m e decre ase d 2 9.5 % o r $ 343.6 m illio n to $ 820.5 m illio n in fis c al 2 015 re fle ctin g th e d ecre ase in g ro ss p ro fit o f $ 418.1 m illio n w hic h w as p artia lly o ffs e t b y lo w er S G & A e x pen se s o f $ 74.5 m illio n. T he d ecre ase in S G & A e x pen se s w as d ue to lo w er v aria b le s e llin g c o sts a s a r e su lt o f lo w er s a le s in o ur s to re s a n d In te rn et b usin ess. O pera tin g m arg in d ecre ase d 4 20 b asis p oin ts to 3 3.3 % in fis c al 2 015 fro m 3 7.5 % d urin g th e s a m e p erio d i n t h e p rio r y ear d ue t o h ig her S G & A e x pen se s a s a p erc en ta g e o f n et s a le s o f 3 90 b asis p oin ts , p rim arily d ue t o d ele v era g in g o f s e llin g e x pen se s a s n et s a le s d eclin ed , a n d l o w er g ro ss m arg in o f 5 0 b asis p oin ts . In te rn atio nal O pera tin g In co m e decre ase d 1 3.5 % o r $ 75.1 m illio n to $ 480.6 m illio n in fis c al 2 015, p rim arily re fle ctin g a d ecre ase in g ro ss p ro fit o f $ 46.5 m illio n a s w ell a s h ig her S G & A e x pen se s o f $ 28.6 m illio n. T he i n cre ase i n S G & A e x pen se s w as r e la te d t o a $ 30.8 m illio n i n cre ase i n G re ate r C hin a a n d A sia , e x clu din g J a p an , r e la te d t o n ew s to re o pen in gs a n d a $ 24.9 m illio n i n cre ase i n E uro pe t o s u pport g ro w th i n t h e b usin ess. T he i n cre ase i n S G & A c o sts w as p artia lly o ffs e t b y f o re ig n c u rre n cy e ffe cts i n J a p an o f $ 32.2 m illio n. O pera tin g m arg in d ecre ase d 4 20 b asis p oin ts t o 2 9.6 % i n f is c al 2 015 f ro m 3 3.8 % d urin g th e s a m e p erio d in th e p rio r y ear p rim arily d ue to h ig her o vera ll S G & A a s a p erc en ta g e o f n et s a le s w hic h in cre ase d b y 2 40 b asis p oin ts a n d lo w er g ro ss m arg in o f 1 80 b asis p oin ts . Stu art W eitz m an O pera tin g E xp en se was $ 4.6 m illio n d urin g t h e C om pan y’s a p pro xim ate ly t w o m onth s o f o w ners h ip i n f is c al 2 015. Corp ora te U nallo ca te d O pera tin g E xp en se in cre ase d $ 74.7 m illio n t o $ 708.6 m illio n i n f is c al 2 015, a n i n cre ase o f 1 1.8 % . T his i n cre ase w as p rim arily a ttrib uta b le to h ig her c h arg es in cu rre d b y th e C om pan y in fis c al 2 015 a s p art o f its T ra n sfo rm atio n P la n . E xclu din g n on-G AAP c h arg es, u nallo cate d o pera tin g e x pen se s i n cre ase d b y 8 .9 % o r $ 44.6 m illio n. T his i n cre ase w as p rim arily d ue t o h ig her i n cen tiv e c o m pen sa tio n c o sts a n d a d ditio nal c o sts i n cu rre d p artic u la rly r e la te d t o i n fo rm atio n t e ch nolo gy. P ro vis io n f o r I n co m e T axes The e ffe ctiv e t a x r a te w as 3 4.2 % i n f is c al 2 015, a s c o m pare d t o 3 0.4 % i n f is c al 2 014. E xclu din g n on-G AAP c h arg es, t h e e ffe ctiv e t a x r a te w as 3 2.1 % i n f is c al 2 015, a s c o m pare d t o 3 0.6 % i n f is c al 2 014. T he i n cre ase i n o ur e ffe ctiv e t a x r a te w as p rim arily a ttrib uta b le t o t h e l o ss o f c erta in f o re ig n t a x b en efits t h at e x pire d a t t h e e n d o f f is c al 2 014, a s w ell a s t h e a cq uis itio n-re la te d i m pact a ttrib uta b le t o S tu art W eitz m an . N et I n co m e Net in co m e d ecre ase d 4 8.5 % o r $ 378.9 m illio n to $ 402.4 m illio n in fis c al 2 015 a s c o m pare d to $ 781.3 m illio n in fis c al 2 014. E xclu din g n on-G AAP c h arg es, n et i n co m e d ecre ase d 3 8.9 % o r $ 338.4 m illio n t o $ 531.2 m illio n i n f is c al 2 015 f ro m $ 869.6 m illio n i n f is c al 2 014. T his d ecre ase w as p rim arily d ue t o l o w er o pera tin g i n co m e p artia lly o ffs e t b y l o w er p ro vis io n f o r i n co m e t a x es. E arn in gs p er S hare Net i n co m e p er d ilu te d s h are d ecre ase d 4 7.9 % t o $ 1.4 5 i n f is c al 2 015 a s c o m pare d t o $ 2.7 9 i n f is c al 2 014. E xclu din g n on-G AAP c h arg es, n et i n co m e p er d ilu te d s h are d ecre ase d 3 8.2 % o r $ 1.1 8 t o $ 1.9 2 i n f is c al 2 015 f ro m $ 3.1 0 i n f is c al 2 014, d ue t o l o w er n et i n co m e. 42 N O N-G AAP M EASU RES The C om pan y’s re p orte d re su lts a re p re se n te d in a cco rd an ce w ith G AAP. T he re p orte d g ro ss p ro fit, S G & A e x pen se s, o pera tin g in co m e, p ro vis io n fo r i n co m e ta x es, n et in co m e a n d e arn in gs p er d ilu te d sh are in fis c al 2016 , fis c al 2015 an d fis c al 2014 re fle ct c erta in ite m s, in clu din g th e im pact o f th e T ra n sfo rm atio n P la n , t h e O pera tio nal E ffic ie n cy P la n a n d A cq uis itio n-R ela te d C harg es. As a s u pple m en t t o t h e C om pan y’s r e p orte d r e su lts , t h ese m etric s a re a ls o r e p orte d o n a n on-G AAP b asis t o e x clu de t h e i m pact o f t h ese i te m s, a lo ng w ith a r e co ncilia tio n t o t h e m ost d ire ctly c o m para b le G AAP m easu re s. Furth erm ore , t h e C om pan y’s s a le s a n d e arn in gs p er d ilu te d s h are r e su lts a re p re se n te d b oth i n clu din g a n d e x clu din g t h e i m pact o f t h e 5 3rd w eek i n f is c al y ear 2 016. These n on-G AAP p erfo rm an ce m easu re s w ere u se d b y m an ag em en t t o c o nduct a n d e v alu ate i ts b usin ess d urin g i ts r e g ula r r e v ie w o f o pera tin g r e su lts f o r t h e p erio ds a ffe cte d . M an ag em en t a n d th e C om pan y’s B oard u tiliz ed th ese n on-G AAP m easu re s to m ak e d ecis io ns a b out th e u se s o f C om pan y re so urc es, a n aly ze p erfo rm an ce b etw een p erio ds, d ev elo p in te rn al p ro je ctio ns a n d m easu re m an ag em en t p erfo rm an ce. T he C om pan y’s p rim ary in te rn al fin an cia l r e p ortin g e x clu ded th ese ite m s. In a d ditio n, th e c o m pen sa tio n c o m mitte e o f th e C om pan y’s B oard w ill u se th ese n on-G AAP m easu re s w hen s e ttin g a n d a sse ssin g a ch ie v em en t o f i n cen tiv e c o m pen sa tio n g oals . The C om pan y o pera te s o n a g lo bal b asis a n d re p orts fin an cia l re su lts in U .S . d olla rs in a cco rd an ce w ith G AAP. Flu ctu atio ns in fo re ig n c u rre n cy e x ch an ge r a te s c an a ffe ct t h e a m ounts r e p orte d b y t h e C om pan y i n U .S . d olla rs w ith r e sp ect t o i ts f o re ig n r e v en ues a n d p ro fit. A cco rd in gly , c erta in i n cre ase s a n d d ecre ase s i n o pera tin g r e su lts f o r t h e C om pan y, t h e C oach b ra n d a n d t h e C om pan y’s N orth A m eric a a n d I n te rn atio nal s e g m en t h av e b een p re se n te d b oth i n clu din g a n d e x clu din g c u rre n cy f lu ctu atio n e ffe cts f ro m t ra n sla tin g f o re ig n-d en om in ate d a m ounts i n to U .S . d olla rs a n d c o m pare d t o t h e s a m e p erio d i n t h e p rio r fis c al y ear. C onsta n t c u rre n cy in fo rm atio n c o m pare s re su lts b etw een p erio ds a s if e x ch an ge ra te s h ad re m ain ed c o nsta n t p erio d-o ver-p erio d. T he C om pan y c alc u la te s c o nsta n t c u rre n cy r e v en ue r e su lts b y t ra n sla tin g c u rre n t p erio d r e v en ue i n l o cal c u rre n cy u sin g t h e p rio r y ear p erio d’s m onth ly a v era g e c u rre n cy c o nvers io n r a te . We b elie v e th ese n on-G AAP m easu re s a re u se fu l to in vesto rs a n d o th ers in e v alu atin g th e C om pan y’s o ngoin g o pera tin g a n d fin an cia l re su lts in a m an ner t h at i s c o nsis te n t w ith m an ag em en t’s e v alu atio n o f b usin ess p erfo rm an ce a n d u nders ta n din g h ow s u ch r e su lts c o m pare w ith t h e C om pan y’s h is to ric al p erfo rm an ce. A dditio nally , w e b elie v e p re se n tin g c erta in i n cre ase s a n d d ecre ase s i n c o nsta n t c u rre n cy p ro vid es a f ra m ew ork f o r a sse ssin g t h e p erfo rm an ce o f t h e C om pan y’s b usin ess o uts id e t h e U nite d S ta te s a n d h elp s i n vesto rs a n d a n aly sts u nders ta n d t h e e ffe ct o f s ig nific an t y ear-o ver-y ear c u rre n cy f lu ctu atio ns. W e b elie v e e x clu din g t h ese i te m s a ssis ts i n vesto rs a n d o th ers i n d ev elo pin g e x pecta tio ns o f f u tu re p erfo rm an ce. B y p ro vid in g t h e n on-G AAP m easu re s, a s a s u pple m en t to G AAP in fo rm atio n, w e b elie v e w e a re e n han cin g in vesto rs ’ u nders ta n din g o f o ur b usin ess a n d o ur re su lts o f o pera tio ns. T he n on-G AAP f in an cia l m easu re s a re lim ite d in th eir u se fu ln ess a n d s h ould b e c o nsid ere d in a d ditio n to , a n d n ot in lie u o f, U .S . G AAP fin an cia l m easu re s. F urth er, th ese n on-G AAP m easu re s m ay b e u niq ue t o t h e C om pan y, a s t h ey m ay b e d iffe re n t f ro m n on-G AAP m easu re s u se d b y o th er c o m pan ie s. For a d eta ile d d is c u ssio n o n th ese n on-G AAP m easu re s, s e e Ite m 6 . ” S ele cte d F in an cia l D ata ,” a n d th e R esu lts o f O pera tio ns s e ctio n w ith in Ite m 7 . ” M an ag em en t’s D is c u ssio n a n d A naly sis o f F in an cia l C onditio n a n d R esu lts o f O pera tio ns.” F IN ANCIA L C O NDIT IO N C ash F lo w s – F is c a l 2016 C om pared t o F is c a l 2015 Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Chan ge (m illio ns) N et c ash p ro vid ed b y o pera tin g a ctiv itie s $ 758.6 $ 937.4 $ (1 78.8 ) N et c ash u se d i n i n vestin g a ctiv itie s (8 10.0 ) (6 12.9 ) (1 97.1 ) N et c ash ( u se d i n ) p ro vid ed b y f in an cin g a ctiv itie s (3 84.9 ) 389.3 (7 74.2 ) E ffe ct o f e x ch an ge r a te c h an ges o n c ash a n d c ash e q uiv ale n ts 3.5 (1 3.9 ) 17.4 Net ( d ecre ase ) i n cre ase i n c ash a n d c ash e q uiv ale n ts $ (4 32.8 ) $ 699.9 $ (1 ,1 32.7 ) The C om pan y’s c ash a n d c ash e q uiv ale n ts d ecre ase d $432.8 m illio n i n f is c al 2 016 c o m pare d t o a n i n cre ase o f $699.9 m illio n i n f is c al 2 015, a s d is c u sse d b elo w . 43 Net c a sh p ro vid ed b y o pera tin g a ctiv itie s Net c ash p ro vid ed b y o pera tin g a ctiv itie s d ecre ase d $178.8 m illio n p rim arily d ue t o t h e y ear-o ver-y ear d eclin es i n c ash s o urc es f ro m o pera tin g a sse ts a n d l ia b ilitie s ( d ecre ase o f $131.7 m illio n ) a n d n oncash c h arg es ( d ecre ase o f $105.2 m illio n ), p artia lly o ffs e t b y h ig her n et i n co m e o f $58.1 m illio n . The o vera ll d eclin e in c h an ges in o ur o pera tin g a sse t a n d lia b ility b ala n ces w ere p rim arily d riv en b y c h an ges in a cco unts p ay ab le , o th er lia b ilitie s, a ccru ed l ia b ilitie s, a cco unts r e ceiv ab le a n d o th er b ala n ce s h eet c h an ges. A cco unts p ay ab le w ere a u se o f c ash o f $48.4 m illio n i n f is c al 2016 a s c o m pare d t o a s o urc e o f c ash i n f is c al 2015 o f $64.4 m illio n , d riv en b y a n o vera ll d ecre ase i n i n ven to ry p urc h ase s ( a s w ell a s t im in g o f i n ven to ry p ay m en ts ), t h e t im in g o f t ra n sfo rm atio n-re la te d p ay m en ts a n d a d ecre ase i n p ay ab le s d ue t o t im in g o f p ay m en ts . O th er l ia b ilitie s w ere a s o urc e o f c ash o f $49.5 m illio n in fis c al 2016 c o m pare d t o a u se o f c ash o f $5.9 m illio n i n f is c al 2015 , p rim arily d riv en b y a d ditio nal s to re -re la te d l ia b ilitie s, l a rg ely d ue t o t h e e x ecu tio n o f t w o n ew s to re l e ase s i n t h e t h ird q uarte r o f f is c al 2 016 o n F ifth A ven ue i n N ew Y ork C ity a n d R eg en t S tre et i n L ondon. A ccru ed l ia b ilitie s w as a s o urc e o f c ash o f $30.1 m illio n i n f is c al 2016 a s c o m pare d t o a s o urc e o f c ash o f $63.2 m illio n i n f is c al 2015 . T his d ecre ase i s p rim arily d riv en b y h ig her b onus p ay m en ts i n t h e f irs t q uarte r o f fis c al 2 016 c o m pare d to fis c al 2 015, p artia lly o ffs e t b y a n in cre ase in a ccru ed d utie s. A cco unts re ceiv ab le w as a u se o f c ash o f $28.3 m illio n in f is c al 2016 c o m pare d t o a s o urc e o f c ash o f $0.3 m illio n i n f is c al 2015 , p rim arily d riv en b y i n cre ase d w hole sa le s h ip m en ts f o r C oach b ra n d a n d a n i n cre ase i n c re d it c ard r e ceiv ab le s i n f is c al 2 016 a s c o m pare d t o f is c al 2 015 d riv en b y t h e t im in g o f s a le s i n t h e l a st w eek o f f is c al 2 016. O th er b ala n ce s h eet c h an ges, n et, w ere a u se o f c ash o f $6.3 m illio n i n f is c al 2016 a s c o m pare d t o a s o urc e o f c ash o f $17.8 m illio n i n f is c al 2015 , p rim arily d ue t o i n cre ase d s to re -re la te d r e la te d re ceiv ab le s d urin g fis c al 2 016 a s c o m pare d to fis c al 2 015 a s a re su lt o f s e le ct n ew s to re o pen in gs, in clu din g o ur F ifth A ven ue a n d R eg en t S tre et s to re s, d esc rib ed a b ove. Net c a sh u se d i n i n vestin g a ctiv itie s Net c ash u se d i n i n vestin g a ctiv itie s w as $810.0 m illio n in fis c al 2016 c o m pare d to a u se o f c ash o f $612.9 m illio n in fis c al 2015 . T he in cre ase in n et c ash u se d o f $197.1 m illio n w as p rim arily d ue t o t h e i m pact o f n et c ash u se d f o r p urc h ase o f i n vestm en ts o f $238.8 m illio n i n f is c al 2 016, c o m pare d t o n et p ro ceed s fro m in vestm en ts o f $255.6 m illio n in fis c al 2 015, a s w ell a s in cre ase d c ap ita l e x pen ditu re s in fis c al 2 016, p artia lly o ffs e t b y a $494.0 m illio n d ecre ase i n c ash u se d f o r a cq uis itio ns, p rim arily r e la te d t o t h e S tu art W eitz m an a cq uis itio n t h at o ccu rre d i n t h e f o urth q uarte r o f f is c al 2 015. Net c a sh ( u se d i n ) p ro vid ed b y f in ancin g a ctiv itie s Net c ash u se d i n f in an cin g a ctiv itie s w as $384.9 m illio n i n f is c al 2016 a s c o m pare d t o a s o urc e o f c ash o f $389.3 m illio n i n f is c al 2015 . T his i n cre ase i n c ash u se d o f $774.2 m illio n w as p rim arily d ue t o t h e a b se n ce o f p ro ceed s i n f is c al 2016 f ro m t h e i s su an ce o f l o ng-te rm d eb t i n f is c al 2 015. I n f is c al 2 015, t h e C om pan y h ad p ro ceed s fro m th e is su an ce o f lo ng-te rm d eb t o f $896.7 m illio n , p artia lly o ffs e t b y n et re p ay m en ts o f $140.0 m illio n u nder th e C om pan y’s A m en ded a n d R esta te d C re d it A gre em en t. C ash F lo w s – F is c a l 2 015 C om pared t o F is c a l 2 014 Fis c a l Y ea r E nded June 2 7, 2015 Ju ne 2 8, 2014 Chan ge (m illio ns) N et c ash p ro vid ed b y o pera tin g a ctiv itie s $ 937.4 $ 985.4 $ (4 8.0 ) N et c ash u se d i n i n vestin g a ctiv itie s (6 12.9 ) (7 07.7 ) 94.8 N et c ash p ro vid ed b y ( u se d i n ) f in an cin g a ctiv itie s 389.3 (7 48.1 ) 1,1 37.4 E ffe ct o f e x ch an ge r a te c h an ges o n c ash a n d c ash e q uiv ale n ts (1 3.9 ) (0 .5 ) (1 3.4 ) Net i n cre ase ( d ecre ase ) i n c ash a n d c ash e q uiv ale n ts $ 699.9 $ (4 70.9 ) $ 1,1 70.8 The C om pan y’s c ash a n d c ash e q uiv ale n ts i n cre ase d $ 699.9 m illio n i n f is c al 2 015 c o m pare d t o a d ecre ase o f $ 470.9 m illio n i n f is c al 2 014, p rim arily d ue t o n et c ash p ro vid ed b y f in an cin g a ctiv itie s i n f is c al 2 015. Net c a sh p ro vid ed b y o pera tin g a ctiv itie s Net c ash p ro vid ed b y o pera tin g a ctiv itie s d ecre ase d $ 48.0 m illio n p rim arily d ue t o l o w er n et i n co m e o f $ 378.9 m illio n f ro m f is c al 2 014 t o f is c al 2 015, p artia lly o ffs e t b y c h an ges i n o ur o pera tin g a sse t a n d l ia b ility b ala n ces o f $ 331.4 m illio n. Chan ges i n o ur o pera tin g a sse t a n d l ia b ility b ala n ces w ere p rim arily d riv en b y c h an ges i n a cco unts p ay ab le , i n ven to ry , o th er b ala n ce s h eet c h an ges a n d a ccru ed l ia b ilitie s. A cco unts p ay ab le w ere a s o urc e o f c ash o f $ 64.4 m illio n i n f is c al 2 015, d riv en p rim arily b y t h e t im in g o f i n ven to ry p urc h ase s a n d l e ase t e rm in atio n p ay m en ts , a s c o m pare d t o a u se o f c ash o f $ 30.2 m illio n i n f is c al 2 014. I n ven to ry w as a s o urc e o f c ash o f $ 29.2 m illio n i n f is c al 2 015, p rim arily d riv en b y o vera ll l o w er i n ven to ry p urc h ase s i n f is c al 2 015, a s c o m pare d t o a u se o f c ash o f $ 64.1 m illio n i n f is c al 2 014. O th er b ala n ce s h eet c h an ges, n et, w hic h p rim arily 44 r e la te t o o th er a sse ts , w ere a s o urc e o f c ash o f $ 17.8 m illio n i n f is c al 2 015 a s c o m pare d t o a u se o f c ash o f $ 64.2 m illio n i n f is c al 2 014, p rim arily d ue t o a d ecre ase i n t a x r e ceiv ab le s a n d c h an ges i n d efe rre d t a x a cco unts . A ccru ed l ia b ilitie s w ere a s o urc e o f c ash o f $ 63.2 m illio n i n f is c al 2 015, p rim arily d riv en b y i n cre ase d p ay ro ll a n d i n cen tiv e c o m pen sa tio n a ccru als , a s c o m pare d t o s o urc e o f c ash o f $ 14.1 m illio n i n f is c al 2 014. Net c a sh u se d i n i n vestin g a ctiv itie s Net c ash u se d i n i n vestin g a ctiv itie s w as $ 612.9 m illio n i n f is c al 2 015 c o m pare d t o $ 707.7 m illio n i n f is c al 2 014. T he d ecre ase i n n et c ash u se d o f $ 94.8 m illio n w as p rim arily d ue t o t h e i m pact o f n et p ro ceed s f ro m m atu rin g i n vestm en ts o f $ 255.6 m illio n i n f is c al 2 015, c o m pare d t o n et c ash u se d f o r p urc h ase o f i n vestm en ts o f $ 397.1 m illio n i n f is c al 2 014, o ffs e t b y a n i n cre ase i n n et c ash u se d o f $ 515.8 m illio n i n c ash u se d f o r a cq uis itio ns, r e la te d t o t h e S tu art W eitz m an a cq uis itio n in th e fo urth q uarte r o f fis c al 2 015, a s w ell a s a n in cre ase in n et c ash u se d o f $ 51.9 m illio n re la te d to in cre ase d in vestm en ts in th e H udso n Y ard s j o in t v en tu re . Net c a sh p ro vid ed b y ( u se d i n ) f in ancin g a ctiv itie s Net c ash p ro vid ed b y f in an cin g a ctiv itie s w as $ 389.3 m illio n i n f is c al 2 015 a s c o m pare d t o a u se o f c ash o f $ 748.1 m illio n i n f is c al 2 014. T his i n cre ase o f c ash p ro vid ed o f $ 1,1 37.4 m illio n w as p rim arily d ue to th e d eb t b orro w in gs d esc rib ed in N ote 1 0, ” D eb t” , a s w ell a s th e a b se n ce o f c ash u se d fo r s h are r e p urc h ase s d urin g fis c al 2 015. T he C om pan y re ceiv ed $ 896.7 m illio n in p ro ceed s fro m lo ng te rm d eb t, n et o f d is c o unt, w hic h w as p artia lly o ffs e t b y n et r e p ay m en ts o f $ 140 m illio n u nder t h e C om pan y’s A m en ded a n d R esta te d C re d it A gre em en t d urin g f is c al 2 015, c o m pare d t o $ 140 m illio n o f n et b orro w in gs d urin g f is c al 2 014. F urth erm ore , t h e C om pan y u se d $ 524.9 m illio n f o r s h are r e p urc h ase s i n f is c al 2 014, c o m pare d t o n o s to ck r e p urc h ase s o ccu rrin g i n f is c al 2 015. W ork in g C apita l a nd C apita l E xpen ditu res As o f Ju ly 2 , 2 016 , i n a d ditio n t o o ur c ash f lo w s f ro m o pera tio ns, o ur s o urc es o f l iq uid ity a n d c ap ita l r e so urc es w ere c o m pris e d o f t h e f o llo w in g: Sources o f L iq uid ity Outs ta ndin g In deb te d ness Tota l A vaila ble Liq uid ity (m illio ns) C ash a nd c a sh e q uiv ale n ts (1 ) $ 859.0 $ — $ 859.0 S hort-te rm i n vestm en ts (1 ) 460.4 — 460.4 N on-c u rren t i n vestm en ts (2 ) 98.1 — 98.1 A m en ded a nd R esta te d C red it A greem en t (3 ) 1,0 00.0 285.0 715.0 4 .2 50% S en io r N ote s (3 ) 600.0 600.0 — I n te rn atio nal c red it f a cilitie s 50.0 — 50.0 T ota l $ 3,0 67.5 $ 885.0 $ 2,1 82.5 ( 1 ) As o f Ju ly 2 , 2 016 , a p pro xim ate ly 7 6% o f o ur c ash a n d s h ort-te rm i n vestm en ts w ere h eld o uts id e t h e U .S . i n j u ris d ic tio ns w here w e i n te n d t o p erm an en tly re in vest o ur u ndis trib ute d e arn in gs t o s u pport o ur c o ntin ued g ro w th . W e a re n ot d ep en den t o n f o re ig n c ash t o f u nd o ur d om estic o pera tio ns. I f w e c h oose to r e p atria te a n y f u nds t o t h e U .S . i n t h e f u tu re , w e w ould b e s u bje ct t o a p plic ab le U .S . a n d f o re ig n t a x es. ( 2 ) Exclu d es $460.5 m illio n o f o ur n on-c u rre n t in vestm en t re la te d to th e H udso n Y ard s jo in t v en tu re . R efe r to N ote 6 , “In vestm en ts ,” a n d N ote 1 9, “S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. ( 3 ) In M arc h 2 015, t h e C om pan y a m en ded a n d r e sta te d i ts e x is tin g $ 700.0 m illio n r e v olv in g c re d it f a cility ( th e ” R ev olv in g F acility “) w ith c erta in l e n ders an d J P M org an C hase B an k, N .A . a s t h e a d m in is tra tiv e a g en t, t o p ro vid e f o r a f iv e-y ear s e n io r u nse cu re d $300.0 m illio n t e rm l o an ( th e “ T erm L oan ”) a n d to ex te n d th e m atu rity d ate to Marc h 1 8, 2 020 (th e “A m en ded an d R esta te d C re d it A gre em en t” ). O n A ugust 3 , 2 016, th e C om pan y p re p aid its outs ta n din g b orro w in gs u nder t h e T erm L oan f a cility . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. T he A m en ded a n d R esta te d C re d it Agre em en t c o nta in s v ario us c o ven an ts a n d c u sto m ary e v en ts o f d efa u lt, in clu din g th e re q uire m en t to m ain ta in a m ax im um ra tio o f a d ju ste d d eb t to co nso lid ate d E B IT D AR, a s d efin ed i n t h e a g re em en t, o f n o g re ate r t h an 4 .0 a s o f t h e d ate o f m easu re m en t. A s o f Ju ly 2 , 2 016 , n o k now n e v en ts o f d efa u lt hav e o ccu rre d . F urth erm ore , in M arc h 2 015, th e C om pan y is su ed $600.0 m illio n a g gre g ate p rin cip al a m ount o f 4 .2 50% s e n io r u nse cu re d n ote s d ue April 1 , 2 025 a t 99.4 45% o f p ar (th e “ 4 .2 50% S en io r N ote s” ). O ur a v era g e b orro w in gs o uts ta n din g u nder o ur R ev olv in g F acility fo r fis c al 2 015 w as $120.4 m illio n. T here w ere n o d eb t b orro w in gs u nder th e R ev olv in g F acility in fis c al 2 016. F urth erm ore , th e in den tu re fo r th e 4 .2 50% S en io r N ote s co nta in s c erta in c o ven an ts l im itin g t h e C om pan y’s a b ility t o : ( i) c re ate c erta in l ie n s, ( ii) e n te r i n to c erta in s a le a n d l e ase b ack t ra n sa ctio ns 45 an d ( iii) m erg e, o r c o nso lid ate o r t ra n sfe r, s e ll o r l e ase a ll o r s u bsta n tia lly a ll o f t h e C om pan y’s a sse ts . A s o f Ju ly 2 , 2 016 , n o k now n e v en ts o f d efa u lt h av e occu rre d . R efe r t o N ote 1 0, ” D eb t,” f o r f u rth er i n fo rm atio n o n o ur e x is tin g d eb t i n stru m en ts . We b elie v e t h at o ur A m en ded a n d R esta te d C re d it A gre em en t i s a d eq uate ly d iv ers ifie d w ith n o u ndue c o ncen tra tio ns i n a n y o ne f in an cia l i n stitu tio n. A s of Ju ly 2 , 2 016 , t h ere w ere 1 1 f in an cia l i n stitu tio ns p artic ip atin g i n t h e f a cility , w ith n o o ne p artic ip an t m ain ta in in g a m ax im um c o m mitm en t p erc en ta g e in e x cess o f 1 4% . W e h av e n o re aso n a t th is tim e to b elie v e th at th e p artic ip atin g in stitu tio ns w ill b e u nab le to fu lfill th eir o blig atio ns to p ro vid e fin an cin g i n a cco rd an ce w ith t h e t e rm s o f t h e f a cility i n t h e e v en t w e e le ct t o d ra w f u nds i n t h e f o re se eab le f u tu re . We h av e th e a b ility to d ra w o n o ur c re d it fa cilitie s o r a ccess o th er s o urc es o f fin an cin g o ptio ns a v aila b le to u s in th e c re d it a n d c ap ita l m ark ets fo r, a m ong o th er t h in gs, o ur r e stru ctu rin g i n itia tiv es, a cq uis itio n o r i n te g ra tio n-re la te d c o sts , s e ttle m en t o f a m ate ria l c o ntin gen cy, o r a m ate ria l a d vers e b usin ess o r m acro eco nom ic d ev elo pm en t, a s w ell a s f o r o th er g en era l c o rp ora te b usin ess p urp ose s. The C om pan y e x pects t o r e ceiv e n et p ro ceed s o f a p pro xim ate ly $ 125 m illio n r e la te d t o t h e s a le o f o ur p rio r h ead quarte rs b uild in gs o n 3 4th S tre et. W e e x pect t o r e ceiv e t h ese p ro ceed s w ith in 4 5 d ay s o f v acatin g t h e b uild in gs, o r b y t h e e n d o f t h e s e co nd q uarte r o f f is c al 2 017. Man ag em en t b elie v es t h at c ash f lo w s f ro m o pera tio ns, a ccess t o t h e c re d it a n d c ap ita l m ark ets a n d o ur c re d it l in es, o n-h an d c ash a n d c ash e q uiv ale n ts a n d o ur in vestm en ts w ill p ro vid e a d eq uate fu nds to s u pport o ur o pera tin g, c ap ita l, a n d d eb t s e rv ic e re q uire m en ts fo r th e fo re se eab le fu tu re , o ur p la n s fo r a cq uis itio ns, fu rth er b usin ess ex pan sio n an d re stru ctu rin g-re la te d in itia tiv es. F utu re ev en ts , su ch as acq uis itio ns o r jo in t v en tu re s, an d o th er sim ila r t ra n sa ctio ns m ay r e q uire a d ditio nal c ap ita l. T here c an b e n o a ssu ra n ce t h at a n y s u ch c ap ita l w ill b e a v aila b le t o t h e C om pan y o n a ccep ta b le t e rm s o r a t a ll. O ur a b ility t o f u nd w ork in g c ap ita l n eed s, p la n ned c ap ita l e x pen ditu re s, d iv id en d p ay m en ts a n d s c h ed ule d d eb t p ay m en ts , a s w ell a s t o c o m ply w ith a ll o f t h e f in an cia l c o ven an ts u nder o ur d eb t a g re em en ts , d ep en ds o n f u tu re o pera tin g p erfo rm an ce a n d c ash f lo w , w hic h i n t u rn a re s u bje ct t o p re v ailin g e co nom ic c o nditio ns a n d t o f in an cia l, b usin ess a n d o th er f a cto rs , s o m e o f w hic h a re b ey ond t h e C om pan y’s c o ntro l. Hudso n Y ard s J o in t V en tu re In A pril 2 013 t h e C om pan y e n te re d i n to a j o in t v en tu re a g re em en t w ith t h e R ela te d C om pan ie s, L .P . t o d ev elo p a n ew o ffic e t o w er i n M an hatta n i n t h e H udso n Y ard s d is tric t, w hic h w ill s e rv e a s o ur n ew c o rp ora te h ead quarte rs . T he f o rm atio n o f t h e j o in t v en tu re s e rv ed a s a f in an cin g v eh ic le f o r t h e p ro je ct, w ith th e C om pan y o w nin g le ss th an 4 3% o f th e jo in t v en tu re . D urin g fis c al 2 016 th e C om pan y in veste d $140.3 m illio n in th e jo in t v en tu re . S in ce th e f o rm atio n o f t h e H udso n Y ard s j o in t v en tu re , t h e C om pan y h as i n veste d $460.5 m illio n i n t h e j o in t v en tu re . In a d ditio n t o i ts i n vestm en t i n t h e j o in t v en tu re , C oach i s d ire ctly i n vestin g i n a p ortio n o f t h e d esig n a n d b uild -o ut o f t h e n ew c o rp ora te h ead quarte rs a n d h as i n cu rre d $ 179.6 m illio n o f c ap ita l e x pen ditu re s l ife -to -d ate , in clu din g $145.6 m illio n i n f is c al 2 016, a n d e x pects t o i n cu r a p pro xim ate ly $33 m illio n o ver t h e r e m ain in g c o nstru ctio n p erio d. O n A ugust 1 , 2 016, t h e C om pan y s o ld i ts r e la te d i n vestm en ts , a n d e x ecu te d a n a g re em en t t o l e ase b ack t h e o ffic e s p ace f o r a 2 0-y ear t e rm . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. Stu art W eitz m an A cq uis itio n On M ay 4 , 2 015, p urs u an t to th e te rm s o f th e p urc h ase a g re em en t d ate d J a n uary 5 , 2 015, th e C om pan y a cq uire d a ll o f th e e q uity in te re sts o f S tu art W eitz m an In te rm ed ia te L LC , a lu xury fo otw ear c o m pan y a n d th e p are n t o f S tu art W eitz m an H old in gs, L LC , fro m T opco fo r a n a g gre g ate p ay m en t o f a p pro xim ate ly $ 531.1 m illio n i n c ash , s u bje ct t o c u sto m ary p urc h ase p ric e a d ju stm en ts , a s w ell a s a p ote n tia l e arn out o f u p t o $ 14.7 m illio n a n nually i n c ash o ver th e n ex t th re e c ale n dar y ears b ase d o n th e a ch ie v em en t o f c erta in re v en ue ta rg ets . T he to ta l a m ount p ay ab le u nder th e e arn out w ill n ot e x ceed $ 44.0 m illio n. O n M ay 4 , 2 015, th e C om pan y fu nded th e a cq uis itio n th ro ugh c ash o n-h an d, in clu din g th e u tiliz atio n o f a p ortio n o f d eb t re la te d p ro ceed s, a s d esc rib ed i n N ote 1 0, ” D eb t.” R efe r t o N ote 7 , ” A cq uis itio ns,” f o r f u rth er d is c u ssio n o n t h e S tu art W eitz m an a cq uis itio n. Seaso nality Seaso nality p rim arily i m pacts t h e C oach b ra n d. B ecau se C oach b ra n d’s p ro ducts a re f re q uen tly g iv en a s g ifts , w e e x perie n ce s e aso nal v aria tio ns i n n et s a le s, o pera tin g c ash flo w s a n d w ork in g c ap ita l re q uire m en ts , p rim arily re la te d to se aso nal h olid ay sh oppin g. D urin g th e firs t fis c al q uarte r, w e b uild i n ven to ry f o r t h e h olid ay s e llin g s e aso n. I n t h e s e co nd f is c al q uarte r, w ork in g c ap ita l r e q uire m en ts a re r e d uced s u bsta n tia lly a s w e g en era te h ig her n et s a le s a n d o pera tin g in co m e, e sp ecia lly d urin g th e h olid ay m onth s o f N ovem ber a n d D ecem ber. F lu ctu atio ns in n et s a le s, o pera tin g in co m e a n d o pera tin g c ash f lo w s o f t h e C om pan y i n a n y f is c al q uarte r m ay b e a ffe cte d b y t h e t im in g o f w hole sa le s h ip m en ts a n d o th er e v en ts a ffe ctin g r e ta il s a le s, i n clu din g a d vers e w eath er c o nditio ns o r o th er m acro eco nom ic e v en ts . 46 C ontr a ctu al a nd O th er O blig atio ns F ir m C om mitm en ts As o f Ju ly 2 , 2 016 , t h e C om pan y’s c o ntra ctu al o blig atio ns a re a s f o llo w s: Tota l Fis c al 2017 Fis c al 2018 – 2 019 Fis c al 2020 – 2 021 Fis c al 2 022 an d B ey ond (m illio ns) C ap ita l e x pen ditu re c o m mitm en ts (1 ) $ 98.5 $ 98.5 $ — $ — $ — I n ven to ry p urc h ase o blig atio ns 200.1 200.1 — — — O pera tin g l e ase s 1,6 25.2 254.2 441.8 331.8 597.4 D eb t r e p ay m en t (2 ) 885.0 15.0 37.5 232.5 600.0 I n te re st o n o uts ta n din g d eb t (2 ) 229.5 25.5 51.0 51.0 102.0 O th er 9.8 4.2 3.9 1.7 — T ota l $ 3,0 48.1 $ 597.5 $ 534.2 $ 617.0 $ 1,2 99.4 ( 1 ) Rela te d t o f irm c ap ita l e x pen ditu re p urc h ase o blig atio ns. W e e x pect t o ta l c ap ita l e x pen ditu re s t o b e i n t h e a re a o f $ 325 m illio n i n f is c al 2 017. ( 2 ) On A ugust 3 , 2 016, t h e C om pan y p re p aid i ts o uts ta n din g b orro w in gs u nder t h e T erm L oan f a cility . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er in fo rm atio n. In te re st o blig atio ns e x clu de in te re st o n th e R ev olv in g F acility a n d T erm L oan a s th e in te re st ra te o n th ese a rra n gem en ts is v aria b le . S ee Note 1 0, ” D eb t,” f o r m ore i n fo rm atio n. Exclu ded f ro m t h e a b ove c o ntra ctu al o blig atio ns t a b le i s t h e n on-c u rre n t l ia b ility f o r u nre co gniz ed t a x b en efits o f $167.6 m illio n a s o f Ju ly 2 , 2 016 , a s w e c an not m ak e a re lia b le e stim ate o f th e p erio d in w hic h th e lia b ility w ill b e s e ttle d , if e v er. T he ta b le a b ove e x clu des fu tu re m in im um re n ta l p ay m en ts r e la te d t o t h e s a le o f t h e C om pan y’s i n vestm en ts i n 1 0 H udso n Y ard s a n d l e ase o f t h e C om pan y’s n ew c o rp ora te h ead quarte rs , a s d esc rib ed f u rth er i n N ote 8 , ” L ease s,” a n d N ote 1 9, ” S ubse q uen t E ven ts .” The a b ove ta b le a ls o e x clu des a m ounts in clu ded in c u rre n t lia b ilitie s in th e C onso lid ate d B ala n ce S heet a t J u ly 2 , 2 016 a s t h ese i te m s w ill b e p aid w ith in o ne y ear, c erta in l o ng-te rm l ia b ilitie s n ot r e q uirin g c ash p ay m en ts a n d c ash c o ntrib utio ns f o r t h e C om pan y’s p en sio n p la n s. O ff-B ala nce S heet A rra ngem en ts In a d ditio n t o t h e c o m mitm en ts i n clu ded i n t h e t a b le a b ove, w e h av e o uts ta n din g l e tte rs o f c re d it $7.5 m illio n a s o f Ju ly 2 , 2 016 , p rim arily s e rv in g to c o lla te ra liz e o ur o blig atio n to th ird p artie s fo r in su ra n ce c la im s, m ate ria l u se d in p ro duct m an ufa ctu rin g a n d s to re le ase s. T hese le tte rs o f c re d it e x pire a t v ario us d ate s t h ro ugh 2 017. As d is c u sse d e arlie r, t h e C om pan y e n te re d i n to a j o in t v en tu re a g re em en t w ith t h e R ela te d C om pan ie s, L .P . t o d ev elo p a n ew o ffic e t o w er i n M an hatta n i n t h e H udso n Y ard s d is tric t, i n A pril 2 013. T he f o rm atio n o f t h e H udso n Y ard s j o in t v en tu re s e rv ed a s a f in an cin g v eh ic le f o r t h e p ro je ct. R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. We d o n ot m ain ta in a n y o th er o ff-b ala n ce s h eet a rra n gem en ts , t ra n sa ctio ns, o blig atio ns, o r o th er r e la tio nsh ip s w ith u nco nso lid ate d e n titie s t h at w ould b e e x pecte d to h av e a m ate ria l c u rre n t o r fu tu re e ffe ct o n o ur c o nso lid ate d fin an cia l s ta te m en ts . R efe r to N ote 1 1, ” C om mitm en ts a n d C ontin gen cie s,” to th e a cco m pan yin g a u dite d c o nso lid ate d f in an cia l s ta te m en ts f o r f u rth er i n fo rm atio n. C RIT IC AL A CCO UNTIN G P O LIC IE S A ND E ST IM ATES The p re p ara tio n o f fin an cia l sta te m en ts in co nfo rm ity w ith acco untin g p rin cip le s g en era lly accep te d in th e U nite d S ta te s o f A m eric a re q uire s m an ag em en t to m ak e e stim ate s a n d a ssu m ptio ns th at a ffe ct o ur re su lts o f o pera tio ns, fin an cia l c o nditio n a n d c ash flo w s a s w ell a s th e d is c lo su re o f c o ntin gen t a sse ts a n d lia b ilitie s a s o f th e d ate o f th e C om pan y’s fin an cia l s ta te m en ts . A ctu al re su lts c o uld d iffe r fro m e stim ate s in a m ounts th at m ay b e m ate ria l to th e fin an cia l s ta te m en ts . P re d ic tin g fu tu re e v en ts is in here n tly a n im pre cis e a ctiv ity a n d, a s s u ch , re q uire s th e u se o f ju dgm en t. A ctu al re su lts c o uld d iffe r f ro m e stim ate s i n a m ounts t h at m ay b e m ate ria l t o t h e f in an cia l s ta te m en ts . T he d ev elo pm en t a n d s e le ctio n o f t h e C om pan y’s c ritic al a cco untin g p olic ie s a n d e stim ate s a re p erio dic ally r e v ie w ed w ith t h e A udit C om mitte e o f t h e B oard . The a cco untin g p olic ie s d is c u sse d b elo w a re c o nsid ere d c ritic al b ecau se c h an ges t o c erta in j u dgm en ts a n d a ssu m ptio ns i n here n t i n t h ese p olic ie s c o uld a ffe ct t h e f in an cia l s ta te m en ts . F or m ore i n fo rm atio n o n t h e C om pan y’s a cco untin g p olic ie s, p le ase r e fe r t o t h e N ote s t o C onso lid ate d F in an cia l S ta te m en ts . 47 R ev en ue R eco gnitio n Rev en ue i s r e co gniz ed b y t h e C om pan y w hen t h ere i s p ers u asiv e e v id en ce o f a n a rra n gem en t, d eliv ery h as o ccu rre d ( a n d r is k s a n d r e w ard s o f o w ners h ip h av e b een t ra n sfe rre d t o t h e b uyer), p ric e h as b een f ix ed o r i s d ete rm in ab le , a n d c o lle cta b ility i s r e aso nab ly a ssu re d . Reta il s to re a n d c o ncessio n-b ase d s h op-in -s h op re v en ues a re re co gniz ed a t th e p oin t o f s a le , w hic h o ccu rs w hen m erc h an dis e is s o ld in a n o ver-th e- c o unte r c o nsu m er tra n sa ctio n. In te rn et re v en ue fro m s a le s o f p ro ducts o rd ere d th ro ugh th e C om pan y’s e -c o m merc e s ite s is re co gniz ed u pon d eliv ery a n d r e ceip t o f t h e s h ip m en t b y i ts c u sto m ers a n d i n clu des s h ip pin g a n d h an dlin g c h arg es p aid b y c u sto m ers . R ev en ues a re a ls o r e d uced b y a n e stim ate f o r r e tu rn s a t t h e t im e o f s a le . Whole sa le re v en ue is re co gniz ed a t th e tim e title p asse s a n d ris k o f lo ss is tra n sfe rre d to c u sto m ers . W hole sa le re v en ue is re co rd ed n et o f e stim ate s o f m ark dow n a llo w an ces, re tu rn s a n d d is c o unts . E stim ate s fo r m ark dow n re se rv es a re b ase d o n h is to ric al tre n ds, a ctu al a n d fo re caste d se aso nal re su lts , a n e v alu atio n o f c u rre n t e co nom ic a n d m ark et c o nditio ns, re ta ile r p erfo rm an ce, a n d, in c erta in c ase s, c o ntra ctu al te rm s. R etu rn s a n d a llo w an ces re q uire p re – a p pro val f ro m m an ag em en t a n d d is c o unts a re b ase d o n t ra d e t e rm s. T he C om pan y r e v ie w s a n d r e fin es t h ese e stim ate s o n a q uarte rly b asis . T he C om pan y’s h is to ric al e stim ate s o f t h ese c o sts h av e n ot d iffe re d m ate ria lly f ro m a ctu al r e su lts . At Ju ly 2 , 2 016 , a 1 0% c h an ge in th e a llo w an ces fo r e stim ate d u nco lle ctib le a cco unts , m ark dow ns a n d re tu rn s w ould h av e re su lte d in a n in sig nific an t c h an ge i n t h e C om pan y’s r e se rv es a n d n et s a le s. I n ven to rie s Substa n tia lly a ll o f t h e C om pan y’s i n ven to rie s a re c o m pris e d o f f in is h ed g oods, a n d a re r e p orte d a t t h e l o w er o f c o st o r m ark et. I n ven to ry c o sts i n clu de m ate ria l, c o nvers io n c o sts , f re ig ht a n d d utie s a n d a re p rim arily d ete rm in ed b y t h e f irs t-in , f irs t-o ut m eth od. T he C om pan y r e se rv es f o r i n ven to ry , i n clu din g s lo w -m ovin g a n d a g ed i n ven to ry , b ase d o n c u rre n t p ro duct d em an d, e x pecte d f u tu re d em an d a n d h is to ric al e x perie n ce. A d ecre ase i n p ro duct d em an d d ue t o c h an gin g c u sto m er t a ste s, b uyin g p atte rn s o r i n cre ase d c o m petitio n c o uld i m pact t h e C om pan y’s e v alu atio n o f i ts i n ven to ry a n d a d ditio nal r e se rv es m ig ht b e r e q uire d . E stim ate s m ay d iffe r f ro m a ctu al r e su lts d ue t o t h e q uan tity , q uality a n d m ix o f p ro ducts i n i n ven to ry , c o nsu m er a n d r e ta ile r p re fe re n ces a n d m ark et c o nditio ns. A t Ju ly 2 , 2 016 , a 1 0% c h an ge i n t h e i n ven to ry r e se rv e, w ould n ot h av e r e su lte d i n m ate ria l c h an ge i n i n ven to ry a n d c o st o f s a le s. B usin ess C om bin atio ns In c o nnectio n w ith a n a cq uis itio n, t h e C om pan y r e co rd s a ll a sse ts a cq uire d a n d l ia b ilitie s a ssu m ed o f t h e a cq uire d b usin ess a t t h eir a cq uis itio n d ate f a ir v alu e, i n clu din g t h e r e co gnitio n o f c o ntin gen t c o nsid era tio n a t f a ir v alu e o n t h e a cq uis itio n d ate . T hese f a ir v alu e d ete rm in atio ns r e q uire j u dgm en t a n d m ay i n volv e t h e u se o f s ig nific an t e stim ate s a n d a ssu m ptio ns, i n clu din g a ssu m ptio ns w ith r e sp ect t o f u tu re c ash i n flo w s a n d o utflo w s, d is c o unt r a te s, a sse t l iv es, a n d m ark et m ultip le s, a m ong o th er i te m s. W e m ay u tiliz e i n dep en den t t h ird -p arty v alu atio n f irm s t o a ssis t i n m ak in g t h ese f a ir v alu e d ete rm in atio ns. R efe r t o N ote 7 , ” A cq uis itio ns,” f o r d eta ile d d is c lo su re s r e la te d t o o ur a cq uis itio ns. G oodw ill a nd O th er I n ta ngib le A sse ts Goodw ill a n d c erta in o th er in ta n gib le a sse ts d eem ed to h av e in defin ite u se fu l liv es, in clu din g tra d em ark s a n d tra d e n am es, a re n ot a m ortiz ed , b ut a re a sse sse d f o r i m pairm en t a t l e ast a n nually . F in ite -liv ed i n ta n gib le a sse ts a re a m ortiz ed o ver t h eir r e sp ectiv e e stim ate d u se fu l l iv es a n d, a n d a lo ng w ith o th er l o ng-liv ed a sse ts a s n ote d a b ove, a re e v alu ate d f o r i m pairm en t p erio dic ally w hen ev er e v en ts o r c h an ges i n c irc u m sta n ces i n dic ate t h at t h eir r e la te d c arry in g v alu es m ay n ot b e f u lly r e co vera b le . E stim ate s o f f a ir v alu e f o r f in ite -liv ed a n d i n defin ite -liv ed i n ta n gib le a sse ts a re p rim arily d ete rm in ed u sin g d is c o unte d c ash f lo w s a n d t h e r e lie f f ro m r o yalty m eth od, r e sp ectiv ely , w ith c o nsid era tio n o f m ark et c o m paris o ns a n d r e cen t t ra n sa ctio ns. T his a p pro ach u se s s ig nific an t e stim ate s a n d a ssu m ptio ns, i n clu din g p ro je cte d f u tu re c ash f lo w s, d is c o unt r a te s a n d g ro w th r a te s. The C om pan y g en era lly p erfo rm s its a n nual g oodw ill a n d in defin ite -liv ed in ta n gib le a sse ts im pairm en t a n aly sis u sin g a q ualita tiv e a p pro ach to d ete rm in e w heth er it is m ore lik ely th an n ot th at th e fa ir v alu es o f s u ch a sse ts a re le ss th an th eir re sp ectiv e c arry in g v alu es. If, b ase d o n th e re su lts o f th e q ualita tiv e a sse ssm en t, it is c o nclu ded th at it is n ot m ore lik ely th an n ot th at th e fa ir v alu e o f th e a sse t e x ceed s its c arry in g v alu e, a q uan tita tiv e te st is p erfo rm ed . T he q uan tita tiv e g oodw ill i m pairm en t t e st i s a t w o-s te p p ro cess. T he f irs t s te p i s t o i d en tify t h e e x is te n ce o f p ote n tia l i m pairm en t b y c o m parin g t h e f a ir v alu e o f e ach r e p ortin g u nit w ith i ts c arry in g v alu e, i n clu din g g oodw ill. I f t h e f a ir v alu e o f a r e p ortin g u nit e x ceed s i ts c arry in g v alu e, t h e r e p ortin g u nit’s g oodw ill i s c o nsid ere d n ot t o b e i m paire d a n d p erfo rm an ce o f t h e s e co nd s te p o f t h e q uan tita tiv e g oodw ill i m pairm en t t e st i s u nnecessa ry . If th e c arry in g v alu e o f a re p ortin g u nit e x ceed s its fa ir v alu e, th e s e co nd s te p o f th e g oodw ill im pairm en t te st is p erfo rm ed to m easu re th e a m ount o f i m pairm en t l o ss, i f a n y. T he s e co nd s te p o f t h e g oodw ill i m pairm en t t e st c o m pare s t h e i m plie d f a ir v alu e o f t h e r e p ortin g u nit’s g oodw ill w ith t h e c arry in g v alu e o f t h at g oodw ill. I f t h e c arry in g v alu e o f t h e r e p ortin g u nit’s g oodw ill e x ceed s t h e i m plie d f a ir v alu e o f t h at g oodw ill, a n i m pairm en t l o ss i s r e co gniz ed i n a n a m ount e q ual t o t h at e x cess. T he i m plie d f a ir v alu e o f g oodw ill i s d ete rm in ed i n t h e s a m e m an ner a s t h e a m ount o f g oodw ill t h at w ould b e r e co gniz ed i n a b usin ess 48 c o m bin atio n. In o th er w ord s, th e fa ir v alu e o f th e re p ortin g u nit is a llo cate d to a ll o f th e a sse ts a n d lia b ilitie s o f th at u nit a s if th e re p ortin g u nit h ad b een a cq uire d i n a b usin ess c o m bin atio n a n d t h e f a ir v alu e w as t h e p urc h ase p ric e p aid t o a cq uire t h e r e p ortin g u nit. Dete rm in atio n o f th e fa ir v alu e o f a re p ortin g u nit a n d th e fa ir v alu e o f in div id ual a sse ts a n d lia b ilitie s o f a re p ortin g u nit is b ase d o n m an ag em en t’s a sse ssm en t, c o nsid erin g i n dep en den t t h ird -p arty a p pra is a ls w hen n ecessa ry . F urth erm ore , t h is d ete rm in atio n i s j u dgm en ta l i n n atu re a n d o fte n i n volv es t h e u se o f s ig nific an t e stim ate s a n d a ssu m ptio ns, in clu din g p ro je cte d fu tu re c ash flo w s, d is c o unt ra te s, g ro w th ra te s, a n d d ete rm in atio n o f a p pro pria te m ark et c o m para b le s a n d r e cen t t ra n sa ctio ns. T hese e stim ate s a n d a ssu m ptio ns c o uld h av e a s ig nific an t i m pact o n w heth er o r n ot a n i m pairm en t c h arg e i s r e co gniz ed a n d t h e a m ount o f a n y s u ch c h arg e. The C om pan y p erfo rm s its a n nual im pairm en t a sse ssm en t o f g oodw ill, in clu din g tra d em ark s a n d tra d e n am es, d urin g th e fo urth q uarte r o f e ach fis c al y ear. T he C om pan y d ete rm in ed t h at t h ere w as n o i m pairm en t i n f is c al 2016 , fis c al 2015 o r fis c al 2014 a s t h e f a ir v alu es o f o ur C oach b ra n d r e p ortin g u nits s ig nific an tly e x ceed ed th eir re sp ectiv e c arry in g v alu es. F urth erm ore , g iv en th e re cen cy o f o ur S tu art W eitz m an a cq uis itio n, th e fa ir v alu e o f th e S tu art W eitz m an b ra n d re p ortin g u nit e x ceed ed th e re sp ectiv e c arry in g v alu e b y le ss th an 2 0% , v alu ed u sin g d is c o unte d c ash flo w m eth od. A dditio nally , th e p erc en ta g e b y w hic h t h e f a ir v alu e o f t h e S tu art W eitz m an b ra n d i n defin ite -liv ed t ra d em ark s a n d t ra d e n am es e x ceed ed i ts c arry in g v alu e w as l e ss t h an 5 % , v alu ed u sin g th e re lie f fro m ro yalty m eth od. S ev era l fa cto rs c o uld im pact th e S tu art W eitz m an b ra n d’s a b ility to a ch ie v e fu tu re c ash flo w s, in clu din g th e o ptim iz atio n o f th e s to re fle et p ro ductiv ity , th e im pact o f p ro m otio nal a ctiv ity in d ep artm en t s to re s, th e c o nso lid atio n o r ta k e-b ack o f c erta in d is trib uto r r e la tio nsh ip s, t h e s im plific atio n o f c erta in c o rp ora te o verh ead s tru ctu re s a n d o th er i n itia tiv es a im ed a t e x pan din g c erta in h ig her p erfo rm in g c ate g orie s o f t h e b usin ess. A s p re v io usly n ote d , th e fa ir v alu e o f th e a cq uire d g oodw ill a n d tra d em ark s a n d tra d e n am es c o ntin ue to b e in -lin e w ith th e fa ir v alu e o f th e n et a sse ts o f t h e s e g m en t, a p pro xim ate ly o ne y ear s u bse q uen t t o a cq uis itio n. H ow ev er, g iv en t h e r e la tiv ely s m all e x cess o f f a ir v alu e o ver c arry in g v alu e a s n ote d a b ove, i f t h e p ro fita b ility t re n ds o r m ark et m ultip le s d eclin e d urin g f is c al 2 017 f ro m t h ose t h at w ere e x pecte d , i t i s p ossib le t h at a n i n te rim t e st, o r o ur a n nual i m pairm en t t e st, c o uld r e su lt i n a n i m pairm en t o f t h ese a sse ts . V alu atio n o f L ong-L iv ed A sse ts Long-liv ed a sse ts , s u ch a s p ro perty a n d e q uip m en t, a re e v alu ate d f o r i m pairm en t w hen ev er e v en ts o r c irc u m sta n ces i n dic ate t h at t h e c arry in g v alu e o f t h e a sse ts m ay n ot b e r e co vera b le . I n e v alu atin g l o ng-liv ed a sse ts f o r r e co vera b ility , t h e C om pan y u se s i ts b est e stim ate o f f u tu re c ash f lo w s e x pecte d t o r e su lt f ro m t h e u se o f t h e a sse t a n d i ts e v en tu al d is p ositio n. T o t h e e x te n t t h at e stim ate d f u tu re u ndis c o unte d n et c ash f lo w s a ttrib uta b le t o t h e a sse t a re l e ss t h an i ts c arry in g v alu e, a n im pairm en t lo ss is re co gniz ed e q ual to th e d iffe re n ce b etw een th e c arry in g v alu e o f s u ch a sse t a n d its fa ir v alu e, c o nsid erin g e x te rn al m ark et p artic ip an t a ssu m ptio ns. In d ete rm in in g fu tu re c ash flo w s, th e C om pan y ta k es v ario us fa cto rs in to a cco unt, in clu din g th e e ffe cts o f m acro eco nom ic tre n ds s u ch a s c o nsu m er s p en din g, in -s to re c ap ita l in vestm en ts , p ro m otio nal c ad en ce, th e le v el o f a d vertis in g a n d c h an ges in m erc h an dis in g s tra te g y. S in ce th e d ete rm in atio n o f f u tu re c ash f lo w s i s a n e stim ate o f f u tu re p erfo rm an ce, t h ere m ay b e f u tu re i m pairm en ts i n t h e e v en t t h at f u tu re c ash f lo w s d o n ot m eet e x pecta tio ns. S hare-B ase d C om pen sa tio n The C om pan y r e co gniz es t h e c o st o f e q uity a w ard s t o e m plo yees a n d t h e n on-e m plo yee D ire cto rs b ase d o n t h e g ra n t-d ate f a ir v alu e o f t h ose a w ard s. T he g ra n t-d ate f a ir v alu es o f s h are u nit a w ard s a re b ase d o n t h e f a ir v alu e o f t h e C om pan y’s c o m mon s to ck o n t h e d ate o f g ra n t. T he g ra n t-d ate f a ir v alu e o f s to ck o ptio n a w ard s is d ete rm in ed u sin g th e B la ck -S ch ole s o ptio n p ric in g m odel a n d in volv es s e v era l a ssu m ptio ns, in clu din g th e e x pecte d te rm o f th e o ptio n, e x pecte d v ola tility a n d d iv id en d y ie ld . T he e x pecte d t e rm o f o ptio ns r e p re se n ts t h e p erio d o f t im e t h at t h e o ptio ns g ra n te d a re e x pecte d t o b e o uts ta n din g a n d is b ase d o n h is to ric al e x perie n ce. E xpecte d v ola tility is b ase d o n h is to ric al v ola tility o f th e C om pan y’s s to ck a s w ell a s th e im plie d v ola tility fro m p ublic ly t ra d ed o ptio ns o n t h e C om pan y’s s to ck . D iv id en d y ie ld i s b ase d o n t h e c u rre n t e x pecte d a n nual d iv id en d p er s h are a n d t h e C om pan y’s s to ck p ric e. C han ges i n t h e a ssu m ptio ns u se d t o d ete rm in e t h e B la ck -S ch ole s v alu e c o uld r e su lt i n s ig nific an t c h an ges i n t h e B la ck -S ch ole s v alu e. For s to ck o ptio ns a n d s h are u nit a w ard s, th e C om pan y re co gniz es s h are -b ase d c o m pen sa tio n n et o f e stim ate d fo rfe itu re s a n d re v is e s th e e stim ate s in s u bse q uen t p erio ds if a ctu al fo rfe itu re s d iffe r fro m th e e stim ate s. W e e stim ate th e fo rfe itu re ra te b ase d o n h is to ric al e x perie n ce a s w ell a s e x pecte d fu tu re b eh av io r. The C om pan y g ra n ts p erfo rm an ce-b ase d sh are aw ard s to certa in k ey ex ecu tiv es, th e v estin g o f w hic h is su bje ct to th e ex ecu tiv e’s co ntin uin g e m plo ym en t a n d th e C om pan y’s a ch ie v em en t o f c erta in p erfo rm an ce g oals . O n a q uarte rly b asis , th e C om pan y a sse sse s a ctu al p erfo rm an ce v ers u s th e p re d ete rm in ed p erfo rm an ce g oals , a n d a d ju sts th e s h are -b ase d c o m pen sa tio n e x pen se to re fle ct th e re la tiv e p erfo rm an ce a ch ie v em en t. A ctu al d is trib ute d s h are s a re c alc u la te d u pon c o nclu sio n o f th e se rv ic e a n d p erfo rm an ce p erio ds, a n d in clu de d iv id en d e q uiv ale n t sh are s. If th e p erfo rm an ce-b ase d a w ard i n co rp ora te s a m ark et c o nditio n, t h e g ra n t-d ate f a ir v alu e o f s u ch a w ard i s d ete rm in ed u sin g a p ric in g m odel, s u ch a s a M onte C arlo S im ula tio n. 49 A h ypoth etic al 1 0% c h an ge i n o ur s to ck -b ase d c o m pen sa tio n e x pen se w ould h av e a ffe cte d o ur f is c al 2 016 n et i n co m e b y a p pro xim ate ly $ 7 m illio n. I n co m e T axes The C om pan y’s e ffe ctiv e t a x r a te i s b ase d o n p re -ta x i n co m e, s ta tu to ry t a x r a te s, t a x l a w s a n d r e g ula tio ns, a n d t a x p la n nin g s tra te g ie s a v aila b le i n t h e v ario us j u ris d ic tio ns i n w hic h t h e C om pan y o pera te s. T he C om pan y c la ssifie s i n te re st a n d p en altie s o n u ncerta in t a x p ositio ns i n t h e p ro vis io n f o r i n co m e t a x es. W e r e co rd n et d efe rre d t a x a sse ts t o t h e e x te n t w e b elie v e t h at i t i s m ore l ik ely t h an n ot t h at t h ese a sse ts w ill b e r e aliz ed . I n m ak in g s u ch d ete rm in atio n, w e c o nsid er a ll a v aila b le e v id en ce, in clu din g s c h ed ule d re v ers a ls o f d efe rre d ta x lia b ilitie s, p ro je cte d fu tu re ta x ab le in co m e, ta x p la n nin g s tra te g ie s a n d r e cen t a n d e x pecte d f u tu re r e su lts o f o pera tio n. W e r e d uce o ur d efe rre d t a x a sse ts b y a v alu atio n a llo w an ce i f, b ase d u pon t h e w eig ht o f a v aila b le e v id en ce, i t i s m ore l ik ely t h an n ot t h at s o m e a m ount o f d efe rre d t a x a sse ts i s n ot e x pecte d t o b e r e aliz ed . D efe rre d t a x es a re n ot p ro vid ed o n t h e u ndis trib ute d e arn in gs o f s u bsid ia rie s a s s u ch a m ounts a re c o nsid ere d t o b e p erm an en tly i n veste d . The C om pan y r e co gniz es t h e i m pact o f t a x p ositio ns i n t h e f in an cia l s ta te m en ts i f t h ose p ositio ns w ill m ore l ik ely t h an n ot b e s u sta in ed o n a u dit, b ase d o n th e te ch nic al m erits o f th e p ositio n. A lth ough w e b elie v e th at th e e stim ate s a n d a ssu m ptio ns w e u se a re re aso nab le a n d le g ally s u pporta b le , th e fin al d ete rm in atio n o f ta x a u dits c o uld b e d iffe re n t th an th at w hic h is re fle cte d in h is to ric al ta x p ro vis io ns a n d re co rd ed a sse ts a n d lia b ilitie s. T ax a u th oritie s p erio dic ally a u dit t h e C om pan y’s i n co m e t a x r e tu rn s, a n d i n s p ecific c ase s, t h e t a x a u th oritie s m ay t a k e a c o ntra ry p ositio n t h at c o uld r e su lt i n a s ig nific an t i m pact o n o ur r e su lts o f o pera tio ns. S ig nific an t m an ag em en t j u dgm en t i s r e q uire d i n d ete rm in in g t h e e ffe ctiv e t a x r a te , i n e v alu atin g o ur t a x p ositio ns a n d i n d ete rm in in g t h e n et r e aliz ab le v alu e o f d efe rre d t a x a sse ts . R ecen t A cco untin g P ro nouncem en ts See N ote 2 , “S ig nific an t A cco untin g P olic ie s,” to th e a cco m pan yin g a u dite d c o nso lid ate d fin an cia l sta te m en ts fo r a d esc rip tio n o f c erta in re cen tly a d opte d , i s su ed o r p ro pose d a cco untin g s ta n dard s w hic h m ay i m pact o ur c o nso lid ate d f in an cia l s ta te m en ts i n f u tu re r e p ortin g p erio ds. 50 IT EM 7 A . Q UANTIT ATIV E A ND Q UALIT ATIV E D IS C LO SU RES A BO UT M ARK ET R IS K M ark et R is k The m ark et r is k i n here n t i n o ur f in an cia l i n stru m en ts r e p re se n ts t h e p ote n tia l l o ss i n f a ir v alu e, e arn in gs o r c ash f lo w s, a ris in g f ro m a d vers e c h an ges i n f o re ig n c u rre n cy e x ch an ge r a te s o r i n te re st r a te s. C oach m an ag es t h ese e x posu re s t h ro ugh o pera tin g a n d f in an cin g a ctiv itie s a n d, w hen a p pro pria te , t h ro ugh t h e u se o f d eriv ativ e f in an cia l i n stru m en ts . T he u se o f d eriv ativ e f in an cia l i n stru m en ts i s i n a cco rd an ce w ith t h e C om pan y’s r is k m an ag em en t p olic ie s, a n d w e d o n ot e n te r i n to d eriv ativ e t ra n sa ctio ns f o r s p ecu la tiv e o r t ra d in g p urp ose s. The q uan tita tiv e d is c lo su re s i n t h e f o llo w in g d is c u ssio n a re b ase d o n q uote d m ark et p ric es o bta in ed t h ro ugh i n dep en den t p ric in g s o urc es f o r t h e s a m e o r s im ila r ty pes o f fin an cia l in stru m en ts , ta k in g in to c o nsid era tio n th e u nderly in g te rm s a n d m atu ritie s a n d th eo re tic al p ric in g m odels . T hese q uan tita tiv e d is c lo su re s d o n ot r e p re se n t t h e m ax im um p ossib le l o ss o r a n y e x pecte d l o ss t h at m ay o ccu r, s in ce a ctu al r e su lts m ay d iffe r f ro m t h ose e stim ate s. F oreig n C urren cy E xch ange R ate R is k Fore ig n c u rre n cy e x posu re s a ris e fro m tra n sa ctio ns, in clu din g firm c o m mitm en ts a n d a n tic ip ate d c o ntra cts , d en om in ate d in a c u rre n cy o th er th an th e e n tity ’s f u nctio nal c u rre n cy, a n d f ro m f o re ig n-d en om in ate d r e v en ues a n d e x pen se s t ra n sla te d i n to U .S . d olla rs . T he m ajo rity o f t h e C om pan y’s p urc h ase s a n d s a le s i n volv in g i n te rn atio nal p artie s, e x clu din g i n te rn atio nal c o nsu m er s a le s, a re d en om in ate d i n U .S . d olla rs a n d, t h ere fo re , o ur f o re ig n c u rre n cy e x ch an ge r is k is lim ite d . T he C om pan y is e x pose d to ris k fro m fo re ig n c u rre n cy e x ch an ge ra te flu ctu atio ns re su ltin g fro m its o pera tin g s u bsid ia rie s’ U .S . d olla r a n d E uro d en om in ate d in ven to ry p urc h ase s. T o m itig ate s u ch ris k , C oach J a p an , C oach C an ad a a n d S tu art W eitz m an e n te r in to fo re ig n c u rre n cy d eriv ativ e c o ntra cts , p rim arily f o rw ard f o re ig n c u rre n cy c o ntra cts . A s o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , z ero -c o st c o lla r o ptio ns a n d f o rw ard f o re ig n c u rre n cy e x ch an ge c o ntra cts d esig nate d a s c ash f lo w h ed ges w ith a n otio nal a m ount o f $190.1 m illio n a n d $126.7 m illio n , r e sp ectiv ely , w ere o uts ta n din g. A s a r e su lt o f t h e u se o f d eriv ativ e in stru m en ts , w e a re e x pose d to th e ris k th at c o unte rp artie s to th e d eriv ativ e in stru m en ts w ill fa il to m eet th eir c o ntra ctu al o blig atio ns. T o m itig ate th e c o unte rp arty c re d it ris k , w e o nly e n te r in to d eriv ativ e c o ntra cts w ith c are fu lly s e le cte d fin an cia l in stitu tio ns. T he C om pan y a ls o re v ie w s th e c re d itw orth in ess o f o ur c o unte rp artie s o n a re g ula r b asis . A s a re su lt o f th e a b ove c o nsid era tio ns, w e d o n ot b elie v e th at w e a re e x pose d to a n y u ndue c o ncen tra tio n o f c o unte rp arty c re d it r is k a sso cia te d w ith o ur d eriv ativ e c o ntra cts a s o f Ju ly 2 , 2 016 . The C om pan y i s a ls o e x pose d t o t ra n sa ctio n r is k f ro m f o re ig n c u rre n cy e x ch an ge r a te f lu ctu atio ns w ith r e sp ect t o v ario us c ro ss-c u rre n cy i n te rc o m pan y l o an s w hic h a re n ot lo ng te rm in in vestm en t n atu re . T his p rim arily in clu des e x posu re to e x ch an ge ra te flu ctu atio ns in th e S in gap ore D olla r, th e E uro , th e B ritis h P ound S te rlin g, t h e N ew T aiw an D olla r a n d t h e C hin ese R en m in bi. T o m an ag e t h e e x ch an ge r a te r is k r e la te d t o t h ese l o an s, t h e C om pan y p rim arily e n te rs in to fo rw ard e x ch an ge. A s o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , th e to ta l n otio nal v alu es o f o uts ta n din g fo rw ard fo re ig n c u rre n cy e x ch an ge c o ntra cts r e la te d t o t h ese l o an s w ere $75.5 m illio n a n d $25.8 m illio n , r e sp ectiv ely . The f a ir v alu e o f o uts ta n din g f o re ig n c u rre n cy d eriv ativ es i n clu ded i n c u rre n t a sse ts a t Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 w as $0.6 m illio n a n d $3.4 m illio n , r e sp ectiv ely . T he f a ir v alu e o f o uts ta n din g f o re ig n c u rre n cy d eriv ativ es i n clu ded i n c u rre n t l ia b ilitie s a t Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 w as $11.1 m illio n a n d $0.2 m illio n , r e sp ectiv ely . T he f a ir v alu e o f t h ese c o ntra cts i s s e n sitiv e t o c h an ges i n f o re ig n c u rre n cy e x ch an ge r a te s. A s e n sitiv ity a n aly sis o f t h e e ffe cts o f fo re ig n e x ch an ge ra te flu ctu atio ns o n th e fa ir v alu es o f o ur d eriv ativ e c o ntra cts w as p erfo rm ed to a sse ss th e ris k o f lo ss. A s o f Ju ly 2 , 2 016 , a 1 0% d ev alu atio n o f t h e U .S . D olla r a g ain st t h e e x ch an ge r a te s f o r f o re ig n c u rre n cie s u nder c o ntra ct w ould r e su lt i n a n i m mate ria l i m pact o n d eriv ativ e c o ntra ct f a ir v alu es. I n te rest R ate R is k The C om pan y is e x pose d to in te re st ra te ris k in re la tio n to its A m en ded a n d R esta te d C re d it A gre em en t, in clu din g th e T erm L oan , th e 4 .2 50% S en io r N ote s a n d i n vestm en ts . Our e x posu re t o c h an ges i n i n te re st r a te s i s p rim arily a ttrib uta b le t o d eb t o uts ta n din g u nder o ur A m en ded a n d R esta te d C re d it A gre em en t, i n clu din g t h e T erm L oan . O n A ugust 3 , 2 016, t h e C om pan y p re p aid i ts o uts ta n din g b orro w in gs u nder t h e T erm L oan f a cility . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. B orro w in gs u nder t h e A m en ded a n d R esta te d C re d it A gre em en t b ear i n te re st a t a r a te p er a n num e q ual t o , a t C oach ’s o ptio n, e ith er ( a ) a r a te b ase d o n th e ra te s a p plic ab le fo r d ep osits in th e in te rb an k m ark et fo r U .S . d olla rs o r th e a p plic ab le c u rre n cy in w hic h th e lo an s a re m ad e p lu s a n a p plic ab le m arg in o r ( b ) a n a lte rn ate b ase r a te ( w hic h i s a r a te e q ual t o t h e g re ate st o f ( i) t h e P rim e R ate i n e ffe ct o n s u ch d ay, ( ii) t h e F ed era l F unds E ffe ctiv e R ate i n e ffe ct o n s u ch d ay p lu s ½ o f 1 % o r ( iii) t h e A dju ste d L IB O R ate f o r a o ne m onth I n te re st P erio d o n s u ch d ay p lu s 1 % ). A h ypoth etic al 1 0% c h an ge i n t h e A m en ded a n d R esta te d C re d it A gre em en t i n te re st r a te w ould h av e r e su lte d i n a n i n sig nific an t c h an ge i n i n te re st e x pen se i n f is c al 2 016. F urth erm ore , w e a re a ls o e x pose d t o c h an ges i n i n te re st r a te s r e la te d t o t h e f a ir v alu e o f o ur $600.0 m illio n 4 .2 50% S en io r N ote s. A t Ju ly 2 , 2 016 , t h e f a ir v alu e o f t h e 4 .2 50% S en io r N ote s w as a p pro xim ate ly $621.6 m illio n . 51 The C om pan y’s in vestm en t p ortfo lio is m ain ta in ed in a cco rd an ce w ith th e C om pan y’s in vestm en t p olic y, w hic h d efin es o ur in vestm en t p rin cip le s i n clu din g c re d it q uality s ta n dard s a n d l im its t h e c re d it e x posu re o f a n y s in gle i s su er. T he p rim ary o bje ctiv e o f o ur i n vestm en t a ctiv itie s i s t h e p re se rv atio n o f p rin cip al w hile m ax im iz in g i n te re st i n co m e a n d m in im iz in g r is k . W e d o n ot h old a n y i n vestm en ts f o r t ra d in g p urp ose s. IT EM 8 . F IN ANCIA L S T ATEM ENTS A ND S U PPL EM ENTARY D ATA See “ In dex t o F in an cia l S ta te m en ts ,” a p pearin g a t t h e e n d o f t h is A nnual R ep ort o n F orm 1 0-K . IT EM 9 . C H ANG ES I N A ND D IS A G REEM ENTS W IT H A CCO UNTANTS O N A CCO UNTIN G A ND F IN ANCIA L D IS C LO SU RE None. IT EM 9 A . C O NTRO LS A ND P R O CEDURES D is c lo su re C ontr o ls a nd P ro ced ures Base d o n t h e e v alu atio n o f t h e C om pan y’s d is c lo su re c o ntro ls a n d p ro ced ure s, a s t h at t e rm i s d efin ed i n R ule 1 3a-1 5(e ) u nder t h e S ecu ritie s E xch an ge A ct o f 1 934, a s a m en ded , t h e C hie f E xecu tiv e O ffic er o f t h e C om pan y a n d t h e C hie f F in an cia l O ffic er o f t h e C om pan y, h av e c o nclu ded t h at t h e C om pan y’s d is c lo su re c o ntro ls a n d p ro ced ure s a re e ffe ctiv e a s o f Ju ly 2 , 2 016 . M anagem en t’s R ep ort o n I n te rn al C ontr o l o ver F in ancia l R ep ortin g The C om pan y’s m an ag em en t i s r e sp onsib le f o r e sta b lis h in g a n d m ain ta in in g a d eq uate i n te rn al c o ntro ls o ver f in an cia l r e p ortin g a s d efin ed i n R ule 1 3a- 1 5(f). T he C om pan y’s in te rn al c o ntro l sy ste m w as d esig ned to p ro vid e re aso nab le a ssu ra n ce to th e C om pan y’s m an ag em en t a n d B oard re g ard in g th e p re p ara tio n a n d f a ir p re se n ta tio n o f p ublis h ed f in an cia l s ta te m en ts . M an ag em en t e v alu ate d t h e e ffe ctiv en ess o f t h e C om pan y’s i n te rn al c o ntro l o ver f in an cia l r e p ortin g u sin g t h e c rite ria s e t f o rth b y t h e C om mitte e o f S ponso rin g O rg an iz atio ns ( C OSO ) o f t h e T re ad w ay C om mis sio n i n I n te rn al C ontro l — I n te g ra te d F ra m ew ork i n 2 013. M an ag em en t, u nder t h e s u perv is io n a n d w ith t h e p artic ip atio n o f t h e C om pan y’s C hie f E xecu tiv e O ffic er a n d C hie f F in an cia l O ffic er, a sse sse d t h e e ffe ctiv en ess o f t h e C om pan y’s i n te rn al c o ntro l o ver f in an cia l r e p ortin g a s o f Ju ly 2 , 2 016 a n d c o nclu ded t h at i t i s e ffe ctiv e. The C om pan y’s in dep en den t a u dito rs h av e is su ed a n a u dit re p ort o n th e C om pan y’s in te rn al c o ntro l o ver fin an cia l re p ortin g a s o f Ju ly 2 , 2 016 a s i n clu ded e ls e w here h ere in . C hanges i n I n te rn al C ontr o l o ver F in ancia l R ep ortin g There w ere n o c h an ges in in te rn al c o ntro l o ver fin an cia l re p ortin g th at o ccu rre d d urin g th e fo urth fis c al q uarte r th at h av e m ate ria lly a ffe cte d , o r a re r e aso nab ly l ik ely t o m ate ria lly a ffe ct, t h e C om pan y’s i n te rn al c o ntro l o ver f in an cia l r e p ortin g. IT EM 9 B . O TH ER I N FO RM ATIO N None. 52 PA RT I II IT EM 1 0. D IR ECTO RS, E XECUTIV E O FFIC ERS A ND C O RPO RATE G OVERNANCE The i n fo rm atio n r e q uire d t o b e i n clu ded b y I te m 1 0 o f F orm 1 0-K w ill b e i n clu ded i n t h e P ro xy S ta te m en t f o r t h e 2016 A nnual M eetin g o f S to ck hold ers a n d s u ch i n fo rm atio n i s i n co rp ora te d b y r e fe re n ce h ere in . T he P ro xy S ta te m en t w ill b e f ile d w ith t h e C om mis sio n w ith in 1 20 d ay s a fte r t h e e n d o f t h e f is c al y ear c o vere d b y t h is F orm 1 0-K p urs u an t t o R eg ula tio n 1 4A u nder t h e S ecu ritie s E xch an ge A ct o f 1 934, a s a m en ded . I T EM 1 1. E XECUTIV E C O M PE NSA TIO N The in fo rm atio n re g ard in g e x ecu tiv e a n d d ire cto r c o m pen sa tio n se t fo rth in th e P ro xy S ta te m en t fo r th e 2016 A nnual M eetin g o f S to ck hold ers is i n co rp ora te d h ere in b y r e fe re n ce. IT EM 1 2. S E CURIT Y O W NERSH IP O F C ERTAIN B ENEFIC IA L O W NERS A ND M ANAG EM ENT A ND R ELATED S T O CK HOLDER M ATTERS The in fo rm atio n u nder th e h ead in gs “ S ecu ritie s A uth oriz ed fo r Is su an ce U nder E quity C om pen sa tio n P la n s” a n d “ C oach S to ck O wners h ip b y C erta in B en efic ia l O wners a n d M an ag em en t” i n t h e C om pan y’s P ro xy S ta te m en t f o r t h e 2016 A nnual M eetin g o f S to ck hold ers i s i n co rp ora te d h ere in b y r e fe re n ce. There a re n o a rra n gem en ts k now n t o t h e r e g is tra n t t h at m ay a t a s u bse q uen t d ate r e su lt i n a c h an ge i n c o ntro l o f t h e r e g is tra n t. I T EM 1 3. C ERTAIN R ELATIO NSH IP S A ND R ELATED T RANSA CTIO NS, A ND D IR ECTO R I N DEPE NDENCE The i n fo rm atio n r e q uire d t o b e i n clu ded b y I te m 1 3 o f F orm 1 0-K w ill b e i n clu ded i n t h e P ro xy S ta te m en t f o r t h e 2016 A nnual M eetin g o f S to ck hold ers a n d s u ch i n fo rm atio n i s i n co rp ora te d b y r e fe re n ce h ere in . I T EM 1 4. P R IN CIP A L A CCO UNTIN G F E ES A ND S E RVIC ES The in fo rm atio n re q uire d b y th is ite m is in co rp ora te d h ere in b y re fe re n ce to th e se ctio ns e n title d “ F ees F or A udit a n d O th er S erv ic es” a n d “ A udit C om mitte e P re -A ppro val P olic y ” i n t h e P ro xy S ta te m en t f o r t h e 2016 A nnual M eetin g o f S to ck hold ers . 53 PA RT I V I T EM 1 5. E XH IB IT S, F IN ANCIA L S T ATEM ENT S C H EDULES (a ) Fin an cia l S ta te m en ts a n d F in an cia l S ta te m en t S ch ed ule s. S ee “ In dex t o F in an cia l S ta te m en ts ,” a p pearin g h ere in . (b ) Exhib its . S ee t h e e x hib it i n dex w hic h i s i n clu ded h ere in . 54 SIG NATURES Purs u an t t o t h e r e q uire m en ts o f S ectio n 1 3 o r 1 5(d ) o f t h e S ecu ritie s E xch an ge A ct o f 1 934, t h e R eg is tra n t h as d uly c au se d t h is r e p ort t o b e s ig ned o n i ts b eh alf b y t h e u nders ig ned , t h ere u nto d uly a u th oriz ed . COACH, I N C. D ate : A ugust 1 9, 2 016 By: /s / V ic to r L uis Nam e: V ic to r L uis Title : C hie f E xecu tiv e O ffic er Purs u an t t o t h e r e q uire m en ts o f t h e S ecu ritie s E xch an ge A ct o f 1 934, t h is r e p ort h as b een s ig ned b elo w b y t h e f o llo w in g p ers o ns o n b eh alf o f t h e R eg is tra n t a n d i n t h e c ap acitie s i n dic ate d b elo w o n A ugust 1 9, 2 016. S ig natu re Tit le / s / V ic to r L uis Chie f E xecu tiv e O ffic er a n d D ire cto r V ic to r L uis (P rin cip al E xecu tiv e O ffic er) / s / J a n e N ie ls e n Chie f F in an cia l O ffic er J a n e N ie ls e n (P rin cip al F in an cia l a n d A cco untin g O ffic er) / s / J id e Z eitlin Chairm an a n d D ire cto r J id e Z eitlin / s / D av id D en to n Dire cto r D av id D en to n / s / A ndre a G uerra Dire cto r A ndre a G uerra / s / S usa n K ro pf Dire cto r S usa n K ro pf / s / A nnab elle Y u L ong Dire cto r A nnab elle Y u L ong / s / I v an M en ezes Dire cto r I v an M en ezes / s / W illia m N uti Dire cto r W illia m N uti / s / S te p han ie T ile n iu s Dire cto r S te p han ie T ile n iu s 55 CO ACH , I N C. IN DEX T O C O NSO LID ATED F IN ANCIA L S T ATEM ENTS A ND S U PPL EM ENTARY I N FO RM ATIO N Pag e Num ber R ep orts o f I n dep en den t R eg is te re d P ublic A cco untin g F irm 57 C onso lid ate d F in an cia l S ta te m en ts : Conso lid ate d B ala n ce S heets 59 Conso lid ate d S ta te m en ts o f I n co m e 60 Conso lid ate d S ta te m en ts o f C om pre h en siv e I n co m e 61 Conso lid ate d S ta te m en ts o f S to ck hold ers ’ E quity 62 Conso lid ate d S ta te m en ts o f C ash F lo w s 63 N ote s t o C onso lid ate d F in an cia l S ta te m en ts 64 F in an cia l S ta te m en t S ch ed ule s: Sch ed ule I I — V alu atio n a n d Q ualify in g A cco unts 96 Quarte rly F in an cia l D ata 97 All o th er s c h ed ule s a re o m itte d b ecau se t h ey a re n ot a p plic ab le o r t h e r e q uire d i n fo rm atio n i s s h ow n i n t h e C onso lid ate d F in an cia l S ta te m en ts o r N ote s t h ere to . 56 REPO RT O F I N DEPE NDENT R EG IS T ERED P U BLIC A CCO UNTIN G F IR M T o t h e B oard o f D ire cto rs a n d S to ck hold ers o f C oach , I n c. N ew Y ork , N ew Y ork W e h av e a u dite d t h e a cco m pan yin g c o nso lid ate d b ala n ce s h eets o f C oach , I n c. a n d s u bsid ia rie s ( th e ” C om pan y”) a s o f J u ly 2 , 2 016 a n d J u ne 2 7, 2 015, a n d t h e re la te d c o nso lid ate d s ta te m en ts o f in co m e, c o m pre h en siv e in co m e, s to ck hold ers ‘ e q uity , a n d c ash flo w s fo r e ach o f th e th re e y ears in th e p erio d e n ded J u ly 2 , 2 016. O ur a u dits a ls o in clu ded th e fin an cia l sta te m en t sc h ed ule lis te d in th e In dex to th e C onso lid ate d F in an cia l S ta te m en ts . T hese fin an cia l s ta te m en ts a n d f in an cia l s ta te m en t s c h ed ule a re t h e r e sp onsib ility o f t h e C om pan y’s m an ag em en t. O ur r e sp onsib ility i s t o e x pre ss a n o pin io n o n t h e f in an cia l s ta te m en ts a n d f in an cia l s ta te m en t s c h ed ule b ase d o n o ur a u dits . W e c o nducte d o ur a u dits i n a cco rd an ce w ith t h e s ta n dard s o f t h e P ublic C om pan y A cco untin g O vers ig ht B oard ( U nite d S ta te s). T hose s ta n dard s r e q uire t h at w e p la n a n d p erfo rm th e a u dit to o bta in re aso nab le a ssu ra n ce a b out w heth er th e fin an cia l s ta te m en ts a re fre e o f m ate ria l m is sta te m en t. A n a u dit in clu des e x am in in g, o n a te st b asis , e v id en ce s u pportin g th e a m ounts a n d d is c lo su re s in th e fin an cia l s ta te m en ts . A n a u dit a ls o in clu des a sse ssin g th e a cco untin g p rin cip le s u se d a n d s ig nific an t e stim ate s m ad e b y m an ag em en t, a s w ell a s e v alu atin g t h e o vera ll f in an cia l s ta te m en t p re se n ta tio n. W e b elie v e t h at o ur a u dits p ro vid e a r e aso nab le b asis f o r o ur o pin io n. I n o ur o pin io n, s u ch c o nso lid ate d f in an cia l s ta te m en ts p re se n t f a irly , i n a ll m ate ria l r e sp ects , t h e f in an cia l p ositio n o f C oach , I n c. a n d s u bsid ia rie s a t J u ly 2 , 2 016 a n d J u ne 2 7, 2 015, a n d t h e r e su lts o f t h eir o pera tio ns a n d t h eir c ash f lo w s f o r e ach o f t h e t h re e y ears i n t h e p erio d e n ded J u ly 2 , 2 016, i n c o nfo rm ity w ith a cco untin g p rin cip le s g en era lly a ccep te d i n t h e U nite d S ta te s o f A m eric a. A ls o , i n o ur o pin io n, s u ch f in an cia l s ta te m en t s c h ed ule , w hen c o nsid ere d i n r e la tio n t o t h e b asic c o nso lid ate d f in an cia l s ta te m en ts t a k en a s a w hole , p re se n ts f a irly , i n a ll m ate ria l r e sp ects , t h e i n fo rm atio n s e t f o rth t h ere in . W e h av e a ls o a u dite d , i n a cco rd an ce w ith t h e s ta n dard s o f t h e P ublic C om pan y A cco untin g O vers ig ht B oard ( U nite d S ta te s), t h e C om pan y’s i n te rn al c o ntro l o ver f in an cia l r e p ortin g a s o f J u ly 2 , 2 016, b ase d o n t h e c rite ria e sta b lis h ed i n In te rn al C ontr o l – I n te g ra te d F ra m ew ork ( 2 013) i s su ed b y t h e C om mitte e o f S ponso rin g O rg an iz atio ns o f t h e T re ad w ay C om mis sio n a n d o ur r e p ort d ate d A ugust 1 9, 2 016 e x pre sse d a n u nqualifie d o pin io n o n t h e C om pan y’s i n te rn al c o ntro l o ver f in an cia l r e p ortin g. / s / D ELO IT TE & T O UCHE L LP N ew Y ork , N ew Y ork A ugust 1 9, 2 016 57 REPO RT O F I N DEPE NDENT R EG IS T ERED P U BLIC A CCO UNTIN G F IR M T o t h e B oard o f D ire cto rs a n d S to ck hold ers o f C oach , I n c. N ew Y ork , N ew Y ork W e h av e a u dite d t h e i n te rn al c o ntro l o ver f in an cia l r e p ortin g o f C oach , I n c. a n d s u bsid ia rie s ( th e ” C om pan y”) a s o f J u ly 2 , 2 016, b ase d o n c rite ria e sta b lis h ed i n In te rn al C ontr o l – In te g ra te d F ra m ew ork (2 013) is su ed b y th e C om mitte e o f S ponso rin g O rg an iz atio ns o f th e T re ad w ay C om mis sio n. T he C om pan y’s m an ag em en t is re sp onsib le fo r m ain ta in in g e ffe ctiv e in te rn al c o ntro l o ver fin an cia l re p ortin g a n d fo r its a sse ssm en t o f th e e ffe ctiv en ess o f in te rn al c o ntro l o ver f in an cia l r e p ortin g, i n clu ded i n t h e a cco m pan yin g M an ag em en t’s R ep ort o n I n te rn al C ontro l o ver F in an cia l R ep ortin g. O ur r e sp onsib ility i s t o e x pre ss a n o pin io n o n t h e C om pan y’s i n te rn al c o ntro l o ver f in an cia l r e p ortin g b ase d o n o ur a u dit. W e c o nducte d o ur a u dit i n a cco rd an ce w ith t h e s ta n dard s o f t h e P ublic C om pan y A cco untin g O vers ig ht B oard ( U nite d S ta te s). T hose s ta n dard s r e q uire t h at w e p la n a n d p erfo rm t h e a u dit t o o bta in r e aso nab le a ssu ra n ce a b out w heth er e ffe ctiv e i n te rn al c o ntro l o ver f in an cia l r e p ortin g w as m ain ta in ed i n a ll m ate ria l r e sp ects . O ur a u dit i n clu ded o bta in in g a n u nders ta n din g o f i n te rn al c o ntro l o ver f in an cia l r e p ortin g, a sse ssin g t h e r is k t h at a m ate ria l w eak ness e x is ts , t e stin g a n d e v alu atin g t h e d esig n a n d o pera tin g e ffe ctiv en ess o f i n te rn al c o ntro l b ase d o n t h e a sse sse d r is k , a n d p erfo rm in g s u ch o th er p ro ced ure s a s w e c o nsid ere d n ecessa ry i n t h e c irc u m sta n ces. W e b elie v e t h at o ur a u dit p ro vid es a r e aso nab le b asis f o r o ur o pin io n. A c o m pan y’s i n te rn al c o ntro l o ver f in an cia l r e p ortin g i s a p ro cess d esig ned b y, o r u nder t h e s u perv is io n o f, t h e c o m pan y’s p rin cip al e x ecu tiv e a n d p rin cip al f in an cia l o ffic ers , o r p ers o ns p erfo rm in g s im ila r fu nctio ns, a n d e ffe cte d b y th e c o m pan y’s b oard o f d ire cto rs , m an ag em en t, a n d o th er p ers o nnel to p ro vid e r e aso nab le a ssu ra n ce re g ard in g th e re lia b ility o f fin an cia l re p ortin g a n d th e p re p ara tio n o f fin an cia l s ta te m en ts fo r e x te rn al p urp ose s in a cco rd an ce w ith g en era lly a ccep te d a cco untin g p rin cip le s. A c o m pan y’s i n te rn al c o ntro l o ver f in an cia l r e p ortin g i n clu des t h ose p olic ie s a n d p ro ced ure s t h at ( 1 ) p erta in t o t h e m ain te n an ce o f re co rd s th at, in re aso nab le d eta il, a ccu ra te ly a n d fa irly re fle ct th e tra n sa ctio ns a n d d is p ositio ns o f th e a sse ts o f th e c o m pan y; (2 ) p ro vid e r e aso nab le assu ra n ce th at tra n sa ctio ns are re co rd ed as n ecessa ry to p erm it p re p ara tio n o f fin an cia l sta te m en ts in acco rd an ce w ith g en era lly accep te d a cco untin g p rin cip le s, a n d th at re ceip ts a n d e x pen ditu re s o f th e c o m pan y a re b ein g m ad e o nly in a cco rd an ce w ith a u th oriz atio ns o f m an ag em en t a n d d ire cto rs o f t h e c o m pan y; a n d ( 3 ) p ro vid e r e aso nab le a ssu ra n ce r e g ard in g p re v en tio n o r t im ely d ete ctio n o f u nau th oriz ed a cq uis itio n, u se , o r d is p ositio n o f t h e c o m pan y’s a sse ts t h at c o uld h av e a m ate ria l e ffe ct o n t h e f in an cia l s ta te m en ts . B ecau se o f th e in here n t lim ita tio ns o f in te rn al c o ntro l o ver fin an cia l re p ortin g, in clu din g th e p ossib ility o f c o llu sio n o r im pro per m an ag em en t o verrid e o f c o ntro ls , m ate ria l m is sta te m en ts d ue to e rro r o r fra u d m ay n ot b e p re v en te d o r d ete cte d o n a tim ely b asis . A ls o , p ro je ctio ns o f a n y e v alu atio n o f th e e ffe ctiv en ess o f th e in te rn al c o ntro l o ver fin an cia l re p ortin g to fu tu re p erio ds a re s u bje ct to th e ris k th at th e c o ntro ls m ay b eco m e in ad eq uate b ecau se o f c h an ges i n c o nditio ns, o r t h at t h e d eg re e o f c o m plia n ce w ith t h e p olic ie s o r p ro ced ure s m ay d ete rio ra te . I n o ur o pin io n, t h e C om pan y m ain ta in ed , i n a ll m ate ria l r e sp ects , e ffe ctiv e i n te rn al c o ntro l o ver f in an cia l r e p ortin g a s o f J u ly 2 , 2 016, b ase d o n t h e c rite ria e sta b lis h ed i n In te rn al C ontr o l – I n te g ra te d F ra m ew ork ( 2 013) i s su ed b y t h e C om mitte e o f S ponso rin g O rg an iz atio ns o f t h e T re ad w ay C om mis sio n. W e h av e a ls o a u dite d , in a cco rd an ce w ith th e s ta n dard s o f th e P ublic C om pan y A cco untin g O vers ig ht B oard (U nite d S ta te s), th e c o nso lid ate d fin an cia l s ta te m en ts a n d f in an cia l s ta te m en t s c h ed ule a s o f a n d f o r t h e y ear e n ded J u ly 2 , 2 016 o f t h e C om pan y a n d o ur r e p ort d ate d A ugust 1 9, 2 016 e x pre sse d a n u nqualifie d o pin io n o n t h ose f in an cia l s ta te m en ts a n d f in an cia l s ta te m en t s c h ed ule . / s / D ELO IT TE & T O UCHE L LP N ew Y ork , N ew Y ork A ugust 1 9, 2 016 58 CO ACH , I N C. CO NSO LID ATED B ALANCE S H EETS July 2 , 2016 Ju ne 2 7, 2015 (m illio ns) ASSE TS C urren t A sse ts : Cash a n d c ash e q uiv ale n ts $ 859.0 $ 1,2 91.8 Short-te rm i n vestm en ts 460.4 234.0 Tra d e a cco unts r e ceiv ab le , l e ss a llo w an ces o f $ 2.2 a n d $ 3.1 , r e sp ectiv ely 245.2 219.5 In ven to rie s 459.2 485.1 Defe rre d i n co m e t a x es — 98.4 Pre p aid e x pen se s 58.0 73.1 Oth er c u rre n t a sse ts 91.1 104.6 Tota l c u rren t a sse ts 2,1 72.9 2,5 06.5 P ro perty a n d e q uip m en t, n et 919.5 732.6 L ong-te rm i n vestm en ts 558.6 406.0 G oodw ill 502.4 434.2 I n ta n gib le a sse ts 346.8 359.9 D efe rre d i n co m e t a x es 248.8 115.8 O th er a sse ts 143.7 111.9 Tota l a sse ts $ 4,8 92.7 $ 4,6 66.9 LIA BIL IT IE S A ND S T O CK HOLDERS’ E Q UIT Y C urren t L ia bilitie s: Acco unts p ay ab le $ 186.7 $ 222.8 Accru ed l ia b ilitie s 625.0 600.6 Curre n t d eb t 15.0 11.3 Tota l c u rren t l ia bilitie s 826.7 834.7 L ong-te rm d eb t 861.2 879.1 O th er l ia b ilitie s 521.9 463.2 Tota l l ia bilitie s 2,2 09.8 2,1 77.0 S ee N ote 1 1 o n c o m mitm en ts a n d c o ntin gen cie s S to ck hold ers’ E quity : Pre fe rre d s to ck : ( a u th oriz ed 2 5.0 m illio n s h are s; $ 0.0 1 p ar v alu e) n one i s su ed — — Com mon s to ck : ( a u th oriz ed 1 ,0 00.0 m illio n s h are s; $ 0.0 1 p ar v alu e) i s su ed a n d o uts ta n din g – 2 78.5 m illio n an d 2 76.6 m illio n s h are s, r e sp ectiv ely 2.8 2.8 Additio nal p aid -in -c ap ita l 2,8 57.1 2,7 54.4 Accu m ula te d d efic it (1 04.1 ) (1 89.6 ) Accu m ula te d o th er c o m pre h en siv e l o ss (7 2.9 ) (7 7.7 ) Tota l s to ck hold ers’ e q uity 2,6 82.9 2,4 89.9 Tota l l ia bilitie s a nd s to ck hold ers’ e q uity $ 4,8 92.7 $ 4,6 66.9 See a cco m panyin g N ote s. 59 CO ACH , I N C. CO NSO LID ATED S T ATEM ENTS O F I N CO M E Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 (m illio ns, e x cep t p er s h are d ata ) N et s a le s $ 4,4 91.8 $ 4,1 91.6 $ 4,8 06.2 C ost o f s a le s 1,4 40.5 1,2 83.0 1,5 09.2 Gro ss p ro fit 3,0 51.3 2,9 08.6 3,2 97.0 S ellin g, g en era l a n d a d m in is tra tiv e e x pen se s 2,3 97.8 2,2 90.6 2,1 76.9 Opera tin g i n co m e 653.5 618.0 1,1 20.1 I n te re st ( e x pen se ) i n co m e, n et (2 6.9 ) (6 .4 ) 2.2 In co m e b efo re p ro vis io n f o r i n co m e t a x es 626.6 611.6 1,1 22.3 P ro vis io n f o r i n co m e t a x es 166.1 209.2 341.0 Net i n co m e $ 460.5 $ 402.4 $ 781.3 N et i n co m e p er s h are: Basic $ 1.6 6 $ 1.4 6 $ 2.8 1 Dilu te d $ 1.6 5 $ 1.4 5 $ 2.7 9 S hare s u se d i n c o m putin g n et i n co m e p er s h are : Basic 277.6 275.7 277.8 Dilu te d 279.3 277.2 280.4 C ash d iv id en ds d ecla red p er c o m mon s h are $ 1.3 50 $ 1.3 50 $ 1.3 50 See a cco m panyin g N ote s. 60 CO ACH , I N C. CO NSO LID ATED S T ATEM ENTS O F C O M PR EH ENSIV E I N CO M E Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 (m illio ns) N et I n co m e $ 460.5 $ 402.4 $ 781.3 O th er c o m preh en siv e i n co m e ( lo ss), n et o f t a x: Unre aliz ed ( lo sse s) g ain s o n c ash f lo w h ed gin g d eriv ativ es, n et (1 3.2 ) 3.8 (3 .1 ) Unre aliz ed ( lo sse s) g ain s o n a v aila b le -fo r-s a le d eb t i n vestm en ts , n et (0 .2 ) (1 .3 ) 4.1 Chan ge i n p en sio n l ia b ility , n et (0 .6 ) 1.0 0.1 Fore ig n c u rre n cy t ra n sla tio n a d ju stm en ts 18.8 (7 2.5 ) 2.4 O th er c o m preh en siv e i n co m e ( lo ss), n et o f t a x 4.8 (6 9.0 ) 3.5 C om preh en siv e i n co m e $ 465.3 $ 333.4 $ 784.8 See a cco m panyin g N ote s. 61 CO ACH , I N C. CO NSO LID ATED S T ATEM ENTS O F S T O CK HOLDERS’ E Q UIT Y Shares o f C om mon Sto ck Com mon S to ck Addit io nal P aid -in – Capit a l Accu m ula te d D efic it Accu m ula te d O th er Com preh en siv e L oss Tota l S to ck hold ers’ Equit y (m illio ns, e x cep t p er s h are d ata ) B ala n ce a t J u ne 2 9, 2 013 281.9 $ 2.8 $ 2,5 20.5 $ (1 01.9 ) $ (1 2.2 ) $ 2,4 09.2 Net in co m e — — — 781.3 — 781.3 Oth er c o m pre h en siv e in co m e — — — — 3.5 3.5 Share s is su ed f o r s to ck o ptio ns an d e m plo yee b en efit p la n s 2.7 — 9.2 — — 9.2 Share -b ased c o m pen satio n — — 104.9 — — 104.9 Excess ta x b en efit f ro m s h are – based c o m pen satio n — — 11.5 — — 11.5 Rep urc h ase a n d r e tir e m en t o f co m mon s to ck (1 0.2 ) (0 .1 ) — (5 24.8 ) — (5 24.9 ) Div id en ds d ecla re d ( $ 1.3 50 p er sh are ) — — — (3 74.1 ) — (3 74.1 ) B ala n ce a t J u ne 2 8, 2 014 274.4 2.7 2,6 46.1 (2 19.5 ) (8 .7 ) 2,4 20.6 Net in co m e — — — 402.4 — 402.4 Oth er c o m pre h en siv e lo ss — — — — (6 9.0 ) (6 9.0 ) Share s is su ed f o r s to ck o ptio ns an d e m plo yee b en efit p la n s 2.2 0.1 19.5 — — 19.6 Share -b ased c o m pen satio n — — 94.4 — — 94.4 Excess ta x s h ortf a ll f ro m s h are – based c o m pen satio n — — (5 .6 ) — — (5 .6 ) Div id en ds d ecla re d ( $ 1.3 50 p er sh are ) — — — (3 72.5 ) — (3 72.5 ) B ala n ce a t J u ne 2 7, 2 015 276.6 2.8 2,7 54.4 (1 89.6 ) (7 7.7 ) 2,4 89.9 Net in co m e — — — 460.5 — 460.5 Oth er c o m preh en siv e in co m e — — — — 4.8 4.8 Shares is su ed f o r s to ck o p tio n s an d e m plo yee b en efit p la n s 1.9 — 16.4 — — 16.4 Share-b ased c o m pen sa tio n — — 95.3 — — 95.3 Excess t a x s h ortfa ll f r o m s h are- based c o m pen sa tio n — — (9 .0 ) — — (9 .0 ) Div id en ds d ecla red ( $ 1.3 50 p er sh are) — — — (3 75.0 ) — (3 75.0 ) B ala n ce a t J u ly 2 , 2 016 278.5 $ 2.8 $ 2,8 57.1 $ (1 04.1 ) $ (7 2.9 ) $ 2,6 82.9 See a cco m panyin g N ote s. 62 CO ACH , I N C. CO NSO LID ATED S T ATEM ENTS O F C ASH F L O W S Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 (m illio ns) C ASH F LO W S F R O M O PER ATIN G A CTIV IT IE S Net in co m e $ 460.5 $ 402.4 $ 781.3 Adju stm en ts to r e co ncile n et in co m e to n et c ash p ro vid ed b y o pera tin g a ctiv itie s: Dep re cia tio n a n d a m ortiz atio n 210.6 191.8 189.4 Pro vis io n f o r b ad d eb t 3.7 1.7 1.6 Share -b ase d c o m pen sa tio n 86.8 88.9 95.1 Excess ta x e ffe ct f ro m s h are -b ase d c o m pen sa tio n 9.0 5.6 (1 1.5 ) Restr u ctu rin g a ctiv itie s 17.7 59.7 108.2 Defe rre d in co m e ta x es (5 2.3 ) 21.5 (2 2.8 ) Oth er n oncash c h arg es, n et (1 4.7 ) (3 .2 ) 6.5 Chan ges in o pera tin g a sse ts a n d lia b ilitie s: Tra d e a cco unts r e ceiv ab le (2 8.3 ) 0.3 (2 3.7 ) In ven to rie s 40.7 29.2 (6 4.1 ) Oth er lia b ilitie s 49.5 (5 .9 ) 5.7 Acco unts p ay ab le (4 8.4 ) 64.4 (3 0.2 ) Accru ed lia b ilitie s 30.1 63.2 14.1 Oth er b ala n ce s h eet c h an ges, n et (6 .3 ) 17.8 (6 4.2 ) Net c a sh p ro vid ed b y o pera tin g a ctiv it ie s 758.6 937.4 985.4 C ASH F LO W S U SE D I N I N VEST IN G A CTIV IT IE S Acq uis itio n o f in te re st in e q uity m eth od in vestm en t (1 40.3 ) (1 39.1 ) (8 7.2 ) Acq uis itio ns, n et o f c ash a cq uir e d (2 5.6 ) (5 19.6 ) (3 .8 ) Purc h ase s o f p ro perty a n d e q uip m en t (3 96.4 ) (1 99.3 ) (2 19.6 ) Purc h ase s o f in vestm en ts (6 64.7 ) (4 9.6 ) (5 43.4 ) Pro ceed s f ro m m atu ritie s a n d s a le s o f in vestm en ts 425.9 305.2 146.3 Acq uis itio n o f le ase r ig hts (8 .9 ) (1 0.5 ) — Net c a sh u se d in in vestin g a ctiv it ie s (8 10.0 ) (6 12.9 ) (7 07.7 ) C ASH F LO W S P R O VID ED B Y ( U SE D I N ) F IN ANCIN G A CTIV IT IE S Div id en d p ay m en ts (3 74.5 ) (3 71.8 ) (3 76.5 ) Rep urc h ase o f c o m mon s to ck — — (5 24.9 ) Pro ceed s f ro m is su an ce o f lo ng-te rm d eb t, n et o f d is c o unt — 896.7 — Deb t is su an ce c o sts — (6 .6 ) — Rep ay m en t o f d eb t (1 5.0 ) (0 .5 ) (0 .5 ) Pro ceed s f ro m s h are -b ase d a w ard s 29.1 36.5 48.6 Borro w in gs u nder r e v olv in g c re d it f a cility — 340.0 450.0 Rep ay m en t o f r e v olv in g c re d it f a cility — (4 80.0 ) (3 10.0 ) Tax es p aid to n et s e ttle s h are -b ase d a w ard s (1 5.5 ) (1 5.6 ) (4 0.3 ) Excess ta x e ffe ct f ro m s h are -b ase d c o m pen sa tio n (9 .0 ) (5 .6 ) 11.5 Acq uis itio n-re la te d p ay m en t o f c o ntin gen t c o nsid era tio n — (3 .8 ) (6 .0 ) Net c a sh ( u se d in ) p ro vid ed b y f in ancin g a ctiv it ie s (3 84.9 ) 389.3 (7 48.1 ) E ffe ct o f e x ch an ge r a te c h an ges o n c ash a n d c ash e q uiv ale n ts 3.5 (1 3.9 ) (0 .5 ) ( D ecrea se ) I n crea se in c a sh a nd c a sh e q uiv ale n ts (4 32.8 ) 699.9 (4 70.9 ) C ash a nd c a sh e q uiv ale n ts a t b eg in nin g o f y ea r 1,2 91.8 591.9 1,0 62.8 C ash a nd c a sh e q uiv ale n ts a t e n d o f y ea r $ 859.0 $ 1,2 91.8 $ 591.9 S upple m en ta l in fo rm atio n: C ash p aid f o r in co m e ta x es, n et $ 158.9 $ 180.3 $ 384.2 C ash p aid f o r in te re st $ 33.7 $ 1.4 $ 1.3 N oncash in vestin g a ctiv ity – p ro perty a n d e q uip m en t o blig atio ns $ 48.0 $ 59.5 $ 28.7 See a cco m panyin g N ote s. 63 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts 1 . N ATURE O F O PE RATIO NS Coach , In c. (th e ” C om pan y”) is a le ad in g N ew Y ork d esig n h ouse o f m odern lu xury a ccesso rie s a n d life sty le b ra n ds. T he C om pan y’s p rim ary p ro duct o ffe rin gs, m an ufa ctu re d b y th ird -p arty s u pplie rs , in clu de w om en ’s a n d m en ’s b ag s, s m all le ath er g oods, fo otw ear, b usin ess c ase s, re ad y-to -w ear in clu din g o ute rw ear, w atc h es, w eek en d a n d t ra v el a ccesso rie s, s c arv es, s u nw ear, f ra g ra n ce, j e w elry , t ra v el b ag s a n d o th er l ife sty le p ro ducts . C oach b ra n ded p ro ducts a re p rim arily s o ld th ro ugh its N orth A m eric a a n d In te rn atio nal re p orta b le s e g m en ts . T he N orth A m eric a s e g m en t in clu des s a le s to N orth A m eric an c o nsu m ers t h ro ugh C oach -o pera te d sto re s (in clu din g th e In te rn et), a n d sa le s to w hole sa le c u sto m ers a n d d is trib uto rs . T he In te rn atio nal se g m en t in clu des sa le s to c o nsu m ers t h ro ugh C oach -b ra n ded s to re s a n d c o ncessio n s h op-in -s h ops i n J a p an , m ain la n d C hin a, H ong K ong, M acau , S in gap ore , T aiw an , M ala y sia , S outh K ore a, t h e U nite d K in gdom , F ra n ce, I re la n d, S pain , P ortu gal, G erm an y, I ta ly , A ustria , B elg iu m , t h e N eth erla n ds a n d S w itz erla n d. A dditio nally , I n te rn atio nal i n clu des s a le s t o c o nsu m ers t h ro ugh t h e I n te rn et i n J a p an , m ain la n d C hin a, t h e U nite d K in gdom a n d S outh K ore a, a s w ell a s s a le s t o w hole sa le c u sto m ers a n d d is trib uto rs in ap pro xim ate ly 55 c o untrie s. T he S tu art W eitz m an se g m en t in clu des w orld w id e sa le s g en era te d b y th e S tu art W eitz m an b ra n d, p rim arily t h ro ugh d ep artm en t s to re s i n N orth A m eric a a n d i n te rn atio nal l o catio ns, w ith in n um ero us i n dep en den t t h ird p arty d is trib uto rs a n d w ith in S tu art W eitz m an o pera te d s to re s (in clu din g th e In te rn et) in th e U nite d S ta te s, C an ad a a n d E uro pe. T he C om pan y a ls o re co rd s s a le s o f C oach b ra n d p ro ducts g en era te d in l ic en sin g a n d d is p ositio n c h an nels . 2 . S IG NIF IC ANT A CCO UNTIN G P O LIC IE S F is c a l Y ea r The C om pan y’s f is c al y ear e n ds o n t h e S atu rd ay c lo se st t o J u ne 3 0. U nle ss o th erw is e s ta te d , r e fe re n ces t o y ears i n t h e f in an cia l s ta te m en ts r e la te t o f is c al y ears . T he f is c al y ear e n ded Ju ly 2 , 2 016 ( “ fis c al 2 016”) w as a 5 3-w eek p erio d, a n d t h e f is c al y ears e n ded Ju ne 2 7, 2 015 (“ fis c al 2 015”) a n d Ju ne 2 8, 2 014 ( “ fis c al 2 014”) w ere e ach 5 2-w eek p erio ds. T he f is c al y ear e n din g J u ly 1 , 2 017 ( “ fis c al 2 017”) w ill b e a 5 2-w eek p erio d. U se o f E stim ate s The p re p ara tio n o f fin an cia l s ta te m en ts in c o nfo rm ity w ith a cco untin g p rin cip le s g en era lly a ccep te d in th e U nite d S ta te s o f A m eric a (” U .S . G AAP”) r e q uire s m an ag em en t to m ak e e stim ate s a n d a ssu m ptio ns th at a ffe ct th e re p orte d a m ounts o f a sse ts a n d lia b ilitie s a n d d is c lo su re o f c o ntin gen t a sse ts a n d l ia b ilitie s a t t h e d ate o f t h e f in an cia l s ta te m en ts a s w ell a s t h e r e p orte d a m ounts o f r e v en ues a n d e x pen se s d urin g t h e r e p ortin g p erio d. A ctu al r e su lts c o uld d iffe r f ro m e stim ate s i n a m ounts t h at m ay b e m ate ria l t o t h e f in an cia l s ta te m en ts . Sig nific an t e stim ate s i n here n t i n t h e p re p ara tio n o f t h e c o nso lid ate d f in an cia l s ta te m en ts i n clu de r e se rv es f o r i n ven to ry ; c u sto m er r e tu rn s, e n d-o f-s e aso n m ark dow ns, a n d o pera tio nal c h arg eb ack s; r e se rv es f o r l itig atio n a n d o th er c o ntin gen cie s; u se fu l l iv es a n d i m pairm en ts o f l o ng-liv ed t a n gib le a n d i n ta n gib le a sse ts ; a cco untin g fo r in co m e ta x es a n d re la te d u ncerta in ta x p ositio ns; th e v alu atio n o f s to ck -b ase d c o m pen sa tio n a w ard s a n d re la te d e x pecte d fo rfe itu re r a te s; r e se rv es f o r r e stru ctu rin g; a n d a cco untin g f o r b usin ess c o m bin atio ns, a m ongst o th ers . P rin cip le s o f C onso lid atio n The c o nso lid ate d fin an cia l sta te m en ts in clu de th e a cco unts o f th e C om pan y a n d a ll 1 00% o w ned su bsid ia rie s. A ll in te rc o m pan y tra n sa ctio ns a n d b ala n ces a re e lim in ate d i n c o nso lid atio n. C ash a nd C ash E quiv ale n ts Cash a n d c ash e q uiv ale n ts c o nsis t o f c ash b ala n ces a n d h ig hly l iq uid i n vestm en ts w ith a m atu rity o f t h re e m onth s o r l e ss a t t h e d ate o f p urc h ase . I n vestm en ts Short-te rm in vestm en ts c o nsis t p rim arily o f h ig h-c re d it q uality U .S . a n d n on-U .S . is su ed c o rp ora te d eb t s e cu ritie s, a n d U .S . T re asu rie s a n d g overn m en t a g en cy s e cu ritie s w ith o rig in al m atu ritie s g re ate r t h an t h re e m onth s a n d w ith m atu ritie s w ith in o ne y ear o f b ala n ce s h eet d ate , c la ssifie d a s a v aila b le -fo r-s a le a n d h eld -to -m atu rity . L ong-te rm i n vestm en ts p rim arily c o nsis t o f h ig h-c re d it q uality U .S . a n d n on-U .S . i s su ed c o rp ora te d eb t s e cu ritie s, U .S . T re asu rie s a n d g overn m en t a g en cy s e cu ritie s, c la ssifie d a s a v aila b le -fo r-s a le , a n d r e co rd ed a t f a ir v alu e, w ith u nre aliz ed g ain s a n d l o sse s r e co rd ed i n o th er c o m pre h en siv e i n co m e. L ong-te rm i n vestm en ts a ls o i n clu de t h e e q uity i n vestm en t r e la te d t o t h e H udso n Y ard s j o in t v en tu re . S ee N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er d is c u ssio n o n th e C om pan y’s H udso n Y ard s jo in t v en tu re . D urin g fis c al 2 015, h eld -to -m atu rity in vestm en ts w ere re co rd ed at am ortiz ed co st, w hic h a p pro xim ate d f a ir v alu e. D iv id en d a n d i n te re st i n co m e a re r e co gniz ed w hen e arn ed . 64 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) In vestm en ts in c o m pan ie s in w hic h th e C om pan y h as s ig nific an t in flu en ce, b ut le ss th an a c o ntro llin g fin an cia l in te re st, a re a cco unte d fo r u sin g th e e q uity m eth od. S ig nific an t i n flu en ce i s g en era lly p re su m ed t o e x is t w hen t h e C om pan y o w ns b etw een 2 0% a n d 5 0% o f t h e i n veste e, h ow ev er, o th er f a cto rs a re c o nsid ere d , s u ch a s b oard r e p re se n ta tio n a n d t h e r ig hts t o p artic ip ate i n t h e d ay -to -d ay o pera tio ns o f t h e b usin ess. T he C om pan y h as a n e q uity m eth od i n vestm en t i n H udso n Y ard s r e la te d t o a n e q uity i n te re st i n a n e n tity f o rm ed f o r t h e p urp ose o f d ev elo pin g a n ew o ffic e t o w er i n M an hatta n . R efe r t o N ote 6 , ” In vestm en ts ,” f o r f u rth er i n fo rm atio n. Additio nally , G AAP re q uire s th e c o nso lid atio n o f a ll e n titie s fo r w hic h a C om pan y h as a c o ntro llin g v otin g in te re st a n d a ll v aria b le in te re st e n titie s ( “ V IE s” ) f o r w hic h a C om pan y i s d eem ed t o b e t h e p rim ary b en efic ia ry . A n e n tity i s g en era lly a V IE i f i t m eets a n y o f t h e f o llo w in g c rite ria : ( i) t h e e n tity h as i n su ffic ie n t e q uity to fin an ce its a ctiv itie s w ith out a d ditio nal su bord in ate d fin an cia l su pport fro m o th er p artie s, (ii) th e e q uity in vesto rs c an not m ak e s ig nific an t d ecis io ns a b out t h e e n tity ’s o pera tio ns o r ( iii) t h e v otin g r ig hts o f s o m e i n vesto rs a re n ot p ro portio nal t o t h eir o blig atio ns t o a b so rb t h e e x pecte d l o sse s o f th e e n tity o r re ceiv e th e e x pecte d re tu rn s o f th e e n tity a n d s u bsta n tia lly a ll o f th e e n tity ’s a ctiv itie s in volv e o r a re c o nducte d o n b eh alf o f th e i n vesto r w ith d is p ro portio nate ly f e w v otin g r ig hts . C oncen tr a tio n o f C red it R is k Fin an cia l in stru m en ts th at p ote n tia lly e x pose th e C om pan y to c o ncen tra tio n o f c re d it ris k c o nsis t p rim arily o f c ash a n d c ash e q uiv ale n ts , in vestm en ts a n d a cco unts r e ceiv ab le . T he C om pan y p la ces i ts c ash i n vestm en ts w ith h ig h-c re d it q uality f in an cia l i n stitu tio ns a n d c u rre n tly i n vests p rim arily i n c o rp ora te d eb t s e cu ritie s, m oney m ark et i n stru m en ts , U .S . g overn m en t a n d a g en cy d eb t s e cu ritie s, m unic ip al g overn m en t d eb t s e cu ritie s, c o m merc ia l p ap er a n d b an k d ep osits p la ced w ith m ajo r b an ks a n d fin an cia l in stitu tio ns. A cco unts re ceiv ab le is g en era lly d iv ers ifie d d ue to th e n um ber o f e n titie s c o m pris in g th e C om pan y’s c u sto m er b ase a n d th eir d is p ers io n a cro ss m an y g eo gra p hic al re g io ns. T he C om pan y b elie v es n o s ig nific an t c o ncen tra tio n o f c re d it ris k e x is ts w ith r e sp ect t o t h ese i n vestm en ts a n d a cco unts r e ceiv ab le . I n ven to rie s The C om pan y h old s in ven to ry th at is so ld th ro ugh re ta il a n d w hole sa le d is trib utio n c h an nels , in clu din g e -c o m merc e site s. S ubsta n tia lly a ll o f th e C om pan y’s i n ven to rie s a re c o m pris e d o f f in is h ed g oods, a n d a re r e p orte d a t t h e l o w er o f c o st o r m ark et. I n ven to ry c o sts i n clu de m ate ria l, c o nvers io n c o sts , f re ig ht a n d d utie s a n d a re p rim arily d ete rm in ed b y th e firs t-in , firs t-o ut m eth od. T he C om pan y re se rv es fo r in ven to ry , in clu din g s lo w -m ovin g a n d a g ed i n ven to ry , b ase d o n c u rre n t p ro duct d em an d, e x pecte d fu tu re d em an d a n d h is to ric al e x perie n ce. A d ecre ase in p ro duct d em an d d ue to c h an gin g c u sto m er t a ste s, b uyin g p atte rn s o r i n cre ase d c o m petitio n c o uld i m pact t h e C om pan y’s e v alu atio n o f i ts i n ven to ry a n d a d ditio nal r e se rv es m ig ht b e r e q uire d . P ro perty a nd E quip m en t, N et Pro perty an d eq uip m en t, n et is sta te d at co st le ss accu m ula te d d ep re cia tio n in clu din g th e im pact o f lo ng-liv ed asse t im pairm en t an d d is p osa ls . D ep re cia tio n is c alc u la te d o n a stra ig ht-lin e b asis o ver th e e stim ate d u se fu l liv es o f th e a sse ts . B uild in gs a re d ep re cia te d o ver 40 y ears , an d b uild in g i m pro vem en ts a re d ep re cia te d o ver te n to 40 y ears . M ach in ery a n d e q uip m en t a re d ep re cia te d o ver liv es o f fiv e to se v en y ears , fu rn itu re a n d fix tu re s a re d ep re cia te d o ver liv es o f th re e to te n y ears , a n d c o m pute r s o ftw are is d ep re cia te d o ver liv es o f th re e to se v en y ears . L ease h old im pro vem en ts a re a m ortiz ed o ver t h e s h orte r o f t h eir e stim ate d u se fu l l iv es o r t h e r e la te d l e ase t e rm s. M ain te n an ce a n d r e p air c o sts a re c h arg ed t o e arn in gs a s i n cu rre d w hile e x pen ditu re s f o r m ajo r r e n ew als a n d i m pro vem en ts a re c ap ita liz ed . V alu atio n o f L ong-L iv ed A sse ts Long-liv ed a sse ts , s u ch a s p ro perty a n d e q uip m en t, a re e v alu ate d f o r i m pairm en t w hen ev er e v en ts o r c irc u m sta n ces i n dic ate t h at t h e c arry in g v alu e o f t h e a sse ts m ay n ot b e r e co vera b le . I n e v alu atin g l o ng-liv ed a sse ts f o r r e co vera b ility , t h e C om pan y u se s i ts b est e stim ate o f f u tu re c ash f lo w s e x pecte d t o r e su lt f ro m t h e u se o f t h e r e la te d a sse t g ro up a n d i ts e v en tu al d is p ositio n. T o t h e e x te n t t h at e stim ate d f u tu re u ndis c o unte d n et c ash f lo w s a ttrib uta b le t o t h e a sse t a re le ss th an its c arry in g v alu e, a n im pairm en t lo ss is re co gniz ed e q ual to th e d iffe re n ce b etw een th e c arry in g v alu e o f su ch a sse t a n d its fa ir v alu e, c o nsid erin g e x te rn al m ark et p artic ip an t a ssu m ptio ns. T he C om pan y h ad n o m ate ria l im pairm en t lo sse s in fis c al 2016 a n d in fis c al 2015 . T he C om pan y r e co rd ed i m pairm en t l o sse s o f $35.5 m illio n i n f is c al 2 014, w ith in S ellin g, g en era l a n d a d m in is tra tiv e e x pen se s. In d ete rm in in g fu tu re c ash flo w s, th e C om pan y ta k es v ario us fa cto rs in to a cco unt, in clu din g th e e ffe cts o f m acro eco nom ic tre n ds s u ch a s c o nsu m er s p en din g, in -s to re c ap ita l in vestm en ts , p ro m otio nal c ad en ce, th e le v el o f a d vertis in g a n d c h an ges in m erc h an dis in g s tra te g y. S in ce th e d ete rm in atio n o f f u tu re c ash f lo w s i s a n e stim ate o f f u tu re p erfo rm an ce, t h ere m ay b e f u tu re i m pairm en ts i n t h e e v en t t h at f u tu re c ash f lo w s d o n ot m eet e x pecta tio ns. 65 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) B usin ess C om bin atio ns In c o nnectio n w ith a n a cq uis itio n, t h e C om pan y r e co rd s a ll a sse ts a cq uire d a n d l ia b ilitie s a ssu m ed o f t h e a cq uire d b usin ess a t t h eir a cq uis itio n d ate f a ir v alu e, i n clu din g t h e r e co gnitio n o f c o ntin gen t c o nsid era tio n a t f a ir v alu e o n t h e a cq uis itio n d ate . T hese f a ir v alu e d ete rm in atio ns r e q uire j u dgm en t a n d m ay i n volv e t h e u se o f s ig nific an t e stim ate s a n d a ssu m ptio ns, i n clu din g a ssu m ptio ns w ith r e sp ect t o f u tu re c ash i n flo w s a n d o utflo w s, d is c o unt r a te s, a sse t l iv es, a n d m ark et m ultip le s, a m ong o th er i te m s. F urth erm ore , t h e C om pan y m ay u tiliz e o r c o nsid er i n dep en den t t h ird -p arty v alu atio n f irm s w hen n ecessa ry . R efe r t o N ote 7 , ” A cq uis itio ns,” f o r d eta ile d d is c lo su re s r e la te d t o o ur a cq uis itio ns. G oodw ill a nd O th er I n ta ngib le A sse ts Upon a cq uis itio n, th e C om pan y e stim ate s a n d re co rd s th e fa ir v alu e o f p urc h ase d in ta n gib le a sse ts , w hic h p rim arily c o nsis ts o f tra d em ark s a n d tra d e n am es, c u sto m er re la tio nsh ip s, le ase rig hts a n d o rd er b ack lo g. T he e x cess o f th e p urc h ase c o nsid era tio n o ver th e fa ir v alu e o f n et a sse ts a cq uire d , b oth t a n gib le a n d i n ta n gib le , i s r e co rd ed a s g oodw ill. F in ite -liv ed i n ta n gib le a sse ts a re a m ortiz ed o ver t h eir r e sp ectiv e e stim ate d u se fu l l iv es a n d, a lo ng w ith o th er l o ng-liv ed a sse ts a s n ote d a b ove, a re e v alu ate d f o r i m pairm en t p erio dic ally w hen ev er e v en ts o r c h an ges i n c irc u m sta n ces i n dic ate t h at t h eir r e la te d c arry in g v alu es m ay n ot b e f u lly r e co vera b le . E stim ate s o f f a ir v alu e f o r f in ite -liv ed a n d i n defin ite -liv ed i n ta n gib le a sse ts a re p rim arily d ete rm in ed u sin g d is c o unte d c ash f lo w s a n d t h e r e lie f f ro m r o yalty m eth od, r e sp ectiv ely , with c o nsid era tio n o f m ark et c o m paris o ns a n d r e cen t t ra n sa ctio ns. T his a p pro ach u se s s ig nific an t e stim ate s a n d a ssu m ptio ns, i n clu din g p ro je cte d f u tu re c ash f lo w s, d is c o unt r a te s a n d g ro w th r a te s. Goodw ill a n d c erta in o th er in ta n gib le a sse ts d eem ed to h av e in defin ite u se fu l liv es, in clu din g tra d em ark s a n d tra d e n am es, a re n ot a m ortiz ed , b ut a re a sse sse d fo r im pairm en t a t le ast a n nually . T he C om pan y g en era lly p erfo rm s its a n nual g oodw ill a n d in defin ite -liv ed in ta n gib le a sse ts im pairm en t a n aly sis u sin g a q ualita tiv e a p pro ach t o d ete rm in e w heth er i t i s m ore l ik ely t h an n ot t h at t h e f a ir v alu es o f s u ch a sse ts a re l e ss t h an t h eir r e sp ectiv e c arry in g v alu es. I f, b ase d o n t h e r e su lts o f t h e q ualita tiv e a sse ssm en t, i t i s c o nclu ded t h at i t i s n ot m ore l ik ely t h an n ot t h at t h e f a ir v alu e o f t h e a sse t e x ceed s i ts c arry in g v alu e, a q uan tita tiv e te st is p erfo rm ed . T he q uan tita tiv e g oodw ill im pairm en t te st is a tw o-s te p p ro cess. T he firs t ste p is to id en tify th e e x is te n ce o f p ote n tia l i m pairm en t b y c o m parin g th e fa ir v alu e o f e ach re p ortin g u nit w ith its c arry in g v alu e, in clu din g g oodw ill. If th e fa ir v alu e o f a re p ortin g u nit e x ceed s its c arry in g v alu e, t h e r e p ortin g u nit’s g oodw ill i s c o nsid ere d n ot t o b e i m paire d a n d p erfo rm an ce o f t h e s e co nd s te p o f t h e q uan tita tiv e g oodw ill i m pairm en t t e st i s u nnecessa ry . If th e c arry in g v alu e o f a re p ortin g u nit e x ceed s its fa ir v alu e, th e s e co nd s te p o f th e g oodw ill im pairm en t te st is p erfo rm ed to m easu re th e a m ount o f i m pairm en t l o ss, i f a n y. T he s e co nd s te p o f t h e g oodw ill i m pairm en t t e st c o m pare s t h e i m plie d f a ir v alu e o f t h e r e p ortin g u nit’s g oodw ill w ith t h e c arry in g v alu e o f t h at g oodw ill. I f t h e c arry in g v alu e o f t h e r e p ortin g u nit’s g oodw ill e x ceed s t h e i m plie d f a ir v alu e o f t h at g oodw ill, a n i m pairm en t l o ss i s r e co gniz ed i n a n a m ount e q ual t o t h at e x cess. T he i m plie d f a ir v alu e o f g oodw ill i s d ete rm in ed i n t h e s a m e m an ner a s t h e a m ount o f g oodw ill t h at w ould b e r e co gniz ed i n a b usin ess c o m bin atio n. I n o th er w ord s, t h e f a ir v alu e o f t h e r e p ortin g u nit i s a llo cate d t o a ll o f t h e a sse ts a n d l ia b ilitie s o f t h at u nit a s i f t h e r e p ortin g u nit h ad b een a cq uire d i n a b usin ess c o m bin atio n a n d t h e f a ir v alu e w as t h e p urc h ase p ric e p aid t o a cq uire t h e r e p ortin g u nit. Dete rm in atio n o f th e fa ir v alu e o f a re p ortin g u nit a n d th e fa ir v alu e o f in div id ual a sse ts a n d lia b ilitie s o f a re p ortin g u nit is b ase d o n m an ag em en t’s a sse ssm en t, c o nsid erin g i n dep en den t t h ird -p arty a p pra is a ls w hen n ecessa ry . F urth erm ore , t h is d ete rm in atio n i s j u dgm en ta l i n n atu re a n d o fte n i n volv es t h e u se o f s ig nific an t e stim ate s a n d a ssu m ptio ns, in clu din g p ro je cte d fu tu re c ash flo w s, d is c o unt ra te s, g ro w th ra te s, a n d d ete rm in atio n o f a p pro pria te m ark et c o m para b le s a n d r e cen t t ra n sa ctio ns. T hese e stim ate s a n d a ssu m ptio ns c o uld h av e a s ig nific an t i m pact o n w heth er o r n ot a n i m pairm en t c h arg e i s r e co gniz ed a n d t h e a m ount o f a n y s u ch c h arg e. The C om pan y p erfo rm s its a n nual im pairm en t a sse ssm en t o f g oodw ill, in clu din g tra d em ark s a n d tra d e n am es, d urin g th e fo urth q uarte r o f e ach fis c al y ear. T he C om pan y d ete rm in ed t h at t h ere w as no i m pairm en t i n f is c al 2016 , f is c al 2015 o r f is c al 2014 . 66 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) O pera tin g L ea se s The C om pan y’s l e ase s f o r o ffic e s p ace, r e ta il l o catio ns a n d d is trib utio n f a cilitie s a re a cco unte d f o r a s o pera tin g l e ase s. C erta in o f t h e C om pan y’s l e ase s c o nta in r e n ew al o ptio ns, r e n t e sc ala tio n c la u se s, a n d/o r l a n dlo rd i n cen tiv es. R en ew al t e rm s g en era lly r e fle ct m ark et r a te s a t t h e t im e o f r e n ew al. R en t e x pen se f o r n on-c an cela b le o pera tin g le ase s w ith sc h ed ule d re n t in cre ase s a n d/o r la n dlo rd in cen tiv es is re co gniz ed o n a stra ig ht-lin e b asis o ver th e le ase te rm , i n clu din g a n y a p plic ab le r e n t h olid ay s, b eg in nin g w ith t h e l e ase c o m men cem en t d ate , o r t h e d ate t h e C om pan y t a k es c o ntro l o f t h e l e ase d s p ace, w hic h ev er i s s o oner. T he e x cess o f s tra ig ht-lin e r e n t e x pen se o ver s c h ed ule d p ay m en t a m ounts a n d l a n dlo rd i n cen tiv es i s r e co rd ed a s a d efe rre d r e n t l ia b ility . A s o f t h e e n d o f fis c al 2016 a n d fis c al 2015 , d efe rre d r e n t o blig atio ns o f $172.9 m illio n a n d $122.4 m illio n , re sp ectiv ely , w ere c la ssifie d p rim arily w ith in o th er n on- c u rre n t lia b ilitie s in th e C om pan y’s c o nso lid ate d b ala n ce sh eets . C erta in re n ta ls a re a ls o c o ntin gen t u pon fa cto rs su ch a s sa le s. C ontin gen t re n ta ls a re r e co gniz ed w hen t h e a ch ie v em en t o f t h e t a rg et ( i.e ., s a le l e v els ), w hic h t rig gers t h e r e la te d r e n t p ay m en t, i s c o nsid ere d p ro bab le a n d e stim ab le . Asse t re tire m en t o blig atio ns re p re se n t le g al o blig atio ns a sso cia te d w ith th e re tire m en t o f a ta n gib le lo ng-liv ed a sse t. T he C om pan y’s a sse t re tire m en t o blig atio ns a re p rim arily a sso cia te d w ith l e ase h old i m pro vem en ts t h at w e a re c o ntra ctu ally o blig ate d t o r e m ove a t t h e e n d o f a l e ase t o c o m ply w ith t h e l e ase a g re em en t. W hen s u ch a n o blig atio n e x is ts , t h e C om pan y r e co gniz es a n a sse t r e tire m en t o blig atio n a t t h e i n cep tio n o f a l e ase a t i ts e stim ate d f a ir v alu e. T he a sse t re tire m en t o blig atio n is re co rd ed in c u rre n t lia b ilitie s o r n on-c u rre n t lia b ilitie s (b ase d o n th e e x pecte d tim in g o f p ay m en t o f th e re la te d c o sts ) a n d is s u bse q uen tly a d ju ste d f o r a n y c h an ges i n e stim ate s. T he a sso cia te d e stim ate d a sse t r e tire m en t c o sts a re c ap ita liz ed a s p art o f t h e c arry in g a m ount o f t h e l o ng- l iv ed a sse t a n d d ep re cia te d o ver i ts u se fu l l ife . A s o f t h e e n d o f f is c al 2016 a n d fis c al 2015 , t h e C om pan y h ad a sse t r e tire m en t o blig atio ns o f $23.9 m illio n a n d $16.0 m illio n , r e sp ectiv ely , p rim arily c la ssifie d w ith in o th er n on-c u rre n t l ia b ilitie s i n t h e C om pan y’s c o nso lid ate d b ala n ce s h eets . R ev en ue R eco gnitio n Rev en ue i s r e co gniz ed b y t h e C om pan y w hen t h ere i s p ers u asiv e e v id en ce o f a n a rra n gem en t, d eliv ery h as o ccu rre d ( a n d r is k s a n d r e w ard s o f o w ners h ip h av e b een t ra n sfe rre d t o t h e b uyer), p ric e h as b een f ix ed o r i s d ete rm in ab le , a n d c o lle cta b ility i s r e aso nab ly a ssu re d . Reta il s to re a n d c o ncessio n-b ase d s h op-in -s h op re v en ues a re re co gniz ed a t th e p oin t o f s a le , w hic h o ccu rs w hen m erc h an dis e is s o ld in a n o ver-th e- c o unte r c o nsu m er tra n sa ctio n. In te rn et re v en ue fro m s a le s o f p ro ducts o rd ere d th ro ugh th e C om pan y’s e -c o m merc e s ite s is re co gniz ed u pon d eliv ery a n d r e ceip t o f t h e s h ip m en t b y i ts c u sto m ers a n d i n clu des s h ip pin g a n d h an dlin g c h arg es p aid b y c u sto m ers . R ev en ues a re a ls o r e d uced b y a n e stim ate f o r r e tu rn s a t t h e t im e o f s a le . Whole sa le re v en ue is re co gniz ed a t th e tim e title p asse s a n d ris k o f lo ss is tra n sfe rre d to c u sto m ers . W hole sa le re v en ue is re co rd ed n et o f e stim ate s o f m ark dow n a llo w an ces, re tu rn s a n d d is c o unts . E stim ate s fo r m ark dow n re se rv es a re b ase d o n h is to ric al tre n ds, a ctu al a n d fo re caste d se aso nal re su lts , a n e v alu atio n o f c u rre n t e co nom ic a n d m ark et c o nditio ns, re ta ile r p erfo rm an ce, a n d, in c erta in c ase s, c o ntra ctu al te rm s. R etu rn s a n d a llo w an ces re q uire p re – a p pro val f ro m m an ag em en t a n d d is c o unts a re b ase d o n t ra d e t e rm s. The C om pan y r e v ie w s a n d r e fin es t h ese e stim ate s o n a q uarte rly b asis . T he C om pan y’s h is to ric al e stim ate s o f t h ese c o sts h av e n ot d iffe re d m ate ria lly f ro m a ctu al r e su lts . Gift c ard s is su ed b y th e C om pan y a re re co rd ed a s a lia b ility u ntil th ey a re re d eem ed , a t w hic h p oin t re v en ue is re co gniz ed . T he C om pan y re co gniz es i n co m e f o r u nre d eem ed g ift c ard s w hen t h e l ik elih ood o f a g ift c ard b ein g r e d eem ed b y a c u sto m er i s r e m ote , w hic h i s g en era lly a p pro xim ate ly th re e y ears a fte r t h e g ift c ard i s i s su ed , a n d t h e C om pan y d ete rm in es t h at i t d oes n ot h av e a l e g al o blig atio n t o r e m it t h e v alu e o f t h e u nre d eem ed g ift c ard t o t h e r e le v an t j u ris d ic tio n a s u ncla im ed o r a b an doned p ro perty . R ev en ue a sso cia te d w ith g ift c ard b re ak ag e i s n ot m ate ria l t o t h e C om pan y’s n et o pera tin g r e su lts . The C om pan y a cco unts f o r s a le s t a x es a n d o th er r e la te d t a x es o n a n et b asis , e x clu din g s u ch t a x es f ro m r e v en ue. C ost o f S ale s Cost o f s a le s c o nsis ts o f i n ven to ry c o sts a n d o th er r e la te d c o sts s u ch a s r e se rv es f o r i n ven to ry r e aliz ab ility a n d s h rin kag e, d estru ctio n c o sts , d am ag es a n d r e p la cem en ts . 67 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) S ellin g, G en era l a nd A dm in is tr a tiv e ( ” SG & A”) E xpen se s SG & A e x pen se s a re c o m pris e d o f fo ur c ate g orie s: (1 ) se llin g; (2 ) a d vertis in g, m ark etin g a n d d esig n; (3 ) d is trib utio n a n d c u sto m er se rv ic e; a n d (4 ) a d m in is tra tiv e. S ellin g ex pen se s in clu de sto re em plo yee co m pen sa tio n, o ccu pan cy co sts , su pply co sts , w hole sa le an d re ta il acco unt ad m in is tra tio n c o m pen sa tio n g lo bally a n d th e C om pan y’s in te rn atio nal o pera tin g e x pen se s. T hese e x pen se s a re a ffe cte d b y th e n um ber o f s to re s o pen d urin g a n y fis c al p erio d an d sto re p erfo rm an ce, as co m pen sa tio n an d re n t ex pen se s v ary w ith sa le s. A dvertis in g, m ark etin g an d d esig n ex pen se s in clu de em plo yee c o m pen sa tio n, m ed ia s p ace a n d p ro ductio n, a d vertis in g a g en cy f e es, n ew p ro duct d esig n c o sts , p ublic r e la tio ns a n d m ark et r e se arc h e x pen se s. D is trib utio n a n d c u sto m er s e rv ic e e x pen se s in clu de w are h ousin g, o rd er fu lfillm en t, s h ip pin g a n d h an dlin g, c u sto m er s e rv ic e, e m plo yee c o m pen sa tio n a n d b ag re p air c o sts . A dm in is tra tiv e e x pen se s i n clu de c o m pen sa tio n c o sts f o r “ co rp ora te ” f u nctio ns i n clu din g: e x ecu tiv e, f in an ce, h um an r e so urc es, l e g al a n d i n fo rm atio n s y ste m s d ep artm en ts , a s w ell a s c o rp ora te h ead quarte rs o ccu pan cy c o sts , c o nsu ltin g f e es a n d s o ftw are e x pen se s. A dm in is tra tiv e e x pen se s a ls o i n clu de g lo bal e q uity c o m pen sa tio n e x pen se . S hip pin g a nd H andlin g Ship pin g a n d h an dlin g c o sts i n cu rre d w ere $43.6 m illio n , $41.2 m illio n a n d $61.9 m illio n in fis c al 2016 , fis c al 2015 a n d fis c al 2014 , re sp ectiv ely , a n d a re i n clu ded i n S G & A e x pen se s. T he C om pan y i n clu des i n bound p ro duct-re la te d t ra n sp orta tio n c o sts f ro m s e rv ic e p ro vid ers w ith in c o st o f s a le s. T he b ala n ce o f t h e C om pan y’s t ra n sp orta tio n-re la te d c o sts r e la te d t o i ts d is trib utio n n etw ork i s i n clu ded i n S G & A e x pen se s r a th er t h an i n c o st o f s a le s. A dvertis in g Advertis in g c o sts in clu de e x pen se s re la te d to d ire ct m ark etin g a ctiv itie s, s u ch a s d ire ct m ail p ie ces, d ig ita l a n d o th er m ed ia a n d p ro ductio n c o sts . In f i s c al 2016 , fis c al 2015 a n d fis c al 2014 , a d vertis in g e x pen se s fo r th e C om pan y to ta le d $202.2 m illio n , $160.9 m illio n an d $130.1 m illio n re sp ectiv ely . A dvertis in g c o sts a re g en era lly e x pen se d w hen t h e a d vertis in g f irs t a p pears . S hare-B ase d C om pen sa tio n The C om pan y r e co gniz es t h e c o st o f e q uity a w ard s t o e m plo yees a n d t h e n on-e m plo yee D ire cto rs b ase d o n t h e g ra n t-d ate f a ir v alu e o f t h ose a w ard s. T he g ra n t-d ate f a ir v alu es o f s h are u nit a w ard s a re b ase d o n t h e f a ir v alu e o f t h e C om pan y’s c o m mon s to ck o n t h e d ate o f g ra n t. T he g ra n t-d ate f a ir v alu e o f s to ck o ptio n a w ard s is d ete rm in ed u sin g th e B la ck -S ch ole s o ptio n p ric in g m odel a n d in volv es s e v era l a ssu m ptio ns, in clu din g th e e x pecte d te rm o f th e o ptio n, e x pecte d v ola tility a n d d iv id en d y ie ld . T he e x pecte d t e rm o f o ptio ns r e p re se n ts t h e p erio d o f t im e t h at t h e o ptio ns g ra n te d a re e x pecte d t o b e o uts ta n din g a n d is b ase d o n h is to ric al e x perie n ce. E xpecte d v ola tility is b ase d o n h is to ric al v ola tility o f th e C om pan y’s s to ck a s w ell a s th e im plie d v ola tility fro m p ublic ly t ra d ed o ptio ns o n t h e C om pan y’s s to ck . D iv id en d y ie ld i s b ase d o n t h e c u rre n t e x pecte d a n nual d iv id en d p er s h are a n d t h e C om pan y’s s to ck p ric e. C han ges i n t h e a ssu m ptio ns u se d t o d ete rm in e t h e B la ck -S ch ole s v alu e c o uld r e su lt i n s ig nific an t c h an ges i n t h e B la ck -S ch ole s v alu e. For s to ck o ptio ns a n d s h are u nit a w ard s, th e C om pan y re co gniz es s h are -b ase d c o m pen sa tio n n et o f e stim ate d fo rfe itu re s a n d re v is e s th e e stim ate s in s u bse q uen t p erio ds i f a ctu al f o rfe itu re s d iffe r f ro m t h e e stim ate s. T he C om pan y e stim ate s t h e f o rfe itu re r a te b ase d o n h is to ric al e x perie n ce a s w ell a s e x pecte d f u tu re b eh av io r. The C om pan y g ra n ts p erfo rm an ce-b ase d s h are a w ard s t o k ey e x ecu tiv es, t h e v estin g o f w hic h i s s u bje ct t o t h e e x ecu tiv e’s c o ntin uin g e m plo ym en t a n d t h e C om pan y’s o r in div id ual’s ach ie v em en t o f certa in p erfo rm an ce g oals . O n a q uarte rly b asis , th e C om pan y asse sse s actu al p erfo rm an ce v ers u s th e p re d ete rm in ed p erfo rm an ce g oals , a n d a d ju sts th e s h are -b ase d c o m pen sa tio n e x pen se to re fle ct th e re la tiv e p erfo rm an ce a ch ie v em en t. A ctu al d is trib ute d s h are s a re c alc u la te d u pon c o nclu sio n o f th e se rv ic e a n d p erfo rm an ce p erio ds, a n d in clu de d iv id en d e q uiv ale n t sh are s. If th e p erfo rm an ce-b ase d a w ard i n co rp ora te s a m ark et c o nditio n, t h e g ra n t-d ate f a ir v alu e o f s u ch a w ard i s d ete rm in ed u sin g a M onte C arlo S im ula tio n. I n co m e T axes The C om pan y’s e ffe ctiv e t a x r a te i s b ase d o n p re -ta x i n co m e, s ta tu to ry t a x r a te s, t a x l a w s a n d r e g ula tio ns, a n d t a x p la n nin g s tra te g ie s a v aila b le i n t h e v ario us j u ris d ic tio ns i n w hic h t h e C om pan y o pera te s. T he C om pan y c la ssifie s i n te re st a n d p en altie s o n u ncerta in t a x p ositio ns i n t h e p ro vis io n f o r i n co m e t a x es. T he C om pan y r e co rd s n et d efe rre d t a x a sse ts t o t h e e x te n t i t b elie v es t h at i t i s m ore l ik ely t h an n ot t h at t h ese a sse ts w ill b e r e aliz ed . I n m ak in g s u ch d ete rm in atio n, t h e C om pan y c o nsid ers a ll a v aila b le e v id en ce, i n clu din g s c h ed ule d r e v ers a ls o f d efe rre d t a x l ia b ilitie s, p ro je cte d f u tu re t a x ab le i n co m e, t a x p la n nin g s tra te g ie s a n d r e cen t a n d e x pecte d f u tu re r e su lts o f o pera tio n. T he C om pan y r e d uces d efe rre d t a x a sse ts b y a v alu atio n a llo w an ce i f, b ase d u pon t h e w eig ht o f a v aila b le e v id en ce, i t i s m ore l ik ely t h an n ot t h at s o m e a m ount o f d efe rre d t a x a sse ts i s n ot e x pecte d t o b e r e aliz ed . D efe rre d t a x es a re n ot p ro vid ed o n t h e u ndis trib ute d e arn in gs o f s u bsid ia rie s a s s u ch a m ounts a re c o nsid ere d t o b e p erm an en tly i n veste d . 68 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) The C om pan y r e co gniz es t h e i m pact o f t a x p ositio ns i n t h e f in an cia l s ta te m en ts i f t h ose p ositio ns w ill m ore l ik ely t h an n ot b e s u sta in ed o n a u dit, b ase d o n t h e t e ch nic al m erits o f t h e p ositio n. A lth ough t h e C om pan y b elie v es t h at t h e e stim ate s a n d a ssu m ptio ns u se d a re r e aso nab le a n d l e g ally s u pporta b le , t h e f in al d ete rm in atio n o f t a x a u dits c o uld b e d iffe re n t t h an t h at w hic h i s r e fle cte d i n h is to ric al t a x p ro vis io ns a n d r e co rd ed a sse ts a n d l ia b ilitie s. T ax a u th oritie s p erio dic ally a u dit th e C om pan y’s in co m e ta x re tu rn s a n d th e ta x a u th oritie s m ay ta k e a c o ntra ry p ositio n th at c o uld re su lt in a s ig nific an t im pact o n th e C om pan y’s re su lts o f o pera tio ns. S ig nific an t m an ag em en t ju dgm en t is re q uire d in d ete rm in in g th e e ffe ctiv e ta x ra te , in e v alu atin g ta x p ositio ns a n d in d ete rm in in g t h e n et r e aliz ab le v alu e o f d efe rre d t a x a sse ts . See N ote 1 3, ” In co m e T ax es” a n d ” R ecen tly A dopte d A cco untin g P ro nouncem en ts ” h ere in f o r f u rth er d is c u ssio n o n t h e C om pan y’s i n co m e t a x es. D eriv ativ e I n str u m en ts The m ajo rity o f th e C om pan y’s p urc h ase s a n d s a le s in volv in g in te rn atio nal p artie s, e x clu din g in te rn atio nal c o nsu m er s a le s, a re d en om in ate d in U .S . d olla rs , w hic h l im its t h e C om pan y’s e x posu re t o t h e t ra n sa ctio nal e ffe cts o f f o re ig n c u rre n cy e x ch an ge r a te f lu ctu atio ns. H ow ev er, t h e C om pan y i s e x pose d t o fo re ig n c u rre n cy e x ch an ge ris k re la te d to its fo re ig n o pera tin g su bsid ia rie s’ U .S . d olla r-d en om in ate d in ven to ry p urc h ase s a n d v ario us c ro ss-c u rre n cy i n te rc o m pan y l o an s w hic h a re n ot l o ng t e rm i n i n vestm en t n atu re . T he C om pan y u se s d eriv ativ e f in an cia l i n stru m en ts t o m an ag e t h ese r is k s. T hese d eriv ativ e t ra n sa ctio ns a re in a cco rd an ce w ith th e C om pan y’s ris k m an ag em en t p olic ie s. T he C om pan y d oes n ot e n te r in to d eriv ativ e tra n sa ctio ns fo r s p ecu la tiv e o r t ra d in g p urp ose s. The C om pan y r e co rd s a ll d eriv ativ e c o ntra cts a t f a ir v alu e o n t h e c o nso lid ate d b ala n ce s h eet. T he f a ir v alu es o f f o re ig n c u rre n cy d eriv ativ es a re b ase d o n t h e f o rw ard c u rv es o f t h e s p ecific i n dic es u pon w hic h s e ttle m en t i s b ase d a n d i n clu de a n a d ju stm en t f o r t h e C om pan y’s c re d it r is k . J u dgm en t i s r e q uire d o f m an ag em en t i n d ev elo pin g e stim ate s o f f a ir v alu e. T he u se o f d iffe re n t m ark et a ssu m ptio ns o r m eth odolo gie s c o uld a ffe ct t h e e stim ate d f a ir v alu e. For d eriv ativ e in stru m en ts th at q ualify fo r h ed ge a cco untin g, th e e ffe ctiv e p ortio n o f c h an ges in th e fa ir v alu e o f th ese in stru m en ts is e ith er (i) o ffs e t a g ain st t h e c h an ges i n f a ir v alu e o f t h e h ed ged a sse ts o r l ia b ilitie s t h ro ugh e arn in gs o r ( ii) r e co gniz ed a s a c o m ponen t o f a ccu m ula te d o th er c o m pre h en siv e i n co m e ( lo ss) ( ” A OCI” ) u ntil t h e h ed ged i te m i s r e co gniz ed i n e arn in gs, d ep en din g o n w heth er t h e d eriv ativ e i s b ein g u se d t o h ed ge c h an ges i n f a ir v alu e o r c ash f lo w s, r e sp ectiv ely . Each d eriv ativ e in stru m en t e n te re d in to b y th e C om pan y th at q ualifie s fo r h ed ge a cco untin g is e x pecte d to b e h ig hly e ffe ctiv e a t re d ucin g th e ris k a sso cia te d w ith t h e e x posu re b ein g h ed ged . F or e ach d eriv ativ e t h at i s d esig nate d a s a h ed ge, t h e C om pan y d ocu m en ts t h e r e la te d r is k m an ag em en t o bje ctiv e a n d s tra te g y, i n clu din g i d en tific atio n o f t h e h ed gin g i n stru m en t, t h e h ed ged i te m a n d t h e r is k e x posu re , a s w ell a s h ow h ed ge e ffe ctiv en ess w ill b e a sse sse d o ver th e te rm o f th e in stru m en t. T he e x te n t to w hic h a h ed gin g in stru m en t h as b een a n d is e x pecte d to re m ain h ig hly e ffe ctiv e in a ch ie v in g o ffs e ttin g c h an ges i n f a ir v alu e o r c ash f lo w s i s a sse sse d a n d d ocu m en te d b y t h e C om pan y o n a t l e ast a q uarte rly b asis . To th e ex te n t th at a d eriv ativ e d esig nate d as a cash flo w h ed ge is n ot co nsid ere d to b e effe ctiv e, an y ch an ge in its fa ir v alu e re la te d to su ch i n effe ctiv en ess is im med ia te ly re co gniz ed in e arn in gs w ith in fo re ig n c u rre n cy g ain s (lo sse s). If it is d ete rm in ed th at a d eriv ativ e in stru m en t h as n ot b een h ig hly e ffe ctiv e, a n d w ill c o ntin ue n ot t o b e h ig hly e ffe ctiv e i n h ed gin g t h e d esig nate d e x posu re , h ed ge a cco untin g i s d is c o ntin ued a n d f u rth er g ain s ( lo sse s) a re re co gniz ed in e arn in gs w ith in fo re ig n c u rre n cy g ain s (lo sse s). U pon d is c o ntin uan ce o f h ed ge a cco untin g, th e c u m ula tiv e c h an ge in fa ir v alu e o f th e d eriv ativ e p re v io usly re co rd ed in A OCI is re co gniz ed in e arn in gs w hen th e re la te d h ed ged ite m a ffe cts e arn in gs, c o nsis te n t w ith th e o rig in al h ed gin g s tra te g y, u nle ss t h e f o re caste d t ra n sa ctio n i s n o l o nger p ro bab le o f o ccu rrin g, i n w hic h c ase t h e a ccu m ula te d a m ount i s i m med ia te ly r e co gniz ed i n e arn in gs w ith in f o re ig n c u rre n cy g ain s ( lo sse s). 69 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) As a r e su lt o f t h e u se o f d eriv ativ e i n stru m en ts , t h e C om pan y m ay b e e x pose d t o t h e r is k t h at t h e c o unte rp artie s t o s u ch c o nta cts w ill f a il t o m eet t h eir c o ntra ctu al o blig atio ns. T o m itig ate t h is c o unte rp arty c re d it r is k , t h e C om pan y h as a p olic y o f o nly e n te rin g i n to c o ntra cts w ith c are fu lly s e le cte d f in an cia l i n stitu tio ns b ase d u pon a n e v alu atio n o f t h eir c re d it r a tin gs, a m ong o th er f a cto rs . The fa ir v alu es o f th e C om pan y’s d eriv ativ e in stru m en ts a re re co rd ed o n its c o nso lid ate d b ala n ce sh eets o n a g ro ss b asis . F or c ash flo w re p ortin g p urp ose s, t h e C om pan y c la ssifie s p ro ceed s r e ceiv ed o r a m ounts p aid u pon t h e s e ttle m en t o f a d eriv ativ e i n stru m en t i n t h e s a m e m an ner a s t h e r e la te d i te m b ein g h ed ged , p rim arily w ith in c ash f ro m o pera tin g a ctiv itie s. Hed gin g P ortfo lio The C om pan y e n te rs in to d eriv ativ e c o ntra cts p rim arily to re d uce its ris k s re la te d to e x ch an ge ra te flu ctu atio ns o n U .S . d olla r a n d E uro -d en om in ate d i n ven to ry p urc h ase s, a s w ell a s v ario us c ro ss-c u rre n cy i n te rc o m pan y l o an s. T o t h e e x te n t i ts d eriv ativ e c o ntra cts d esig nate d a s c ash f lo w h ed ges a re h ig hly e ffe ctiv e i n o ffs e ttin g c h an ges i n t h e v alu e o f t h e h ed ged i te m s, t h e r e la te d g ain s ( lo sse s) a re i n itia lly d efe rre d i n A OCI a n d s u bse q uen tly r e co gniz ed i n t h e c o nso lid ate d s ta te m en ts o f i n co m e a s f o llo w s: • Forw ard f o re ig n c u rre n cy e xch ange c o ntr a cts a nd z e ro -c o st c o lla rs – T hese d eriv ativ es a re r e co gniz ed a s p art o f t h e c o st o f t h e i n ven to ry p urc h ase s bein g h ed ged w ith in c o st o f s a le s, w hen t h e r e la te d i n ven to ry i s s o ld t o a t h ird p arty . C urre n t m atu rity d ate s r a n ge f ro m J u ly 2 016 t o J u ne 2 017. Forw ard f o re ig n c u rre n cy e x ch an ge c o ntra cts , d esig nate d a s f a ir v alu e h ed ges a n d a sso cia te d w ith i n te rc o m pan y a n d o th er c o ntra ctu al o blig atio ns, a re r e co gniz ed w ith in f o re ig n c u rre n cy g ain s ( lo sse s) g en era lly i n t h e p erio d i n w hic h t h e r e la te d p ay m en ts b ein g h ed ged a re r e v alu ed . C urre n t m atu rity d ate s a re i n A ugust 2 017, a n d a re r e n ew ed m onth ly w hen a p plic ab le . F oreig n C urren cy The fu nctio nal c u rre n cy o f th e C om pan y’s fo re ig n o pera tio ns is g en era lly th e a p plic ab le lo cal c u rre n cy. A sse ts a n d lia b ilitie s a re tra n sla te d in to U .S . d olla rs u sin g t h e c u rre n t e x ch an ge r a te s i n e ffe ct a t t h e b ala n ce s h eet d ate , w hile r e v en ues a n d e x pen se s a re t ra n sla te d a t t h e w eig hte d -a v era g e e x ch an ge r a te s f o r th e p erio d. T he re su ltin g tra n sla tio n a d ju stm en ts a re in clu ded in th e c o nso lid ate d sta te m en ts o f c o m pre h en siv e in co m e a s a c o m ponen t o f o th er c o m pre h en siv e i n co m e ( lo ss) ( “ O CI” ) a n d i n t h e c o nso lid ate d s ta te m en ts o f e q uity w ith in A OCI. G ain s a n d l o sse s o n t h e t ra n sla tio n o f i n te rc o m pan y l o an s m ad e t o f o re ig n s u bsid ia rie s t h at a re o f a l o ng-te rm i n vestm en t n atu re a ls o a re i n clu ded w ith in t h is c o m ponen t o f e q uity . The C om pan y a ls o r e co gniz es g ain s a n d l o sse s o n t ra n sa ctio ns t h at a re d en om in ate d i n a c u rre n cy o th er t h an t h e r e sp ectiv e e n tity ‘s f u nctio nal c u rre n cy i n e arn in gs. F ore ig n c u rre n cy tra n sa ctio n g ain s a n d lo sse s a ls o in clu de a m ounts re aliz ed o n th e se ttle m en t o f c erta in in te rc o m pan y lo an s w ith fo re ig n s u bsid ia rie s. S to ck R ep urch ase a nd R etir em en t The C om pan y a cco unts f o r s to ck r e p urc h ase s a n d r e tire m en ts b y a llo catin g t h e r e p urc h ase p ric e t o c o m mon s to ck a n d r e ta in ed e arn in gs. T he r e p urc h ase p ric e a llo catio n is b ase d u pon th e e q uity c o ntrib utio n a sso cia te d w ith h is to ric al is su an ces, b eg in nin g w ith th e e arlie st is su an ce. U nder M ary la n d la w , th e C om pan y’s sta te o f in co rp ora tio n, tre asu ry sh are s a re n ot a llo w ed . A s a re su lt, a ll re p urc h ase d sh are s a re re tire d w hen a cq uire d . T he C om pan y’s sto ck r e p urc h ase p la n e x pire d a t t h e e n d o f f is c al 2 015. S in ce i ts i n itia l p ublic o ffe rin g, t h e C om pan y h as n ot e x perie n ced a n et l o ss i n a n y f is c al y ear, a n d t h e n et a ccu m ula te d d efic it b ala n ce i n s to ck hold ers ’ e q uity i s a ttrib uta b le t o t h e c u m ula tiv e s to ck r e p urc h ase a ctiv ity . R ecla ssific a tio ns The S tu art W eitz m an b ra n d, w hic h w as r e p orte d w ith in t h e r e su lts o f O th er d urin g f is c al 2 015, i s r e p orte d a s a s ta n dalo ne r e p orta b le s e g m en t i n o ur f is c al 2 016 r e su lts . R ecen t A cco untin g P ro nouncem en ts Recen tly A dopte d A cco untin g P ro nouncem en ts In N ovem ber 2 015, t h e F A SB i s su ed A SU N o. 2 015-1 7, “ Bala nce S heet C la ssific a tio n o f D efe rre d T a xes ” ( ” A SU 2 015-1 7″) a s p art o f i ts s im plific atio n i n itia tiv e. U nder t h e A SU , a ll d efe rre d t a x a sse ts a n d l ia b ilitie s a re r e q uire d t o b e c la ssifie d a s n oncu rre n t i n t h e b ala n ce s h eets . T he C om pan y e le cte d t o e arly a d opt A SU 2 015-1 7 d urin g th e fo urth q uarte r o f fis c al 2 016 o n a p ro sp ectiv e b asis . P rio r p erio ds h av e n ot b een re tro sp ectiv ely a d ju ste d to re fle ct th e a d optio n o f t h is A SU . O th er t h an t h e b ala n ce s h eet r e cla ssific atio n o f c u rre n t d efe rre d t a x a sse ts a n d l ia b ilitie s t o n oncu rre n t, t h is s ta n dard d id n ot h av e a n e ffe ct o n t h e C om pan y’s c o nso lid ate d f in an cia l s ta te m en ts . In S ep te m ber 2 015, th e F in an cia l A cco untin g S ta n dard s B oard (” F A SB “) is su ed A cco untin g S ta n dard s U pdate (” A SU “) N o. 2 015-1 6, ” Sim plify in g th e A cco untin g f o r M ea su re m en t-P erio d A dju stm en ts ,” ( ” A SU N o. 2 015-1 6″) w hic h p erta in s t o t h e 70 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) a cco untin g fo r b usin ess c o m bin atio ns. U nder th e A SU , a n a cq uire r m ust re co gniz e a d ju stm en ts to p ro vis io nal a m ounts th at a re id en tifie d d urin g th e m easu re m en t p erio d in th e re p ortin g p erio d in w hic h th e a d ju stm en t a m ounts a re d ete rm in ed . T he A SU a ls o re q uire s a cq uire rs to p re se n t s e p ara te ly o n th e f a ce o f th e in co m e s ta te m en t, o r d is c lo se in th e n ote s, th e p ortio n o f th e a m ount re co rd ed in c u rre n t p erio d e arn in gs b y lin e ite m th at w ould h av e b een r e co rd ed i n p re v io us r e p ortin g p erio ds i f t h e a d ju stm en t t o t h e p ro vis io nal a m ounts h ad b een r e co gniz ed a s o f t h e a cq uis itio n d ate . T he r e q uire m en ts o f t h e n ew sta n dard a re e ffe ctiv e fo r fis c al y ears b eg in nin g a fte r D ecem ber 1 5, 2 015, in clu din g in te rim p erio ds w ith in th ose fis c al y ears , w ith e arly a d optio n p erm itte d . T he C om pan y e le cte d t o e arly a d opt t h is g uid an ce d urin g t h e t h ird q uarte r o f f is c al 2 016, w ith n o m ate ria l e ffe ct o n t h e C om pan y’s c o nso lid ate d f in an cia l s ta te m en ts o r n ote s t h ere to . R efe r t o N ote 7 , ” A cq uis itio ns,” f o r f u rth er d is c u ssio n. Recen tly I s su ed A cco untin g P ro nouncem en ts N ot Y et A dopte d In M arc h 2 016, t h e F A SB i s su ed A SU N o. 2 016-0 9, ” Im pro vem en ts t o E m plo yee S hare -B ase d P aym en t A cco untin g ( T opic 7 18), ” w hic h s im plifie s s e v era l a sp ects o f th e a cco untin g fo r sh are -b ase d p ay m en t tra n sa ctio ns, in clu din g th e a cco untin g fo r in co m e ta x es, fo rfe itu re s a n d sta tu to ry ta x w ith hold in g r e q uire m en ts , a s w ell a s c la ssific atio n in th e s ta te m en t o f c ash flo w s. M ost n ota b ly , th e C om pan y w ill b e re q uire d to re co gniz e a ll e x cess ta x b en efits a n d s h ortfa lls a s i n co m e t a x e x pen se o r b en efit i n t h e i n co m e s ta te m en t w ith in t h e r e p ortin g p erio d i n w hic h t h ey o ccu r. T he r e q uire m en ts o f t h e n ew s ta n dard w ill b e e ffe ctiv e f o r a n nual r e p ortin g p erio ds b eg in nin g a fte r D ecem ber 1 5, 2 016, i n clu din g i n te rim p erio ds w ith in t h ose a n nual r e p ortin g p erio ds, w hic h f o r t h e C om pan y i s t h e f irs t q uarte r o f f is c al 2 018. E arly a d optio n i s p erm itte d . T he C om pan y i s i n t h e p ro cess o f d ete rm in in g t h e i m pact o f t h e a d optio n o f t h is g uid an ce o n i ts c o nso lid ate d f in an cia l s ta te m en ts o r n ote s t h ere to . In F eb ru ary 2 016, th e F A SB is su ed A SU N o. 2 016-0 2, ” Lea se s (T o pic 8 42), ” w hic h is in te n ded to in cre ase tra n sp are n cy a n d c o m para b ility a m ong c o m pan ie s th at e n te r in to le asin g a rra n gem en ts . This A SU r e q uire s r e co gnitio n o f l e ase a sse ts a n d l e ase l ia b ilitie s o n t h e b ala n ce s h eet f o r n early a ll l e ase s ( o th er t h an s h ort-te rm l e ase s), a s w ell a s a r e tro sp ectiv e r e co gnitio n a n d m easu re m en t o f e x is tin g i m pacte d l e ase s. T he r e q uire m en ts o f t h e n ew s ta n dard w ill b e e ffe ctiv e f o r a n nual r e p ortin g p erio ds b eg in nin g a fte r D ecem ber 1 5, 2 018, a n d i n te rim p erio ds w ith in t h ose a n nual p erio ds, w hic h f o r t h e C om pan y i s t h e f irs t q uarte r o f fis c al 2 020. E arly a d optio n is p erm itte d . T he n ew s ta n dard is re q uire d to b e a p plie d w ith a m odifie d re tro sp ectiv e a p pro ach to e ach p rio r r e p ortin g p erio d w ith v ario us o ptio nal p ra ctic al e x ped ie n ts . T he C om pan y i s i n t h e p ro cess o f d ete rm in in g t h e i m pact o f t h e a d optio n o f t h is g uid an ce o n i ts c o nso lid ate d fin an cia l sta te m en ts o r n ote s th ere to , h ow ev er it d oes a n tic ip ate th at th e n ew g uid an ce w ill h av e a sig nific an t im pact o n its c o nso lid ate d f in an cia l s ta te m en ts g iv en i ts p ortfo lio o f l e ase a rra n gem en ts . T his g uid an ce i s n ot e x pecte d , h ow ev er, t o h av e a m ate ria l i m pact o n t h e C om pan y’s l iq uid ity . In J a n uary 2 016, th e F A SB is su ed A SU N o. 2 016-0 1, ” Reco gnitio n a nd M ea su re m en t o f F in ancia l A sse ts a nd F in ancia l L ia bilitie s. ” U nder th e A SU , e q uity i n vestm en ts n ot a cco unte d f o r u nder t h e e q uity m eth od o f a cco untin g o r c o nso lid atio n a cco untin g m ust b e m easu re d a t f a ir v alu e w ith c h an ges i n f a ir v alu e r e co gniz ed i n n et i n co m e. T he A SU a ls o r e q uire s p ublic e n titie s t o u se t h e e x it p ric e n otio n w hen m easu rin g f a ir v alu e f o r d is c lo su re . F in an cia l a sse ts a n d lia b ilitie s m ust b e p re se n te d se p ara te ly b y m easu re m en t c ate g ory a n d fo rm o n th e b ala n ce sh eet o r w ith in th e n ote s to th e fin an cia l sta te m en ts . A dditio nally , p ublic e n titie s n o l o nger h av e t o d is c lo se t h e m eth ods a n d a ssu m ptio ns u se d t o e stim ate f a ir v alu e f o r a sse ts m easu re d a t a m ortiz ed c o st. T he r e q uire m en ts o f th e n ew s ta n dard w ill b e e ffe ctiv e fo r fis c al y ears b eg in nin g a fte r D ecem ber 1 5, 2 017, in clu din g in te rim p erio ds w ith in th ose fis c al y ears , w hic h fo r th e C om pan y is th e firs t q uarte r o f fis c al 2 019. E arly a d optio n is p erm itte d . T he C om pan y is in th e p ro cess o f d ete rm in in g th e im pact o f th e a d optio n o f t h is g uid an ce o n i ts c o nso lid ate d f in an cia l s ta te m en ts o r n ote s t h ere to . In M ay 2 014, th e FA SB is su ed A SU N o. 2 014-0 9, ” Reven ue fr o m C ontr a cts w ith C usto m ers ,” w hic h p ro vid es a sin gle , co m pre h en siv e re v en ue r e co gnitio n m odel f o r a ll c o ntra cts w ith c u sto m ers , a n d c o nta in s p rin cip le s t o d ete rm in e t h e m easu re m en t o f r e v en ue a n d t im in g o f w hen i t i s r e co gniz ed . T he r e q uire m en ts o f t h e n ew s ta n dard w ill b e e ffe ctiv e f o r a n nual r e p ortin g p erio ds b eg in nin g a fte r D ecem ber 1 5, 2 017, a n d i n te rim p erio ds w ith in t h ose a n nual p erio ds, w hic h f o r t h e C om pan y i s t h e f irs t q uarte r o f f is c al 2 019. E arly a d optio n w ill b e p erm itte d f o r a n nual r e p ortin g p erio ds b eg in nin g a fte r D ecem ber 1 5, 2 016, i n clu din g i n te rim p erio ds w ith in t h ose a n nual p erio ds. T he C om pan y i s i n t h e p ro cess o f d ete rm in in g t h e i m pact o f t h e a d optio n o f t h is g uid an ce o n i ts c o nso lid ate d f in an cia l s ta te m en ts o r n ote s t h ere to . 71 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) 3 . R EST RUCTURIN G A CTIV IT IE S Opera tio nal E ffic ie n cy P la n On A pril 2 6, 2 016, th e C om pan y a n nounced a p la n (th e “ O pera tio nal E ffic ie n cy P la n ”) to e n han ce o rg an iz atio nal e ffic ie n cy, u pdate c o re te ch nolo gy p la tfo rm s, a n d s tre am lin e i ts s u pply c h ain n etw ork . The O pera tio nal E ffic ie n cy P la n w as a d opte d a s a r e su lt o f a s tra te g ic r e v ie w o f t h e C om pan y’s c o rp ora te s tru ctu re w hic h fo cu se d o n c re atin g a n a g ile a n d s c ala b le b usin ess m odel. As a re su lt o f th is O pera tio nal E ffic ie n cy P la n , th e C om pan y e x pects to in cu r o vera ll p re -ta x c h arg es o f a p pro xim ate ly $65 – 80 m illio n w ith in c o rp ora te u nallo cate d e x pen se s, w hic h h av e b een re fle cte d b eg in nin g in th e fis c al 2 016 f o urth q uarte r r e su lts , a n d w ill b e s u bsta n tia lly c o m ple te b y t h e e n d o f f is c al y ear 2 017. Appro xim ate ly $55 – 65 m illio n o f t h ese c h arg es w ill b e c ash . Appro xim ate ly $45 – 55 m illio n o f th ese c h arg es w ill b e re la te d to o rg an iz atio nal e ffic ie n cie s, w hic h w ill c o nsis t p rim arily o f c o rp ora te e m plo yee s e v era n ce a n d re la te d c o sts , a s w ell a s c o nsu ltin g fe es re la te d to p ro cess a n d o rg an iz atio nal o ptim iz atio n a n d a ccele ra te d d ep re cia tio n a sso cia te d w ith th e r e tire m en t o f i n fo rm atio n t e ch nolo gy s y ste m s. A ppro xim ate ly $15 m illio n o f t h ese c h arg es w ill b e r e la te d t o t h e i n itia l c o sts o f r e p la cin g a n d u pdatin g t h e C om pan y’s c o re te ch nolo gy p la tfo rm s, a llo w in g th e C om pan y to s u pport a s c ala b le b usin ess m odel. T he re m ain in g $5 – 10 m illio n o f th ese c h arg es w ill b e r e la te d t o n etw ork o ptim iz atio n, c o nsis tin g o f o ffic e l o catio n a n d s u pply c h ain c o nso lid atio ns. A s u m mary o f c h arg es a n d r e la te d l ia b ilitie s u nder t h e C om pan y’s O pera tio nal E ffic ie n cy P la n a re a s f o llo w s: Org aniz a tio nal Effic ie n cy (1 ) Tech nolo gy In fr a str u ctu re Netw ork O ptim iz a tio n (2 ) Tota l (m illio ns) Fis ca l 2 016 c h arg es $ 40.4 $ — $ 3.5 $ 43.9 Cash p aym en ts (9 .7 ) — — (9 .7 ) Non -c a sh c h arg es (8 .5 ) — (0 .3 ) (8 .8 ) Bala n ce a t J u ly 2 , 2 016 $ 22.2 $ — $ 3.2 $ 25.4 ( 1 ) Org an iz atio nal e ffic ie n cy c h arg es, r e co rd ed w ith in S G & A e x pen se s, p rim arily r e la te d t o s e v era n ce a n d r e la te d c o sts o f c o rp ora te e m plo yees. ( 2 ) Netw ork o ptim iz atio n c o sts , r e co rd ed w ith in S G & A e x pen se s, r e la te d t o l e ase t e rm in atio n c o sts . The b ala n ce a s o f Ju ly 2 , 2 016 i s i n clu ded w ith in A ccru ed l ia b ilitie s o n t h e C om pan y’s C onso lid ate d B ala n ce S heets . T he a b ove c h arg es w ere r e co rd ed a s c o rp ora te u nallo cate d e x pen se s w ith in t h e C om pan y’s C onso lid ate d S ta te m en ts o f I n co m e. Additio nal a ctio ns u nder o ur O pera tio nal E ffic ie n cy P la n w ill c o ntin ue i n to f is c al 2 017, w ith e x pecte d i n cre m en ta l c h arg es o f a ro und $20 m illio n to $35 m illio n ( w hic h w ill p rim arily r e la te t o t h e c o sts o f r e p la cin g a n d u pdatin g t h e C om pan y’s c o re t e ch nolo gy p la tfo rm s, a s w ell a s o ffic e l o catio n a n d s u pply c h ain c o nso lid atio ns). Tra nsfo rm atio n P la n Durin g t h e f o urth q uarte r o f f is c al 2 014, t h e C om pan y a n nounced a m ulti-y ear s tra te g ic p la n t o t ra n sfo rm t h e C oach b ra n d a n d r e in vig ora te g ro w th . T his m ulti-fa cete d , m ulti-y ear t ra n sfo rm atio n p la n ( th e ” T ra n sfo rm atio n P la n “), w hic h c o ntin ued t h ro ugh t h e e n d o f f is c al 2 016, i n clu ded k ey o pera tio nal a n d c o st m easu re s, in clu din g: (i) th e in vestm en t in cap ita l im pro vem en ts in sto re s an d w hole sa le lo catio ns to d riv e co m para b le sa le s im pro vem en t; (ii) th e o ptim iz atio n a n d stre am lin in g o f th e C om pan y’s o rg an iz atio nal m odel a s w ell a s th e c lo su re o f u nderp erfo rm in g sto re s in N orth A m eric a, a n d se le ct I n te rn atio nal s to re s; ( iii) t h e r e alig nm en t o f i n ven to ry l e v els a n d m ix t o r e fle ct t h e C om pan y’s e le v ate d p ro duct s tra te g y a n d c o nsu m er p re fe re n ces; ( iv ) t h e i n vestm en t in in cre m en ta l a d vertis in g c o sts to e le v ate c o nsu m er p erc ep tio n o f th e C oach b ra n d, d riv e s a le s g ro w th a n d p ro m ote th is n ew s tra te g y, w hic h s ta rte d in fis c al 2 015; a n d (v ) th e s ig nific an t s c ale -b ack o f p ro m otio nal c ad en ce in a n in cre ase d g lo bal p ro m otio nal e n viro nm en t, p artic u la rly w ith in th e o utle t I n te rn et s a le s s ite , w hic h b eg an i n f is c al 2 014. Tota l c u m ula tiv e c h arg es i n cu rre d u nder t h e T ra n sfo rm atio n P la n t h ro ugh Ju ly 2 , 2 016 w ere $321.5 m illio n . T he f o urth q uarte r o f f is c al 2 016 w as t h e l a st r e p ortin g p erio d i n w hic h c h arg es w ere i n cu rre d u nder t h is p la n . In fis c al 2016 , th e C om pan y in cu rre d tra n sfo rm atio n-re la te d c h arg es o f $44.1 m illio n ( $33.4 m illio n a fte r-ta x , o r $0.1 2 p er d ilu te d s h are ), w hic h w ere l a rg ely re la te d to th e C om pan y’s N orth A m eric a b usin ess. T he c h arg es re co rd ed in c o st o f s a le s a n d S G & A e x pen se s w ere $0.0 m illio n a n d $44.1 m illio n , r e sp ectiv ely . I n f is c al 2 015, t h e C om pan y r e co rd ed c h arg es o f $145.9 m illio n ( $107.8 m illio n a fte r-ta x , o r $0.3 9 p er d ilu te d s h are ). T he c h arg es re co rd ed in c o st o f s a le s a n d S G & A e x pen se s w ere $5.0 m illio n 72 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) a n d $140.9 m illio n , r e sp ectiv ely , a n d p rim arily r e la te d t o t h e C om pan y’s N orth A m eric a b usin ess. I n t h e f o urth q uarte r o f f is c al 2 014, t h e C om pan y r e co rd ed c h arg es o f $131.5 m illio n ( $88.3 m illio n a fte r-ta x , o r $0.3 1 p er d ilu te d s h are ). T he c h arg es r e co rd ed i n c o st o f s a le s a n d S G & A e x pen se s w ere $82.2 m illio n a n d $49.3 m illio n , r e sp ectiv ely , a n d p rim arily r e la te d t o t h e C om pan y’s N orth A m eric a b usin ess. A s u m mary o f c h arg es a n d r e la te d l ia b ilitie s u nder t h e C om pan y’s T ra n sfo rm atio n P la n a re a s f o llo w s: In ven to ry -R ela te d Charg es (1 ) Im pair m en t (2 ) Sto re-R ela te d Costs (3 ) Org aniz a tio nal Effic ie n cy C osts (4 ) Oth er (5 ) Tota l (m illio ns) Bala n ce a t J u ne 2 9, 2 013 $ — $ — $ — $ — $ — $ — Fis cal 2 014 c h arg es 82.2 35.5 12.2 1.0 0.6 131.5 Cash p ay m en ts — — — — — — Non-c ash c h arg es (6 6.8 ) (3 5.5 ) (6 .7 ) — — (1 09.0 ) Bala n ce a t J u ne 2 8, 2 014 $ 15.4 $ — $ 5.5 $ 1.0 $ 0.6 $ 22.5 Fis cal 2 015 c h arg es $ 3.0 $ — $ 80.4 $ 47.3 $ 15.2 $ 145.9 Cash p ay m en ts (1 5.4 ) — (3 4.6 ) (3 0.8 ) (1 0.1 ) (9 0.9 ) Non-c ash c h arg es (3 .0 ) — (4 8.8 ) (5 .5 ) (2 .4 ) (5 9.7 ) Bala n ce a t J u ne 2 7, 2 015 $ — $ — $ 2.5 $ 12.0 $ 3.3 $ 17.8 Fis ca l 2 016 c h arg es $ — $ — $ 16.6 $ 27.5 $ — $ 44.1 Cash p aym en ts — — (1 0.2 ) (3 4.0 ) (3 .3 ) (4 7.5 ) Non -c a sh c h arg es — — (8 .9 ) — — (8 .9 ) Bala n ce a t J u ly 2 , 2 016 $ — $ — $ — $ 5.5 $ — $ 5.5 ( 1 ) In ven to ry -re la te d c h arg es, r e co rd ed w ith in c o st o f s a le s, p rim arily r e la te d t o r e se rv es f o r t h e d onatio n a n d d estru ctio n o f c erta in o n-h an d i n ven to ry a n d fu tu re n on-c an cela b le i n ven to ry p urc h ase c o m mitm en ts . A s o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , a r e se rv e o f $10.3 m illio n a n d $11.1 m illio n is in clu ded with in I n ven to rie s o n t h e C om pan y’s C onso lid ate d B ala n ce S heets . ( 2 ) Im pairm en t c h arg es, r e co rd ed w ith in S G & A e x pen se s, w ere b ase d o n d is c o unte d e x pecte d c ash f lo w s o f c erta in i m pacte d r e ta il s to re s, a n d r e su lte d i n t h e re d uctio n o f t h e n et c arry in g v alu e o f s to re -re la te d l o ng-liv ed a sse ts t o t h eir e stim ate d f a ir v alu e. ( 3 ) Sto re -re la te d c o sts , re co rd ed w ith in S G & A e x pen se s, re la te to s to re c lo su re c o sts w hic h in clu de a ccele ra te d d ep re cia tio n c h arg es a sso cia te d w ith s to re asse ts th at th e C om pan y w ill n o lo nger b en efit fro m a s a re su lt o f th e T ra n sfo rm atio n P la n , a s w ell a s le ase te rm in atio n a n d s to re e m plo yee s e v era n ce co sts . ( 4 ) Org an iz atio nal e ffic ie n cy c h arg es, r e co rd ed w ith in S G & A e x pen se s, p rim arily r e la te t o t h e s e v era n ce a n d r e la te d c o sts o f c o rp ora te e m plo yees. ( 5 ) Oth er c h arg es c o m pris e o f c o nsu ltin g c o sts a n d t h e w rite -d ow n o f c erta in a sse ts t h at w ill n ot b e p la ced i n to s e rv ic e b y t h e C om pan y, w hic h a re r e co rd ed with in S G & A e x pen se s, a n d c erta in f re ig ht a n d h an dlin g c o sts i n cu rre d r e la te d t o t h e d estru ctio n o f i n ven to ry w hic h a re r e co rd ed w ith in c o st o f s a le s. The r e m ain in g b ala n ce a s o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 i s i n clu ded w ith in A ccru ed l ia b ilitie s o n t h e C om pan y’s C onso lid ate d B ala n ce S heets . T he a b ove ch arg es w ere re co rd ed as co rp ora te u nallo cate d ex pen se s w ith in th e C om pan y’s C onso lid ate d S ta te m en ts o f In co m e. S ee N ote 1 5, “S eg m en t I n fo rm atio n,” f o r f u rth er i n fo rm atio n. 73 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) Sale o f R eed K ra koff B usin ess In t h e f irs t q uarte r o f f is c al 2 014, t h e C om pan y s o ld t h e R eed K ra k off b usin ess, i n volv in g t h e s a le o f t h e e q uity i n te re sts o f R eed K ra k off L LC a n d c erta in a sse ts , i n clu din g t h e R eed K ra k off b ra n d n am e a n d r e la te d i n te lle ctu al p ro perty r ig hts , t o R eed K ra k off I n te rn atio nal L LC ( ” B uyer” ). T he s a le w as p urs u an t t o t h e A sse t P urc h ase a n d S ale A gre em en t d ate d J u ly 2 9, 2 013 ( th e ” R eed K ra k off P urc h ase A gre em en t” ) w ith B uyer a n d R eed K ra k off, t h e C om pan y’s f o rm er P re sid en t a n d E xecu tiv e C re ativ e D ire cto r, a n d r e su lte d i n t h e C om pan y r e co rd in g a c o st m eth od i n vestm en t o f $3.3 m illio n , w hic h w as in clu ded in L ong- t e rm in vestm en ts in th e c o nso lid ate d b ala n ce sh eet in th e p rio r p erio d. D urin g th e th ird q uarte r o f fis c al 2 015, th e C om pan y w ro te -o ff its c o st m eth od i n vestm en t, w ith t h e c h arg e r e co rd ed w ith in S G & A e x pen se s. In c o nnectio n w ith t h e R eed K ra k off P urc h ase A gre em en t, M r. K ra k off ’s r e sig natio n f ro m t h e C om pan y a n d t h e c lo sin g o f t h e s a le , M r. K ra k off w aiv ed h is rig ht to re ceiv e c o m pen sa tio n, s a la ry , b onuse s, e q uity v estin g a n d c erta in o th er b en efits . T he C om pan y re co rd ed a lo ss o f $2.7 m illio n d urin g th e firs t q uarte r o f f is c al 2 014 r e la te d t o t h e s a le , w hic h i s r e co rd ed i n S G & A e x pen se s o n t h e c o nso lid ate d s ta te m en ts o f i n co m e. 4 . A CCUM ULATED O TH ER C O M PR EH ENSIV E I N CO M E The c o m ponen ts o f a ccu m ula te d o th er c o m pre h en siv e ( lo ss) i n co m e, a s o f t h e d ate s i n dic ate d , a re a s f o llo w s: Unrea liz ed G ain s (L osses) o n C ash Flo w H ed ges (1 ) Unrea liz ed L osses on A vaila b le -fo r- Sale D eb t Secu rit ie s Cum ula tiv e Tra n sla tio n Adju stm en t Oth er (2 ) Tota l (m illio ns) B ala n ces a t J u ne 2 8, 2 014 $ 0.6 $ 1.8 $ (9 .2 ) $ (1 .9 ) $ (8 .7 ) O th er c o m pre h en siv e in co m e ( lo ss) b efo re r e cla ssif ic atio ns 11.9 (1 .3 ) (7 2.5 ) — (6 1.9 ) L ess: g ain s ( lo sses) r e cla ssif ie d f ro m a ccu m ula te d o th er co m pre h en siv e in co m e 8.1 — — (1 .0 ) 7.1 N et c u rre n t- p erio d o th er c o m pre h en siv e in co m e ( lo ss) 3.8 (1 .3 ) (7 2.5 ) 1.0 (6 9.0 ) B ala n ces a t J u ne 2 7, 2 015 $ 4.4 $ 0.5 $ (8 1.7 ) $ (0 .9 ) $ (7 7.7 ) O th er c o m preh en siv e ( lo ss) in co m e b efo re r ecla ssif ic a tio n s (1 0.2 ) (0 .4 ) 18.8 — 8.2 L ess: g ain s ( lo sses) r ecla ssif ie d f r o m a ccu m ula te d o th er co m preh en siv e in co m e 3.0 (0 .2 ) — 0.6 3.4 N et c u rren t-p erio d o th er c o m preh en siv e ( lo ss) in co m e (1 3.2 ) (0 .2 ) 18.8 (0 .6 ) 4.8 B ala n ces a t J u ly 2 , 2 016 $ (8 .8 ) $ 0.3 $ (6 2.9 ) $ (1 .5 ) $ (7 2.9 ) ( 1 ) The e n din g b ala n ces o f A OCI re la te d to c ash flo w h ed ges a re n et o f ta x o f $4.5 m illio n an d $(2 .6 ) m illio n as o f Ju ly 2 , 2 016 an d Ju ne 2 7, 2 015 , re sp ectiv ely . T he a m ounts r e cla ssifie d f ro m A OCI a re n et o f t a x o f $(1 .4 ) m illio n a n d $(4 .0 ) m illio n a s o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , r e sp ectiv ely . ( 2 ) As o f Ju ly 2 , 2 016 an d Ju ne 2 7, 2 015 , O th er r e p re se n ts t h e a ccu m ula te d l o ss o n t h e C om pan y’s m in im um p en sio n l ia b ility a d ju stm en t. T he b ala n ces a t Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 a re n et o f t a x o f $0.8 m illio n a n d $0.5 m illio n , r e sp ectiv ely . 5 . S H ARE-B ASE D C O M PE NSA TIO N The C om pan y m ain ta in s se v era l sh are -b ase d co m pen sa tio n pla n s w hic h are m ore fu lly desc rib ed belo w . T he fo llo w in g ta b le sh ow s th e to ta l c o m pen sa tio n c o st c h arg ed a g ain st i n co m e f o r t h ese p la n s a n d t h e r e la te d t a x b en efits r e co gniz ed i n t h e C onso lid ate d S ta te m en ts o f I n co m e: July 2 , 2016 (1 ) Ju ne 2 7, 2 015 (1 ) Ju ne 2 8, 2 014 (2 ) (m illio ns) S hare -b ase d c o m pen sa tio n e x pen se $ 95.3 $ 94.4 $ 104.9 I n co m e t a x b en efit r e la te d t o s h are -b ase d c o m pen sa tio n e x pen se 28.6 28.5 33.1 ( 1 ) Durin g th e fis c al y ears e n ded Ju ly 2 , 2 016 a n d J u ne 2 7, 2 015, th e C om pan y in cu rre d $8.5 m illio n (o r $2.4 m illio n o f in co m e ta x b en efit) a n d $5.5 millio n (o r $2.0 m illio n o f in co m e ta x b en efit) o f s h are -b ase d c o m pen sa tio n e x pen se re la te d to o rg an iz atio nal e ffic ie n cy c o sts u nder th e C om pan y’s Opera tio nal E ffic ie n cy P la n a n d T ra n sfo rm atio n P la n , re sp ectiv ely , p rim arily a s a re su lt o f th e a ccele ra te d v estin g o f c erta in a w ard s. See N ote 3 , “R estru ctu rin g A ctiv itie s,” f o r m ore i n fo rm atio n. 74 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) ( 2 ) Appro xim ate ly $9.8 m illio n o f s h are b ase d c o m pen sa tio n e x pen se a n d $3.8 m illio n o f r e la te d i n co m e t a x b en efit a re r e la te d t o t h e s a le o f t h e R eed K ra k off busin ess a n d r e stru ctu rin g a n d t ra n sfo rm atio n r e co gniz ed b y t h e C om pan y i n t h e f irs t q uarte r o f f is c al 2 014. S ee N ote 3 , ” R estru ctu rin g A ctiv itie s,” f o r more i n fo rm atio n. S to ck -B ase d P la ns The C om pan y m ain ta in s t h e A m en ded a n d R esta te d 2 010 S to ck I n cen tiv e P la n t o a w ard s to ck o ptio ns a n d s h are s t o c erta in m em bers o f m an ag em en t a n d t h e o uts id e m em bers o f its B oard o f D ire cto rs (“ B oard ”). T he C om pan y m ain ta in s th e 2 000 S to ck In cen tiv e P la n a n d th e 2 004 S to ck In cen tiv e P la n fo r a w ard s g ra n te d p rio r t o t h e e sta b lis h m en t o f t h e 2 010 S to ck I n cen tiv e P la n . T hese p la n s w ere a p pro ved b y t h e C om pan y’s s to ck hold ers . T he e x erc is e p ric e o f e ach s to ck o ptio n e q uals 100% o f t h e m ark et p ric e o f t h e C om pan y’s s to ck o n t h e d ate o f g ra n t a n d g en era lly h as a m ax im um t e rm o f 10 y ears . S to ck o ptio ns a n d s e rv ic e b ase d s h are a w ard s th at a re g ra n te d a s p art o f th e a n nual c o m pen sa tio n p ro cess g en era lly v est ra ta b ly o ver th re e y ears . S to ck o ptio n a n d s h are a w ard s a re s u bje ct to fo rfe itu re u ntil c o m ple tio n o f th e v estin g p erio d, w hic h ra n ges fro m one to th re e y ears . T he C om pan y is su es n ew s h are s u pon th e e x erc is e o f s to ck o ptio ns o r v estin g o f s h are a w ard s. Sto ck O ptio ns A s u m mary o f s to ck o ptio n a ctiv ity d urin g t h e y ear e n ded Ju ly 2 , 2 016 i s a s f o llo w s: Num ber o f Optio ns O uts ta ndin g Weig hte d – Avera ge Exercis e Pric e p er O ptio n Weig hte d – Avera ge Rem ain in g Contr a ctu al Term (in y ea rs) Aggreg ate In tr in sic Valu e (m illio ns) O uts ta ndin g a t J une 2 7, 2 015 13.5 $ 42.8 1 Gra n te d 4.4 31.5 6 Exerc is e d (0 .8 ) 38.6 4 Forfe ite d o r e x pire d (2 .0 ) 39.6 0 O uts ta ndin g a t J uly 2 , 2 016 15.1 40.1 8 6.6 $ 54.5 V este d a nd e x pecte d t o v est a t J uly 2 , 2 016 14.2 41.8 8 6.2 51.9 E xercis a ble a t J uly 2 , 2 016 8.2 45.3 4 5.1 54.6 The f a ir v alu e o f e ach o ptio n g ra n t i s e stim ate d o n t h e d ate o f g ra n t u sin g t h e B la ck -S ch ole s o ptio n p ric in g m odel a n d t h e f o llo w in g w eig hte d -a v era g e a ssu m ptio ns: July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 E xpecte d t e rm ( y ears ) 4.2 3.6 3.1 E xpecte d v ola tility 32.2 % 31.9 % 32.5 % R is k -fre e i n te re st r a te 1.4 % 1.1 % 0.8 % D iv id en d y ie ld 4.3 % 3.7 % 2.6 % The e x pecte d t e rm o f o ptio ns r e p re se n ts t h e p erio d o f t im e t h at t h e o ptio ns g ra n te d a re e x pecte d t o b e o uts ta n din g a n d i s b ase d o n h is to ric al e x perie n ce. E xpecte d v ola tility i s b ase d o n h is to ric al v ola tility o f t h e C om pan y’s s to ck a s w ell a s t h e i m plie d v ola tility f ro m p ublic ly t ra d ed o ptio ns o n t h e C om pan y’s s to ck . T he r is k f re e i n te re st r a te i s b ase d o n t h e z ero -c o upon U .S . T re asu ry i s su e a s o f t h e d ate o f t h e g ra n t. D iv id en d y ie ld i s b ase d o n t h e c u rre n t e x pecte d a n nual d iv id en d p er s h are a n d t h e C om pan y’s s to ck p ric e. The w eig hte d -a v era g e g ra n t-d ate f a ir v alu e o f o ptio ns g ra n te d d urin g f is c al 2016 , f is c al 2015 a n d f is c al 2014 w as $5.6 5 , $6.4 1 , a n d $9.7 9 , re sp ectiv ely . T he t o ta l i n trin sic v alu e o f o ptio ns e x erc is e d d urin g f is c al 2016 , f is c al 2015 a n d f is c al 2014 w as $6.2 m illio n , $12.1 m illio n , a n d $28.0 m illio n , re sp ectiv ely . T he t o ta l c ash r e ceiv ed f ro m o ptio n e x erc is e s w as $25.7 m illio n , $32.4 m illio n , a n d $44.5 m illio n in fis c al 2016 , fis c al 2015 a n d fis c al 2014 , re sp ectiv ely , a n d t h e c ash t a x b en efit r e aliz ed f o r t h e t a x d ed uctio ns f ro m t h ese o ptio n e x erc is e s w as $2.3 m illio n , $4.7 m illio n , a n d $10.4 m illio n , r e sp ectiv ely . 75 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) At Ju ly 2 , 2 016 , $19.4 m illio n o f to ta l u nre co gniz ed c o m pen sa tio n c o st re la te d to n on-v este d s to ck o ptio n a w ard s is e x pecte d to b e re co gniz ed o ver a w eig hte d -a v era g e p erio d o f 1.0 y ear . Serv ic e-b ase d R estr ic te d S to ck U nit A ward s ( “ R SU s” ) A s u m mary o f s e rv ic e-b ase d R SU a ctiv ity d urin g t h e y ear e n ded Ju ly 2 , 2 016 i s a s f o llo w s: Num ber o f Non-v este d RSU s Weig hte d – Avera ge G ra nt- D ate Fair V alu e p er R SU (m illio ns) N on-v este d a t J une 2 7, 2 015 3.3 $ 52.3 9 Gra n te d 2.3 31.6 5 Veste d (1 .4 ) 32.5 3 Forfe ite d (0 .5 ) 37.5 8 N on-v este d a t J uly 2 , 2 016 3.7 49.0 6 At Ju ly 2 , 2 016 , $49.9 m illio n o f t o ta l u nre co gniz ed c o m pen sa tio n c o st r e la te d t o n on-v este d s h are a w ard s i s e x pecte d t o b e r e co gniz ed o ver a w eig hte d – a v era g e p erio d o f 1.0 y ear . The w eig hte d -a v era g e g ra n t-d ate fa ir v alu e o f s h are a w ard s g ra n te d d urin g fis c al 2016 , fis c al 2015 a n d fis c al 2014 w as $31.6 5 , $36.3 8 an d $52.9 3 , r e sp ectiv ely . T he to ta l fa ir v alu e o f sh are s v este d d urin g fis c al 2016 , fis c al 2015 an d fis c al 2014 w as $45.8 m illio n , $48.4 m illio n an d $78.7 m illio n , r e sp ectiv ely . Perfo rm ance-b ase d R estr ic te d S to ck U nit A ward s ( “ P R SU ”) The C om pan y g ra n ts p erfo rm an ce-b ase d s h are a w ard s t o k ey e x ecu tiv es, t h e v estin g o f w hic h i s s u bje ct t o t h e e x ecu tiv e’s c o ntin uin g e m plo ym en t a n d t h e C om pan y’s a ch ie v em en t o f c erta in p erfo rm an ce g oals . A s u m mary o f p erfo rm an ce-b ase d s h are a w ard a ctiv ity d urin g th e y ear e n ded Ju ly 2 , 2 016 is a s f o llo w s: Num ber o f Non-v este d PR SU s Weig hte d – Avera ge G ra nt- D ate Fair V alu e p er P R SU (m illio ns) N on-v este d a t J une 2 7, 2 015 1.1 $ 41.7 6 Gra n te d 0.4 31.6 7 Chan ge d ue t o p erfo rm an ce c o nditio n a ch ie v em en t (1 ) — 55.0 7 Veste d (1 ) — 30.9 3 Forfe ite d (0 .1 ) 45.3 9 N on-v este d a t J uly 2 , 2 016 1.4 38.6 7 ( 1 ) D urin g f is c al 2 016, t h ere w as l e ss t h an 0.1 m illio n s h are s o f P R SU a ctiv ity d ue t o c h an ges i n p erfo rm an ce c o nditio ns a n d s h are s v este d , i n div id ually a n d i n t h e a g gre g ate . At Ju ly 2 , 2 016 , $11.5 m illio n o f t o ta l u nre co gniz ed c o m pen sa tio n c o st r e la te d t o n on-v este d s h are a w ard s i s e x pecte d t o b e r e co gniz ed o ver a w eig hte d – a v era g e p erio d o f 1.0 y ear . The w eig hte d -a v era g e g ra n t-d ate fa ir v alu e o f s h are a w ard s g ra n te d d urin g fis c al 2016 , fis c al 2015 a n d fis c al 2014 w as $31.6 7 , $36.4 3 an d $32.5 3 , r e sp ectiv ely . T he to ta l fa ir v alu e o f a w ard s th at v este d d urin g fis c al 2 016, fis c al 2 015 a n d fis c al 2 014 w as $1.4 m illio n , $2.5 m illio n an d $23.8 m illio n , r e sp ectiv ely . Durin g t h e f is c al y ears e n ded J u ly 2 , 2 016 a n d J u ne 2 7, 2 015, t h e C om pan y g ra n te d 0.4 m illio n s h are s ( w ith a f a ir v alu e o f $11.6 m illio n ) a n d 0.4 m illio n s h are s ( w ith a f a ir v alu e o f $12.6 m illio n ) o f c o m mon s to ck t o e x ecu tiv es, r e sp ectiv ely . T he s h are s o f c o m mon s to ck u nder t h ese P R SU a w ard s w ill b e e arn ed a n d d is trib ute d b ase d o n c erta in C om pan y-s p ecific p ro ductiv ity , s tra te g ic 76 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) a n d sa le s m etric s. F urth er, th e sh are s are su bje ct to a th re e -y ear cliff v estin g, su bje ct to th e em plo yee’s co ntin uin g em plo ym en t an d th e C om pan y’s a ch ie v em en t o f t h e a fo re m en tio ned p erfo rm an ce g oals e sta b lis h ed a t t h e b eg in nin g o f t h e p erfo rm an ce p erio d. T he f a ir v alu e o f t h e P R SU ‘s i s b ase d o n t h e f a ir v alu e o f t h e C om pan y’s c o m mon s to ck o n t h e d ate o f g ra n t. I n clu ded i n t h e n on-v este d a m ount a t J u ly 2 , 2 016 a re a p pro xim ate ly 0.7 m illio n o f P R SU a w ard s t h at a re b ase d o n t h e a fo re m en tio ned p erfo rm an ce c rite ria . Durin g f is c al 2 014, t h e C om pan y g ra n te d 0.2 m illio n s h are s o f c o m mon s to ck w ith a f a ir v alu e o f $6.8 m illio n t o s e le cte d e x ecu tiv es a s r e te n tio n P R SU a w ard s w ith a m ax im um p ote n tia l n um ber o f s h are s is su ed a n d fa ir v alu e (e x clu din g d iv id en ds) o f 0.3 m illio n sh are s a n d $9.1 m illio n , re sp ectiv ely . T he s h are s o f c o m mon sto ck u nder th ese P R SU a w ard s w ill b e e arn ed a n d d is trib ute d b ase d o n p erfo rm an ce c rite ria w hic h c o m pare s th e C om pan y’s to ta l s to ck hold er r e tu rn o ver t h e p erfo rm an ce p erio d t o t h e t o ta l s to ck hold er r e tu rn o f t h e c o m pan ie s i n clu ded i n t h e S ta n dard & P oor’s 5 00 I n dex o n t h e d ate o f g ra n t (e x clu din g th e C om pan y). T he g ra n t d ate fa ir v alu e o f th e P R SU a w ard s w as d ete rm in ed u tiliz in g a M onte C arlo sim ula tio n a n d th e fo llo w in g a ssu m ptio ns: e x pecte d v ola tility o f 32.6 1% , r is k -fre e i n te re st r a te o f 0.6 3% , a n d d iv id en d y ie ld o f 0.0 0% . I n clu ded i n t h e n on-v este d a m ount a t J u ly 2 , 2 016 a re a p pro xim ate ly 0.7 m illio n o f P R SU a w ard s t h at a re b ase d o n t h e a fo re m en tio ned p erfo rm an ce c rite ria . In f is c al 2016 , f is c al 2015 a n d f is c al 2014 , t h e c ash t a x b en efit r e aliz ed f o r t h e t a x d ed uctio ns f ro m a ll R SU s ( s e rv ic e a n d p erfo rm an ce-b ase d ) w as $14.2 m illio n , $15.7 m illio n a n d $33.5 m illio n , r e sp ectiv ely . E m plo yee S to ck P urch ase P la n Under t h e 2 001 E m plo yee S to ck P urc h ase P la n , f u ll-tim e e m plo yees a re p erm itte d t o p urc h ase a l im ite d n um ber o f C om pan y c o m mon s h are s a t 85% o f m ark et v alu e. U nder th is p la n , th e C om pan y s o ld 0.1 m illio n , 0.1 m illio n , a n d 0.1 m illio n s h are s to e m plo yees in fis c al 2016 , fis c al 2015 a n d fis c al 2014 , r e sp ectiv ely . C om pen sa tio n e x pen se is c alc u la te d fo r th e fa ir v alu e o f e m plo yees’ p urc h ase rig hts u sin g th e B la ck -S ch ole s m odel a n d th e fo llo w in g w eig hte d -a v era g e a ssu m ptio ns: Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 E xpecte d t e rm ( y ears ) 0.5 0.5 0.5 E xpecte d v ola tility 28.6 % 26.4 % 29.5 % R is k -fre e i n te re st r a te 0.3 % 0.1 % 0.1 % D iv id en d y ie ld 4.1 % 3.5 % 2.2 % The w eig hte d -a v era g e fa ir v alu e o f th e p urc h ase rig hts g ra n te d d urin g fis c al 2016 , fis c al 2015 an d fis c al 2014 was $7.4 3 , $8.4 1 , an d $13.3 0 , r e sp ectiv ely . T he C om pan y i s su es n ew s h are s f o r e m plo yee s to ck p urc h ase s. 6 . I N VEST M ENTS The f o llo w in g t a b le s u m mariz es t h e C om pan y’s U .S . d olla r-d en om in ate d i n vestm en ts , r e co rd ed w ith in t h e c o nso lid ate d b ala n ce s h eets a s o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 : July 2 , 2 016 Ju ne 2 7, 2 015 Short-te rm Long-T erm Tota l Short-te rm Long-te rm Tota l (m illio ns) A vaila ble -fo r-s a le i n vestm en ts : Com merc ia l p ap er (1 ) $ 54.8 $ — $ 54.8 $ — $ — $ — Govern m en t s e cu ritie s – U .S . (2 ) 131.7 — 131.7 42.8 9.3 52.1 Corp ora te d eb t s e cu ritie s – U .S . (2 ) 161.4 64.2 225.6 110.0 42.6 152.6 Corp ora te d eb t s e cu ritie s – n on-U .S . (2 ) 111.5 33.9 145.4 74.6 33.9 108.5 A vaila ble -fo r-s a le i n vestm en ts , t o ta l $ 459.4 $ 98.1 $ 557.5 $ 227.4 $ 85.8 $ 313.2 H eld t o m atu rity : Corp ora te d eb t s e cu ritie s – U .S . (3 ) $ — $ — $ — $ 6.6 $ — $ 6.6 O th er: Tim e d ep osits (1 ) 0.6 — 0.6 — — — Oth er (4 ) 0.4 460.5 460.9 — 320.2 320.2 T ota l I n vestm en ts $ 460.4 $ 558.6 $ 1,0 19.0 $ 234.0 $ 406.0 $ 640.0 ( 1 ) These s e cu ritie s h av e o rig in al m atu ritie s g re ate r t h an t h re e m onth s a n d a re r e co rd ed a t f a ir v alu e. ( 2 ) The s e cu ritie s a s o f Ju ly 2 , 2 016 h av e m atu rity d ate s b etw een c ale n dar y ears 2016 a n d 2018 a n d a re r e co rd ed a t f a ir v alu e. ( 3 ) These s e cu ritie s w ere r e co rd ed a t a m ortiz ed c o st w hic h a p pro xim ate d f a ir v alu e u tiliz in g L ev el 2 i n fo rm atio n. ( 4 ) Long-T erm O th er r e la te s t o t h e e q uity m eth od i n vestm en t i n H udso n Y ard s, r e la te d t o a n e q uity i n te re st i n a n e n tity f o rm ed d urin g f is c al 2 013 f o r t h e purp ose o f d ev elo pin g a n ew o ffic e to w er in M an hatta n (th e “ H udso n Y ard s jo in t v en tu re ”), w ith th e C om pan y o w nin g le ss th an 43% o f th e jo in t ven tu re . R efe r t o N ote 1 1, ” C om mitm en ts a n d C ontin gen cie s,” a n d N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. There w ere no m ate ria l g ro ss u nre aliz ed g ain s o r l o sse s o n a v aila b le -fo r-s a le s e cu ritie s a s o f t h e p erio ds e n ded Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 . 77 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) 7 . A CQ UIS IT IO NS F is c al 2 016 A cq uis itio n On M ay 1 , 2 016, t h e C om pan y a cq uire d a ll o f t h e o uts ta n din g e q uity i n te re sts o f F ra n co N iro H old in gs I n c./ L es P la cem en ts F ra n co N iro I n c., t h e S tu art W eitz m an C an ad ia n re ta il d is trib uto r (” S tu art W eitz m an C an ad a”), c o nsis tin g o f 14 re ta il sto re s an d one e -c o m merc e w eb site . T he re su lts o f th e S tu art W eitz m an C an ad a o pera tio ns h av e b een i n clu ded i n t h e c o nso lid ate d f in an cia l s ta te m en ts s in ce t h e d ate o f a cq uis itio n w ith in t h e S tu art W eitz m an s e g m en t. T he a g gre g ate c ash p aid i n c o nnectio n w ith t h e a cq uis itio n o f S tu art W eitz m an C an ad a w as $25.6 m illio n , n et o f a 10% p urc h ase p ric e h old -b ack a m ount t o b e p aid 18 m onth s f o llo w in g t h e c lo sin g d ate i f a ll c o nditio ns a re s a tis fie d . The p urc h ase p ric e a llo catio ns f o r t h ese a sse ts a n d l ia b ilitie s a re s u bsta n tia lly c o m ple te , h ow ev er m ay b e s u bje ct t o c h an ge a s a d ditio nal i n fo rm atio n i s o bta in ed d urin g t h e m easu re m en t p erio d. T he f o llo w in g t a b le s u m mariz es t h e f a ir v alu e o f t h e a sse ts a cq uire d a n d l ia b ilitie s a ssu m ed a s o f t h e a cq uis itio n d ate : A sse ts A cq uir ed a nd L ia bilitie s A ssu m ed Fair V alu e (m illio ns) In ven to rie s a n d o th er c u rre n t a sse ts (1 ) $ 5.3 P ro perty a n d e q uip m en t, n et 3.2 G oodw ill (2 ) 24.6 T ota l a sse ts a cq uire d 33.1 A cco unts P ay ab le a n d a ccru ed l ia b ilitie s 4.8 O th er l ia b ilitie s (3 ) 2.7 T ota l l ia b ilitie s a ssu m ed 7.5 T ota l c ash p aid $ 25.6 ( 1 ) The b ala n ce p rim arily c o nsis ts o f i n ven to rie s o f $5.0 m illio n , i n clu din g a s te p -u p a d ju stm en t o f a p pro xim ate ly $0.9 m illio n , w hic h i s b ein g a m ortiz ed o ver 6 m onth s. ( 2 ) The e n tire b ala n ce o f a cq uire d g oodw ill i s n ot t a x d ed uctib le . ( 3 ) In clu ded w ith in O th er l ia b ilitie s i s a $2.6 m illio n l ia b ility a ttrib uta b le t o t h e 10% p urc h ase p ric e h old -b ack a m ount. There w ere no m ate ria l p re -ta x a cq uis itio n c o sts d ire ctly a sso cia te d w ith t h e a cq uis itio n o f S tu art W eitz m an C an ad a. F is c al 2 015 A cq uis itio n On M ay 4 , 2 015, th e C om pan y a cq uire d a ll o f th e o uts ta n din g e q uity in te re sts o f S tu art W eitz m an T opco L LC (“ T opco ”) a n d S tu art W eitz m an I n te rm ed ia te L LC ( “ S tu art W eitz m an ”), a w holly o w ned s u bsid ia ry o f T opco , w hic h t h e C om pan y b elie v es w ill c o m ple m en t i ts c u rre n t l e ad ers h ip p ositio n i n p re m iu m h an dbag s an d accesso rie s. S tu art W eitz m an d esig ns an d m an ufa ctu re s w om en ’s lu xury fo otw ear an d accesso rie s. T he re su lts o f th e S tu art W eitz m an ’s o pera tio ns h av e b een i n clu ded i n t h e c o nso lid ate d f in an cia l s ta te m en ts s in ce t h e d ate o f a cq uis itio n w ith in t h e S tu art W eitz m an s e g m en t. The a g gre g ate c ash p aid i n c o nnectio n w ith t h e a cq uis itio n o f S tu art W eitz m an w as $531.1 m illio n ( o r $519.6 m illio n n et o f c ash a cq uire d ). F urth erm ore , t h e a cq uis itio n a g re em en t c o nta in s a p ote n tia l e arn out p ay m en t o f u p to $14.7 m illio n a n nually in c ash o ver th e n ex t th re e c ale n dar y ears , b ase d o n th e a ch ie v em en t o f c erta in r e v en ue t a rg ets . T he a g re em en t a ls o c o nta in s a c atc h -u p p ro vis io n t h at p ro vid es t h at i f t h e r e v en ue t a rg ets a re m is se d i n a n y o ne y ear b ut a re s u rp asse d i n s u cceed in g y ears t h en a m ounts f o r p ast y ears b eco m e d ue u pon s u rp assin g t a rg ets i n s u cceed in g y ears . T he t o ta l a m ount p ay ab le u nder t h e e arn out w ill n ot e x ceed $44.0 m illio n . The C om pan y fu nded th e a cq uis itio n th ro ugh c ash o n-h an d, in clu din g th e u tiliz atio n o f a p ortio n o f d eb t re la te d p ro ceed s, a s d esc rib ed in N ote 1 0, “ D eb t.” 78 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) The C om pan y h as c o m ple te d i ts p urc h ase p ric e a llo catio n. T he f o llo w in g t a b le s u m mariz es t h e f a ir v alu e o f t h e a sse ts a cq uire d a n d l ia b ilitie s a ssu m ed a s o f t h e a cq uis itio n d ate : A sse ts A cq uir ed a nd L ia bilitie s A ssu m ed Fair V alu e Mea su rem en t P erio d Adju stm en ts (6 ) Adju ste d Fair V alu e (m illio ns) C ash a n d c ash e q uiv ale n ts $ 11.5 $ — $ 11.5 T ra d e a cco unts r e ceiv ab le 34.0 — 34.0 I n ven to rie s (1 ) 32.9 — 32.9 P re p aid e x pen se s a n d o th er c u rre n t a sse ts 5.2 (2 .1 ) 3.1 P ro perty a n d e q uip m en t, n et 28.3 (2 .5 ) 25.8 G oodw ill (2 ) 125.8 5.2 131.0 T ra d em ark s a n d t ra d e n am es (3 ) 267.0 — 267.0 O th er i n ta n gib le a sse ts (4 ) 87.0 0.1 87.1 D efe rre d i n co m e t a x es 7.1 (0 .1 ) 7.0 O th er a sse ts 2.3 — 2.3 T ota l a sse ts a cq uire d 601.1 0.6 601.7 A cco unts P ay ab le a n d a ccru ed l ia b ilitie s 15.7 0.6 16.3 O th er l ia b ilitie s (5 ) 54.3 — 54.3 T ota l l ia b ilitie s a ssu m ed 70.0 0.6 70.6 T ota l p urc h ase p ric e 531.1 — 531.1 L ess: C ash a cq uire d (1 1.5 ) — (1 1.5 ) T ota l p urc h ase p ric e, n et o f c ash a cq uire d $ 519.6 $ — $ 519.6 ( 1 ) In clu ded a s te p -u p a d ju stm en t o f a p pro xim ate ly $5.6 m illio n , w hic h w as a m ortiz ed o ver 4 m onth s . ( 2 ) Appro xim ate ly $44 m illio n o f t h e g oodw ill b ala n ce i s t a x d ed uctib le . ( 3 ) The t ra d em ark s a n d t ra d e n am es i n ta n gib le a sse t w as v alu ed b ase d o n t h e r e lie f f ro m r o yalty m eth od. ( 4 ) The c o m ponen ts o f O th er in ta n gib le a sse ts in clu de c u sto m er re la tio nsh ip s o f a p pro xim ate ly $54.7 m illio n (a m ortiz ed o ver 15 y ears ), o rd er b ack lo g o f ap pro xim ate ly $7.7 m illio n (a m ortiz ed o ver 6 m onth s ) a n d fa v ora b le le ase rig hts o f a p pro xim ate ly $24.7 m illio n (a m ortiz ed o ver th e re m ain der o f th e underly in g l e ase t e rm s). T he c u sto m er r e la tio nsh ip i n ta n gib le a sse t w as v alu ed u sin g t h e e x cess e arn in gs m eth od, w hic h d is c o unts t h e e stim ate d a fte r-ta x cash f lo w s a sso cia te d w ith t h e e x is tin g b ase o f c u sto m ers a s o f t h e a cq uis itio n d ate , f a cto rin g i n e x pecte d a ttritio n o f t h e e x is tin g b ase . T he o rd er b ack lo g in ta n gib le a sse t w as v alu ed u sin g t h e e x cess e arn in gs m eth od, w hic h d is c o unts t h e e stim ate d a fte r-ta x c ash f lo w s a sso cia te d w ith o pen c u sto m er o rd ers a s of th e a cq uis itio n d ate . F av ora b le le ase rig hts , n et w ere v alu ed b ase d o n a c o m paris o n o f m ark et p artic ip an t in fo rm atio n a n d C om pan y-s p ecific le ase te rm s. ( 5 ) In clu ded w ith in O th er lia b ilitie s is th e fa ir v alu e m easu re m en t o f th e c o ntin gen t e arn out p ay m en t o f $17.8 m illio n . T his w as v alu ed p rim arily u tiliz in g Lev el 3 i n puts a s d efin ed b y t h e f a ir v alu e h ie ra rc h y, a n d w as b ase d o n a w eig hte d a v era g e e x pecte d a ch ie v em en t p ro bab ility a n d d is c o unt r a te o ver t h e ex pecte d m easu re m en t p erio d. S ee N ote 9 , ” F air V alu e M easu re m en ts ,” f o r a r e co ncilia tio n o f t h e c o ntin gen t e arn out l ia b ility a s o f Ju ly 2 , 2 016 . 79 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) ( 6 ) Durin g t h e t w elv e m onth s e n ded J u ly 2 , 2 016, a n d i n a cco rd an ce w ith t h e e arly a d optio n o f A SU N o. 2 015-1 6, t h e C om pan y m ad e c erta in m easu re m en t perio d a d ju stm en ts t o p ro vis io nal a m ounts p rim arily r e la te d t o t h e f a ir v alu e o f a cq uire d p ro perty a n d e q uip m en t, d efe rre d i n co m e t a x es, f a v ora b le l e ase rig hts , a s w ell a s c erta in w ork in g c ap ita l a cco unts . T hese a d ju stm en ts w ere th e re su lt o f n ew in fo rm atio n o bta in ed a b out fa cts a n d c irc u m sta n ces th at ex is te d a s o f th e d ate o f a cq uis itio n. T he $5.2 m illio n n et im pact o f th ese a d ju stm en ts o n th e C onso lid ate d B ala n ce S heets h as b een a d ju ste d th ro ugh goodw ill, as n ote d ab ove. F urth erm ore , th e n et im pact o f th ese ad ju stm en ts , re co rd ed w ith in S G & A ex pen se s, w as im mate ria l to th e C om pan y’s Conso lid ate d S ta te m en ts o f I n co m e. Durin g t h e t w elv e m onth s e n ded J u ly 2 , 2 016 a n d J u ne 2 7, 2 015, t h e C om pan y i n cu rre d p re -ta x c o sts d ire ctly a sso cia te d w ith t h e a cq uis itio n o f a p pro xim ate ly $0.0 m illio n a n d $14.2 m illio n , r e sp ectiv ely , r e co rd ed w ith in S G & A e x pen se s. F is c al 2 014 A cq uis itio n On J u ly 1 , 2 013, th e C om pan y b ecam e th e 100% o w ner o f its E uro pean jo in t v en tu re b y p urc h asin g H ack ett L im ite d ’s re m ain in g 50% in te re st in th e j o in t v en tu re , e n ab lin g t h e C om pan y t o a ssu m e d ire ct c o ntro l a n d c o nso lid ate i ts E uro pean r e ta il b usin ess. T he j o in t v en tu re i n clu ded 18 r e ta il l o catio ns i n S pain , P ortu gal, G re at B rita in , F ra n ce, I re la n d a n d G erm an y. T he r e su lts o f t h e a cq uire d b usin ess h av e b een i n clu ded i n t h e c o nso lid ate d f in an cia l s ta te m en ts s in ce th e d ate o f a cq uis itio n w ith in th e In te rn atio nal se g m en t. T he p urc h ase p ric e c o nsis te d o f c ash p ay m en ts o f a p pro xim ate ly $15.1 m illio n a n d th e f o rg iv en ess o f a lo an fro m th e C om pan y to H ack ett L im ite d o f a p pro xim ate ly $18.0 m illio n . T he a llo catio n o f th e p urc h ase p ric e a cq uis itio n h as b een c o m ple te d r e su ltin g i n g oodw ill o f $14.8 m illio n w hic h i s n ot t a x d ed uctib le . 8 . L EASE S The C om pan y l e ase s r e ta il, d is trib utio n a n d o ffic e f a cilitie s. T he l e ase a g re em en ts , w hic h e x pire a t v ario us d ate s t h ro ugh 2036 , a re s u bje ct, i n m ost c ase s, t o re n ew al o ptio ns a n d p ro vid e fo r th e p ay m en t o f ta x es, in su ra n ce a n d m ain te n an ce. C erta in le ase s c o nta in e sc ala tio n c la u se s re su ltin g fro m th e p ass- t h ro ugh o f i n cre ase s i n o pera tin g c o sts , p ro perty t a x es a n d t h e e ffe ct o n c o sts f ro m c h an ges i n c o nsu m er p ric e i n dic es. C erta in s to re -re la te d r e n t e x pen se m ay a ls o b e c o ntin gen t u pon s a le s. Ren t e x pen se f o r t h e C om pan y’s o pera tin g l e ase s c o nsis te d o f t h e f o llo w in g: Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 (m illio ns) M in im um r e n t (1 ) $ 229.9 $ 213.8 $ 172.8 C ontin gen t r e n t 134.8 142.8 144.4 T ota l r en t e x pen se $ 364.7 $ 356.6 $ 317.2 ( 1 ) $5.9 m illio n a n d $27.3 m illio n o f l e ase t e rm in atio n c h arg es d ue t o t ra n sfo rm atio n-re la te d s to re c lo su re s w ere i n clu ded i n f is c al 2 016 a n d f is c al 2 015, re sp ectiv ely . Futu re m in im um r e n ta l p ay m en ts u nder n on-c an cela b le o pera tin g l e ase s, a s o f Ju ly 2 , 2 016 , a re a s f o llo w s: Fis c a l Y ea r Am ount (1 ) (m illio ns) 2017 $ 254.2 2018 232.4 2019 209.4 2020 181.4 2021 150.4 Subse q uen t t o 2 021 597.4 Tota l m in im um f u tu re r en ta l p aym en ts $ 1,6 25.2 ( 1 ) Refe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n o n t h e s a le o f t h e C om pan y’s i n vestm en ts i n 1 0 H udso n Y ard s a n d l e ase o f t h e C om pan y’s new c o rp ora te h ead quarte rs . T he t a b le a b ove e x clu des f u tu re m in im um r e n ta l p ay m en ts u nder t h is n ew l e ase , a s f o llo w s: Hudso n Y ard s F is c a l Y ea r Am ount (m illio ns) 2 017 $ 41.4 2 018 45.1 2 019 45.1 2 020 45.1 2 021 45.1 S ubse q uen t t o 2 021 825.5 Tota l m in im um f u tu re r en ta l p aym en ts $ 1,0 47.3 9 . F A IR V ALUE M EASU REM ENTS The C om pan y c ate g oriz es i ts a sse ts a n d l ia b ilitie s, b ase d o n t h e p rio rity o f t h e i n puts t o t h e v alu atio n t e ch niq ue, i n to a t h re e-le v el f a ir v alu e h ie ra rc h y a s s e t f o rth b elo w . T he t h re e l e v els o f t h e h ie ra rc h y a re d efin ed a s f o llo w s: Lev el 1 — U nad ju ste d q uote d p ric es i n a ctiv e m ark ets f o r i d en tic al a sse ts o r l ia b ilitie s. Lev el 2 — O bse rv ab le i n puts o th er t h an q uote d p ric es i n clu ded i n L ev el 1 . L ev el 2 i n puts i n clu de q uote d p ric es f o r i d en tic al a sse ts o r l ia b ilitie s i n n on- activ e m ark ets , q uote d p ric es f o r s im ila r a sse ts o r l ia b ilitie s i n a ctiv e m ark ets , a n d i n puts o th er t h an q uote d p ric es t h at a re o bse rv ab le f o r s u bsta n tia lly t h e fu ll t e rm o f t h e a sse t o r l ia b ility . Lev el 3 — U nobse rv ab le i n puts r e fle ctin g m an ag em en t’s o w n a ssu m ptio ns a b out t h e i n put u se d i n p ric in g t h e a sse t o r l ia b ility . 80 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) The f o llo w in g t a b le s h ow s t h e f a ir v alu e m easu re m en ts o f t h e C om pan y’s f in an cia l a sse ts a n d l ia b ilitie s a t Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 : Lev el 1 Lev el 2 Lev el 3 Ju ly 2 , 2016 Ju ne 2 7, 2015 Ju ly 2 , 2016 Ju ne 2 7, 2015 Ju ly 2 , 2016 Ju ne 2 7, 2015 (m illio ns) A ssets : C ash e q uiv ale n ts (1 ) $ 197.9 $ 485.0 $ 0.4 $ 14.7 $ — $ — S hort- te rm in vestm en ts : Tim e d ep osits (2 ) — — 0.6 — — — Com merc ia l p ap er (2 ) — — 54.8 — — — Govern m en t s ecu ritie s – U .S . (2 ) 119.9 42.8 11.8 — — — Corp ora te d eb t s ecu ritie s – U .S . (2 ) — — 161.4 110.0 — — Corp ora te d eb t s ecu ritie s – n on U .S . (2 ) — — 111.5 74.6 — — Oth er — — 0.4 — — — L ong-te rm in vestm en ts : Govern m en t s ecu ritie s – U .S . (3 ) — 9.3 — — — — Corp ora te d eb t s ecu ritie s – U .S . (3 ) — — 64.2 42.6 — — Corp ora te d eb t s ecu ritie s – n on U .S . (3 ) — — 33.9 33.9 — — D eriv ativ e A ssets : In ven to ry -re la te d in str u m en ts (4 ) — — 0.2 3.3 — — In te rc o m pan y lo an h ed ges (4 ) — — 0.4 0.1 — — L ia b ilit ie s: C ontin gen t e arn out o blig atio n (5 ) $ — $ — $ — $ — $ 28.4 $ 19.4 D eriv ativ e lia b ilitie s: I n ven to ry -re la te d in str u m en ts (4 ) — — 11.0 0.2 — — I n te rc o m pan y lo an h ed ges (4 ) — — 0.1 — — — ( 1 ) Cash e q uiv ale n ts c o nsis t o f m oney m ark et f u nds a n d t im e d ep osits w ith m atu ritie s o f t h re e m onth s o r l e ss a t t h e d ate o f p urc h ase . D ue t o t h eir s h ort t e rm matu rity , m an ag em en t b elie v es t h at t h eir c arry in g v alu e a p pro xim ate s f a ir v alu e. ( 2 ) Short-te rm a v aila b le -fo r-s a le in vestm en ts a re re co rd ed a t fa ir v alu e, w hic h a p pro xim ate s th eir c arry in g v alu e, a n d a re p rim arily b ase d u pon q uote d ven dor o r b ro ker p ric ed s e cu ritie s i n a ctiv e m ark ets . S hort-te rm h eld t o m atu rity i n vestm en ts a s o f J u ne 2 7, 2 015 w ere r e co rd ed a t a m ortiz ed c o st, w hic h ap pro xim ate d f a ir v alu e. ( 3 ) Fair v alu e i s p rim arily d ete rm in ed u sin g v en dor o r b ro ker p ric ed s e cu ritie s i n a ctiv e m ark ets . T hese s e cu ritie s h av e m atu rity d ate s b etw een c ale n dar y ears 2017 a n d 2 018. ( 4 ) The f a ir v alu e o f t h ese h ed ges i s p rim arily b ase d o n t h e f o rw ard c u rv es o f t h e s p ecific i n dic es u pon w hic h s e ttle m en t i s b ase d a n d i n clu des a n a d ju stm en t fo r t h e c o unte rp arty ’s o r C om pan y’s c re d it r is k . ( 5 ) Refe r t o N ote 7 , ” A cq uis itio ns,” f o r f u rth er i n fo rm atio n. Refe r t o N ote 1 0, ” D eb t,” f o r t h e f a ir v alu e o f t h e C om pan y’s o uts ta n din g d eb t i n stru m en ts . 81 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) The f o llo w in g t a b le p re se n ts a r e co ncilia tio n o f t h e l ia b ilitie s m easu re d a t f a ir v alu e o n a r e cu rrin g b asis u sin g s ig nific an t u nobse rv ab le i n puts ( L ev el 3 ) fo r th e y ears e n ded Ju ly 2 , 2 016 an d Ju ne 2 7, 2 015 . L ev el 3 lia b ilitie s c o nsis te d o f th e c o ntin gen t e arn out o blig atio n re la te d to th e S tu art W eitz m an a cq uis itio n. July 2 , Ju ne 2 7, 2016 2015 (m illio n s) B ala n ce, b eg in nin g o f y ear $ 19.4 $ — Contin gen t e arn out o blig atio n r e co rd ed i n p urc h ase a cco untin g — 17.8 In cre ase t o c o ntin gen t e arn out o blig atio n 9.0 1.6 B ala n ce, e n d o f y ear $ 28.4 $ 19.4 N on-F in ancia l A sse ts a nd L ia bilitie s The C om pan y’s n on-fin an cia l in stru m en ts , w hic h p rim arily c o nsis t o f g oodw ill, in ta n gib le a sse ts a n d p ro perty a n d e q uip m en t, a re n ot re q uire d to b e m easu re d a t fa ir v alu e o n a re cu rrin g b asis a n d a re re p orte d a t c arry in g v alu e. H ow ev er, o n a p erio dic b asis w hen ev er e v en ts o r c h an ges in c irc u m sta n ces i n dic ate th at th eir c arry in g v alu e m ay n ot b e fu lly re co vera b le (a n d a t le ast a n nually fo r g oodw ill a n d in defin ite -liv ed in ta n gib le a sse ts ), n on-fin an cia l i n stru m en ts a re a sse sse d f o r i m pairm en t a n d, i f a p plic ab le , w ritte n -d ow n t o a n d r e co rd ed a t f a ir v alu e, c o nsid erin g m ark et p artic ip an t a ssu m ptio ns. R efe r t o N ote 7 , ” A cq uis itio ns,” f o r f u rth er d is c u ssio n o f t h e a p pro ach es u se d i n v alu in g a cq uire d a sse ts a n d a ssu m ed l ia b ilitie s. No m ate ria l i m pairm en t c h arg es w ere r e co rd ed i n f is c al 2016 a n d f is c al 2 015. D urin g f is c al 2 014, $35.5 m illio n o f i m pairm en t c h arg es w ere r e co rd ed , t o r e d uce t h e c arry in g a m ount o f c erta in s to re a sse ts ( p rim arily l e ase h old i m pro vem en ts a t s e le cte d r e ta il s to re l o catio ns) t o t h eir f a ir v alu es o f $6.9 m illio n a s o f J u ne 2 8, 2 014. T he f a ir v alu es o f t h ese a sse ts w ere d ete rm in ed b ase d o n L ev el 3 m easu re m en ts . I n puts t o t h ese f a ir v alu e m easu re m en ts i n clu ded e stim ate s o f t h e a m ount a n d t h e t im in g o f t h e s to re s’ n et f u tu re d is c o unte d c ash f lo w s b ase d o n h is to ric al e x perie n ce, c u rre n t t re n ds, a n d m ark et c o nditio ns. 1 0. D EBT The f o llo w in g t a b le s u m mariz es t h e c o m ponen ts o f t h e C om pan y’s o uts ta n din g d eb t: July 2 , 2016 Ju ne 2 7, 2015 (m illio n s) C urren t D eb t: T erm L oan (1 ) $ 15.0 $ 11.3 T ota l C urren t D eb t $ 15.0 $ 11.3 L ong-T erm D eb t: T erm L oan (1 ) $ 270.0 $ 288.7 4 .2 50% S en io r N ote s 600.0 600.0 T ota l L ong-T erm D eb t 870.0 888.7 L ess: U nam ortiz ed D is c o unt a n d D eb t I s su an ce C osts o n 4 .2 50% S en io r N ote s (8 .8 ) (9 .6 ) T ota l L ong-T erm D eb t, n et $ 861.2 $ 879.1 ( 1 ) On A ugust 3 , 2 016, t h e C om pan y p re p aid i ts o uts ta n din g b orro w in gs u nder t h e T erm L oan f a cility . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er in fo rm atio n. Durin g fis c al 2016 , 2015 a n d 2014 th e C om pan y re co gniz ed in te re st e x pen se re la te d to th e o uts ta n din g d eb t o f $32.9 m illio n , $11.9 m illio n an d $1.7 m illio n , r e sp ectiv ely . 82 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) Am en ded a nd R esta te d C re d it A gre em en t In M arc h 2 015, th e C om pan y a m en ded a n d re sta te d its e x is tin g $700.0 m illio n re v olv in g c re d it fa cility (th e ” R ev olv in g F acility “) w ith c erta in le n ders a n d J P M org an C hase B an k, N .A . a s t h e a d m in is tra tiv e a g en t, t o p ro vid e f o r a fiv e -y ear s e n io r u nse cu re d $300.0 m illio n t e rm l o an ( th e “ T erm L oan ”) a n d t o e x te n d th e m atu rity d ate to Marc h 1 8, 2 020 (th e “A m en ded a n d R esta te d C re d it A gre em en t” ). A s o f Ju ly 2 , 2 016 , th ere w ere no b orro w in gs u nder th e R ev olv in g F acility . The T erm L oan re q uire d re p ay m en t b y q uarte rly in sta llm en ts b eg in nin g in S ep te m ber 2 015 th ro ugh D ecem ber 2 019, w ith th e re m ain in g e x pecte d o uts ta n din g b ala n ce o f $202.5 m illio n d ue o n m atu rity a t Marc h 1 8, 2 020 . H ow ev er, t h e C om pan y p re p aid i ts o uts ta n din g b orro w in gs u nder t h e T erm L oan f a cility o n A ugust 3 , 2 016, a s f u rth er d esc rib ed i n N ote 1 9, ” S ubse q uen t E ven ts .” The A m en ded a n d R esta te d C re d it A gre em en t w ill c o ntin ue t o b e u se d f o r g en era l c o rp ora te p urp ose s o f t h e C om pan y a n d i ts s u bsid ia rie s. Borro w in gs u nder t h e A m en ded a n d R esta te d C re d it A gre em en t b ear i n te re st a t a r a te p er a n num e q ual t o , a t t h e C om pan y’s o ptio n, e ith er ( a ) a r a te b ase d o n t h e r a te s a p plic ab le f o r d ep osits i n t h e i n te rb an k m ark et f o r U .S . d olla rs o r t h e a p plic ab le c u rre n cy i n w hic h t h e l o an s a re m ad e p lu s a n a p plic ab le m arg in o r ( b ) a n a lte rn ate b ase r a te ( w hic h i s a r a te e q ual t o t h e g re ate st o f ( i) t h e P rim e R ate i n e ffe ct o n s u ch d ay, ( ii) t h e F ed era l F unds E ffe ctiv e R ate i n e ffe ct o n s u ch d ay p lu s ½ o f 1 % o r ( iii) t h e A dju ste d L IB O R ate f o r a o ne m onth I n te re st P erio d o n s u ch d ay p lu s 1% ). A dditio nally , t h e C om pan y p ay s a c o m mitm en t f e e o n t h e a v era g e d aily u nuse d a m ount o f t h e R ev olv in g F acility . A t Ju ly 2 , 2 016 , t h e i n te re st r a te o n t h ese b orro w in gs w as 1.7 20% a n d t h e c o m mitm en t f e e w as 0.1 50% . The f a ir v alu e o f t h e o uts ta n din g b ala n ce o f t h e T erm L oan a s o f Ju ly 2 , 2 016 a p pro xim ate d c arry in g v alu e, a n d w as b ase d o n a v aila b le e x te rn al p ric in g d ata a n d c u rre n t m ark et r a te s f o r s im ila r d eb t i n stru m en ts , a m ong o th er f a cto rs , a n d i s c la ssifie d a s L ev el 2 m easu re m en ts w ith in t h e f a ir v alu e h ie ra rc h y. 4.2 50% S en io r N ote s In M arc h 2 015, t h e C om pan y i s su ed $600.0 m illio n a g gre g ate p rin cip al a m ount o f 4.2 50% s e n io r u nse cu re d n ote s d ue April 1 , 2 025 a t 99.4 45% o f p ar ( th e “ 4 .2 50% S en io r N ote s” ). I n te re st i s p ay ab le s e m i-a n nually o n A pril 1 a n d O cto ber 1 b eg in nin g O cto ber 1 , 2 015. P rio r t o J a n uary 1 , 2 025 ( 90 d ay s p rio r t o t h e s c h ed ule d m atu rity d ate ), t h e C om pan y m ay r e d eem t h e 4 .2 50% S en io r N ote s i n w hole o r i n p art, a t i ts o ptio n a t a n y t im e o r f ro m t im e t o t im e, a t a r e d em ptio n p ric e e q ual t o t h e g re ate r o f ( 1 ) 100% o f t h e p rin cip al a m ount o f t h e 4 .2 50% S en io r N ote s t o b e r e d eem ed o r ( 2 ) t h e s u m o f t h e p re se n t v alu es o f t h e r e m ain in g s c h ed ule d p ay m en ts o f p rin cip al a n d i n te re st t h ere o n t h at w ould h av e b een p ay ab le i n r e sp ect o f t h e 4 .2 50% S en io r N ote s c alc u la te d a s i f t h e m atu rity d ate o f th e 4 .2 50% S en io r N ote s w as Ja n uary 1 , 2 025 (n ot in clu din g a n y p ortio n o f p ay m en ts o f in te re st a ccru ed to th e d ate o f re d em ptio n), d is c o unte d t o t h e r e d em ptio n d ate o n a s e m i-a n nual b asis a t t h e A dju ste d T re asu ry R ate ( a s d efin ed i n t h e i n den tu re f o r t h e 4 .2 50% S en io r N ote s) p lu s 3 5 b asis p oin ts , p lu s, i n t h e c ase o f e ach o f ( 1 ) a n d ( 2 ), a ccru ed a n d u npaid i n te re st t o t h e r e d em ptio n d ate . O n a n d a fte r J a n uary 1 , 2 025 ( 90 d ay s p rio r to th e s c h ed ule d m atu rity d ate ), th e C om pan y m ay re d eem th e 4 .2 50% S en io r N ote s in w hole o r in p art, a t its o ptio n a t a n y tim e o r fro m tim e to tim e, a t a r e d em ptio n p ric e e q ual t o 100% o f t h e p rin cip al a m ount o f t h e 4 .2 50% S en io r N ote s t o b e r e d eem ed , p lu s a ccru ed a n d u npaid i n te re st t o t h e r e d em ptio n d ate . At Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , t h e f a ir v alu e o f t h e 4 .2 50% S en io r N ote s w as a p pro xim ate ly $622 m illio n a n d $579 m illio n , re sp ectiv ely , b ase d o n e x te rn al p ric in g d ata , i n clu din g a v aila b le q uote d m ark et p ric es o f t h ese i n stru m en ts , a n d c o nsid era tio n o f c o m para b le d eb t i n stru m en ts w ith s im ila r i n te re st r a te s a n d t ra d in g f re q uen cy , a m ong o th er f a cto rs , a n d i s c la ssifie d a s L ev el 2 m easu re m en ts w ith in t h e f a ir v alu e h ie ra rc h y. 83 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) Deb t M atu ritie s As o f Ju ly 2 , 2 016 , t h e C om pan y’s a g gre g ate m atu ritie s o f t o ta l d eb t a re a s f o llo w s: Fis c al Y ear Am ount (m illio ns) 2017 (1 ) $ 15.0 2018 (1 ) 15.0 2019 (1 ) 22.5 2020 (1 ) 232.5 2021 — Subse q uen t t o 2 021 600.0 Tota l f u tu re d eb t r ep aym en ts $ 885.0 ( 1 ) The f o llo w in g m atu ritie s a re r e la te d t o t h e C om pan y’s o uts ta n din g b orro w in gs u nder t h e T erm L oan f a cility . O n A ugust 3 , 2 016, t h e C om pan y p re p aid its o uts ta n din g b orro w in gs u nder t h e T erm L oan f a cility . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. Oth er Coach J a p an , a w holly o w ned s u bsid ia ry o f t h e C om pan y, m ain ta in s c re d it f a cilitie s w ith s e v era l J a p an ese f in an cia l i n stitu tio ns t o p ro vid e f u ndin g f o r w ork in g c ap ita l a n d g en era l c o rp ora te p urp ose s, a llo w in g a t o ta l m ax im um b orro w in g c ap acity o f 5.3 b illio n y en , o r a p pro xim ate ly $50 m illio n , a s o f Ju ly 2 , 2 016 . I n te re st i s b ase d o n t h e T okyo I n te rb an k r a te p lu s a m arg in o f 25 t o 30 b asis p oin ts . Durin g fis c al 2016 a n d fis c al 2015 , th ere w ere no b orro w in gs u nder th is fa cility . T he C oach J a p an c re d it fa cility c an b e te rm in ate d a t a n y tim e b y th e f in an cia l i n stitu tio n, a n d t h ere i s n o g uara n te e t h at i t w ill b e a v aila b le t o t h e C om pan y i n f u tu re p erio ds. 1 1. C O M MIT M ENTS A ND C O NTIN G ENCIE S Hudso n Y ard s As o f Ju ly 2 , 2 016 , t h e C om pan y’s e q uity m eth od i n vestm en t i n H udso n Y ard s r e la te d t o a n e q uity i n te re st i n a n e n tity f o rm ed d urin g f is c al 2 013 f o r t h e p urp ose o f d ev elo pin g a n ew o ffic e t o w er i n M an hatta n , t h e H udso n Y ard s j o in t v en tu re , w ith t h e C om pan y o w nin g l e ss t h an 43% o f t h e j o in t v en tu re . T he n ew b uild in g w ill se rv e a s th e C om pan y’s n ew c o rp ora te h ead quarte rs . O n A ugust 1 , 2 016, th e C om pan y so ld its re la te d in vestm en ts , a n d e x ecu te d a n a g re em en t t o l e ase b ack t h e o ffic e s p ace f o r a 20 -y ear t e rm . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. Durin g f is c al 2016 , t h e C om pan y i n veste d $140.3 m illio n i n t h e j o in t v en tu re . S in ce t h e f o rm atio n o f t h e H udso n Y ard s j o in t v en tu re , t h e C om pan y h as i n veste d $460.5 m illio n . I n a d ditio n t o i ts i n vestm en t i n t h e j o in t v en tu re , t h e C om pan y i s d ire ctly i n vestin g i n a p ortio n o f t h e d esig n a n d b uild -o ut o f t h e n ew c o rp ora te h ead quarte rs a n d h as i n cu rre d $179.6 m illio n o f c ap ita l e x pen ditu re s l ife -to -d ate , i n clu din g $145.6 m illio n i n f is c al 2016 , a n d e x pects t o i n cu r a p pro xim ate ly $33 m illio n o ver t h e r e m ain in g p erio d o f c o nstru ctio n. The H udso n Y ard s jo in t v en tu re is d ete rm in ed to b e a v aria b le in te re st e n tity p rim arily d ue to th e fa ct th at it h as in su ffic ie n t e q uity to fin an ce its a ctiv itie s w ith out a d ditio nal s u bord in ate d f in an cia l s u pport f ro m i ts tw o j o in t v en tu re p artn ers . T he C om pan y i s n ot c o nsid ere d t h e p rim ary b en efic ia ry o f t h e e n tity p rim arily b ecau se t h e C om pan y d oes n ot h av e t h e p ow er t o d ire ct t h e a ctiv itie s t h at m ost s ig nific an tly i m pact t h e e n tity ’s e co nom ic p erfo rm an ce. T he C om pan y’s m ax im um l o ss e x posu re i s l im ite d t o t h e c o m mitte d c ap ita l. Lette rs o f C re d it The C om pan y h ad s ta n dby le tte rs o f c re d it to ta lin g $7.5 m illio n a n d $6.8 m illio n o uts ta n din g a t b oth Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 . T he le tte rs o f c re d it, w hic h e x pire a t v ario us d ate s t h ro ugh c ale n dar 2 017, p rim arily c o lla te ra liz e t h e C om pan y’s o blig atio n t o t h ird p artie s f o r i n su ra n ce c la im s, m ate ria ls u se d i n p ro duct m an ufa ctu rin g a n d l e ase s. T he C om pan y p ay s c erta in f e es w ith r e sp ect t o l e tte rs o f c re d it t h at a re i s su ed . 84 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) Oth er The C om pan y h ad o th er c o ntra ctu al c ash o blig atio ns a s o f Ju ly 2 , 2 016 , in clu din g $200.1 m illio n re la te d to in ven to ry p urc h ase o blig atio ns, $98.5 m illio n r e la te d t o f irm c ap ita l e x pen ditu re p urc h ase o blig atio ns, $9.8 m illio n o f o th er p urc h ase o blig atio ns, $885.0 m illio n o f d eb t re p ay m en ts a n d $229.5 m illio n o f i n te re st p ay m en ts o n t h e 4.2 50% S en io r N ote s. R efe r t o N ote 8 , ” L ease s,” f o r a s u m mary o f t h e C om pan y’s f u tu re m in im um r e n ta l p ay m en ts u nder n on-c an cela b le le ase s. F urth erm ore , re fe r to N ote 7 , “A cq uis itio ns,” fo r a d esc rip tio n o f p ote n tia l e arn out p ay m en ts a ttrib uta b le to th e S tu art W eitz m an a cq uis itio n. O n A ugust 3 , 2 016, t h e C om pan y p re p aid i ts o uts ta n din g b orro w in gs u nder t h e T erm L oan f a cility . R efe r t o N ote 1 9, ” S ubse q uen t E ven ts ,” f o r f u rth er i n fo rm atio n. In t h e o rd in ary c o urs e o f b usin ess, t h e C om pan y i s a p arty t o s e v era l p en din g l e g al p ro ceed in gs a n d c la im s. A lth ough t h e o utc o m e o f s u ch i te m s c an not b e d ete rm in ed w ith c erta in ty , t h e C om pan y’s m an ag em en t b elie v es t h at t h e f in al o utc o m e w ill n ot h av e a m ate ria l e ffe ct o n t h e C om pan y’s c ash f lo w , r e su lts o f o pera tio ns o r f in an cia l p ositio n. 1 2. G OODW IL L A ND O TH ER I N TANG IB LE A SSE TS Goodw ill The c h an ge i n t h e c arry in g a m ount o f t h e C om pan y’s g oodw ill, i s a s f o llo w s: In te rn atio nal Stu art W eitz m an Tota l (m illio ns) B ala n ce a t J u ne 2 8, 2 014 $ 361.4 $ — $ 361.4 A cq uis itio n o f S tu art W eitz m an — 125.8 125.8 F ore ig n e x ch an ge i m pact (5 3.0 ) — (5 3.0 ) B ala nce a t J une 2 7, 2 015 308.4 125.8 434.2 A cq uis itio n o f S tu art W eitz m an C an ad a — 24.6 24.6 F ore ig n e x ch an ge i m pact 38.5 (0 .1 ) 38.4 P urc h ase a cco untin g a d ju stm en t (1 ) — 5.2 5.2 B ala nce a t J uly 2 , 2 016 $ 346.9 $ 155.5 $ 502.4 ( 1 ) Refe r t o N ote 7 , ” A cq uis itio ns,” f o r f u rth er i n fo rm atio n. Oth er I n ta ngib le A sse ts Oth er i n ta n gib le a sse ts c o nsis t o f t h e f o llo w in g: Fis ca l Y ea r E nded (1 ) Ju ly 2 , 2 016 Ju ne 2 7, 2 015 Gro ss Carry in g Am ou nt Accu m . Am ort. Net Gro ss Carry in g Amount Accu m . Amort. Net (m illio ns) I n ta ngib le a ssets s u bje ct to a m ortiz a tio n: C usto m er r e la tio nsh ip s $ 54.7 $ (5 .8 ) $ 48.9 $ 54.7 $ (0 .8 ) $ 53.9 O rd er b ack lo g 7.7 (7 .7 ) — 7.7 (2 .6 ) 5.1 F av ora b le le ase r ig hts , n et 24.7 (3 .6 ) 21.1 24.6 (0 .5 ) 24.1 T ota l in ta n gib le a ssets s u bje ct to a m ortiz atio n 87.1 (1 7.1 ) 70.0 87.0 (3 .9 ) 83.1 I n ta ngib le a ssets n ot s u bje ct to a m ortiz a tio n: T ra d em ark s a n d tr a d e n am es 276.8 — 276.8 276.8 — 276.8 T ota l in ta n gib le a ssets $ 363.9 $ (1 7.1 ) $ 346.8 $ 363.8 $ (3 .9 ) $ 359.9 ( 1 ) Refe r t o N ote 7 , ” A cq uis itio ns,” f o r f u rth er i n fo rm atio n. 85 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) Am ortiz a tio n Base d o n t h e b ala n ce o f t h e C om pan y’s i n ta n gib le a sse ts s u bje ct t o a m ortiz atio n a s o f Ju ly 2 , 2 016 , th e e x pecte d a m ortiz atio n e x pen se fo r e ach o f th e n ex t f iv e f is c al y ears a n d t h ere afte r i s a s f o llo w s: A m ortiz atio n E xpen se (m illio ns) F is c al 2 017 $ 7.0 F is c al 2 018 6.6 F is c al 2 019 6.5 F is c al 2 020 6.2 F is c al 2 021 6.0 T here afte r 37.7 T ota l $ 70.0 The e x pecte d fu tu re a m ortiz atio n e x pen se a b ove re fle cts re m ain in g u se fu l liv es o f 13.8 y ears fo r c u sto m er re la tio nsh ip s a n d th e re m ain in g le ase te rm s r a n gin g f ro m a p pro xim ate ly one t o 9 y ears f o r f a v ora b le l e ase r ig hts . 1 3. I N CO M E T AXES The p ro vis io ns fo r in co m e ta x es, c o m pute d b y a p ply in g th e U .S . s ta tu to ry ra te to in co m e b efo re ta x es, a s re co ncile d to th e a ctu al p ro vis io ns w ere (in m illio ns): Fis c a l Y ea r E nded July 2 , 2 016 Ju ne 2 7, 2 015 Ju ne 2 8, 2 014 Am ount Percen ta ge Am ount Perc en ta g e Am ount Perc en ta g e I n co m e b efo re p ro vis io n f o r i n co m e ta x es: Unite d S ta te s $ 357.5 57.1 % $ 361.2 59.1 % $ 818.6 72.9 % Fore ig n 269.1 42.9 250.4 40.9 303.7 27.1 T ota l i n co m e b efo re p ro vis io n f o r i n co m e ta x es $ 626.6 100.0 % $ 611.6 100.0 % $ 1,1 22.3 100.0 % T ax e x pen se a t U .S . s ta tu to ry r a te $ 219.3 35.0 % $ 214.0 35.0 % $ 392.8 35.0 % S ta te t a x es, n et o f f e d era l b en efit 11.2 1.8 26.4 4.3 34.6 3.1 E ffe cts o f f o re ig n o pera tio ns (1 ) (5 3.7 ) (8 .6 ) (7 9.7 ) (1 3.0 ) (9 3.1 ) (8 .3 ) E ffe cts o f f o re ig n t a x c re d its a n d acq uis itio n r e o rg an iz atio n (1 9.6 ) (3 .1 ) 9.3 1.5 (1 .5 ) (0 .1 ) O th er, n et 8.9 1.4 39.2 6.4 8.2 0.7 T ax es a t e ffe ctiv e w orld w id e r a te s $ 166.1 26.5 % $ 209.2 34.2 % $ 341.0 30.4 % ( 1 ) The ” E ffe cts o f f o re ig n o pera tio ns” i m pact, a s n ote d a b ove, i s p rim arily a ttrib uta b le t o t h e C om pan y’s f o re ig n t a x r a te d iffe re n tia l o f i ts G re ate r C hin a a n d Ja p an t a x j u ris d ic tio ns. 86 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) Curre n t a n d d efe rre d t a x p ro vis io n ( b en efit) w as: Fis c a l Y ea r E nded July 2 , 2 016 Ju ne 2 7, 2 015 Ju ne 2 8, 2 014 Curren t Defe rred Curre n t Defe rre d Curre n t Defe rre d (m illio ns) F ed era l $ 145.8 $ (5 2.0 ) $ 142.9 $ 10.5 $ 283.4 $ (6 .8 ) F ore ig n 46.8 2.2 9.8 13.8 20.0 (5 .7 ) S ta te 25.8 (2 .5 ) 35.0 (2 .8 ) 60.4 (1 0.3 ) T ota l c u rre n t a n d d efe rre d t a x p ro vis io n (b en efit) $ 218.4 $ (5 2.3 ) $ 187.7 $ 21.5 $ 363.8 $ (2 2.8 ) The c o m ponen ts o f d efe rre d t a x a sse ts a n d l ia b ilitie s w ere : July 2 , 2016 Ju ne 2 7, 2015 (m illio ns) S hare -b ase d c o m pen sa tio n $ 68.5 $ 66.7 R ese rv es n ot d ed uctib le u ntil p aid 69.6 68.1 D efe rre d r e n t 27.9 16.4 E m plo yee b en efits 48.3 48.4 B asis d iffe re n ce i n f o re ig n i n vestm en ts 21.5 — N et o pera tin g l o ss (1 ) 176.7 178.9 O th er 4.2 0.8 P re p aid e x pen se s 0.8 1.9 P ro perty a n d e q uip m en t 34.3 16.4 Gro ss d efe rred t a x a sse ts 451.8 397.6 V alu atio n a llo w an ce (1 ) 173.4 169.8 Defe rred t a x a sse ts a fte r v alu atio n a llo w ance $ 278.4 $ 227.8 G oodw ill 88.2 73.6 O th er (1 .3 ) — Gro ss d efe rred t a x l ia bilitie s 86.9 73.6 N et d efe rred t a x a sse ts $ 191.5 $ 154.2 C onso lid ate d B ala nce S heets C la ssific a tio n (2 ) Defe rre d i n co m e t a x es – c u rre n t a sse t $ — $ 98.4 Defe rre d i n co m e t a x es – n oncu rre n t a sse t 248.8 115.8 Defe rre d i n co m e t a x es – c u rre n t l ia b ility — — Defe rre d i n co m e t a x es – n oncu rre n t l ia b ility ( in clu ded w ith in ” O th er L ia b ilitie s”) (5 7.3 ) (6 0.0 ) N et d efe rred t a x a sse t $ 191.5 $ 154.2 ( 1 ) The d efe rre d ta x a sse t fo r n et o pera tin g lo sse s a n d th e re la te d v alu atio n a llo w an ce h as b een p re se n te d o n a g ro ss b asis a s o f Ju ly 2 , 2 016, w ith a co rre sp ondin g r e cla ss o f t h e J u ly 2 7, 2 015 b ala n ces, p re v io usly p re se n te d o n a n et b asis . 87 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) ( 2 ) The a m ounts p re se n te d i n t h is t a b le a re r e fle ctiv e o f t h e p ro sp ectiv e a d optio n o f A SU 2 015-1 7, w hic h r e q uire s e n titie s t o c la ssify d efe rre d t a x a sse ts a n d defe rre d t a x l ia b ilitie s a s n on-c u rre n t. P rio r p erio ds h av e n ot b een a d ju ste d t o r e fle ct t h e a d optio n o f t h is A SU . R efe r t o N ote 2 , ” S ig nific an t A cco untin g Polic ie s” f o r m ore i n fo rm atio n. Sig nific an t ju dgm en t is re q uire d in d ete rm in in g th e w orld w id e p ro vis io n fo r in co m e ta x es, a n d th ere a re m an y tra n sa ctio ns fo r w hic h th e u ltim ate ta x o utc o m e is u ncerta in . It is th e C om pan y’s p olic y to e sta b lis h p ro vis io ns fo r ta x es th at m ay b eco m e p ay ab le in fu tu re y ears , in clu din g th ose d ue to a n e x am in atio n b y ta x a u th oritie s. T he C om pan y e sta b lis h es th e p ro vis io ns b ase d u pon m an ag em en t’s a sse ssm en t o f e x posu re a sso cia te d w ith u ncerta in ta x p ositio ns. T he p ro vis io ns a re a n aly zed a t le ast q uarte rly a n d a d ju ste d a s a p pro pria te b ase d o n n ew in fo rm atio n o r c irc u m sta n ces in a cco rd an ce w ith th e r e q uire m en ts o f A SC 7 40. A r e co ncilia tio n o f t h e b eg in nin g a n d e n din g g ro ss a m ount o f u nre co gniz ed t a x b en efits i s a s f o llo w s: July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 (m illio ns) B ala nce a t b eg in nin g o f f is c a l y ea r $ 168.1 $ 170.7 $ 148.8 Gro ss i n cre ase d ue t o t a x p ositio ns r e la te d t o p rio r p erio ds 25.5 5.4 14.7 Gro ss d ecre ase d ue t o t a x p ositio ns r e la te d t o p rio r p erio ds (4 .4 ) (1 .1 ) (3 .3 ) Gro ss i n cre ase d ue t o t a x p ositio ns r e la te d t o c u rre n t p erio d 8.7 16.5 28.6 Decre ase d ue t o l a p se o f s ta tu te s o f l im ita tio ns (5 9.0 ) (2 1.1 ) (1 7.3 ) Decre ase d ue t o s e ttle m en ts w ith t a x in g a u th oritie s (0 .3 ) (2 .3 ) (0 .8 ) B ala nce a t e n d o f f is c a l y ea r $ 138.6 $ 168.1 $ 170.7 Of th e $138.6 m illio n e n din g g ro ss u nre co gniz ed ta x b en efit b ala n ce a s o f Ju ly 2 , 2 016 , $111.1 m illio n re la te s to ite m s w hic h , if re co gniz ed , w ould i m pact t h e e ffe ctiv e t a x r a te . O f t h e $168.1 m illio n e n din g g ro ss u nre co gniz ed t a x b en efit b ala n ce a s o f Ju ne 2 7, 2 015 , $121.5 m illio n r e la te s t o i te m s w hic h , i f re co gniz ed , w ould im pact th e e ffe ctiv e ta x ra te . A s o f Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , g ro ss in te re st a n d p en altie s p ay ab le w as $29.0 m illio n a n d $17.6 m illio n , re sp ectiv ely , w hic h a re in clu ded in O th er lia b ilitie s. D urin g fis c al 2 016, fis c al 2 015 a n d fis c al 2 014, th e C om pan y re co gniz ed g ro ss in te re st a n d p en alty i n co m e o f $11.5 m illio n , g ro ss i n te re st a n d p en alty i n co m e o f $0.1 m illio n a n d g ro ss i n te re st a n d p en alty e x pen se o f $0.8 m illio n , r e sp ectiv ely . The C om pan y f ile s i n co m e t a x r e tu rn s i n t h e U .S . f e d era l j u ris d ic tio n, a s w ell a s v ario us s ta te a n d f o re ig n j u ris d ic tio ns. T ax e x am in atio ns a re c u rre n tly i n p ro gre ss i n s e le ct f o re ig n a n d s ta te j u ris d ic tio ns t h at a re e x te n din g t h e y ears o pen u nder t h e s ta tu te s o f l im ita tio n. F is c al y ears 2 013 t o p re se n t a re o pen t o e x am in atio n i n t h e U .S . f e d era l j u ris d ic tio n, f is c al 2 009 t o p re se n t i n s e le ct s ta te j u ris d ic tio ns a n d f is c al 2 004 t o p re se n t i n s e le ct f o re ig n j u ris d ic tio ns. T he C om pan y a n tic ip ate s t h at o ne o r m ore o f t h ese a u dits m ay b e f in aliz ed a n d c erta in s ta tu te s o f l im ita tio n m ay e x pire i n t h e f o re se eab le f u tu re . H ow ev er, b ase d o n th e s ta tu s o f th ese e x am in atio ns, a n d th e a v era g e tim e ty pic ally in cu rre d in fin aliz in g a u dits w ith th e re le v an t ta x a u th oritie s, w e c an not re aso nab ly e stim ate th e im pact th ese a u dits m ay h av e in th e n ex t 1 2 m onth s, if a n y, to p re v io usly re co rd ed u ncerta in ta x p ositio ns. W e a ccru e fo r c erta in k now n a n d r e aso nab ly a n tic ip ate d in co m e ta x o blig atio ns a fte r a sse ssin g th e lik ely o utc o m e b ase d o n th e w eig ht o f a v aila b le e v id en ce. A lth ough w e b elie v e th at th e e stim ate s a n d a ssu m ptio ns w e h av e u se d a re re aso nab le a n d le g ally s u pporta b le , th e fin al d ete rm in atio n o f ta x a u dits c o uld b e d iffe re n t th an th at w hic h is r e fle cte d i n h is to ric al i n co m e t a x p ro vis io ns a n d r e co rd ed a sse ts a n d l ia b ilitie s. W ith r e sp ect t o a ll j u ris d ic tio ns, w e b elie v e w e h av e m ad e a d eq uate p ro vis io n f o r a ll i n co m e t a x u ncerta in tie s. For t h e y ears e n ded Ju ly 2 , 2 016 a n d Ju ne 2 7, 2 015 , t h e C om pan y h ad n et o pera tin g l o ss c arry fo rw ard s i n f o re ig n t a x j u ris d ic tio ns o f $593.4 m illio n a n d $ 618.3 m illio n , t h e m ajo rity o f w hic h c an b e c arrie d f o rw ard i n defin ite ly . The to ta l am ount o f u ndis trib ute d earn in gs o f fo re ig n su bsid ia rie s as o f Ju ly 2 , 2 016 an d Ju ne 2 7, 2 015 , was $2.3 9 b illio n an d $2.0 9 billio n , r e sp ectiv ely . I t i s t h e C om pan y’s i n te n tio n t o p erm an en tly r e in vest u ndis trib ute d e arn in gs o f i ts f o re ig n s u bsid ia rie s a n d t h ere b y i n defin ite ly p ostp one t h eir r e m itta n ce. A cco rd in gly , n o p ro vis io n h as b een m ad e fo r fo re ig n w ith hold in g ta x es o r U nite d S ta te s in co m e ta x es w hic h m ay b eco m e p ay ab le if u ndis trib ute d e arn in gs o f fo re ig n s u bsid ia rie s a re p aid a s d iv id en ds. D ete rm in atio n o f th e a m ount o f u nre co gniz ed d efe rre d in co m e ta x lia b ilitie s o n th ese e arn in gs is n ot p ra ctic ab le b ecau se s u ch lia b ility , if a n y, is s u bje ct to m an y v aria b le s a n d is d ep en den t o n c irc u m sta n ces e x is tin g if a n d w hen re m itta n ce o ccu rs . 88 1 4. D EFIN ED C O NTRIB UTIO N P L AN The C om pan y m ain ta in s t h e C oach , I n c. S av in gs P la n , w hic h i s a d efin ed c o ntrib utio n p la n . E m plo yees w ho m eet c erta in e lig ib ility r e q uire m en ts a n d a re n ot p art o f a c o lle ctiv e b arg ain in g a g re em en t m ay p artic ip ate in th is p ro gra m . T he a n nual e x pen se in cu rre d b y th e C om pan y fo r th is d efin ed c o ntrib utio n p la n w as $8.3 m illio n , $7.2 m illio n , a n d $7.5 m illio n i n f is c al 2016 , f is c al 2015 a n d f is c al 2014 , r e sp ectiv ely . 1 5. S E G M ENT I N FO RM ATIO N In f is c al 2016 , t h e C om pan y h as th re e r e p orta b le s e g m en ts b ase d o n i ts b usin ess a ctiv itie s a n d o rg an iz atio n: • North A m eric a, w hic h i s c o m pose d o f C oach b ra n d s a le s t o N orth A m eric an c o nsu m ers t h ro ugh s to re s, i n clu din g t h e I n te rn et, a n d s a le s t o w hole sa le cu sto m ers . • In te rn atio nal, w hic h i s c o m pose d o f C oach b ra n d s a le s t o c o nsu m ers t h ro ugh s to re s a n d c o ncessio n s h op-in -s h ops i n J a p an , m ain la n d C hin a, H ong Kong, M acau , S in gap ore , T aiw an , M ala y sia , S outh K ore a, t h e U nite d K in gdom , F ra n ce, I re la n d, S pain , P ortu gal, G erm an y, I ta ly , A ustria , B elg iu m , th e N eth erla n ds a n d S w itz erla n d. A dditio nally , In te rn atio nal in clu des C oach b ra n d sa le s to c o nsu m ers th ro ugh th e In te rn et in Ja p an , m ain la n d Chin a, t h e U nite d K in gdom a n d S outh K ore a, a s w ell a s s a le s t o w hole sa le c u sto m ers a n d d is trib uto rs i n a p pro xim ate ly 55 c o untrie s. • Stu art W eitz m an , w hic h in clu des w orld w id e s a le s g en era te d b y th e S tu art W eitz m an b ra n d, p rim arily th ro ugh d ep artm en t s to re s in N orth A m eric a an d in te rn atio nal lo catio ns, w ith in n um ero us in dep en den t th ird p arty d is trib uto rs a n d w ith in S tu art W eitz m an o pera te d sto re s (in clu din g th e In te rn et) in th e U nite d S ta te s, C an ad a a n d E uro pe. A m ounts p re se n te d w ith in th e S tu art W eitz m an s e g m en t in fis c al 2 015 w ere re cla ssifie d fro m Oth er, w here t h ey w ere p re v io usly r e p orte d , a s S tu art W eitz m an b ecam e a r e p orta b le s e g m en t i n f is c al 2 016. In d ecid in g h ow t o a llo cate r e so urc es a n d a sse ss p erfo rm an ce, t h e C om pan y’s c h ie f o pera tin g d ecis io n m ak er r e g ula rly e v alu ate s t h e s a le s a n d o pera tin g i n co m e o f t h ese s e g m en ts . O pera tin g i n co m e i s t h e g ro ss m arg in o f t h e s e g m en t l e ss d ire ct e x pen se s o f t h e s e g m en t. U nallo cate d c o rp ora te e x pen se s i n clu de i n ven to ry -re la te d c o sts (s u ch a s p ro ductio n v aria n ces), a d vertis in g, m ark etin g, d esig n, a d m in is tra tio n a n d in fo rm atio n s y ste m s, a s w ell a s d is trib utio n a n d c o nsu m er s e rv ic e e x pen se s. A dditio nally , c o sts i n cu rre d b y t h e C om pan y a s d esc rib ed i n N ote 3 , ” R estru ctu rin g A ctiv itie s,” a n d c erta in a cq uis itio n-re la te d c o sts a re a ls o i n clu ded a s u nallo cate d c o rp ora te e x pen se s. CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) The f o llo w in g t a b le s u m mariz es s e g m en t p erfo rm an ce f o r f is c al 2 016, f is c al 2 015 a n d f is c al 2 014: North Am eric a In te rn atio n al Oth er (1 ) Corp ora te Unallo ca te d (2 ) Stu art Weit z m an Tota l (m illio ns) F is ca l 2 016 N et s ale s $ 2,3 97.1 $ 1,7 04.0 $ 46.0 $ — $ 344.7 $ 4,4 91.8 G ro ss p ro fit 1,4 78.4 1,2 86.2 32.3 52.0 202.4 3,0 51.3 O pera tin g in co m e ( lo ss) 737.3 512.7 22.9 (6 51.9 ) 32.5 653.5 I n co m e ( lo ss) b efo re p ro vis io n f o r in co m e ta x es 737.3 512.7 22.9 (6 78.8 ) 32.5 626.6 D ep re cia tio n a n d a m ortiz atio n e x pen se (3 ) 64.0 70.6 — 64.9 19.6 219.1 T ota l a ssets 435.2 1,0 33.9 9.9 2,7 82.5 631.2 4,8 92.7 A dditio ns to lo ng-liv ed a ssets 91.6 112.8 — 180.5 11.5 396.4 North Americ a In te rn atio nal Oth er (1 )(4 ) Corp ora te Unallo cate d (2 ) Stu art W eitz m an Tota l (m illio ns) F is cal 2 015 N et s ale s $ 2,4 67.5 $ 1,6 22.0 $ 59.1 $ — $ 43.0 $ 4,1 91.6 G ro ss p ro fit 1,5 74.6 1,2 48.8 38.1 27.2 19.9 2,9 08.6 O pera tin g in co m e ( lo ss) 820.5 480.6 30.1 (7 08.6 ) (4 .6 ) 618.0 I n co m e ( lo ss) b efo re p ro vis io n f o r in co m e ta x es 820.5 480.6 30.1 (7 15.0 ) (4 .6 ) 611.6 D ep re cia tio n a n d a m ortiz atio n e x pen se (3 ) 61.8 63.1 — 110.5 5.2 240.6 T ota l a ssets 385.1 1,0 57.6 7.4 2,6 14.2 602.6 4,6 66.9 A dditio ns to lo ng-liv ed a ssets 89.9 73.9 — 34.0 1.5 199.3 North Americ a In te rn atio nal Oth er (1 ) Corp ora te Unallo cate d (2 ) Stu art W eitz m an Tota l (m illio ns) F is cal 2 014 N et s ale s $ 3,1 00.5 $ 1,6 44.2 $ 61.5 $ — $ — $ 4,8 06.2 G ro ss p ro fit 1,9 92.7 1,2 95.3 36.9 (2 7.9 ) — 3,2 97.0 O pera tin g in co m e ( lo ss) 1,1 64.1 555.7 34.2 (6 33.9 ) — 1,1 20.1 I n co m e ( lo ss) b efo re p ro vis io n f o r in co m e ta x es 1,1 64.1 555.7 34.2 (6 31.7 ) — 1,1 22.3 D ep re cia tio n a n d a m ortiz atio n e x pen se (3 ) 72.9 58.8 — 57.7 — 189.4 T ota l a ssets 432.6 1,1 28.5 5.6 2,0 96.4 — 3,6 63.1 A dditio ns to lo ng-liv ed a ssets 102.2 71.5 — 45.9 219.6 ( 1 ) Oth er, w hic h i s n ot a r e p orta b le s e g m en t, c o nsis ts o f C oach b ra n d s a le s a n d e x pen se s g en era te d i n l ic en sin g a n d d is p ositio n c h an nels . ( 2 ) Corp ora te unallo cate d ex pen se s in clu de C oach bra n d in ven to ry -re la te d co sts (s u ch as pro ductio n varia n ces), ad vertis in g, m ark etin g, desig n, ad m in is tra tio n a n d in fo rm atio n sy ste m s, a s w ell a s d is trib utio n a n d c o nsu m er se rv ic e e x pen se s. F urth erm ore , tra n sfo rm atio n-re la te d a n d o pera tio nal effic ie n cy c h arg es i n cu rre d b y t h e C om pan y a s d esc rib ed i n N ote 3 , ” R estru ctu rin g A ctiv itie s” a n d t o a l e sse r e x te n t, c h arg es a sso cia te d w ith c o ntin gen t earn o ut p ay m en ts o f t h e S tu art W eitz m an 90 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) acq uis itio n ( a s d esc rib ed i n N ote 7 , ” A cq uis itio ns”) a n d o th er i n te g ra tio n-re la te d a ctiv itie s, a re a ls o i n clu ded a s u nallo cate d c o rp ora te e x pen se s. ( 3 ) Dep re cia tio n a n d a m ortiz atio n e x pen se i n clu des $8.5 m illio n o f t ra n sfo rm atio n-re la te d a n d o pera tio nal e ffic ie n cy p la n c h arg es f o r t h e f is c al y ear e n ded Ju ly 2 , 2 016 . D ep re cia tio n a n d a m ortiz atio n e x pen se in clu des $48.8 m illio n o f tra n sfo rm atio n-re la te d c h arg es fo r th e fis c al y ear e n ded Ju ne 2 7, 2 015 . These c h arg es a re r e co rd ed a s c o rp ora te u nallo cate d e x pen se s. The f o llo w in g t a b le s h ow s n et s a le s f o r e ach p ro duct c ate g ory r e p re se n te d ( in m illio ns): F is c a l Y ea r E nded July 2 , 2016 % o f T ota l Ju ne 2 7, 2015 % o f T ota l Ju ne 2 8, 2014 % o f T ota l W om en ‘s H an dbag s $ 2,3 92.9 53 % $ 2,3 89.6 57 % $ 2,8 26.1 59 % M en ‘s 725.7 16 680.4 16 691.8 14 W om en ‘s A ccesso rie s 721.6 16 709.4 17 860.3 18 A ll O th er P ro ducts 306.9 7 369.2 9 428.0 9 C oach b ra n d $ 4,1 47.1 92 % $ 4,1 48.6 99 % $ 4,8 06.2 100 % S tu art W eitz m an b ra n d (1 ) 344.7 8 43.0 1 — — T ota l S ale s $ 4,4 91.8 100 % $ 4,1 91.6 100 % $ 4,8 06.2 100 % ( 1 ) The s ig nific an t m ajo rity o f s a le s f o r t h e S tu art W eitz m an b ra n d i s a ttrib uta b le t o w om en ‘s f o otw ear. 91 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) The f o llo w in g i s a s u m mary o f t h e c o sts n ot a llo cate d i n t h e d ete rm in atio n o f s e g m en t o pera tin g i n co m e p erfo rm an ce: Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 (m illio ns) I n ven to ry -re la te d c o sts (1 ) $ 52.0 $ 27.2 $ (2 7.9 ) A dvertis in g, m ark etin g a n d d esig n (2 ) (2 60.3 ) (2 46.7 ) (2 38.1 ) A dm in is tra tio n a n d i n fo rm atio n s y ste m s (2 )(3 ) (3 81.6 ) (4 22.8 ) (2 83.9 ) D is trib utio n a n d c u sto m er s e rv ic e (2 ) (6 2.0 ) (6 6.3 ) (8 4.0 ) T ota l c o rp ora te u nallo ca te d $ (6 51.9 ) $ (7 08.6 ) $ (6 33.9 ) ( 1 ) In ven to ry -re la te d c o sts c o nsis t o f p ro ductio n v aria n ces a n d t ra n sfo rm atio n-re la te d c o sts , a n d a re r e co rd ed w ith in c o st o f s a le s. I n f is c al 2 016, 2 015 a n d 2014 p ro ductio n v aria n ces w ere $52.0 m illio n , $32.2 m illio n a n d $54.3 m illio n , r e sp ectiv ely . I n f is c al 2 016, f is c al 2 015 a n d f is c al 2 014, t ra n sfo rm atio n an d o th er-re la te d c o sts w ere $0.0 m illio n , $(5 .0 ) m illio n a n d $(8 2.2 ) m illio n , r e sp ectiv ely . ( 2 ) Costs r e co rd ed w ith in S G & A e x pen se s. ( 3 ) Fis c al 2 016 in clu des T ra n sfo rm atio n P la n , O pera tio nal E ffic ie n cy P la n a n d S tu art W eitz m an a cq uis itio n-re la te d c h arg es o f $(1 07.4 ) m illio n . F is c al 2015 a n d fis c al 2 014 in clu des c h arg es o f $(1 56.7 ) m illio n an d $(4 9.3 ) m illio n , re sp ectiv ely , re la te d to T ra n sfo rm atio n P la n a n d S tu art W eitz m an acq uis itio n-re la te d c h arg es. G eo gra phic A rea I n fo rm atio n As o f Ju ly 2 , 2 016 , th e C om pan y o pera te d 250 re ta il s to re s a n d 195 o utle t s to re s in th e U nite d S ta te s, 40 re ta il s to re s a n d 11 o utle t s to re s in C an ad a. O uts id e o f N orth A m eric a, th e C om pan y o pera te d 195 c o ncessio n s h op-in -s h ops w ith in d ep artm en t s to re s, re ta il s to re s a n d o utle t s to re s in J a p an , 185 in G re ate r C hin a ( in clu din g H ong K ong, M acau a n d m ain la n d C hin a), a n d 153 i n o th er i n te rn atio nal l o catio ns. G eo gra p hic r e v en ue i n fo rm atio n i s b ase d o n t h e l o catio n o f o ur c u sto m er s a le . G eo gra p hic lo ng-liv ed a sse t in fo rm atio n is b ase d o n th e p hysic al lo catio n o f th e a sse ts a t th e e n d o f e ach fis c al y ear a n d i n clu des p ro perty a n d e q uip m en t, n et a n d o th er a sse ts . Unite d S ta te s Japan Grea te r C hin a (2 ) Oth er (3 ) Tota l (m illio ns) F is c a l 2 016 N et s a le s (1 ) $ 2,4 77.3 $ 559.8 $ 652.2 $ 802.5 $ 4,4 91.8 L ong-liv ed a sse ts 750.3 74.8 96.6 141.5 1,0 63.2 F is c a l 2 015 N et s a le s (1 ) $ 2,3 72.8 $ 545.6 $ 635.8 $ 637.4 $ 4,1 91.6 L ong-liv ed a sse ts 559.5 55.4 91.2 138.4 844.5 F is c a l 2 014 N et s a le s (1 ) $ 2,9 68.6 $ 654.7 $ 583.9 $ 599.0 $ 4,8 06.2 L ong-liv ed a sse ts 594.7 70.4 83.9 91.6 840.6 ( 1 ) In clu des n et s a le s f ro m o ur g lo bal t ra v el r e ta il b usin ess i n l o catio ns w ith in t h e s p ecifie d g eo gra p hic a re a. ( 2 ) Gre ate r C hin a i n clu des m ain la n d C hin a, H ong K ong a n d M acau . ( 3 ) Oth er I n te rn atio nal s a le s r e fle ct s h ip m en ts t o t h ird -p arty d is trib uto rs , p rim arily i n E ast A sia , a n d s a le s f ro m C om pan y-o pera te d s to re s a n d c o ncessio n sh op-in -s h ops i n C an ad a, E uro pe, S outh K ore a, T aiw an , M ala y sia a n d S in gap ore . 92 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) 1 6. E ARNIN G S P E R S H ARE Basic n et i n co m e p er s h are i s c alc u la te d b y d iv id in g n et i n co m e b y t h e w eig hte d -a v era g e n um ber o f s h are s o uts ta n din g d urin g t h e p erio d. D ilu te d n et i n co m e p er s h are i s c alc u la te d s im ila rly b ut i n clu des p ote n tia l d ilu tio n f ro m t h e e x erc is e o f s to ck o ptio ns a n d r e stric te d s to ck u nits a n d a n y o th er p ote n tia lly d ilu tiv e i n stru m en ts , o nly i n t h e p erio ds i n w hic h s u ch e ffe cts a re d ilu tiv e u nder t h e t re asu ry s to ck m eth od. The f o llo w in g i s a r e co ncilia tio n o f t h e w eig hte d -a v era g e s h are s o uts ta n din g a n d c alc u la tio n o f b asic a n d d ilu te d e arn in gs p er s h are : Fis c a l Y ea r E nded July 2 , 2016 Ju ne 2 7, 2015 Ju ne 2 8, 2014 (m illio ns, e x cep t p er s h are d ata ) N et i n co m e $ 460.5 $ 402.4 $ 781.3 T ota l w eig hte d -a v era g e b asic s h are s 277.6 275.7 277.8 D ilu tiv e s e cu ritie s: Share -b ase d a w ard p la n s 1.3 0.9 1.0 Sto ck o ptio n p ro gra m s 0.4 0.6 1.6 T ota l w eig hte d -a v era g e d ilu te d s h are s 279.3 277.2 280.4 N et i n co m e p er s h are : Basic $ 1.6 6 $ 1.4 6 $ 2.8 1 Dilu te d $ 1.6 5 $ 1.4 5 $ 2.7 9 At Ju ly 2 , 2 016 , o ptio ns t o p urc h ase 5.1 m illio n s h are s o f c o m mon s to ck w ere o uts ta n din g b ut n ot i n clu ded i n t h e c o m puta tio n o f d ilu te d e arn in gs p er s h are , a s t h ese o ptio ns’ e x erc is e p ric es, r a n gin g f ro m $39.4 2 t o $78.4 6 , w ere g re ate r t h an t h e a v era g e m ark et p ric e o f t h e c o m mon s h are s. At Ju ne 2 7, 2 015 , o ptio ns t o p urc h ase 5.9 m illio n s h are s o f c o m mon s to ck w ere o uts ta n din g b ut n ot i n clu ded i n t h e c o m puta tio n o f d ilu te d e arn in gs p er s h are , a s t h ese o ptio ns’ e x erc is e p ric es, r a n gin g f ro m $38.7 5 t o $78.4 6 , w ere g re ate r t h an t h e a v era g e m ark et p ric e o f t h e c o m mon s h are s. At Ju ne 2 8, 2 014 , o ptio ns t o p urc h ase 6.4 m illio n s h are s o f c o m mon s to ck w ere o uts ta n din g b ut n ot i n clu ded i n t h e c o m puta tio n o f d ilu te d e arn in gs p er s h are , a s t h ese o ptio ns’ e x erc is e p ric es, r a n gin g f ro m $43.3 9 t o $78.4 6 , w ere g re ate r t h an t h e a v era g e m ark et p ric e o f t h e c o m mon s h are s. Earn in gs p er s h are a m ounts h av e b een c alc u la te d b ase d o n u nro unded n um bers . O ptio ns to p urc h ase s h are s o f th e C om pan y’s c o m mon s to ck a t a n e x erc is e p ric e g re ate r th an th e a v era g e m ark et p ric e o f th e c o m mon s to ck d urin g th e re p ortin g p erio d a re a n ti-d ilu tiv e a n d th ere fo re n ot in clu ded in th e c o m puta tio n o f d ilu te d n et i n co m e p er c o m mon s h are . I n a d ditio n, t h e C om pan y h as o uts ta n din g r e stric te d s to ck u nit a w ard s t h at a re i s su ab le o nly u pon t h e a ch ie v em en t o f c erta in p erfo rm an ce g oals . P erfo rm an ce-b ase d r e stric te d s to ck u nit a w ard s a re i n clu ded i n t h e c o m puta tio n o f d ilu te d s h are s o nly t o t h e e x te n t t h at t h e u nderly in g p erfo rm an ce c o nditio ns ( a n d a n y a p plic ab le m ark et c o nditio n m odifie rs ) ( i) a re s a tis fie d a s o f t h e e n d o f t h e r e p ortin g p erio d o r ( ii) w ould b e c o nsid ere d s a tis fie d i f t h e e n d o f t h e r e p ortin g p erio d w ere t h e e n d o f t h e r e la te d c o ntin gen cy p erio d a n d t h e r e su lt w ould b e d ilu tiv e u nder t h e t re asu ry s to ck m eth od. A s o f Ju ly 2 , 2 016 , Ju ne 2 7, 2 015 an d Ju ne 2 8, 2 014 , th ere w ere a p pro xim ate ly 5.9 m illio n , 6.8 m illio n , an d 7.1 m illio n , re sp ectiv ely , o f a d ditio nal sh are s is su ab le u pon e x erc is e o f a n ti-d ilu tiv e o ptio ns a n d c o ntin gen t v estin g o f p erfo rm an ce-b ase d re stric te d sto ck u nit a w ard s, w hic h w ere e x clu ded f ro m t h e d ilu te d s h are c alc u la tio ns. 93 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) 1 7. S T O CK R EPU RCH ASE P R O GRAM Purc h ase s o f th e C om pan y’s c o m mon s to ck h av e b een m ad e fro m tim e to tim e, s u bje ct to m ark et c o nditio ns a n d a t p re v ailin g m ark et p ric es, th ro ugh o pen m ark et p urc h ase s. U nder M ary la n d la w , th e C om pan y’s s ta te o f in co rp ora tio n, tre asu ry s h are s a re n ot a llo w ed . A s a re su lt, a ll re p urc h ase d s h are s a re r e tire d w hen a cq uire d . T he C om pan y’s s to ck r e p urc h ase p ro gra m e x pire d a t t h e e n d o f f is c al 2 015, w ith zero r e m ain in g a v aila b ility a t Ju ly 2 , 2 016 . Durin g fis c al 2016 a n d fis c al 2015 , th e C om pan y d id n ot re p urc h ase a n y s h are s o f c o m mon s to ck . D urin g fis c al 2014 , th e C om pan y re p urc h ase d a n d r e tire d 10.2 m illio n s h are s, o r $524.9 m illio n o f c o m mon s to ck , a t a n a v era g e c o st o f $51.2 7 p er s h are . 1 8. R ELATED P A RTIE S The S tu art W eitz m an b ra n d a n d o ne o f its e m plo yees e ach m ain ta in a p artia l o w ners h ip in te re st o f le ss th an 50% in a fa cto ry ( tw o in to ta l) lo cate d in S pain , w hic h a re in volv ed in th e p ro ductio n o f S tu art W eitz m an in ven to ry . P ay m en ts to th ese tw o fa cto rie s re p re se n te d $39.2 m illio n an d $6.3 m illio n in f is c al 2 016 a n d f is c al 2 015, r e sp ectiv ely . Am ounts p ay ab le t o t h ese f a cto rie s w ere n ot m ate ria l a t Ju ly 2 , 2 016 o r Ju ne 2 7, 2 015 . 1 9. S U BSE Q UENT E VENTS Hudso n Y ard s On A ugust 1 , 2 016, th e C om pan y a n nounced th e sa le o f its in vestm en ts in 1 0 H udso n Y ard s, in N ew Y ork C ity , a n d th e le ase o f its n ew g lo bal h ead quarte rs . T he C om pan y re ceiv ed a p urc h ase p ric e o f a p pro xim ate ly $707 m illio n (n et o f a p pro xim ate ly $77 m illio n d ue to th e d ev elo per o f H udso n Y ard s) b efo re t ra n sa ctio n c o sts o f $26 m illio n , re su ltin g in a g ain o f a p pro xim ate ly $30 m illio n , w hic h w ill b e a m ortiz ed th ro ugh S G & A e x pen se s o ver th e l e ase t e rm o f 20 y ears . T he C om pan y h as s im ulta n eo usly e n te re d i n to a 20 -y ear l e ase f o r t h e h ead quarte rs s p ace i n t h e b uild in g, c o m pris in g o f a p pro xim ate ly 6 94,0 00 s q uare f e et. Refe r to N ote 1 1, ” C om mitm en ts a n d C ontin gen cie s,” fo r fu rth er in fo rm atio n. F urth erm ore , re fe r to N ote 8 , ” L ease s,” fo r a s u m mary o f th e C om pan y’s f u tu re m in im um r e n ta l p ay m en ts u nder t h is n ew l e ase . Term L oan On A ugust 3 , 2 016, t h e C om pan y p re p aid i ts o uts ta n din g b orro w in gs o f a p pro xim ate ly $285 m illio n ( in clu din g a ccru ed a n d u npaid i n te re st) u nder t h e T erm L oan fa cility o f its A m en ded a n d R esta te d C re d it A gre em en t. A p ortio n o f th e p ro ceed s fro m th e s a le o f th e C om pan y’s in vestm en ts in 1 0 H udso n Y ard s, a s d esc rib ed a b ove, w as u se d t o m ak e t h e p re p ay m en t. T he R ev olv in g F acility u nder t h e A m en ded a n d R esta te d C re d it A gre em en t w ill c o ntin ue t o r e m ain i n e ffe ct. R efe r t o N ote 1 0, ” D eb t,” f o r a s u m mary o f t h e C om pan y’s d eb t p ositio n a s o f Ju ly 2 , 2 016 . 94 CO ACH , I N C. Note s t o C onso lid ate d F in ancia l S ta te m en ts ( C ontin ued ) 2 0. S U PPL EM ENTAL B ALANCE S H EET I N FO RM ATIO N The c o m ponen ts o f c erta in b ala n ce s h eet a cco unts a re a s f o llo w s: July 2 , 2016 Ju ne 2 7, 2015 (m illio ns) P ro perty a nd e q uip m en t Lan d a n d b uild in g $ 168.5 $ 168.5 Mach in ery a n d e q uip m en t 34.5 34.7 Furn itu re a n d f ix tu re s 653.2 640.9 Lease h old i m pro vem en ts 898.7 650.7 Constru ctio n i n p ro gre ss 26.4 78.8 Less: a ccu m ula te d d ep re cia tio n (8 61.8 ) (8 41.0 ) Tota l p ro perty a n d e q uip m en t, n et $ 919.5 $ 732.6 A ccru ed l ia bilitie s Pay ro ll a n d e m plo yee b en efits $ 180.5 $ 181.9 Accru ed r e n t 45.2 47.8 Div id en ds p ay ab le 93.9 93.3 Opera tin g e x pen se s 305.4 277.6 Tota l a ccru ed l ia b ilitie s $ 625.0 $ 600.6 O th er l ia bilitie s Defe rre d l e ase o blig atio n $ 172.9 $ 122.4 Gro ss u nre co gniz ed t a x b en efit 138.6 168.1 Defe rre d t a x l ia b ilitie s 57.3 60.0 Oth er 153.1 112.7 Tota l o th er l ia b ilitie s $ 521.9 $ 463.2 95 CO ACH , I N C. Sch ed ule I I — V alu atio n a nd Q ualify in g A cco unts For t h e F is c a l Y ea rs E nded July 2 , 2 016 , June 2 7, 2 015 a nd June 2 8, 2 014 Bala nce a t Beg in nin g of Y ea r Additio ns C harg ed to C osts a nd Expen se s Additio ns R ela te d t o Acq uis itio n Write -o ffs / Allo w ances T aken Bala nce a t End o f Y ea r (m illio ns) F is c a l 2 016 A llo w an ce f o r b ad d eb ts $ 3.1 $ 3.7 $ — $ (4 .6 ) $ 2.2 A llo w an ce f o r r e tu rn s 7.5 11.5 — (1 3.0 ) 6.0 A llo w an ce f o r m ark dow ns 18.0 54.1 — (5 6.9 ) 15.2 V alu atio n a llo w an ce 169.8 3.6 — — 173.4 Tota l $ 198.4 $ 72.9 $ — $ (7 4.5 ) $ 196.8 F is c a l 2 015 A llo w an ce f o r b ad d eb ts $ 1.4 $ 1.7 $ 0.9 $ (0 .9 ) $ 3.1 A llo w an ce f o r r e tu rn s 2.9 8.9 0.7 (5 .0 ) 7.5 A llo w an ce f o r m ark dow ns 11.6 42.5 3.8 (3 9.9 ) 18.0 V alu atio n a llo w an ce 131.8 38.0 — — 169.8 Tota l $ 147.7 $ 91.1 $ 5.4 $ (4 5.8 ) $ 198.4 F is c a l 2 014 A llo w an ce f o r b ad d eb ts $ 1.1 $ 1.6 $ — $ (1 .3 ) $ 1.4 A llo w an ce f o r r e tu rn s 7.0 0.8 — (4 .9 ) 2.9 A llo w an ce f o r m ark dow ns 8.4 37.9 — (3 4.7 ) 11.6 V alu atio n a llo w an ce 79.6 52.2 — — 131.8 Tota l $ 96.1 $ 92.5 $ — $ (4 0.9 ) $ 147.7 96 CO ACH , I N C. Quarte rly F in ancia l D ata (u naudite d ) Firs t Q uarte r Seco nd Q uarte r Third Q uarte r Fourth Q uarte r (m illio ns, e x cep t p er s h are d ata ) F is c a l 2 016 (1 )(2 ) Net s a le s $ 1,0 30.3 $ 1,2 73.8 $ 1,0 33.1 $ 1,1 54.6 Gro ss p ro fit 696.5 859.1 713.0 782.7 Net i n co m e 96.4 170.1 112.5 81.5 Net i n co m e p er c o m mon s h are : Basic 0.3 5 0.6 1 0.4 0 0.2 9 Dilu te d 0.3 5 0.6 1 0.4 0 0.2 9 F is c a l 2 015 (1 ) Net s a le s $ 1,0 38.8 $ 1,2 19.4 $ 929.3 $ 1,0 04.1 Gro ss p ro fit 715.4 840.0 665.5 687.7 Net i n co m e 119.1 183.5 88.1 11.7 Net i n co m e p er c o m mon s h are : Basic 0.4 3 0.6 7 0.3 2 0.0 4 Dilu te d 0.4 3 0.6 6 0.3 2 0.0 4 F is c a l 2 014 (1 ) Net s a le s $ 1,1 50.8 $ 1,4 19.6 $ 1,0 99.6 $ 1,1 36.2 Gro ss p ro fit 826.6 982.7 781.3 706.4 Net i n co m e 217.9 297.4 190.8 75.2 Net i n co m e p er c o m mon s h are : Basic 0.7 7 1.0 7 0.6 9 0.2 7 Dilu te d 0.7 7 1.0 6 0.6 8 0.2 7 ( 1 ) The s u m o f t h e q uarte rly e arn in gs p er s h are m ay n ot e q ual t h e f u ll-y ear a m ount, a s t h e c o m puta tio ns o f t h e w eig hte d -a v era g e n um ber o f c o m mon b asic an d d ilu te d s h are s o uts ta n din g f o r e ach q uarte r a n d t h e f u ll y ear a re p erfo rm ed i n dep en den tly . ( 2 ) The fis c al y ear e n ded Ju ly 2 , 2 016 (“ fis c al 2 016”) w as a 5 3-w eek p erio d, a n d th e fis c al y ears e n ded Ju ne 2 7, 2 015 (“ fis c al 2 015”) a n d Ju ne 2 8, 2 014 (“ fis c al 2 014”) w ere e ach 5 2-w eek p erio ds. T he f o urth q uarte r o f f is c al 2 016 i n clu ded t h e r e su lts o f t h e 5 3rd w eek , c o ntrib utin g t o $84.4 m illio n in n et re v en ues a n d $0.0 7 i n n et i n co m e p er d ilu te d s h are . 97 EXH IB IT S T O F O RM 1 0-K ( a ) Exhib it T ab le ( n um bere d i n a cco rd an ce w ith I te m 6 01 o f R eg ula tio n S -K ) Exhib it Desc rip tio n 3.1 Am en ded a n d R esta te d B yla w s o f C oach , I n c., d ate d A ugust 1 7, 2 015, w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 3 .1 t o C oach ’s Curre n t R ep ort o n F orm 8 -K f ile d o n A ugust 1 7, 2 015 3.2 Artic le s S upple m en ta ry o f C oach , I n c., d ate d M ay 3 , 2 001, w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 3 .2 t o C oach ’s C urre n t Rep ort o n F orm 8 -K f ile d o n M ay 9 , 2 001 3.3 Artic le s o f A m en dm en t o f C oach , I n c., d ate d M ay 3 , 2 001, w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 3 .3 t o C oach ’s C urre n t Rep ort o n F orm 8 -K f ile d o n M ay 9 , 2 001 3.4 Artic le s o f A m en dm en t o f C oach , I n c., d ate d M ay 3 , 2 002, w hic h i s i n co rp ora te d b y r e fe re n ce f ro m E xhib it 3 .4 t o C oach ’s A nnual R ep ort o n Form 1 0-K f o r t h e f is c al y ear e n ded J u ne 2 9, 2 002 3.5 Artic le s o f A m en dm en t o f C oach , I n c., d ate d F eb ru ary 1 , 2 005, w hic h i s i n co rp ora te d b y r e fe re n ce f ro m E xhib it 9 9.1 t o C oach ’s C urre n t Rep ort o n F orm 8 -K f ile d o n F eb ru ary 2 , 2 005 4.1 Specim en C ertific ate f o r C om mon S to ck o f C oach , w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 4 .1 t o C oach ‘s R eg is tra tio n Sta te m en t o n F orm S -1 ( R eg is tra tio n N o. 3 33-3 9502) 4.2 Dep osit A gre em en t, d ate d N ovem ber 2 4, 2 011, b etw een C oach , I n c. a n d J P M org an C hase B an k, N .A ., a s d ep osita ry , w hic h i s i n co rp ora te d b y re fe re n ce f ro m E xhib it 4 .1 t o C oach ’s C urre n t R ep ort o n F orm 8 -K f ile d o n N ovem ber 2 5, 2 011 4.3 Deed P oll, d ate d N ovem ber 2 4, 2 011, e x ecu te d b y C oach , I n c. a n d J P M org an C hase B an k, N .A ., a s d ep osita ry , p urs u an t t o t h e d ep osit ag re em en t i n f a v or o f a n d i n r e la tio n t o t h e r ig hts o f t h e h old ers o f t h e d ep osita ry r e ceip ts , w hic h i s i n co rp ora te d b y r e fe re n ce f ro m E xhib it 4.1 t o C oach ’s C urre n t R ep ort o n F orm 8 -K f ile d o n N ovem ber 2 5, 2 011 4.4 In den tu re , d ate d a s o f M arc h 2 , 2 015, r e la tin g t o t h e 4 .2 50% s e n io r u nse cu re d n ote s d ue 2 025, b etw een C oach a n d U .S . B an k N atio nal Asso cia tio n, a s t ru ste e, w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 4 .1 t o C oach ’s C urre n t R ep ort o n F orm 8 -K f ile d o n M arc h 2 , 2015 4.5 Firs t S upple m en ta l I n den tu re , d ate d a s o f M arc h 2 , 2 015, r e la tin g t o t h e 4 .2 50% s e n io r u nse cu re d n ote s d ue 2 025, b etw een C oach a n d U .S . Ban k N atio nal A sso cia tio n, a s t ru ste e, w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 4 .2 t o C oach ’s C urre n t R ep ort o n F orm 8 -K file d o n M arc h 2 , 2 015 4.6 Form o f 4 .2 50% s e n io r u nse cu re d n ote s d ue 2 025 ( in clu ded i n t h e F irs t S upple m en ta l I n den tu re ), w hic h i s i n co rp ora te d h ere in b y r e fe re n ce fro m E xhib it 4 .3 t o C oach ’s C urre n t R ep ort o n F orm 8 -K f ile d o n M arc h 2 , 2 015 10.1 Purc h ase A gre em en t a m ong S tu art W eitz m an T opco L LC , S tu art W eitz m an I n te rm ed ia te L LC a n d C oach , d ate d J a n uary 5 , 2 015, w hic h i s in co rp ora te d b y r e fe re n ce f ro m E xhib it 1 0.1 t o C oach ’s Q uarte rly R ep ort o n F orm 1 0-Q f o r t h e p erio d e n ded D ecem ber 2 7, 2 014 10.2 Lette r A gre em en t b etw een S tu art W eitz m an a n d C oach , d ate d J a n uary 5 , 2 015, w hic h i s i n co rp ora te d b y r e fe re n ce f ro m E xhib it 1 0.2 t o Coach ’s Q uarte rly R ep ort o n F orm 1 0-Q f o r t h e p erio d e n ded D ecem ber 2 7, 2 014 10.3 Am en dm en t a n d R esta te m en t A gre em en t, d ate d a s o f M arc h 1 8, 2 015, b y a n d b etw een C oach , c erta in l e n ders a n d J P M org an C hase B an k, N.A ., a s a d m in is tra tiv e a g en t, w hic h a m en ds a n d r e sta te s t h e R ev olv in g C re d it A gre em en t, d ate d a s o f J u ne 1 8, 2 012 ( a s a m en ded b y Am en dm en t N o. 1 d ate d M arc h 2 6, 2 013, A m en dm en t N o. 2 d ate d N ovem ber 2 7, 2 013 a n d A m en dm en t N o. 3 d ate d S ep te m ber 9 , 2 014) , whic h i s i n co rp ora te d b y r e fe re n ce f ro m E xhib it 1 0.2 t o C oach ’s Q uarte rly R ep ort o n F orm 1 0-Q f o r t h e p erio d e n ded M arc h 2 8, 2 015 10.4 ~ Lim ite d L ia b ility C om pan y A gre em en t, d ate d A pril 1 0, 2 013, b y a n d b etw een C oach L eg acy Y ard s L LC , a n a ffilia te o f C oach , a n d P odiu m Fund T ow er C S PV L LC , w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 1 0.3 t o C oach ’s A nnual R ep ort o n F orm 1 0-K f o r t h e f is c al year e n ded J u ne 2 9, 2 013 10.5 ~ Dev elo pm en t A gre em en t, d ate d A pril 1 0, 2 013, b y a n d b etw een C oach L eg acy Y ard s L LC , a n a ffilia te o f C oach , a n d E R Y D ev elo per L LC , whic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 1 0.4 t o C oach ’s A nnual R ep ort o n F orm 1 0-K f o r t h e f is c al y ear e n ded J u ne 2 9, 2 013 10.6 Guara n ty A gre em en t, d ate d A pril 1 0, 2 013, b y C oach , I n c., t o a n d f o r t h e b en efit o f ER Y D ev elo per L LC a n d P odiu m F und T ow er C S PV L LC , w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 1 0.5 t o C oach ’s A nnual Rep ort o n F orm 1 0-K f o r t h e f is c al y ear e n ded J u ne 2 9, 2 013 10.7 Purc h ase a n d S ale A gre em en t, d ate d A pril 1 0, 2 013, b y a n d b etw een 5 04-5 14 W est 3 4 th S tre et C orp . a n d 5 16 W est 3 4 th S tre et L LC , b oth su bsid ia rie s o f C oach , a n d E R Y 3 4 th S tre et A cq uis itio n L LC , w hic h i s i n co rp ora te d h ere in b y r e fe re n ce f ro m E xhib it 1 0.6 t o C oach ’s A nnual Rep ort o n F orm 1 0-K f o r t h e f is c al y ear e n ded J u ne 2 9, 2 013 10.8 † Coach , I n c. 2 000 S to ck I n cen tiv e P la n , w hic h i s i n co rp ora te d b y r e fe re n ce f ro m E xhib it 1 0.1 0 t o C oach ’s A nnual R ep ort o n F orm 1 0-K f o r th e f is c al y ear e n ded J u ne 2 8, 2 003 98 Exhib it Desc rip tio n 10.9 † Coach , I n c. N on-Q ualifie d D efe rre d C om pen sa tio n P la n f o r O uts id e D ire cto rs , w hic h i s i n co rp ora te d b y r e fe re n ce f ro m E xhib it 1 0.1 4 t o Coach ’s A nnual R ep ort o n F orm 1 0-K f o r t h e f is c al y ear e n ded J u ne 2 8, 2 003 10.1 0† Coach , I n c. 2 001 E m plo yee S to ck P urc h ase P la n , w hic h i s i n co rp ora te d b y r e fe re n ce f ro m E xhib it 1 0.1 5 t o C oach ’s A nnual R ep ort o n F orm 10-K f o r t h e f is c al y ear e n ded J u ne 2 9, 2 002 10.1 1† Coach , I n c. 2 004 S to ck I n cen tiv e P la n , w hic h i s i n co rp ora te d b y r e fe re n ce f ro m A ppen dix A t o t h e R eg is tra n t’s D efin itiv e P ro xy S ta te m en t fo r t h e 2 004 A nnual M eetin g o f S to ck hold ers , f ile d o n S ep te m ber 2 9, 2 004 10.1 2† Coach , I n c. 2 010 S to ck I n cen tiv e P la n , w hic h i s i n co rp ora te d b y r e fe re n ce f ro m A ppen dix A t o t h e R eg is tra n t’s D efin itiv e P ro xy S ta te m en t fo r t h e 2 010 A nnual M eetin g o f S to ck hold ers , f ile d o