Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

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

SIGNATURES

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

COACH, INC.

Date: August 18, 2017	By:	/s/ Victor Luis
		Name: Victor Luis Title: Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below on August 18, 2017.

Signature		Title
/s/ Victor Luis		Chief Executive Officer and Director
Victor Luis		(Principal Executive Officer)
/s/ Kevin Wills		Chief Financial Officer
Kevin Wills		(Principal Financial Officer)
/s/ Melinda Brown		Corporate Controller
Melinda Brown		(Principal Accounting Officer)
/s/ Jide Zeitlin		Chairman and Director
Jide Zeitlin
/s/ David Denton		Director
David Denton
/s/ Andrea Guerra		Director
Andrea Guerra
/s/ Susan Kropf		Director
Susan Kropf
/s/ Annabelle Yu Long		Director
Annabelle Yu Long
/s/ Ivan Menezes		Director
Ivan Menezes
/s/ William Nuti		Director
William Nuti
/s/ Stephanie Tilenius		Director
Stephanie Tilenius

COACH, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

	Page Number
Reports of Independent Registered Public Accounting Firm	58
Consolidated Financial Statements:
Consolidated Balance Sheets	60
Consolidated Statements of Income	61
Consolidated Statements of Comprehensive Income	62
Consolidated Statements of Stockholders’ Equity	63
Consolidated Statements of Cash Flows	64
Notes to Consolidated Financial Statements	65
Financial Statement Schedules:
Schedule II — Valuation and Qualifying Accounts	94
Quarterly Financial Data	95

All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Coach, Inc.

New York, New York

We have audited the accompanying consolidated balance sheets of Coach, Inc. and subsidiaries (the "Company") as of July 1, 2017 and July 2, 2016, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended July 1, 2017. Our audits also included the financial statement Schedule II listed in the Index to the Consolidated Financial Statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Coach, Inc. and subsidiaries at July 1, 2017 and July 2, 2016, and the results of their operations and their cash flows for each of the three years in the period ended July 1, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of July 1, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 18, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

New York, New York

August 18, 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Coach, Inc.

New York, New York

We have audited the internal control over financial reporting of Coach, Inc. and subsidiaries (the "Company") as of July 1, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 1, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement Schedule II as of and for the year ended July 1, 2017 of the Company and our report dated August 18, 2017 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

New York, New York

August 18, 2017

COACH, INC.

CONSOLIDATED BALANCE SHEETS

	July 1, 2017				July 2, 2016
	(millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,672.9			$	859.0
Short-term investments	410.7				460.4
Trade accounts receivable, less allowances of $1.9 and $2.2, respectively	268.0				245.2
Inventories	469.7				459.2
Income tax receivable	41.5				13.6
Prepaid expenses	58.6				58.0
Other current assets	31.9				77.5
Total current assets	3,953.3				2,172.9
Property and equipment, net	691.4				919.5
Long-term investments	75.1				558.6
Goodwill	480.5				502.4
Intangible assets	340.8				346.8
Deferred income taxes	170.5				248.8
Other assets	120.0				143.7
Total assets	$	5,831.6			$	4,892.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	194.6			$	186.7
Accrued liabilities	559.2				625.0
Current debt	—				15.0
Total current liabilities	753.8				826.7
Long-term debt	1,579.5				861.2
Other liabilities	496.4				521.9
Total liabilities	2,829.7				2,209.8
See Note 11 on commitments and contingencies
Stockholders’ Equity:
Preferred stock: (authorized 25.0 million shares; $0.01 par value) none issued	—				—
Common stock: (authorized 1,000.0 million shares; $0.01 par value) issued and outstanding – 281.9 million and 278.5 million shares, respectively	2.8				2.8
Additional paid-in-capital	2,978.3				2,857.1
Retained earnings (accumulated deficit)	107.7				(104.1		)
Accumulated other comprehensive loss	(86.9		)		(72.9		)
Total stockholders’ equity	3,001.9				2,682.9
Total liabilities and stockholders’ equity	$	5,831.6			$	4,892.7

See accompanying Notes.

COACH, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Fiscal Year Ended
	July 1, 2017				July 2, 2016				June 27, 2015
	(millions, except per share data)
Net sales	$	4,488.3			$	4,491.8			$	4,191.6
Cost of sales	1,407.2				1,440.5				1,283.0
Gross profit	3,081.1				3,051.3				2,908.6
Selling, general and administrative expenses	2,293.7				2,397.8				2,290.6
Operating income	787.4				653.5				618.0
Interest expense, net	28.4				26.9				6.4
Income before provision for income taxes	759.0				626.6				611.6
Provision for income taxes	168.0				166.1				209.2
Net income	$	591.0			$	460.5			$	402.4
Net income per share:
Basic	$	2.11			$	1.66			$	1.46
Diluted	$	2.09			$	1.65			$	1.45
Shares used in computing net income per share:
Basic	280.6				277.6				275.7
Diluted	282.8				279.3				277.2
Cash dividends declared per common share	$	1.350			$	1.350			$	1.350

See accompanying Notes.

COACH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Fiscal Year Ended
	July 1, 2017				July 2, 2016				June 27, 2015
	(millions)
Net Income	$	591.0			$	460.5			$	402.4
Other comprehensive (loss) income, net of tax:
Unrealized gains (losses) on cash flow hedging derivatives, net	11.8				(13.2		)		3.8
Unrealized (losses) on available-for-sale debt investments, net	(0.7		)		(0.2		)		(1.3		)
Change in pension liability, net	1.1				(0.6		)		1.0
Foreign currency translation adjustments	(26.2		)		18.8				(72.5		)
Other comprehensive (loss) income, net of tax	(14.0		)		4.8				(69.0		)
Comprehensive income	$	577.0			$	465.3			$	333.4

See accompanying Notes.

COACH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Shares of Common Stock			Common Stock				Additional Paid-in-Capital				(Accumulated Deficit)/ Retained Earnings				Accumulated Other Comprehensive (Loss)/Income				Total Stockholders' Equity
	(millions, except per share data)
Balance at June 28, 2014	274.4			$	2.7			$	2,646.1			$	(219.5	)		$	(8.7	)		$	2,420.6
Net income	—			—				—				402.4				—				402.4
Other comprehensive loss	—			—				—				—				(69.0		)		(69.0		)
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	2.2			0.1				19.5				—				—				19.6
Share-based compensation	—			—				94.4				—				—				94.4
Excess tax effect from share-based compensation	—			—				(5.6		)		—				—				(5.6		)
Dividends declared ($1.350 per share)	—			—				—				(372.5		)		—				(372.5		)
Balance at June 27, 2015	276.6			2.8				2,754.4				(189.6		)		(77.7		)		2,489.9
Net income	—			—				—				460.5				—				460.5
Other comprehensive income	—			—				—				—				4.8				4.8
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	1.9			—				16.4				—				—				16.4
Share-based compensation	—			—				95.3				—				—				95.3
Excess tax effect from share-based compensation	—			—				(9.0		)		—				—				(9.0		)
Dividends declared ($1.350 per share)	—			—				—				(375.0		)		—				(375.0		)
Balance at July 2, 2016	278.5			2.8				2,857.1				(104.1		)		(72.9		)		2,682.9
Net income	—			—				—				591.0				—				591.0
Other comprehensive loss	—			—				—				—				(14.0		)		(14.0		)
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	3.4			—				48.9				—				—				48.9
Share-based compensation	—			—				76.1				—				—				76.1
Excess tax effect from share-based compensation	—			—				(3.8		)		—				—				(3.8		)
Dividends declared ($1.350 per share)	—			—				—				(379.2		)		—				(379.2		)
Balance at July 1, 2017	281.9			$	2.8			$	2,978.3			$	107.7			$	(86.9	)		$	3,001.9

See accompanying Notes.

COACH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Year Ended
	July 1, 2017				July 2, 2016				June 27, 2015
	(millions)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income	$	591.0			$	460.5			$	402.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	212.8				210.6				191.8
Provision for bad debt	1.7				3.7				1.7
Share-based compensation	73.6				86.8				88.9
Excess tax effect from share-based compensation	3.8				9.0				5.6
Restructuring activities	8.5				17.7				59.7
Deferred income taxes	78.0				(52.3		)		21.5
Other noncash charges, net	(19.1		)		(14.7		)		(3.2		)
Changes in operating assets and liabilities:
Trade accounts receivable	(29.4		)		(28.3		)		0.3
Inventories	(20.0		)		40.7				29.2
Other liabilities	(53.4		)		49.5				(5.9		)
Accounts payable	8.4				(48.4		)		64.4
Accrued liabilities	(50.1		)		30.1				63.2
Other assets	48.0				(6.3		)		17.8
Net cash provided by operating activities	853.8				758.6				937.4
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Hudson Yards sale of investments, net of expenses	680.6				—				—
Sale of former headquarters, net of expenses	126.0				—				—
Acquisition of interest in equity method investment	—				(140.3		)		(139.1		)
Acquisitions, net of cash acquired	—				(25.6		)		(519.6		)
Purchases of property and equipment	(283.1		)		(396.4		)		(199.3		)
Purchases of investments	(523.5		)		(664.7		)		(49.6		)
Proceeds from maturities and sales of investments	591.2				425.9				305.2
Acquisition of lease rights, net of proceeds	1.8				(8.9		)		(10.5		)
Net cash provided by (used in) investing activities	593.0				(810.0		)		(612.9		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Dividend payments	(378.0		)		(374.5		)		(371.8		)
Proceeds from issuance of long-term debt, net of discount	997.2				—				896.7
Debt issuance costs	(9.8		)		—				(6.6		)
Repayment of debt	(285.0		)		(15.0		)		(0.5		)
Proceeds from share-based awards	70.4				29.1				36.5
Borrowings under revolving credit facility	—				—				340.0
Repayment of revolving credit facility	—				—				(480.0		)
Taxes paid to net settle share-based awards	(21.5		)		(15.5		)		(15.6		)
Excess tax effect from share-based compensation	(3.8		)		(9.0		)		(5.6		)
Acquisition-related payment of contingent consideration	—				—				(3.8		)
Net cash provided by (used in) financing activities	369.5				(384.9		)		389.3
Effect of exchange rate changes on cash and cash equivalents	(2.4		)		3.5				(13.9		)
Increase (decrease) in cash and cash equivalents	1,813.9				(432.8		)		699.9
Cash and cash equivalents at beginning of year	859.0				1,291.8				591.9
Cash and cash equivalents at end of year	$	2,672.9			$	859.0			$	1,291.8
Supplemental information:
Cash paid for income taxes, net	$	159.1			$	158.9			$	180.3
Cash paid for interest	$	35.4			$	33.7			$	1.4
Noncash investing activity – property and equipment obligations	$	39.7			$	48.0			$	59.5

See accompanying Notes.

COACH, INC.

Notes to Consolidated Financial Statements

1. NATURE OF OPERATIONS

Coach, Inc. (the "Company") is a leading New York-based house of modern luxury accessories and lifestyle brands. The Company’s primary product offerings, manufactured by third-party suppliers, include women’s and men’s bags, small leather goods, footwear, ready-to-wear including outerwear, watches, weekend and travel accessories, scarves, eyewear, fragrance, jewelry, travel bags and other lifestyle products. Coach branded products are primarily sold through its North America and International reportable segments. The North America segment includes sales to consumers through Coach-operated stores, including the Internet, and sales to wholesale customers in North America. The International segment includes sales to consumers through Coach-branded stores and concession shop-in-shops in Japan, mainland China, Hong Kong, Macau, Singapore, Taiwan, Malaysia, South Korea, the United Kingdom, France, Ireland, Spain, Portugal, Germany, Italy, Austria, Belgium, the Netherlands and Switzerland. Additionally, International includes sales to consumers through the Internet in Japan, mainland China, South Korea, the United Kingdom, France, Spain, Germany and Italy, as well as sales to wholesale customers and distributors in approximately 55 countries. The Stuart Weitzman segment includes global sales generated by the Stuart Weitzman brand, primarily through department stores in North America and international locations, within numerous independent third party distributors and within Stuart Weitzman operated stores, including the Internet, in the United States, Canada and Europe. The Company also records sales of Coach brand products generated in other ancillary channels, licensing and disposition in Other, which is not a reportable segment.

2. SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to June 30. Unless otherwise stated, references to years in the financial statements relate to fiscal years. The fiscal year ended July 1, 2017 (“fiscal 2017”) was a 52-week period, the fiscal year ended July 2, 2016 (“fiscal 2016”) was a 53-week period and the fiscal year ended June 27, 2015 (“fiscal 2015”) was a 52-week period. The fiscal year ending June 30, 2018 (“fiscal 2018”) will be a 52-week period.

Use of Estimates

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

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

Principles of Consolidation

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

Cash and Cash Equivalents

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

Investments

Short-term investments consist primarily of high-credit quality U.S. and non-U.S. issued corporate debt securities, and U.S. Treasuries and government agency securities with original maturities greater than three months and with maturities within one year of balance sheet date, classified as available-for-sale. Long-term investments primarily consist of high-credit quality U.S. and non-U.S. issued corporate debt securities, U.S. Treasuries and government agency securities, classified as available-for-sale, and recorded at fair value, with unrealized gains and losses recorded in other comprehensive income. Long-term investments as of July 2, 2016 also include the equity investment related to the Hudson Yards joint venture. Dividend and interest income are recognized when earned.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Investments in companies in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns between 20% and 50% of the investee, however, other factors are considered, such as board representation and the rights to participate in the day-to-day operations of the business. During fiscal 2016, the Company had an equity method investment in Hudson Yards related to an equity interest in an entity formed for the purpose of developing a new office tower in Manhattan.

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

Concentration of Credit Risk

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

Inventories

The Company holds inventory that is sold through retail and wholesale distribution channels, including e-commerce sites. Substantially all of the Company's inventories are comprised of finished goods, and are reported at the lower of cost or market. Inventory costs include material, conversion costs, freight and duties and are primarily determined by the first-in, first-out method. The Company reserves for inventory, including slow-moving and aged inventory, based on current product demand, expected future demand and historical experience. A decrease in product demand due to changing customer tastes, buying patterns or increased competition could impact the Company's evaluation of its inventory and additional reserves might be required.

Property and Equipment, Net

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

Valuation of Long-Lived Assets

Long-lived assets, such as property and equipment, are evaluated for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the related asset group and its eventual disposition. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions. The Company recorded $14.2 million of impairment charges in fiscal 2017 and no material impairment charges in fiscal 2016.

In determining future cash flows, the Company takes various factors into account, including the effects of macroeconomic trends such as consumer spending, in-store capital investments, promotional cadence, the level of advertising and changes in merchandising strategy. Since the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that future cash flows do not meet expectations.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Business Combinations

In connection with an acquisition, the Company records all assets acquired and liabilities assumed of the acquired business at their acquisition date fair value, including the recognition of contingent consideration at fair value on the acquisition date. These fair value determinations require judgment and may involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items. Furthermore, the Company may utilize or consider independent third-party valuation firms when necessary. Refer to Note 7, "Acquisitions," for detailed disclosures related to our acquisitions.

Goodwill and Other Intangible Assets

Upon acquisition, the Company estimates and records the fair value of purchased intangible assets, which primarily consists of trademarks and trade names, customer relationships, lease rights and order backlog. The excess of the purchase consideration over the fair value of net assets acquired, both tangible and intangible, is recorded as goodwill. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. Estimates of fair value for finite-lived and indefinite-lived intangible assets are primarily determined using discounted cash flows and the relief from royalty method, respectively, with consideration of market comparisons and recent transactions. This approach uses significant estimates and assumptions, including projected future cash flows, discount rates and growth rates.

Goodwill and certain other intangible assets deemed to have indefinite useful lives, including trademarks and trade names, are not amortized, but are assessed for impairment at least annually. The Company generally performs its annual goodwill and indefinite-lived intangible assets impairment analysis using a quantitative approach. The quantitative goodwill impairment test identifies the existence of potential impairment by comparing the fair value of each reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired. If the carrying value of a reporting unit exceeds its fair value, an impairment charge is recognized in an amount equal to that excess. The impairment charge recognized is limited to the amount of goodwill allocated to that reporting unit.

Determination of the fair value of a reporting unit and intangible asset based on management's assessment, considering independent third-party appraisals when necessary. Furthermore, this determination is judgmental in nature and often involves the use of significant estimates and assumptions, which may include projected future cash flows, discount rates, royalty rates, growth rates, and determination of appropriate market comparables and recent transactions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the amount of any such charge.

The Company performs its annual impairment assessment of goodwill, including trademarks and trade names, during the fourth quarter of each fiscal year. The Company determined that there was no impairment in fiscal 2017, fiscal 2016 or fiscal 2015.

Operating Leases

The Company’s leases for office space, retail locations and distribution facilities are accounted for as operating leases. Certain of the Company's leases contain renewal options, rent escalation clauses, and/or landlord incentives. Renewal terms generally reflect market rates at the time of renewal. Rent expense for non-cancelable operating leases with scheduled rent increases and/or landlord incentives is recognized on a straight-line basis over the lease term, including any applicable rent holidays, beginning with the lease commencement date, or the date the Company takes control of the leased space, whichever is sooner. The excess of straight-line rent expense over scheduled payment amounts and landlord incentives is recorded as a deferred rent liability. As of the end of fiscal 2017 and fiscal 2016, deferred rent obligations of $242.4 million and $172.9 million, respectively, were classified primarily within other non-current liabilities in the Company's consolidated balance sheets. Certain rentals are also contingent upon factors such as sales. Contingent rentals are recognized when the achievement of the target (i.e., sale levels), which triggers the related rent payment, is considered probable and estimable.

Asset retirement obligations represent legal obligations associated with the retirement of a tangible long-lived asset. The Company’s asset retirement obligations are primarily associated with leasehold improvements in which the Company is contractually obligated to remove at the end of a lease to comply with the lease agreement. When such an obligation exists, the Company recognizes an asset retirement obligation at the inception of a lease at its estimated fair value. The asset retirement obligation is recorded in current liabilities or non-current liabilities (based on the expected timing of payment of the related costs) and is subsequently adjusted for any changes in estimates. The associated estimated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life. As of the end of fiscal 2017 and fiscal 2016, the Company had asset retirement obligations of $22.9 million and $23.9 million, respectively, primarily classified within other non-current liabilities in the Company's consolidated balance sheets.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Revenue Recognition

Revenue is recognized by the Company when there is persuasive evidence of an arrangement, delivery has occurred (and risks and rewards of ownership have been transferred to the buyer), price has been fixed or is determinable, and collectability is reasonably assured.

Retail store and concession-based shop-in-shop revenues are recognized at the point of sale, which occurs when merchandise is sold in an over-the-counter consumer transaction. Internet revenue from sales of products ordered through the Company’s e-commerce sites is recognized upon delivery and receipt of the shipment by its customers and includes shipping and handling charges paid by customers. Retail and internet revenues are reduced by an estimate for returns at the time of sale.

Wholesale revenue is recognized at the time title passes and risk of loss is transferred to customers. Wholesale revenue is recorded net of estimates of markdown allowances, returns and discounts. Estimates for markdown reserves are based on historical trends, actual and forecasted seasonal results, an evaluation of current economic and market conditions, retailer performance, and, in certain cases, contractual terms. Returns and allowances require pre-approval from management and discounts are based on trade terms. The Company reviews and refines these estimates on a quarterly basis. The Company’s historical estimates of these costs have not differed materially from actual results.

Gift cards issued by the Company are recorded as a liability until they are redeemed, at which point revenue is recognized. The Company recognizes income for unredeemed gift cards when the likelihood of a gift card being redeemed by a customer is remote, which is generally approximately three years after the gift card is issued, and the Company determines that it does not have a legal obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property. Revenue associated with gift card breakage is not material to the Company’s net operating results.

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

Cost of Sales

Cost of sales consists of inventory costs and other related costs such as reserves for inventory realizability and shrinkage, destruction costs, damages and replacements.

Selling, General and Administrative ("SG&A") Expenses

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

Shipping and Handling

Shipping and handling costs incurred were $45.8 million, $43.6 million and $41.2 million in fiscal 2017, fiscal 2016 and fiscal 2015, respectively, and are included in SG&A expenses. The Company includes inbound product-related transportation costs from manufacturers within cost of sales. The balance of the Company's transportation-related costs related to its distribution network is included in SG&A expenses rather than in cost of sales.

Advertising

Advertising costs include expenses related to direct marketing activities, such as direct mail pieces, digital and other media and production costs. In fiscal 2017, fiscal 2016 and fiscal 2015, advertising expenses for the Company totaled $178.3 million, $202.2 million and $160.9 million respectively. Advertising costs are generally expensed when the advertising first appears.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Share-Based Compensation

The Company recognizes the cost of equity awards to employees and the non-employee Directors based on the grant-date fair value of those awards. The grant-date fair values of share unit awards are based on the fair value of the Company's common stock on the date of grant. The grant-date fair value of stock option awards is determined using the Black-Scholes option pricing model and involves several assumptions, including the expected term of the option, expected volatility and dividend yield. The expected term of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience. Expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded options on the Company's stock. Dividend yield is based on the current expected annual dividend per share and the Company’s stock price. Changes in the assumptions used to determine the Black-Scholes value could result in significant changes in the Black-Scholes value.

For stock options and share unit awards, the Company recognizes share-based compensation net of estimated forfeitures and revises the estimates in subsequent periods if actual forfeitures differ from the estimates. The Company estimates the forfeiture rate based on historical experience as well as expected future behavior.

The Company grants performance-based share awards to key executives, the vesting of which is subject to the executive’s continuing employment and the Company's or individual's achievement of certain performance goals. On a quarterly basis, the Company assesses actual performance versus the predetermined performance goals, and adjusts the share-based compensation expense to reflect the relative performance achievement. Actual distributed shares are calculated upon conclusion of the service and performance periods, and include dividend equivalent shares. If the performance-based award incorporates a market condition, the grant-date fair value of such award is determined using a Monte Carlo Simulation.

Income Taxes

The Company’s effective tax rate is based on pre-tax income, statutory tax rates, tax laws and regulations, and tax planning strategies available in the various jurisdictions in which the Company operates. The Company classifies interest and penalties on uncertain tax positions in the provision for income taxes. The Company records net deferred tax assets to the extent it believes that it is more likely than not that these assets will be realized. In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent and expected future results of operation. The Company reduces deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some amount of deferred tax assets is not expected to be realized. Deferred taxes are not provided on the undistributed earnings of subsidiaries as such amounts are considered to be permanently invested.

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

See Note 13, "Income Taxes" herein for further discussion on the Company's income taxes.

Derivative Instruments

The majority of the Company’s purchases and sales involving international parties, excluding international consumer sales, are denominated in U.S. dollars, which limits the Company’s exposure to the transactional effects of foreign currency exchange rate fluctuations. However, the Company is exposed to foreign currency exchange risk related to its foreign operating subsidiaries’ U.S. dollar-denominated inventory purchases and various cross-currency intercompany loans which are not long term in investment nature. The Company uses derivative financial instruments to manage these risks. These derivative transactions are in accordance with the Company’s risk management policies. The Company does not enter into derivative transactions for speculative or trading purposes.

The Company records all derivative contracts at fair value on the consolidated balance sheet. The fair values of foreign currency derivatives are based on the forward curves of the specific indices upon which settlement is based and include an adjustment for the Company’s credit risk. Judgment is required of management in developing estimates of fair value. The use of different market assumptions or methodologies could affect the estimated fair value.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

For derivative instruments that qualify for hedge accounting, the effective portion of changes in the fair value of these instruments is either (i) offset against the changes in fair value of the hedged assets or liabilities through earnings or (ii) recognized as a component of accumulated other comprehensive income (loss) ("AOCI") until the hedged item is recognized in earnings, depending on whether the derivative is being used to hedge changes in fair value or cash flows, respectively.

Each derivative instrument entered into by the Company that qualifies for hedge accounting is expected to be highly effective at reducing the risk associated with the exposure being hedged. For each derivative that is designated as a hedge, the Company documents the related risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure, as well as how hedge effectiveness will be assessed over the term of the instrument. The extent to which a hedging instrument has been and is expected to remain highly effective in achieving offsetting changes in fair value or cash flows is assessed and documented by the Company on at least a quarterly basis.

To the extent that a derivative designated as a cash flow hedge is not considered to be effective, any change in its fair value related to such ineffectiveness is immediately recognized in earnings within foreign currency gains (losses). If it is determined that a derivative instrument has not been highly effective, and will continue not to be highly effective in hedging the designated exposure, hedge accounting is discontinued and further gains (losses) are recognized in earnings within foreign currency gains (losses). Upon discontinuance of hedge accounting, the cumulative change in fair value of the derivative previously recorded in AOCI is recognized in earnings when the related hedged item affects earnings, consistent with the original hedging strategy, unless the forecasted transaction is no longer probable of occurring, in which case the accumulated amount is immediately recognized in earnings within foreign currency gains (losses).

As a result of the use of derivative instruments, the Company may be exposed to the risk that the counterparties to such contacts will fail to meet their contractual obligations. To mitigate this counterparty credit risk, the Company has a policy of only entering into contracts with carefully selected financial institutions based upon an evaluation of their credit ratings, among other factors.

The fair values of the Company’s derivative instruments are recorded on its consolidated balance sheets on a gross basis. For cash flow reporting purposes, the Company classifies proceeds received or amounts paid upon the settlement of a derivative instrument in the same manner as the related item being hedged, primarily within cash from operating activities.

Hedging Portfolio

The Company enters into forward currency contracts primarily to reduce its risks related to exchange rate fluctuations on U.S. dollar and Euro-denominated inventory purchases, as well as various cross-currency intercompany loans. To the extent its derivative contracts designated as cash flow hedges are highly effective in offsetting changes in the value of the hedged items, the related gains (losses) are initially deferred in AOCI and subsequently recognized in the consolidated statements of income as follows:

•	Forward currency contracts - These derivatives are recognized as part of the cost of the inventory purchases being hedged within cost of sales, when the related inventory is sold to a third party. Current maturity dates range from July 2017 to April 2018.

Forward foreign currency exchange contracts, designated as fair value hedges and associated with intercompany and other contractual obligations, are recognized within foreign currency gains (losses) generally in the period in which the related payments being hedged are revalued. Current maturity dates are in August 2017, and are renewed monthly when applicable.

Foreign Currency

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

The Company recognizes gains and losses on transactions that are denominated in a currency other than the respective entity's functional currency in earnings. Foreign currency transaction gains and losses also include amounts realized on the settlement of certain intercompany loans with foreign subsidiaries.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Stock Repurchase and Retirement

The Company accounts for stock repurchases and retirements by allocating the repurchase price to common stock and retained earnings. The repurchase price allocation is based upon the equity contribution associated with historical issuances, beginning with the earliest issuance. Under Maryland law, the Company's state of incorporation, treasury shares are not allowed. As a result, all repurchased shares are retired when acquired. The Company's stock repurchase plan expired at the end of fiscal 2015. Since its initial public offering, the Company has not experienced a net loss in any fiscal year.

Reclassifications

Certain reclassifications on the Consolidated Balance Sheet have been made to the prior period's financial information in order to conform to the current period's presentation.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies the subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. Under this guidance, annual or interim goodwill impairment testing will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge will then be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, up to the total amount of goodwill allocated to that reporting unit. The requirements of the new standard will be effective for interim and annual goodwill impairment tests performed in fiscal years beginning after December 15, 2019. The Company elected to early adopt this guidance in the fourth quarter of fiscal 2017, with no impact on the Company's consolidated financial statements or notes thereto.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting (Topic 718)," which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. Most notably, the Company will be required to recognize all excess tax benefits and shortfalls as income tax expense or benefit in the income statement within the reporting period in which they occur. Therefore, the impact on the consolidated financial statements will be dependent upon future events which are unpredictable. The requirements of the new standard will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company will adopt this standard in the first quarter of fiscal 2018.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which is intended to increase transparency and comparability among companies that enter into leasing arrangements. This ASU requires recognition of lease assets and lease liabilities on the balance sheet for nearly all leases (other than short-term leases), as well as a retrospective recognition and measurement of existing impacted leases. The requirements of the new standard will be effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for the Company is the first quarter of fiscal 2020. Early adoption is permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period with various optional practical expedients. The Company is currently performing a comprehensive evaluation of the impact of adopting this guidance on its consolidated financial statements and notes thereto. The Company expects the guidance will result in a significant increase to long-term assets and long-term liabilities on its consolidated balance sheets and does not expect it to have a material impact on the consolidated statements of income. This guidance is not expected to have a material impact on the Company's liquidity.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," which provides a single, comprehensive revenue recognition model for all contracts with customers, and contains principles to determine the measurement of revenue and timing of when it is recognized. The model will supersede most existing revenue recognition guidance, and also requires enhanced revenue-related disclosures. The FASB has also issued several related ASUs which provide additional implementation guidance and clarify the requirements of the model. The requirements of the new standard will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for the Company is the first quarter of fiscal 2019. Early adoption will be permitted for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods.

The Company is currently in the process of evaluating the impact that adopting ASU 2014-09 will have on its consolidated financial statements and notes thereto. The Company currently has a cross-functional implementation team in place that is performing a comprehensive evaluation of the impact. The Company’s evaluation efforts to date have included a review of current

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

accounting policies and processes, as well as typical terms in contracts with customers, to identify potential differences upon the adoption of the new standard. Based on these efforts, the Company currently anticipates that the performance obligations underlying its core revenue streams (i.e., its retail and wholesale businesses), and the timing of revenue recognition thereof, will remain substantially unchanged. The Company is in the process of evaluating the impact of the new standard on ancillary sources of revenue, such as its licensing business, which represented approximately 1% of total net sales in fiscal 2017. The Company is currently assessing whether the timing of recognizing contractually guaranteed minimum royalty amounts will change. The Company has not yet determined whether the guidance will be adopted using the full retrospective restatement of all prior periods presented, or using the modified retrospective basis with a cumulative adjustment to opening retained earnings in the year of initial adoption.

3. RESTRUCTURING ACTIVITIES

Operational Efficiency Plan

During the fourth quarter of fiscal 2016, the Company announced a plan (the “Operational Efficiency Plan”) to enhance organizational efficiency, update core technology platforms, and streamline its supply chain network. The Operational Efficiency Plan was adopted as a result of a strategic review of the Company’s corporate structure which focused on creating an agile and scalable business model. As a result of this Operational Efficiency Plan, the Company expects to incur overall pre-tax charges of approximately $65-80 million within corporate unallocated expenses. Approximately $55-65 million of these charges will be cash.

Approximately $45-55 million of these charges will be related to organizational efficiencies, which will consist primarily of corporate employee severance and related costs, as well as consulting fees related to process and organizational optimization and accelerated depreciation associated with the retirement of information technology systems. Approximately $15 million of these charges will be related to the initial costs of replacing and updating the Company’s core technology platforms, allowing the Company to support a scalable business model. The remaining $5-10 million of these charges will be related to network optimization, consisting of office location and supply chain consolidations.

During fiscal years 2017 and 2016, the Company incurred Operational Efficiency Plan related charges within SG&A expenses of $24.0 million and $43.9 million, respectively, primarily due to organizational efficiency costs, technology infrastructure costs and to a lesser extent, network optimization costs. Total cumulative charges incurred under the Operational Efficiency Plan to date are $67.9 million. The remaining charges under this plan approximate $10-15 million and will be incurred in fiscal 2018.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

A summary of charges and related liabilities under the Company's Operational Efficiency Plan are as follows:

	Organizational Efficiency(1)				Technology Infrastructure(2)				Network Optimization(3)				Total
	(millions)
Balance as of June 27, 2015	$	—			$	—			$	—			$	—
Fiscal 2016 charges	40.4				—				3.5				43.9
Cash payments	(9.7		)		—				—				(9.7		)
Non-cash charges	(8.5		)		—				(0.3		)		(8.8		)
Balance as of July 2, 2016	$	22.2			$	—			$	3.2			$	25.4
Fiscal 2017 charges	15.6				8.0				0.4				24.0
Cash payments	(23.3		)		(7.7		)		(3.0		)		(34.0		)
Non-cash charges	(7.9		)		—				(0.6		)		(8.5		)
Balance at July 1, 2017	$	6.6			$	0.3			$	—			$	6.9

(1)	Organizational efficiency charges, recorded within SG&A expenses, primarily related to severance and related costs of corporate employees, accelerated depreciation associated with the retirement of information technology systems as well as consulting fees related to process and organizational optimization.

(2)	Technology infrastructure costs, recorded within SG&A expenses, related to the initial costs of replacing and updating the Company's core technology platforms.

(3)	Network optimization costs, recorded within SG&A expenses, related to lease termination costs.

The balance as of July 1, 2017 and July 2, 2016 are included within Accrued liabilities on the Company's Consolidated Balance Sheets. The above charges were recorded as corporate unallocated expenses within the Company's Consolidated Statements of Income. See Note 15, "Segment Information," for further information.

Transformation Plan

During the fourth quarter of fiscal year ended June 28, 2014 ("fiscal 2014"), the Company announced a multi-year strategic plan to transform the Coach brand and reinvigorate growth. This multi-faceted, multi-year transformation plan (the "Transformation Plan"), which continued through the end of fiscal 2016, included key operational and cost measures, including: (i) the investment in capital improvements in stores and wholesale locations to drive comparable sales improvement; (ii) the optimization and streamlining of the Company's organizational model as well as the closure of underperforming stores in North America, and select International stores; (iii) the realignment of inventory levels and mix to reflect the Company's elevated product strategy and consumer preferences; (iv) the investment in incremental advertising costs to elevate consumer perception of the Coach brand, drive sales growth and promote this new strategy, which started in fiscal 2015; and (v) the significant scale-back of promotional cadence in an increased global promotional environment, particularly within the outlet Internet sales site, which began in fiscal 2014.

Total cumulative charges incurred under the Transformation Plan through July 2, 2016 were $321.5 million. The fourth quarter of fiscal 2016 was the last reporting period in which charges were incurred under this plan.

There were no transformation-related charges incurred in fiscal 2017. In fiscal 2016, the Company recorded charges of $44.1 million ($33.4 million after-tax, or $0.12 per diluted share), which were largely related to the Company's North America business and recorded within SG&A expenses.

There are no remaining liabilities under the Company's Transformation Plan at July 1, 2017. The balance of liabilities under the Company's Transformation Plan at July 2, 2016 was $5.5 million, and was included within Accrued liabilities on the Company's Consolidated Balance Sheet.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

4. ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive loss, as of the dates indicated, are as follows:

	Unrealized Gains (Losses) on Cash Flow Hedges(1)				Unrealized Gains (Losses) on Available-for-Sale Debt Securities				Cumulative Translation Adjustment				Other(2)				Total
	(millions)
Balances at June 27, 2015	$	4.4			$	0.5			$	(81.7	)		$	(0.9	)		$	(77.7	)
Other comprehensive (loss) income before reclassifications	(10.2		)		(0.4		)		18.8				—				8.2
Less: gains (losses) reclassified from accumulated other comprehensive income	3.0				(0.2		)		—				0.6				3.4
Net current-period other comprehensive (loss) income	(13.2		)		(0.2		)		18.8				(0.6		)		4.8
Balances at July 2, 2016	$	(8.8	)		$	0.3			$	(62.9	)		$	(1.5	)		$	(72.9	)
Other comprehensive income (loss) before reclassifications	7.7				(0.7		)		(26.2		)		—				(19.2		)
Less: (losses) reclassified from accumulated other comprehensive income	(4.1		)		—				—				(1.1		)		(5.2		)
Net current-period other comprehensive income (loss)	11.8				(0.7		)		(26.2		)		1.1				(14.0		)
Balances at July 1, 2017	$	3.0			$	(0.4	)		$	(89.1	)		$	(0.4	)		$	(86.9	)

(1)	The ending balances of AOCI related to cash flow hedges are net of tax of $(1.8) million and $4.5 million as of July 1, 2017 and July 2, 2016, respectively. The amounts reclassified from AOCI are net of tax of $2.2 million and $(1.4) million as of July 1, 2017 and July 2, 2016, respectively.

(2)	As of July 1, 2017 and July 2, 2016, Other represents the accumulated loss on the Company's minimum pension liability adjustment. The balances at July 1, 2017 and July 2, 2016 are net of tax of $0.2 million and $0.8 million, respectively.

5. SHARE-BASED COMPENSATION

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

	July 1, 2017(1)				July 2, 2016(1)				June 27, 2015(1)
	(millions)
Share-based compensation expense	$	76.1			$	95.3			$	94.4
Income tax benefit related to share-based compensation expense	24.4				28.6				28.5

(1)

During the fiscal years ended July 1, 2017 and July 2, 2016, the Company incurred $2.5 million (and $0.8 of income tax benefit) and $8.5 million (and $2.4 million of income tax benefit) of share-based compensation expense under the Company's Operational Efficiency Plan, respectively, primarily as a result of the accelerated vesting of certain awards. During the fiscal year ended June 27, 2015, the Company incurred $5.5 million (and $2.0 million of income tax benefit) of share-based compensation expense under the Company's Transformation Plan. See Note 3, "Restructuring Activities," for more information.

Stock-Based Plans

The Company maintains the Amended and Restated 2010 Stock Incentive Plan to award stock options and shares to certain members of management and the outside members of its Board of Directors (“Board”). The Company maintains the 2000 Stock

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Incentive Plan and the 2004 Stock Incentive Plan for awards granted prior to the establishment of the 2010 Stock Incentive Plan. These plans were approved by the Company's stockholders. The exercise price of each stock option equals 100% of the market price of the Company's stock on the date of grant and generally has a maximum term of 10 years. Stock options and service based share awards that are granted as part of the annual compensation process generally vest ratably over three years. Stock option and share awards are subject to forfeiture until completion of the vesting period, which ranges from one to three years. The Company issues new shares upon the exercise of stock options or vesting of share awards.

Stock Options

A summary of stock option activity during the year ended July 1, 2017 is as follows:

	Number of Options Outstanding			Weighted- Average Exercise Price per Option				Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
	(millions)									(millions)
Outstanding at July 2, 2016	15.1			$	40.18
Granted	3.6			39.87
Exercised	(2.1	)		41.69
Forfeited or expired	(1.6	)		41.53
Outstanding at July 1, 2017	15.0			39.75				6.2		$	118.6
Vested and expected to vest at July 1, 2017	14.7			42.39				6.1		113.9
Exercisable at July 1, 2017	8.5			44.55				4.7		116.8

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and the following weighted-average assumptions:

	July 1, 2017			July 2, 2016			June 27, 2015
Expected term (years)	4.4			4.2			3.6
Expected volatility	30.5	%		32.2	%		31.9	%
Risk-free interest rate	1.1	%		1.4	%		1.1	%
Dividend yield	3.4	%		4.3	%		3.7	%

The expected term of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience. Expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded options on the Company's stock. The risk free interest rate is based on the zero-coupon U.S. Treasury issue as of the date of the grant. Dividend yield is based on the current expected annual dividend per share and the Company’s stock price.

The weighted-average grant-date fair value of options granted during fiscal 2017, fiscal 2016 and fiscal 2015 was $7.36, $5.65, and $6.41, respectively. The total intrinsic value of options exercised during fiscal 2017, fiscal 2016 and fiscal 2015 was $15.4 million, $6.2 million, and $12.1 million, respectively. The total cash received from option exercises was $68.2 million, $25.7 million, and $32.4 million in fiscal 2017, fiscal 2016 and fiscal 2015, respectively, and the cash tax benefit realized for the tax deductions from these option exercises was $4.9 million, $2.3 million, and $4.7 million, respectively.

At July 1, 2017, $22.3 million of total unrecognized compensation cost related to non-vested stock option awards is expected to be recognized over a weighted-average period of 1.1 years.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Service-based Restricted Stock Unit Awards (“RSUs”)

A summary of service-based RSU activity during the year ended July 1, 2017 is as follows:

	Number of Non-vested RSUs			Weighted- Average Grant- Date Fair Value per RSU
	(millions)
Non-vested at July 2, 2016	3.7			$	49.06
Granted	2.1			39.57
Vested	(1.8	)		39.18
Forfeited	(0.5	)		35.33
Non-vested at July 1, 2017	3.5			50.28

At July 1, 2017, $60.6 million of total unrecognized compensation cost related to non-vested share awards is expected to be recognized over a weighted-average period of 1.1 years.

The weighted-average grant-date fair value of share awards granted during fiscal 2017, fiscal 2016 and fiscal 2015 was $39.57, $31.65 and $36.38, respectively. The total fair value of shares vested during fiscal 2017, fiscal 2016 and fiscal 2015 was $68.9 million, $45.8 million and $48.4 million, respectively.

Performance-based Restricted Stock Unit Awards (“PRSU”)

The Company grants PRSUs to key executives, the vesting of which is subject to the executive’s continuing employment and the Company's achievement of certain performance goals. A summary of PRSU activity during the year ended July 1, 2017 is as follows:

	Number of Non-vested PRSUs			Weighted- Average Grant- Date Fair Value per PRSU
	(millions)
Non-vested at July 2, 2016	1.4			$	38.67
Granted	0.3			39.61
Change due to performance condition achievement(1)	(0.1	)		53.58
Vested(1)	—			39.72
Forfeited	(0.1	)		40.16
Non-vested at July 1, 2017	1.5			37.78

(1) During fiscal 2017, there was less than 0.1 million shares of PRSU activity due to changes in performance conditions and shares vested, individually and in the aggregate.

At July 1, 2017, $9.8 million of total unrecognized compensation cost related to non-vested share awards is expected to be recognized over a weighted-average period of 0.9 years.

The weighted-average grant-date fair value of share awards granted during fiscal 2017, fiscal 2016 and fiscal 2015 was $39.61, $31.67 and $36.43, respectively. The total fair value of awards that vested during fiscal 2017, fiscal 2016 and fiscal 2015 was $0.9 million, $1.4 million and $2.5 million, respectively.

During the fiscal years ended July 1, 2017 and July 2, 2016, the Company granted 0.3 million shares (with a fair value of $10.0 million) and 0.4 million shares (with a fair value of $11.6 million) of common stock to executives, respectively. The shares are subject to a three-year cliff vesting, subject to the employee's continuing employment and the Company's achievement of the performance goals established at the beginning of the performance period. The fair value of the PRSU's is based on the price of the Company's common stock on the date of grant.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Included in the non-vested amount at July 1, 2017 are approximately 0.6 million of PRSU awards that are based on performance criteria which compares the Company’s total stockholder return over the performance period to the total stockholder return of the companies included in the Standard & Poor’s 500 Index on the date of grant (excluding the Company). The remaining 0.9 million PRSU awards included in the non-vested amount are based on certain Company-specific financial and operational metrics.

In fiscal 2017, fiscal 2016 and fiscal 2015, the cash tax benefit realized for the tax deductions from all RSUs (service and performance-based) was $19.0 million, $14.2 million and $15.7 million, respectively.

Employee Stock Purchase Plan

Under the 2001 Employee Stock Purchase Plan, eligible employees are permitted to purchase a limited number of Company common shares at 85% of market value. Under this plan, the Company sold 0.1 million, 0.1 million, and 0.1 million shares to employees in fiscal 2017, fiscal 2016 and fiscal 2015, respectively. Compensation expense is calculated for the fair value of employees’ purchase rights using the Black-Scholes model and the following weighted-average assumptions:

	Fiscal Year Ended
	July 1, 2017			July 2, 2016			June 27, 2015
Expected term (years)	0.5			0.5			0.5
Expected volatility	24.7	%		28.6	%		26.4	%
Risk-free interest rate	0.6	%		0.3	%		0.1	%
Dividend yield	3.6	%		4.1	%		3.5	%

The weighted-average fair value of the purchase rights granted during fiscal 2017, fiscal 2016 and fiscal 2015 was $8.08, $7.43, and $8.41, respectively. The Company issues new shares for employee stock purchases.

6. INVESTMENTS

The following table summarizes the Company’s primarily U.S. dollar-denominated investments, recorded within the consolidated balance sheets as of July 1, 2017 and July 2, 2016:

	July 1, 2017												July 2, 2016
	Short-term				Long-Term				Total				Short-term				Long-term				Total
	(millions)
Available-for-sale investments:
Commercial paper(1)	$	68.8			$	—			$	68.8			$	54.8			$	—			$	54.8
Government securities – U.S.(2)	130.4				—				130.4				131.7				—				131.7
Corporate debt securities – U.S.(2)	116.2				46.9				163.1				161.4				64.2				225.6
Corporate debt securities – non-U.S.(2)	92.6				28.2				120.8				111.5				33.9				145.4
Available-for-sale investments, total	$	408.0			$	75.1			$	483.1			$	459.4			$	98.1			$	557.5
Other:
Time deposits(1)	0.6				—				0.6				0.6				—				0.6
Other(3)	2.1				—				2.1				0.4				460.5				460.9
Total Investments	$	410.7			$	75.1			$	485.8			$	460.4			$	558.6			$	1,019.0

(1)	These securities have original maturities greater than three months and are recorded at fair value.

(2)	The securities as of July 1, 2017 have maturity dates between calendar years 2017 and 2019 and are recorded at fair value.

(3)	Long-Term Other as of July 2, 2016 relates to the equity method investment in Hudson Yards, related to an equity interest in an entity formed during fiscal 2013 for the purpose of developing a new office tower in Manhattan (the “Hudson Yards joint venture”), with the Company owning less than 43% of the joint venture. Refer to Note 19, "Headquarters Transactions" for further information.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

There were no material gross unrealized gains or losses on available-for-sale securities as of the periods ended July 1, 2017 and July 2, 2016.

7. ACQUISITIONS

Kate Spade & Company Acquisition

On July 11, 2017, the Company completed its acquisition of Kate Spade & Company for $18.50 per share in cash for a total of $2.4 billion. As a result, Kate Spade has become a wholly owned subsidiary. Due to the limited time since the date of the acquisition, it is impracticable for the Company to make certain business combination disclosures at this time as the Company is still gathering information necessary to provide those disclosures. The Company plans to provide this information in its quarterly report on Form 10-Q for the quarter ending September 30, 2017. In conjunction with this acquisition, the Company incurred $16.9 million in pre-tax expenses in fiscal 2017. See Note 20, "Subsequent Events" herein for further discussion on the Kate Spade acquisition.

Fiscal 2016 Acquisition

On May 1, 2016, the Company acquired all of the outstanding equity interests of Franco Niro Holdings Inc./Les Placements Franco Niro Inc., the Stuart Weitzman Canadian retail distributor ("Stuart Weitzman Canada"), consisting of 14 retail stores and one e-commerce website. The results of the Stuart Weitzman Canada operations have been included in the consolidated financial statements since the date of acquisition within the Stuart Weitzman segment. The aggregate cash paid in connection with the acquisition of Stuart Weitzman Canada was $25.6 million, net of a 10% purchase price hold-back amount to be paid 18 months following the closing date if all conditions are satisfied.

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date:

Assets Acquired and Liabilities Assumed	Fair Value
	(millions)
Inventories and other current assets(1)	$	5.3
Property and equipment, net	3.2
Goodwill(2)	24.6
Total assets acquired	33.1
Accounts Payable and accrued liabilities	4.8
Other liabilities(3)	2.7
Total liabilities assumed	7.5
Total cash paid	$	25.6

(1) The balance primarily consists of inventories of $5.0 million, including a step-up adjustment of approximately $0.9 million, which was amortized over 6 months.

(2) The entire balance of acquired goodwill is not tax deductible.

(3) Included within Other liabilities is a $2.6 million liability attributable to the 10% purchase price hold-back amount.

There were no material pre-tax acquisition costs directly associated with the acquisition of Stuart Weitzman Canada.

8. LEASES

The Company leases retail, distribution and office facilities. The lease agreements, which expire at various dates through 2036, are subject, in most cases, to renewal options and provide for the payment of taxes, insurance and maintenance. Certain leases contain escalation clauses resulting from the pass-through of increases in operating costs, property taxes and the effect on costs from changes in consumer price indices. Certain store-related rent expense is also contingent upon sales.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

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

	Fiscal Year Ended
	July 1, 2017				July 2, 2016				June 27, 2015
	(millions)
Minimum rent(1)	$	295.1			$	229.9			$	213.8
Contingent rent	129.4				134.8				142.8
Total rent expense	$	424.5			$	364.7			$	356.6

(1)	$0.2 million and $5.9 million of lease termination charges due to restructuring-related closures were included in fiscal 2017 and fiscal 2016, respectively.

Future minimum rental payments under non-cancelable operating leases, as of July 1, 2017, are as follows:

Fiscal Year		Amount
		(millions)
2018		$	295.4
2019		270.1
2020		242.3
2021		205.9
2022		194.1
Subsequent to 2022		1,250.9
Total minimum future rental payments		$	2,458.7

During the first quarter of fiscal 2017, the Company announced the lease of its new global headquarters. Refer to Note 19, "Headquarters Transactions," for further information.

9. FAIR VALUE MEASUREMENTS

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

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

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

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

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

The following table shows the fair value measurements of the Company’s financial assets and liabilities at July 1, 2017 and July 2, 2016:

	Level 1								Level 2								Level 3
	July 1, 2017				July 2, 2016				July 1, 2017				July 2, 2016				July 1, 2017				July 2, 2016
	(millions)
Assets:
Cash equivalents(1)	$	760.0			$	197.9			$	226.0			$	0.4			$	—			$	—
Short-term investments:
Time deposits(2)	—				—				0.6				0.6				—				—
Commercial paper(2)	—				—				68.8				54.8				—				—
Government securities - U.S.(2)	130.4				119.9				—				11.8				—				—
Corporate debt securities - U.S.(2)	—				—				116.2				161.4				—				—
Corporate debt securities - non U.S.(2)	—				—				92.6				111.5				—				—
Other	—				—				2.1				0.4				—				—
Long-term investments:
Corporate debt securities - U.S.(3)	—				—				46.9				64.2				—				—
Corporate debt securities - non U.S.(3)	—				—				28.2				33.9				—				—
Derivative Assets:
Inventory-related instruments(4)	—				—				3.5				0.2				—				—
Intercompany loan hedges(4)	—				—				—				0.4				—				—
Liabilities:
Contingent earnout obligation(5)	$	—			$	—			$	—			$	—			$	—			$	28.4
Derivative liabilities:
Inventory-related instruments(4)	—				—				1.0				11.0				—				—
Intercompany loan hedges(4)	—				—				0.7				0.1				—				—

(1)	Cash equivalents consist of money market funds and time deposits with maturities of three months or less at the date of purchase. Due to their short term maturity, management believes that their carrying value approximates fair value.

(2)	Short-term available-for-sale investments are recorded at fair value, which approximates their carrying value, and are primarily based upon quoted vendor or broker priced securities in active markets.

(3)	Fair value is primarily determined using vendor or broker priced securities in active markets. These securities have maturity dates between calendar years 2018 and 2019.

(4)	The fair value of these hedges is primarily based on the forward curves of the specific indices upon which settlement is based and includes an adjustment for the counterparty’s or Company’s credit risk.

(5)

As part of the purchase agreement for the Stuart Weitzman acquisition, the Company would be required to pay a potential earnout of $44.1 million if the Stuart Weitzman brand achieves certain revenue targets. As the Company does not expect to achieve these revenue targets, the Company recorded a reversal of an accrual of $35.2 million in SG&A, during the fourth quarter of fiscal 2017, as the payout is not expected.

Refer to Note 10, "Debt" for the fair value of the Company's outstanding debt instruments.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

The following table presents a reconciliation of the liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended July 1, 2017 and July 2, 2016. Level 3 liabilities consisted of the contingent earnout obligation related to the Stuart Weitzman acquisition.

	July 1,				July 2,
	2017				2016
	(millions)
Beginning of year	$	28.4			$	19.4
Increase to contingent earnout obligation	6.8				9.0
Reversal of contingent earnout obligation	(35.2		)		—
End of year	$	—			$	28.4

Non-Financial Assets and Liabilities

The Company’s non-financial instruments, which primarily consist of goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering market participant assumptions. Refer to Note 7, "Acquisitions," for further discussion of the approaches used in valuing acquired assets and assumed liabilities.

The Company recorded $14.2 million of impairment charges in fiscal 2017 to reduce the carrying amount of certain store assets (primarily leasehold improvements at selected retail store locations) to their fair values of $3.1 million as of July 1, 2017. No material impairment charges were recorded in fiscal 2016 and fiscal 2015. The fair values of these assets were determined based on Level 3 measurements. Inputs to these fair value measurements included estimates of the amount and the timing of the stores' net future discounted cash flows based on historical experience, current trends, and market conditions.

10. DEBT

The following table summarizes the components of the Company’s outstanding debt:

	July 1, 2017				July 2, 2016
	(millions)
Current Debt:
Term Loan(1)	$	—			$	15.0
Total Current Debt	$	—			$	15.0
Long-Term Debt:
Term Loan(1)	$	—			$	270.0
4.250% Senior Notes due 2025	600.0				600.0
3.000% Senior Notes due 2022	400.0				—
4.125% Senior Notes due 2027	600.0				—
Total Long-Term Debt	1,600.0				870.0
Less: Unamortized Discount and Debt Issuance Costs on Senior Notes	(20.5		)		(8.8		)
Total Long-Term Debt, net	$	1,579.5			$	861.2

(1)	See Note 20, "Subsequent Events" herein for further discussion.

During fiscal 2017, 2016 and 2015 the Company recognized interest expense related to the outstanding debt of $26.8 million, $32.9 million and $11.9 million, respectively.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Bridge Facility

On May 7, 2017 Company entered into a bridge facility commitment letter (the "Bridge Facility") pursuant to which Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bank of America, N.A. (together, "BofA Merrill Lynch") committed to provide up to $2.1 billion under a 364-day senior unsecured bridge term loan credit facility to finance the Kate Spade acquisition in the event that the Company had not issued senior unsecured notes and obtained term loans prior to the consummation of the acquisition. As consideration for the Bridge Facility, the Company paid a structuring fee of 0.225% and commitment fee of 0.225% on the aggregate commitment, for which the Company recorded approximately $9.5 million to interest expense in fiscal 2017. In connection with the issuance of the 2022 Senior Notes and 2027 Senior Notes, as described below, the Bridge Facility was reduced by $1.0 billion, in accordance with the commitment letter. As of July 1, 2017 there were no outstanding borrowings on the Bridge Facility, as the Company secured the senior notes and credit facilities as described below. In connection with the closing of the Kate Spade acquisition on July 11, 2017, the remainder of the Bridge Facility terminated in accordance with its terms. Refer to Note 20, "Subsequent Events" for further information.

Credit Facilities/Term Loans

On May 30, 2017, the Company entered into a definitive credit agreement whereby Bank of America, N.A., as administrative agent, the other agents party thereto, and a syndicate of banks and financial institutions have (i) committed to lend to the Company, subject to the satisfaction or waiver of the conditions set forth in the agreement, an $800.0 million term loan facility maturing six months after the term loans thereunder are borrowed (the “Six-Month Term Loan Facility”), and a $300.0 million term loan facility maturing three years after the term loans thereunder are borrowed (collectively with the Six-Month Term Loan Facility, the “Term Loan Facilities”) and (ii) made available to the Company a $900.0 million revolving credit facility, including sub-facilities for letters of credit, with a maturity date of May 30, 2022 (the “Revolving Credit Facility”, collectively with the Term Loan Facilities, "the Facility"). The Revolving Credit Facility replaced the Company’s previously existing revolving credit facility under the Amendment and Restatement Agreement, dated as of March 18, 2015, by and between the Company, certain lenders and JPMorgan Chase Bank, N.A., as administrative agent. The Revolving Credit Facility may be used to finance the working capital needs, capital expenditures, permitted investments, share purchases, dividends and other general corporate purposes of the Company and its subsidiaries (which may include commercial paper back-up). Letters of credit and swing line loans may be issued under the Revolving Credit Facility as described below. There were no outstanding borrowings on either the Term Loan Facilities or the Revolving Credit Facility as of July 1, 2017.

Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at the Borrowers’ option, either (a) an alternate base rate (which is a rate equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (iii) the Adjusted LIBO Rate for a one month Interest Period on such day plus 1%) or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made plus, in each case, an applicable margin. The applicable margin will be determined by reference to a grid, as defined in the Credit Agreement, based on the ratio of (a) consolidated debt plus 600% of consolidated lease expense to (b) consolidated EBITDAR. Additionally, the Company pays a commitment fee at a rate determined by the reference to the aforementioned pricing grid.

Subsequent to the end of the fiscal year, the Company borrowed $1.1 billion on the Term Loan Facilities to pay a portion of the purchase price of the Company's announced acquisition of Kate Spade. Refer to Note 20, "Subsequent Events" for further information.

2025 Senior Notes

In March 2015, the Company issued $600.0 million aggregate principal amount of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par (the “2025 Senior Notes”). Interest is payable semi-annually on April 1 and October 1 beginning October 1, 2015. Prior to January 1, 2025 (90 days prior to the scheduled maturity date), the Company may redeem the 2025 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2025 Senior Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2025 Senior Notes calculated as if the maturity date of the 2025 Senior Notes was January 1, 2025 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis at the Adjusted Treasury Rate (as defined in the indenture for the 2025 Senior Notes) plus 35 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date. On and after January 1, 2025 (90 days prior to the scheduled maturity date), the Company may redeem the 2025 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to 100% of the principal amount of the 2025 Senior Notes to be redeemed, plus accrued and unpaid interest to the redemption date.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

2022 Senior Notes

On June 20, 2017, the Company issued $400.0 million aggregate principal amount of 3.000% senior unsecured notes due July 15, 2022 at 99.505% of par (the "2022 Senior Notes). Interest is payable semi-annually on January 15 and July 15 beginning January 15, 2018. Prior to June 15, 2022 (one month prior to the scheduled maturity date), the Company may redeem the 3.000% Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2022 Senior Notes to be redeemed or (2) as determined by a Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2022 Senior Notes calculated as if the maturity date of the 2022 Senior Notes was June 15, 2022 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined in the Prospectus Supplement) plus 25 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date.

2027 Senior Notes

On June 20, 2017, the Company issued $600.0 million aggregate principal amount of 4.125% senior unsecured notes due April 15, 2027 at 99.858% of par (the "2027 Senior Notes). Interest is payable semi-annually on January 15 and July 15 beginning January 15, 2018. Prior to April 15, 2027 (the date that is three month prior to the scheduled maturity date), the Company may redeem the 2027 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2027 Senior Notes to be redeemed or (2) as determined by a Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2027 Senior Notes calculated as if the maturity date of the 2027 Senior Notes was April 15, 2027 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined in the Prospectus Supplement) plus 30 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date.

At July 1, 2017, the fair value of the 2025, 2022 and 2027 Senior Notes was approximately $624 million, $395 million, and $596 million, respectively, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as Level 2 measurements within the fair value hierarchy. At July 2, 2016, the fair value of the 2025 Senior Notes was approximately $622 million.

Debt Maturities

As of July 1, 2017, the Company's aggregate debt is $1.6 billion of which $400.0 million is due in 2022 and $1.2 billion is due subsequent to 2022.

11. COMMITMENTS AND CONTINGENCIES

Letters of Credit

The Company had standby letters of credit and bank guarantees totaling $9.0 million and $7.5 million outstanding at both July 1, 2017 and July 2, 2016. The letters of credit, which expire at various dates through calendar 2039 primarily collateralize the Company’s obligation to third parties for insurance claims, leases and materials used in product manufacturing. The Company pays certain fees with respect to letters of credit that are issued.

Other

The Company had other contractual cash obligations as of July 1, 2017, including $167.5 million related to inventory purchase obligations, $78.0 million related to capital expenditure purchase obligations, $6.0 million of other purchase obligations, of $1.6 billion of debt repayments and $514.0 million of interest payments on the 2022 Senior Notes, 2025 Senior Notes and 2027 Senior Notes. Refer to Note 8, "Leases," for a summary of the Company's future minimum rental payments under non-cancelable leases.

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

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Kate Spade & Company Acquisition

On May 7, 2017, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Kate Spade & Company and Chelsea Merger Sub Inc., a Delaware corporation and direct wholly owned subsidiary of Coach (the "Merger Sub"). Pursuant to the Merger Agreement, on May 26, 2017, Merger Sub commenced an all-cash tender offer to acquire all of Kate Spade's outstanding shares of common stock, par value of $1.00 per share, at a purchase price of $18.50. The Company completed its acquisition on July 11, 2017. The purchase price was approximately $2.4 billion, which was funded by a combination of Senior Notes, Term Loan Facilities and cash on hand. Refer to Note 10, "Debt" for more information on the Term Loan Facilities and Senior Notes.

The Company currently estimates that it will incur costs in the range of $150 - $200 million related to Kate Spade integration in fiscal 2018, which include severance, store closure costs and inventory realignment. The Company continues to fully develop its integration plan. Of these costs, the Company expects to incur approximately $60 million of severance and other costs related to agreements with certain Kate Spade executives. The Company also expects to incur costs of approximately $45 million of acquisition-related expenses.

12. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The change in the carrying amount of the Company’s goodwill, is as follows:

	International			Stuart Weitzman			Total
	(millions)
Balance at June 27, 2015	$	308.4		$	125.8		$	434.2
Acquisition of Stuart Weitzman Canada	—			24.6			24.6
Foreign exchange impact	38.5			(0.1		)	38.4
Purchase accounting adjustment(1)	—			5.2			5.2
Balance at July 2, 2016	346.9			155.5			502.4
Foreign exchange impact	(22.4		)	—			(22.4		)
Purchase accounting adjustment(1)	—			0.5			0.5
Balance at July 1, 2017	$	324.5		$	156.0		$	480.5

(1)	Refer to Note 7, "Acquisitions," for further information.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Intangible Assets

Intangible assets consist of the following:

	Fiscal Year Ended(1)
	July 1, 2017												July 2, 2016
	Gross Carrying Amount				Accum. Amort.				Net				Gross Carrying Amount				Accum. Amort.				Net
	(millions)
Intangible assets subject to amortization:
Customer relationships	$	54.7			$	(9.7	)		$	45.0			$	54.7			$	(5.8	)		$	48.9
Favorable lease rights, net	26.1				(7.1		)		19.0				24.7				(3.6		)		21.1
Total intangible assets subject to amortization	80.8				(16.8		)		64.0				79.4				(9.4		)		70.0
Intangible assets not subject to amortization:
Trademarks and trade names	276.8				—				276.8				276.8				—				276.8
Total intangible assets	$	357.6			$	(16.8	)		$	340.8			$	356.2			$	(9.4	)		$	346.8

(1)	Refer to Note 7, "Acquisitions," for further information.

As of July 1, 2017, the expected amortization expense for intangible assets is as follows:

	Amortization Expense
	(millions)
Fiscal 2018	$	6.8
Fiscal 2019	6.7
Fiscal 2020	6.5
Fiscal 2021	6.1
Fiscal 2022	5.5
Thereafter	32.4
Total	$	64.0

The expected future amortization expense above reflects remaining useful lives of 12.8 years for customer relationships and the remaining lease terms ranging from approximately six months to 8.3 years for favorable lease rights.

13. INCOME TAXES

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

	Fiscal Year Ended
	July 1, 2017							July 2, 2016							June 27, 2015
	Amount				Percentage			Amount				Percentage			Amount				Percentage
	(millions)
Income before provision for income taxes:
United States	$	365.5			48.2	%		$	357.5			57.1	%		$	361.2			59.1	%
Foreign	393.5				51.8			269.1				42.9			250.4				40.9
Total income before provision for income taxes	$	759.0			100.0	%		$	626.6			100.0	%		$	611.6			100.0	%
Tax expense at U.S. statutory rate	$	265.7			35.0	%		$	219.3			35.0	%		$	214.0			35.0	%
State taxes, net of federal benefit	15.1				2.0			11.2				1.8			26.4				4.3
Effects of foreign operations	(86.7		)		(11.4	)		(53.7		)		(8.6	)		(79.7		)		(13.0	)
Effects of foreign tax credits and acquisition reorganization	(12.3		)		(1.6	)		(19.6		)		(3.1	)		9.3				1.5
Other, net	(13.8		)		(1.9	)		8.9				1.4			39.2				6.4
Taxes at effective worldwide rates	$	168.0			22.1	%		$	166.1			26.5	%		$	209.2			34.2	%

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

Current and deferred tax provision (benefit) was:

	Fiscal Year Ended
	July 1, 2017								July 2, 2016								June 27, 2015
	Current				Deferred				Current				Deferred				Current				Deferred
	(millions)
Federal	$	42.9			$	56.4			$	145.8			$	(52.0	)		$	142.9			$	10.5
Foreign	39.7				7.4				46.8				2.2				9.8				13.8
State	7.4				14.2				25.8				(2.5		)		35.0				(2.8		)
Total current and deferred tax provision (benefit)	$	90.0			$	78.0			$	218.4			$	(52.3	)		$	187.7			$	21.5

The components of deferred tax assets and liabilities were:

	July 1, 2017				July 2, 2016
	(millions)
Share-based compensation	$	64.8			$	68.5
Reserves not deductible until paid	39.2				54.1
Deferred rent	22.7				27.9
Employee benefits	40.9				48.3
Basis difference in foreign investments	1.1				21.5
Net operating loss	199.2				176.7
Other	10.4				4.2
Prepaid expenses	0.6				0.8
Property and equipment	—				34.3
Inventory	21.6				15.5
Gross deferred tax assets	400.5				451.8
Valuation allowance	196.1				173.4
Deferred tax assets after valuation allowance	$	204.4			$	278.4
Goodwill	82.6				88.2
Property and equipment	8.4				—
Other	6.2				(1.3		)
Gross deferred tax liabilities	97.2				86.9
Net deferred tax assets	$	107.2			$	191.5
Consolidated Balance Sheets Classification
Deferred income taxes – noncurrent asset	170.5				248.8
Deferred income taxes – noncurrent liability (included within "Other Liabilities")	(63.3		)		(57.3		)
Net deferred tax asset	$	107.2			$	191.5

Significant judgment is required in determining the worldwide provision for income taxes, and there are many transactions for which the ultimate tax outcome is uncertain. It is the Company’s policy to establish provisions for taxes that may become payable in future years, including those due to an examination by tax authorities. The Company establishes the provisions based upon management’s assessment of exposure associated with uncertain tax positions. The provisions are analyzed at least quarterly and adjusted as appropriate based on new information or circumstances in accordance with the requirements of ASC 740.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

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

	July 1, 2017				July 2, 2016				June 27, 2015
	(millions)
Balance at beginning of fiscal year	$	138.6			$	168.1			$	170.7
Gross increase due to tax positions related to prior periods	2.7				25.5				5.4
Gross decrease due to tax positions related to prior periods	(2.7		)		(4.4		)		(1.1		)
Gross increase due to tax positions related to current period	8.1				8.7				16.5
Decrease due to lapse of statutes of limitations	(39.5		)		(59.0		)		(21.1		)
Decrease due to settlements with taxing authorities	(13.1		)		(0.3		)		(2.3		)
Balance at end of fiscal year	$	94.1			$	138.6			$	168.1

Of the $94.1 million ending gross unrecognized tax benefit balance as of July 1, 2017, $83.6 million relates to items which, if recognized, would impact the effective tax rate. Of the $138.6 million ending gross unrecognized tax benefit balance as of July 2, 2016, $111.1 million relates to items which, if recognized, would impact the effective tax rate. As of July 1, 2017 and July 2, 2016, gross interest and penalties payable was $24.1 million and $29.0 million, respectively, which are included in Other liabilities. During fiscal 2017, fiscal 2016 and fiscal 2015, the Company recognized gross interest and penalty income of $2.8 million, gross interest and penalty expense of $11.5 million and gross interest and penalty income of $0.1 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. Tax examinations are currently in progress in select foreign and state jurisdictions that are extending the years open under the statutes of limitation. Fiscal years 2014 to present are open to examination in the U.S. federal jurisdiction, fiscal 2009 to present in select state jurisdictions and fiscal 2004 to present in select foreign jurisdictions. The Company anticipates that one or more of these audits may be finalized and certain statutes of limitation may expire in the foreseeable future. However, based on the status of these examinations, and the average time typically incurred in finalizing audits with the relevant tax authorities, we cannot reasonably estimate the impact these audits may have in the next 12 months, if any, to previously recorded uncertain tax positions. We accrue for certain known and reasonably anticipated income tax obligations after assessing the likely outcome based on the weight of available evidence. Although we believe that the estimates and assumptions we have used are reasonable and legally supportable, the final determination of tax audits could be different than that which is reflected in historical income tax provisions and recorded assets and liabilities. With respect to all jurisdictions, we believe we have made adequate provision for all income tax uncertainties.

For the years ended July 1, 2017 and July 2, 2016, the Company had net operating loss carryforwards in foreign tax jurisdictions of $715.3 million and $593.4 million, the majority of which can be carried forward indefinitely. The deferred tax assets related to the carryforwards have been reflected net of $196.1 million and $173.4 million valuation allowances at July 1, 2017 and July 2, 2016, respectively. The Company's valuation allowance increased by $22.7 million in fiscal 2017 and increased by $3.6 million in fiscal 2016, primarily as a result of actual or anticipated results in foreign jurisdictions.

The total amount of undistributed earnings of foreign subsidiaries as of July 1, 2017 and July 2, 2016, was $2.91 billion and $2.39 billion, respectively. It is the Company’s intention to permanently reinvest undistributed earnings of its foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign withholding taxes or United States income taxes which may become payable if undistributed earnings of foreign subsidiaries are paid as dividends. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, is subject to many variables and is dependent on circumstances existing if and when remittance occurs.

14. DEFINED CONTRIBUTION PLAN

The Company maintains the Coach, Inc. 401(k) Savings Plan, which is a defined contribution plan. Employees who meet certain eligibility requirements and are not part of a collective bargaining agreement may participate in this program. The annual expense incurred by the Company for this defined contribution plan was $9.1 million, $8.3 million, and $7.2 million in fiscal 2017, fiscal 2016 and fiscal 2015, respectively.

15. SEGMENT INFORMATION

In fiscal 2017, the Company has three reportable segments based on its business activities and organization:

•	North America, which is composed of Coach brand sales to consumers through stores, including the Internet, and sales to wholesale customers in North America.

•

International, which is composed of Coach brand sales to consumers through stores and concession shop-in-shops in Japan, mainland China, Hong Kong, Macau, Singapore, Taiwan, Malaysia, South Korea, the United Kingdom, France, Ireland, Spain, Portugal, Germany, Italy, Austria, Belgium, the Netherlands and Switzerland. Additionally, International includes Coach brand sales to consumers through the Internet in Japan, mainland China, South Korea, the United Kingdom, France, Spain, Germany and Italy, as well as sales to wholesale customers and distributors in approximately 55 countries.

•	Stuart Weitzman, which includes global sales generated by the Stuart Weitzman brand, primarily through department stores in North America and international locations, within numerous independent third party distributors and within Stuart Weitzman operated stores, including the Internet, in the United States, Canada and Europe.

In deciding how to allocate resources and assess performance, the Company's chief operating decision maker regularly evaluates the sales and operating income of these segments. Operating income is the gross margin of the segment less direct expenses of the segment. Unallocated corporate expenses include inventory-related costs (such as production variances), advertising, marketing, design, administration and information systems, as well as distribution and consumer service expenses. Additionally, costs incurred by the Company as described in Note 3, "Restructuring Activities" and certain acquisition-related costs are included as unallocated corporate expenses.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

The following table summarizes segment performance for fiscal 2017, fiscal 2016 and fiscal 2015:

	North America				International				Other(1)				Corporate Unallocated(2)				Stuart Weitzman				Total
	(millions)
Fiscal 2017
Net sales	$	2,349.5			$	1,715.2			$	50.0			$	—			$	373.6			$	4,488.3
Gross profit	1,453.4				1,303.9				37.9				59.8				226.1				3,081.1
Operating income (loss)	697.0				535.9				31.4				(497.5		)		20.6				787.4
Income (loss) before provision for income taxes	697.0				535.9				31.4				(525.9		)		20.6				759.0
Depreciation and amortization expense(3)	78.0				73.1				—				48.9				18.9				218.9
Total assets	447.8				1,116.1				15.5				3,623.8				628.4				5,831.6
Additions to long-lived assets	64.4				80.1				—				118.4				20.2				283.1

	North America				International				Other(1)				Corporate Unallocated(2)				Stuart Weitzman				Total
	(millions)
Fiscal 2016
Net sales	$	2,397.1			$	1,704.0			$	46.0			$	—			$	344.7			$	4,491.8
Gross profit	1,478.4				1,286.2				32.3				52.0				202.4				3,051.3
Operating income (loss)	737.3				512.7				22.9				(651.9		)		32.5				653.5
Income (loss) before provision for income taxes	737.3				512.7				22.9				(678.8		)		32.5				626.6
Depreciation and amortization expense(3)	64.0				70.6				—				64.9				19.6				219.1
Total assets	435.2				1,033.9				9.9				2,782.5				631.2				4,892.7
Additions to long-lived assets	91.6				112.8				—				180.5				11.5				396.4

	North America				International				Other(1)				Corporate Unallocated(2)				Stuart Weitzman				Total
	(millions)
Fiscal 2015
Net sales	$	2,467.5			$	1,622.0			$	59.1			$	—			$	43.0			$	4,191.6
Gross profit	1,574.6				1,248.8				38.1				27.2				19.9				2,908.6
Operating income (loss)	820.5				480.6				30.1				(708.6		)		(4.6		)		618.0
Income (loss) before provision for income taxes	820.5				480.6				30.1				(715.0		)		(4.6		)		611.6
Depreciation and amortization expense(3)	61.8				63.1				—				110.5				5.2				240.6
Total assets	385.1				1,057.6				7.4				2,614.2				602.6				4,666.9
Additions to long-lived assets	89.9				73.9				—				34.0				1.5				199.3

(1) Other, which is not a reportable segment, consists of Coach brand sales and expenses generated in other ancillary channels, licensing and disposition.

(2) Corporate unallocated includes certain centrally managed Coach brand inventory-related amounts, advertising, marketing, design, administration and information systems, as well as distribution and consumer service expenses. Furthermore, Operational Efficiency Plan and Transformation Plan charges incurred by the Company as described in Note 3, "Restructuring Activities" and charges associated with the reversal of the accrued earnout payments of the Stuart Weitzman acquisition and other integration-related activities are also included as unallocated corporate expenses.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

(3)

Depreciation and amortization expense includes $6.1 million of Operational Efficiency Plan charges for the fiscal year ended July 1, 2017. Depreciation and amortization expense includes $8.5 million of Operational Efficiency Plan and Transformation Plan charges for the fiscal year ended July 2, 2016. Depreciation and amortization expense includes $48.8 million of transformation-related charges for the fiscal year ended June 27, 2015. These charges are recorded as corporate unallocated expenses.

The following table shows net sales for each product category represented:

	Fiscal Year Ended
	July 1, 2017				% of Total			July 2, 2016				% of Total			June 27, 2015				% of Total
	(millions)
Women's Handbags	$	2,308.0			52	%		$	2,392.9			53	%		$	2,389.6			57	%
Men's	808.0				18			725.7				16			680.4				16
Women's Accessories	721.0				16			721.6				16			709.4				17
Women's Other Products	277.7				6			306.9				7			369.2				9
Total Coach brand	$	4,114.7			92	%		$	4,147.1			92	%		$	4,148.6			99	%
Stuart Weitzman brand(1)	373.6				8			344.7				8			43.0				1
Total Sales	$	4,488.3			100	%		$	4,491.8			100	%		$	4,191.6			100	%

(1)	The significant majority of sales for the Stuart Weitzman brand is attributable to women's footwear.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

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

	Fiscal Year Ended
	July 1, 2017				July 2, 2016				June 27, 2015
	(millions)
Inventory-related (1)	$	59.8			$	52.0			$	27.2
Advertising, marketing and design(2)	(233.5		)		(260.3		)		(246.7		)
Administration and information systems(2)(3)	(269.1		)		(381.6		)		(422.8		)
Distribution and customer service(2)	(54.7		)		(62.0		)		(66.3		)
Total corporate unallocated	$	(497.5	)		$	(651.9	)		$	(708.6	)

(1)	Inventory-related amounts primarily consist of Coach brand production variances, which represent the difference between the expected standard cost and actual cost of inventory and inventory-related reserves which are recorded within cost of sales. In fiscal 2015 this amount also included transformation related costs of $(5.0) million.

(2)	Costs recorded within SG&A expenses.

(3)

Fiscal 2017 includes Operational Efficiency Plan charges recorded within SG&A expenses of $(24.0) million, $26.8 million of income related to the Stuart Weitzman contingent earnout reversal offset by other integration-related charges and $(7.4) million related to Kate Spade acquisition costs, all of which are recorded within corporate unallocated costs. Fiscal 2016 includes Transformation Plan, Operational Efficiency Plan and Stuart Weitzman acquisition-related charges of $(107.4) million. Fiscal 2015 includes charges of $(156.7) million related to Transformation Plan and Stuart Weitzman acquisition-related charges.

Geographic Area Information

As of July 1, 2017, the Company operated 247 retail stores and 192 outlet stores in the United States, 40 retail stores and 9 outlet stores in Canada. Outside of North America, the Company operated 184 concession shop-in-shops within department stores, retail stores and outlet stores in Japan, 199 in Greater China (including Hong Kong, Macau and mainland China), and 172 in other international locations. Geographic revenue information is based on the location of our customer sale. Geographic long-lived asset information is based on the physical location of the assets at the end of each fiscal year and includes property and equipment, net and other assets.

	United States				Japan				Greater China(2)				Other(3)				Total
	(millions)
Fiscal 2017
Net sales(1)	$	2,432.5			$	572.8			$	643.9			$	839.1			$	4,488.3
Long-lived assets	497.7				58.3				93.2				162.2				811.4
Fiscal 2016
Net sales(1)	$	2,477.3			$	559.8			$	652.2			$	802.5			$	4,491.8
Long-lived assets	750.3				74.8				96.6				141.5				1,063.2
Fiscal 2015
Net sales(1)	$	2,372.8			$	545.6			$	635.8			$	637.4			$	4,191.6
Long-lived assets	559.5				55.4				91.2				138.4				844.5

(1)	Includes net sales from our global travel retail business in locations within the specified geographic area.

(2)	Greater China includes mainland China, Hong Kong and Macau.

(3)	Other International sales reflect shipments to third-party distributors, primarily in East Asia, and sales from Company-operated stores and concession shop-in-shops in Canada, Europe, Taiwan, South Korea, Malaysia and Singapore.

16. EARNINGS PER SHARE

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

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

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

	Fiscal Year Ended
	July 1, 2017				July 2, 2016				June 27, 2015
	(millions, except per share data)
Net income	$	591.0			$	460.5			$	402.4
Weighted-average basic shares	280.6				277.6				275.7
Effect of dilutive securities	2.2				1.7				1.5
Weighted-average diluted shares	282.8				279.3				277.2
Net income per share:
Basic	$	2.11			$	1.66			$	1.46
Diluted	$	2.09			$	1.65			$	1.45

At July 1, 2017, options to purchase 4.5 million shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise prices, ranging from $45.13 to $78.46, were greater than the average market price of the common shares.

At July 2, 2016, options to purchase 5.1 million shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise prices, ranging from $39.42 to $78.46, were greater than the average market price of the common shares.

At June 27, 2015, options to purchase 5.9 million shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise prices, ranging from $38.75 to $78.46, were greater than the average market price of the common shares.

Earnings per share amounts have been calculated based on unrounded numbers. Options to purchase shares of the Company's common stock at an exercise price greater than the average market price of the common stock during the reporting period are anti-dilutive and therefore not included in the computation of diluted net income per common share. In addition, the Company has outstanding restricted stock unit awards that are issuable only upon the achievement of certain performance goals. Performance-based restricted stock unit awards are included in the computation of diluted shares only to the extent that the underlying performance conditions (and any applicable market condition modifiers) (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. As of July 1, 2017, July 2, 2016 and June 27, 2015, there were approximately 5.6 million, 5.9 million, and 6.8 million, respectively, of additional shares issuable upon exercise of anti-dilutive options and contingent vesting of performance-based restricted stock unit awards, which were excluded from the diluted share calculations.

17. RELATED PARTIES

The Stuart Weitzman brand owns approximately 50% of a factory and one of its former employees maintains a partial ownership interest of less than 50% in a factory, both of which are located in Spain, which are involved in the production of Stuart Weitzman inventory. Payments to these two factories represented $27.6 million and $39.2 million in fiscal 2017 and fiscal 2016, respectively. Amounts payable to these factories were not material at July 1, 2017 or July 2, 2016.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

18. SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of certain balance sheet accounts are as follows:

	July 1, 2017				July 2, 2016
	(millions)
Property and equipment
Land and building	$	13.7			$	168.5
Machinery and equipment	34.4				34.5
Furniture and fixtures	640.0				653.2
Leasehold improvements	729.7				898.7
Construction in progress	71.7				26.4
Less: accumulated depreciation	(798.1		)		(861.8		)
Total property and equipment, net	$	691.4			$	919.5
Accrued liabilities
Payroll and employee benefits	$	152.7			$	180.5
Accrued rent	45.5				45.2
Dividends payable	95.1				93.9
Operating expenses	265.9				305.4
Total accrued liabilities	$	559.2			$	625.0
Other liabilities
Deferred lease obligation	$	204.2			$	172.9
Gross unrecognized tax benefit	94.1				138.6
Deferred tax liabilities	63.3				57.3
Other	134.8				153.1
Total other liabilities	$	496.4			$	521.9

19. HEADQUARTERS TRANSACTIONS

Sale of Interest and Lease Transaction of Hudson Yards

During the first quarter of fiscal 2017, the Company sold its investments in 10 Hudson Yards, in New York City, and announced the lease of its new global headquarters. The Company sold its equity investment in the Hudson Yards joint venture as well as net fixed assets related to the design and build-out of the space. The Company received a purchase price of approximately $707 million (net of approximately $77 million due to the developer of Hudson Yards) before transaction costs of approximately $26 million, resulting in a gain of $28.8 million, which will be amortized through SG&A expenses over the lease term of 20 years, as discussed below.

The Company has simultaneously entered into a 20-year lease, accounted for as an operating lease, for the headquarters space in the building, comprised of approximately 694,000 square feet. Under the lease, the Company has the right to expand its premises to portions of the 24th and 25th floors of the building and has a right of first offer with respect to available space on the 26th floor of the building. The total commitment related to this lease was approximately $1.05 billion. Minimum lease payments of $45.1 million are due each year from fiscal 2018 through fiscal 2021, and $825.5 million total due for years subsequent to 2021. In addition to its fixed rent obligations, the Company is obligated to pay its percentage share for customary escalations for operating expenses attributable to the building and the Hudson Yards development, taxes and tax related payments. The Company is not obligated to pay any amount of contingent rent.

Sale of Former Headquarters

During the second quarter of fiscal 2017, the Company completed the sale of its former headquarters on West 34th Street. Net cash proceeds of $126.0 million were generated and the sale did not result in a material gain or loss.

COACH, INC.

Notes to Consolidated Financial Statements (Continued)

20. SUBSEQUENT EVENTS

Kate Spade Acquisition

On July 11, 2017, the Company completed its acquisition of Kate Spade & Company for $18.50 per share in cash for a total of $2.4 billion. As a result, Kate Spade has become a wholly owned subsidiary of Coach, Inc. The combination of Coach, Inc. and Kate Spade & Company creates a leading New York-based luxury lifestyle company with a more diverse multi-brand portfolio supported by significant expertise in handbag design, merchandising, supply chain and retail operations as well as solid financial acumen. Refer to Note 11, "Commitments and Contingencies" for more information.

Term Loan Borrowings and Bridge Credit Facility

On July 10, 2017, the Company borrowed $800.0 million under the six-month term loan credit facility and $300.0 million under the three-year term loan credit facility, for a total of $1.1 billion. In connection with the closing of the Kate Spade acquisition on July 11, 2017, the remaining Bridge Facility terminated in accordance with its terms. Refer to Note, 10, "Debt", for more information.

Reportable Segments

Beginning in fiscal 2018, the Company aligned its reportable segments with the new structure of the business following the acquisition of Kate Spade. As a result of this realignment the Company will have three reportable segments: Coach, Kate Spade and Stuart Weitzman. The Company's former North America and International segments will be consolidated within the new Coach segment. The Company's newly acquired subsidiary, Kate Spade, will be a reportable segment.

COACH, INC.

Schedule II — Valuation and Qualifying Accounts

For the Fiscal Years Ended July 1, 2017, July 2, 2016 and June 27, 2015

	Balance at Beginning of Year				Additions Charged to Costs and Expenses				Additions Related to Acquisition				Write-offs/ Allowances Taken				Balance at End of Year
	(millions)
Fiscal 2017
Allowance for bad debts	$	2.2			$	1.7			$	—			$	(2.0	)		$	1.9
Allowance for returns	6.0				10.3				—				(11.9		)		4.4
Allowance for markdowns	15.2				36.9				—				(42.7		)		9.4
Valuation allowance	173.4				22.7				—				—				196.1
Total	$	196.8			$	71.6			$	—			$	(56.6	)		$	211.8
Fiscal 2016
Allowance for bad debts	$	3.1			$	3.7			$	—			$	(4.6	)		$	2.2
Allowance for returns	7.5				11.5				—				(13.0		)		6.0
Allowance for markdowns	18.0				54.1				—				(56.9		)		15.2
Valuation allowance	169.8				3.6				—				—				173.4
Total	$	198.4			$	72.9			$	—			$	(74.5	)		$	196.8
Fiscal 2015
Allowance for bad debts	$	1.4			$	1.7			$	0.9			$	(0.9	)		$	3.1
Allowance for returns	2.9				8.9				0.7				(5.0		)		7.5
Allowance for markdowns	11.6				42.5				3.8				(39.9		)		18.0
Valuation allowance	131.8				38.0				—				—				169.8
Total	$	147.7			$	91.1			$	5.4			$	(45.8	)		$	198.4

COACH, INC.

Quarterly Financial Data

(unaudited)

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(millions, except per share data)
Fiscal 2017(1)
Net sales	$	1,037.6			$	1,321.7			$	995.2			$	1,133.8
Gross profit	714.7				906.2				705.7				754.5
Net income	117.4				199.7				122.2				151.7
Net income per common share:
Basic	$	0.42			$	0.71			$	0.44			$	0.54
Diluted	$	0.42			$	0.71			$	0.43			$	0.53
Fiscal 2016(1)(2)
Net sales	$	1,030.3			$	1,273.8			$	1,033.1			$	1,154.6
Gross profit	696.5				859.1				713.0				782.7
Net income	96.4				170.1				112.5				81.5
Net income per common share:
Basic	$	0.35			$	0.61			$	0.40			$	0.29
Diluted	$	0.35			$	0.61			$	0.40			$	0.29
Fiscal 2015(1)
Net sales	$	1,038.8			$	1,219.4			$	929.3			$	1,004.1
Gross profit	715.4				840.0				665.5				687.7
Net income	119.1				183.5				88.1				11.7
Net income per common share:
Basic	$	0.43			$	0.67			$	0.32			$	0.04
Diluted	$	0.43			$	0.66			$	0.32			$	0.04

(1)	The sum of the quarterly earnings per share may not equal the full-year amount, as the computations of the weighted-average number of common basic and diluted shares outstanding for each quarter and the full year are performed independently.

(2)	The fiscal year ended July 1, 2017 (“fiscal 2017”) was a 52-week period, the fiscal year ended July 2, 2016 (“fiscal 2016”) was a 53-week period and the fiscal year ended June 27, 2015 (“fiscal 2015”) was a 52-week period. The fourth quarter of fiscal 2016 included the results of the 53rd week, contributing to $84.4 million in net revenues and $0.07 in net income per diluted share.

EXHIBITS TO FORM 10-K

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

Exhibit		Description
2.1		Agreement and Plan of Merger, dated as of May 7, 2017, by and among Coach, Inc., Kate Spade & Company and Chelsea Merger Sub, Inc., which is incorporated by reference from Exhibit 2.1 to Coach's Quarterly Report on Form 10-Q for the period ended April 1, 2017
3.1		Amended and Restated Bylaws of Coach, Inc., dated February 8, 2017, which is incorporated herein by reference from Exhibit 3.1 to Coach’s Current Report on Form 8-K filed on February 10, 2017
3.2		Articles Supplementary of Coach, Inc., dated May 3, 2001, which is incorporated herein by reference from Exhibit 3.2 to Coach’s Current Report on Form 8-K filed on May 9, 2001
3.3		Articles of Amendment of Coach, Inc., dated May 3, 2001, which is incorporated herein by reference from Exhibit 3.3 to Coach’s Current Report on Form 8-K filed on May 9, 2001
3.4		Articles of Amendment of Coach, Inc., dated May 3, 2002, which is incorporated by reference from Exhibit 3.4 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2002
3.5		Articles of Amendment of Coach, Inc., dated February 1, 2005, which is incorporated by reference from Exhibit 99.1 to Coach’s Current Report on Form 8-K filed on February 2, 2005
4.1		Specimen Certificate for Common Stock of Coach, which is incorporated herein by reference from Exhibit 4.1 to Coach's Registration Statement on Form S-1 (Registration No. 333-39502)
4.2		Deposit Agreement, dated November 24, 2011, between Coach, Inc. and JPMorgan Chase Bank, N.A., as depositary, which is incorporated by reference from Exhibit 4.1 to Coach’s Current Report on Form 8-K filed on November 25, 2011
4.3		Deed Poll, dated November 24, 2011, executed by Coach, Inc. and JPMorgan Chase Bank, N.A., as depositary, pursuant to the deposit agreement in favor of and in relation to the rights of the holders of the depositary receipts, which is incorporated by reference from Exhibit 4.1 to Coach’s Current Report on Form 8-K filed on November 25, 2011
4.4		Indenture, dated as of March 2, 2015, relating to the 4.250% senior unsecured notes due 2025, between Coach and U.S. Bank National Association, as trustee, which is incorporated herein by reference from Exhibit 4.1 to Coach’s Current Report on Form 8-K filed on March 2, 2015
4.5		First Supplemental Indenture, dated as of March 2, 2015, relating to the 4.250% senior unsecured notes due 2025, between Coach and U.S. Bank National Association, as trustee, which is incorporated herein by reference from Exhibit 4.2 to Coach’s Current Report on Form 8-K filed on March 2, 2015
4.6		Form of 4.250% senior unsecured notes due 2025 (included in the First Supplemental Indenture), which is incorporated herein by reference from Exhibit 4.3 to Coach’s Current Report on Form 8-K filed on March 2, 2015
4.7		Second Supplemental Indenture, dated as of June 20, 2017, relating to the 3.000% senior unsecured notes due 2022, between the Company and U.S. Bank National Association, as trustee, which is incorporated by reference from Exhibit 4.1 to Coach's Current Report on Form 8-K, filed on June 20, 2017
4.8		Third Supplemental Indenture, dated as of June 20, 2017, relating to the 4.125% senior unsecured notes due 2027, between the Company and U.S. Bank National Association, as trustee, which is incorporated by reference from Exhibit 4.2 to Coach's Current Report on Form 8-K, filed on June 20, 2017
4.9		Form of 3.000% senior unsecured notes due 2022 (included in the Second Supplemental Indenture), which is incorporated by reference from Exhibit 4.3 to Coach's Current Report on Form 8-K, filed on June 20, 2017
4.10		Form of 4.125% senior unsecured notes due 2027 (included in the Third Supplemental Indenture), which is incorporated by reference from Exhibit 4.4 to Coach's Current Report on Form 8-K, filed on June 20, 2017
10.1		Purchase Agreement among Stuart Weitzman Topco LLC, Stuart Weitzman Intermediate LLC and Coach, dated January 5, 2015, which is incorporated by reference from Exhibit 10.1 to Coach’s Quarterly Report on Form 10-Q for the period ended December 27, 2014
10.2		Letter Agreement between Stuart Weitzman and Coach, dated January 5, 2015, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended December 27, 2014
10.3†		Coach, Inc. 2000 Stock Incentive Plan, which is incorporated by reference from Exhibit 10.10 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003
10.4†		Coach, Inc. Non-Qualified Deferred Compensation Plan for Outside Directors, which is incorporated by reference from Exhibit 10.14 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003

Exhibit		Description
10.5†		Amended and Restated Coach, Inc. 2001 Employee Stock Purchase Plan, which is incorporated by reference to Appendix C to Coach's Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders filed on September 30, 2016
10.6†		Coach, Inc. 2004 Stock Incentive Plan, which is incorporated by reference from Appendix A to the Registrant’s Definitive Proxy Statement for the 2004 Annual Meeting of Stockholders, filed on September 29, 2004
10.7†		Coach, Inc. 2010 Stock Incentive Plan, which is incorporated by reference from Appendix A to the Registrant’s Definitive Proxy Statement for the 2010 Annual Meeting of Stockholders, filed on September 24, 2010
10.8†		Amendment to the Coach, Inc. 2010 Stock Incentive Plan, which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 22, 2014
10.9†		Coach, Inc. Amended and Restated 2010 Stock Incentive Plan, which is incorporated herein by reference from Appendix B to the Registrant’s Definitive Proxy Statement for the 2014 Annual Meeting of Stockholders, filed on September 26, 2014
10.10†		Coach, Inc. Amended and Restated 2010 Stock Incentive Plan (Amended and Restated as of September 18, 2015), which is incorporated herein by reference from Appendix B to the Registrant’s Definitive Proxy Statement for the 2015 Annual Meeting of Stockholders, filed on September 25, 2015
10.11†		Coach, Inc. Amended and Restated 2010 Stock Incentive Plan (Amended and Restated as of September 23, 2016), which is incorporated herein by reference from Appendix B to the Registrant's Definitive Proxy Statement for the 2016 Annual Meeting of the Stockholders, filed on September 30, 2016
10.12†		Form of Stock Option Grant Notice and Agreement under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan, which is incorporated by reference from Exhibit 10.21 to Coach's Annual Report on Form 10-K for the period ended June 27, 2015
10.13†		Form of Restricted Stock Unit Award Grant Notice and Agreement under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan, which is incorporated by reference from Exhibit 10.22 to Coach's Annual Report on Form 10-K for the period ended June 27, 2015
10.14†		Form of Performance Restricted Stock Unit Agreement Grant Notice and Agreement under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan, which is incorporated by reference from Exhibit 10.23 to Coach's Annual Report on Form 10-K for the period ended June 27, 2015
10.15†		Form of Stock Option Grant Notice and Agreement for Outside Directors under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan, which is incorporated by reference from Exhibit 10.24 to Coach's Annual Report on Form 10-K for the period ended June 27, 2015
10.16†		Form of Restricted Stock Unit Grant Notice and Agreement for Outside Directors under the Amended and Restated Coach, Inc. 2010 Stock Incentive Plan, which is incorporated by reference from Exhibit 10.25 to Coach's Annual Report on Form 10-K for the period ended June 27, 2015
10.17†		Coach, Inc. 2013 Performance-Based Annual Incentive Plan, which is incorporated herein by reference from Appendix B to the Registrant’s Definitive Proxy Statement for the 2013 Annual Meeting of Stockholders, filed on September 27, 2013
10.18†		Letter Agreement, dated February 13, 2013, between Coach and Victor Luis, which is incorporated herein by reference from Exhibit 10.29 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2013
10.19†		Employment Offer Letter, dated January 26, 2015, between Coach and Ian Bickley, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended March 28, 2015
10.20†		Employment Offer Letter, dated January 26, 2015, between Coach and Andre Cohen, which is incorporated by reference from Exhibit 10.2 to Coach’s Quarterly Report on Form 10-Q for the period ended March 28, 2015
10.21†		Letter Agreement, dated June 22, 2015, between Coach and Sarah Dunn, which is incorporated by reference from Exhibit 10.3 to Coach’s Current Report on Form 8-K, filed on June 22, 2015
10.22†		Letter Agreement, dated June 22, 2015, between Coach and Todd Kahn, which is incorporated by reference from Exhibit 10.2 to Coach’s Current Report on Form 8-K, filed on June 22, 2015
10.23†		Letter Agreement, dated August 22, 2016, between Coach and Victor Luis, which is incorporated by reference from Exhibit 10.1 to Coach's Current Report on Form 8-K, filed on August 26, 2016
10.24†		Letter Agreement, dated August 22, 2016, between Coach and Ian Bickley, which is incorporated by reference from Exhibit 10.1 to Coach's Current Report on Form 8-K, filed on August 26, 2016
10.25†		Letter Agreement, dated September 8, 2016, between Coach and Andre Cohen, which is incorporated by reference from Exhibit 10.1 to Coach's Current Report on Form 8-K, filed on September 9, 2016
10.26		Redemption Agreement and Amendment to Limited Liability Company Agreement, dated as of August 1, 2016, by and between Legacy Yards LLC, Coach Legacy Yards LLC and Podium Fund Tower C SPV LLC, which is incorporated by reference from Exhibit 10.1 to Coach's Quarterly Report on Form 10-Q for the period ended October 1, 2016

Exhibit		Description
10.27		Lease Agreement, dated as of August 1, 2016, by and between Coach, Inc. and Legacy Yards Tenant LP, which is incorporated by reference from Exhibit 10.2 to Coach's Quarterly Report on Form 10-Q for the period ended October 1, 2016
10.28		Amended and Restated Development Agreement, dated as of August 1, 2016, by and between ERY Developer LLC and Coach Legacy Yards LLC, which is incorporated by reference from Exhibit 10.3 to Coach's Quarterly Report on Form 10-Q for the period ended October 1, 2016
10.29		Termination and Release of the Coach Guaranty, dated as of August 1, 2016, by and between Podium Fund Tower C SPV LLC and ERY Developer LLC, which is incorporated by reference from Exhibit 10.4 to Coach's Quarterly Report on Form 10-Q for the period ended October 1, 2016
10.30†		Employment Offer Letter, dated December 12, 2016, between Coach and Kevin Wills, which is incorporated by reference from Exhibit 10.4 to Coach's Quarterly Report on Form 10-Q for the period ended December 31, 2016
10.31†		Employment Offer Letter, dated March 27, 2017, between Coach and Joshua Schulman, which is incorporated by reference from Exhibit 10.1 to Coach's Quarterly Report on Form 10-Q for the period ended April 1, 2017
10.32		Commitment Letter, dated May 7, 2017, among Coach, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bank of America, N.A., which is incorporated by reference from Exhibit 10.2 to Coach's Quarterly Report on Form 10-Q for the period ended April 1, 2017
10.33		Credit Agreement, dated as of May 30, 2017, by and among Coach, Inc., Bank of America, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A. and HSBC Bank USA, National Association, as Co-Syndication Agents, and the other lenders party thereto, which is incorporated by reference from Exhibit 10.1 to Coach's Current Report on Form 8-K, filed on May 31, 2017
12*		Computation of Ratio of Earnings to Fixed Charges
18		Letter re: change in accounting principle, which is incorporated herein by reference from Exhibit 18 to Coach’s Quarterly Report on Form 10-Q for the period ended October 2, 2010
21.1*		List of Subsidiaries of Coach, Inc.
23.1*		Consent of Deloitte & Touche LLP
31.1*		Rule 13(a)-14(a)/15(d)-14(a) Certifications
32.1*		Section 1350 Certifications
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase
101.LAB*		XBRL Taxonomy Extension Label Linkbase
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase
101.DEF*		XBRL Taxonomy Extension Definition Linkbase

*	Filed herewith

†	Management contract or compensatory plan or arrangement.