Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

(b)	Exhibits. Refer to 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.

TAPESTRY, INC.

Date: August 16, 2018	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 16, 2018.

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/ Darrell Cavens		Director
Darrell Cavens
/s/ David Denton		Director
David Denton
/s/ Anne Gates		Director
Anne Gates
/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/ Doreen Toben		Director
Doreen Toben

TAPESTRY, 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 Operations	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	99
Quarterly Financial Data	100

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 stockholders and the Board of Directors of Tapestry, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Tapestry, Inc. and subsidiaries (the "Company") as of June 30, 2018 and July 1, 2017, and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 2018, and the related notes and the financial statement Schedule II listed in the Index to the Consolidated Financial Statements (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and July 1, 2017, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of June 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 16, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

New York, New York

August 16, 2018

We have served as the Company's auditor since 2002.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Tapestry, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Tapestry, Inc. and subsidiaries (the "Company") as of June 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2018, based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements and financial statement schedule as of and for the year ended June 30, 2018 of the Company and our report dated August 16, 2018, expressed an unqualified opinion on those financial statements and financial statement schedule.

Basis for Opinion

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

New York, New York

August 16, 2018

TAPESTRY, INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2018				July 1, 2017
	(millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,243.4			$	2,672.9
Short-term investments	6.6				410.7
Trade accounts receivable, less allowances of $1.5 and $1.9, respectively	314.1				268.0
Inventories	673.8				469.7
Income tax receivable	25.8				41.5
Prepaid expenses	82.6				58.6
Other current assets	86.3				31.9
Total current assets	2,432.6				3,953.3
Property and equipment, net	885.4				691.4
Long-term investments	—				75.1
Goodwill	1,484.3				480.5
Intangible assets	1,732.9				340.8
Deferred income taxes	24.3				170.5
Other assets	118.8				120.0
Total assets	$	6,678.3			$	5,831.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	264.3			$	194.6
Accrued liabilities	673.2				559.2
Current debt	0.7				—
Total current liabilities	938.2				753.8
Long-term debt	1,599.9				1,579.5
Deferred income taxes	206.2				63.3
Long-term income taxes payable	222.4				—
Other liabilities	467.0				433.1
Total liabilities	3,433.7				2,829.7
See Note 12 on commitments and contingencies
Stockholders’ Equity:
Preferred stock: (authorized 25.0 million shares; $0.01 par value) none issued	—				—
Common stock: (authorized 1.0 billion shares; $0.01 par value) issued and outstanding – 288.0 million and 281.9 million shares, respectively	2.9				2.8
Additional paid-in-capital	3,205.5				2,978.3
Retained earnings	119.0				107.7
Accumulated other comprehensive income (loss)	(82.8		)		(86.9		)
Total stockholders’ equity	3,244.6				3,001.9
Total liabilities and stockholders’ equity	$	6,678.3			$	5,831.6

See accompanying Notes.

TAPESTRY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Fiscal Year Ended
	June 30, 2018				July 1, 2017				July 2, 2016
	(millions, except per share data)
Net sales	$	5,880.0			$	4,488.3			$	4,491.8
Cost of sales	2,026.1				1,407.2				1,440.5
Gross profit	3,853.9				3,081.1				3,051.3
Selling, general and administrative expenses	3,183.1				2,293.7				2,397.8
Operating income	670.8				787.4				653.5
Interest expense, net	74.0				28.4				26.9
Income before provision for income taxes	596.8				759.0				626.6
Provision for income taxes	199.3				168.0				166.1
Net income	$	397.5			$	591.0			$	460.5
Net income per share:
Basic	$	1.39			$	2.11			$	1.66
Diluted	$	1.38			$	2.09			$	1.65
Shares used in computing net income per share:
Basic	285.4				280.6				277.6
Diluted	288.6				282.8				279.3
Cash dividends declared per common share	$	1.350			$	1.350			$	1.350

See accompanying Notes.

TAPESTRY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Fiscal Year Ended
	June 30, 2018				July 1, 2017				July 2, 2016
	(millions)
Net income	$	397.5			$	591.0			$	460.5
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains on cash flow hedging derivatives, net	(1.6		)		11.8				(13.2		)
Unrealized gains (losses) on available-for-sale investments, net	0.4				(0.7		)		(0.2		)
Change in pension liability, net	1.5				1.1				(0.6		)
Foreign currency translation adjustments	3.8				(26.2		)		18.8
Other comprehensive income (loss), net of tax	4.1				(14.0		)		4.8
Comprehensive income	$	401.6			$	577.0			$	465.3

See accompanying Notes.

TAPESTRY, 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 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
Net income	—			—				—				397.5				—				397.5
Other comprehensive income	—			—				—				—				4.1				4.1
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	6.1			0.1				133.8				—				—				133.9
Share-based compensation	—			—				88.1				—				—				88.1
Additional paid-in-capital as part of purchase consideration	—			—				5.3				—				—				5.3
Dividends declared ($1.350 per share)	—			—				—				(386.2		)		—				(386.2		)
Balance at June 30, 2018	288.0			$	2.9			$	3,205.5			$	119.0			$	(82.8	)		$	3,244.6

See accompanying Notes.

TAPESTRY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Year Ended
	June 30, 2018				July 1, 2017				July 2, 2016
	(millions)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income	$	397.5			$	591.0			$	460.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	260.3				212.8				210.6
Provision for bad debt	1.3				1.7				3.7
Share-based compensation	81.3				73.6				86.8
Excess tax effect from share-based compensation	—				3.8				9.0
Integration and restructuring activities	134.9				8.5				17.7
Deferred income taxes	(50.9		)		78.0				(52.3		)
Other non-cash charges, net	3.1				(19.1		)		(14.7		)
Changes in operating assets and liabilities:
Trade accounts receivable	(5.6		)		(29.4		)		(28.3		)
Inventories	30.4				(20.0		)		40.7
Other liabilities	157.7				(53.4		)		49.5
Accounts payable	(77.3		)		8.4				(48.4		)
Accrued liabilities	(16.9		)		(50.1		)		30.1
Other assets	80.9				48.0				(6.3		)
Net cash provided by operating activities	996.7				853.8				758.6
CASH FLOWS (USED IN) PROVIDED BY 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		)
Acquisitions, net of cash acquired	(2,375.8		)		—				(25.6		)
Purchases of property and equipment	(267.4		)		(283.1		)		(396.4		)
Purchases of investments	(3.8		)		(523.5		)		(664.7		)
Proceeds from maturities and sales of investments	482.2				591.2				425.9
Acquisition of lease rights, net of proceeds	—				1.8				(8.9		)
Net cash (used in) provided by investing activities	(2,164.8		)		593.0				(810.0		)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES
Dividend payments	(384.1		)		(378.0		)		(374.5		)
Proceeds from issuance of debt, net of discount	1,100.0				997.2				—
Debt issuance costs	—				(9.8		)		—
Repayment of debt	(1,100.0		)		(285.0		)		(15.0		)
Proceeds from share-based awards	165.7				70.4				29.1
Taxes paid to net settle share-based awards	(31.5		)		(21.5		)		(15.5		)
Excess tax effect from share-based compensation	—				(3.8		)		(9.0		)
Net cash (used in) provided by financing activities	(249.9		)		369.5				(384.9		)
Effect of exchange rate changes on cash and cash equivalents	(11.5		)		(2.4		)		3.5
(Decrease) increase in cash and cash equivalents	(1,429.5		)		1,813.9				(432.8		)
Cash and cash equivalents at beginning of year	2,672.9				859.0				1,291.8
Cash and cash equivalents at end of year	$	1,243.4			$	2,672.9			$	859.0
Supplemental information:
Cash paid for income taxes, net	$	16.4			$	159.1			$	158.9
Cash paid for interest	$	63.0			$	35.4			$	33.7
Non-cash investing activity – property and equipment obligations	$	30.1			$	39.7			$	48.0

See accompanying Notes.

TAPESTRY, INC.

Notes to Consolidated Financial Statements

1. NATURE OF OPERATIONS

Tapestry, Inc. (the "Company") is a leading New York-based house of modern luxury accessories and lifestyle brands. Tapestry owns the Coach, Kate Spade and Stuart Weitzman 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 and other lifestyle products.

The Coach segment includes global sales of Coach brand products to customers through Coach operated stores, including the Internet and concession shop-in-shops, and sales to wholesale customers and through independent third party distributors.

The Kate Spade segment includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including the Internet, to wholesale customers, through concession shop-in-shops and through independent third party distributors.

The Stuart Weitzman segment includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, including the Internet, to wholesale customers and through numerous independent third party distributors.

2. SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to June 30. Unless otherwise stated, references to years in the financial statements relate to fiscal years. The fiscal years ended June 30, 2018 (“fiscal 2018”) and July 1, 2017 (“fiscal 2017”) were 52-week periods, and the fiscal year ended July 2, 2016 (“fiscal 2016”) was a 53-week period. The fiscal year ending June 29, 2019 (“fiscal 2019”) 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 the realizability of inventory; customer returns, end-of-season markdowns and operational chargebacks; useful lives and impairments of long-lived tangible and intangible assets; accounting for income taxes (including the impacts of the new tax legislation) and related uncertain tax positions; accounting for business combinations; the valuation of stock-based compensation awards and related expected forfeiture rates; reserves for restructuring; and reserves for litigation and other contingencies, amongst others.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all 100% owned and controlled 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. Dividend and interest income are recognized when earned.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

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 generally invests primarily in corporate debt securities, money market instruments, U.S. government and agency 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 net realizable value. 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 software and computer equipment is depreciated over lives of three to ten 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 $9.1 million and $14.2 million of impairment charges in fiscal 2018 and fiscal 2017, respectively.

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.

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 3, "Acquisitions," for detailed disclosures related to our acquisitions.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Goodwill and Other Intangible Assets

Upon acquisition, the Company estimates and records the fair value of purchased intangible assets, which primarily consists of brands, 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 multi-period excess earnings method, respectively, with consideration of market comparisons. 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 brands, 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, 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 as well as brand intangibles during the fourth quarter of each fiscal year. The Company determined that there was no impairment in fiscal 2018, fiscal 2017 or fiscal 2016.

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 2018 and fiscal 2017, deferred rent obligations of $240.3 million and $242.4 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 2018 and fiscal 2017, the Company had asset retirement obligations of $25.8 million and $22.9 million, respectively, primarily classified within other non-current liabilities in the Company's Consolidated Balance Sheets.

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-

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

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

Selling expenses include store employee compensation, occupancy costs, depreciation, supply costs, wholesale and retail account administration compensation globally. 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. SG&A expenses also 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.

Shipping and Handling

Shipping and handling costs incurred were $101.5 million, $45.8 million and $43.6 million in fiscal 2018, fiscal 2017 and fiscal 2016, 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 2018, fiscal 2017 and fiscal 2016, advertising expenses for the Company totaled $228.4 million, $178.3 million and $202.2 million, respectively, and are included in SG&A expenses. Advertising costs are generally expensed when the advertising first appears.

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.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

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. Before the Tax Legislation, the Company considered the earnings of its non-U.S. subsidiaries to be indefinitely reinvested, and accordingly, recorded no deferred income taxes on these earnings. In fiscal 2018, the Company partially changed its assertion and has recorded an estimate of the deferred tax impact associated with this change.

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.

Refer to Note 14, "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 customer 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 Sheets. 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.

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.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

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 Operations 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 2018 to March 2019. 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 balances being hedged are revalued. Current maturity dates are in September 2018, and such contracts are typically renewed upon maturity if the related balance has not been settled.

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.

Reclassifications

Certain reclassifications have been made to the prior period's financial information in order to conform to the current period's presentation. This includes the realignment of the Company's segment reporting structure, as further described in Note 16, "Segment Information."

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-02, "Income Statement- Reporting Comprehensive Income (Topic 220)," which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the change in federal tax rate for all items accounted for in accumulated other comprehensive income (loss). This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018 and early adoption is permitted. The Company adopted this standard in the third quarter of fiscal 2018 and reclassified stranded amounts related to the cash flow hedges from accumulated other comprehensive loss to retained earnings. The reclassification and adoption did not have a material impact to the consolidated financial statements, including accumulated other comprehensive loss and retained earnings.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

During the first quarter of fiscal 2018, the Company adopted 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 beginning in fiscal 2018. Additionally, the Company began recognizing all excess tax benefits and shortfalls as income tax expense or benefit in the income statement within the reporting period in which they occur. The Company adopted this standard prospectively, which resulted in a decrease in the tax provision of $13.3 million in fiscal 2018. Future impacts of the adoption of this standard on the consolidated financial statements, particularly the income tax provision, will be dependent upon future events which are unpredictable. The Company has elected to continue to estimate expected forfeitures in determining compensation expense.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which amends the hedge accounting recognition and presentation requirements in Accounting Standards Codification ("ASC") 815. The objective of this ASU is to improve the transparency and understandability of information conveyed to financial statement users about an entity's risk management activities by better aligning the entity's financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting by preparers. The requirements for the new standard will be effective for fiscal years beginning after December 15, 2018, and interim periods therein, which for the Company is the first quarter of fiscal 2020. Early adoption is permitted upon issuance. The Company is currently in the process of evaluating the impact that adopting ASU 2017-12 will have on its consolidated financial statements and notes thereto.

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. In July 2018, the FASB issued ASU 2018-11, with targeted improvements to the guidance including an additional transition method for the new standard. As a result, the new standard may be applied with a retrospective approach to each prior reporting period with various optional practical expedients, or with the initial application at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings. The Company is currently performing a comprehensive evaluation of the impact of adopting this guidance on its consolidated financial statements and notes thereto, and has not yet determined which transition method will be applied upon adoption. The Company expects the guidance will result in a significant increase to long-term assets and liabilities on its consolidated balance sheets and does not expect it to have a material impact on the Consolidated Statements of Operations. 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 is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods.

The Company performed a comprehensive evaluation of the impact, including a review of current accounting policies and processes, as well as typical terms in contracts with customers, to identify differences upon the adoption of the new standard. Based on these efforts, the Company has determined 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. As a result, the impact of adoption of the new standard will not be material to the financial statements although accounting for certain customer arrangements will change. Related to wholesale arrangements, the Company will change the classification of certain considerations paid to customers from SG&A expense to a reduction of net sales. Further, related to licensing arrangements, the Company has also determined that the timing of recognizing sales-based royalties will change. The Company will elect to recognize contractually guaranteed minimum royalty amounts ratably over the license year and recognize no excess sales-based royalties until the minimum royalty threshold is achieved. This change will not alter the total amount of revenue recognized from licensing agreements during a contract year, and the timing change within a contract year is expected to be immaterial to the Consolidated Statements of Operations as the licensing business represented approximately 1% of total net sales in fiscal 2018. The new standard will also

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

change accounting for sales returns by requiring balance sheet presentation on a gross basis. The Company has determined that the guidance will be adopted using the modified retrospective basis with a cumulative adjustment to opening retained earnings in fiscal 2019; the cumulative adjustment is not expected be material.

3. 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 $2.40 billion. As a result, Kate Spade became a wholly owned subsidiary of the Company. The combination of the Company 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.

The aggregate cash paid in connection with the acquisition of Kate Spade was $2.39 billion (or $2.32 billion net of cash acquired). Consideration also includes $5.3 million as a result of the conversion of previously granted unvested equity awards held by Kate Spade employees. The Company funded the acquisition through cash on-hand, as well as debt proceeds as described in Note 11, "Debt."

The Company accounted for the acquisition of Kate Spade under the acquisition method of accounting for business combinations. Accordingly, the cost was allocated to the underlying net assets based on their respective fair values. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill, which consists largely of the synergies expected from the acquisition.

The purchase price allocation for the assets acquired and liabilities assumed is substantially complete. 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 At Acquisition Date			Measurement Period Adjustments			Adjusted Fair Value
	(millions)
Cash and cash equivalents	$	71.8		$	—		$	71.8
Trade accounts receivable	62.8			—			62.8
Inventories(1)	310.1			—			310.1
Prepaid expenses and other current assets	33.9			(1.2		)	32.7
Property and equipment	175.5			—			175.5
Goodwill(2)(3)	916.1			(16.1		)	900.0
Brand intangible asset(4)	1,300.0			—			1,300.0
Other intangible assets(5)	119.2			—			119.2
Other assets	59.0			11.1			70.1
Total assets acquired	3,048.4			(6.2		)	3,042.2
Accounts payable and accrued liabilities	233.3						233.3
Deferred income taxes(6)	333.0			(7.3		)	325.7
Other liabilities(7)	84.8			1.1			85.9
Total liabilities assumed	651.1			(6.2		)	644.9
Total purchase price	2,397.3			—			2,397.3
Less: Cash acquired	(71.8		)	—			(71.8		)
Total purchase price, net of cash acquired	$	2,325.5		$	—		$	2,325.5

(1) Included a step-up adjustment of approximately $67.5 million, which was amortized over 4 months.

(2) The majority of the goodwill balance is not deductible for tax purposes.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

(3)	The Company assigned $324 million of goodwill associated with the Kate Spade acquisition to Coach brand reporting units based upon the analysis of expected synergies, including the allocation of corporate synergies to the brands. Refer to Note 13, "Goodwill and Other Intangible Assets," for further information.

(4) The brand intangible asset, of which the majority is not deductible for tax purposes, was valued based on the multi-period excess earnings method.

(5) The components of other intangible assets included favorable lease rights of approximately $72.2 million (amortized over the remainder of the underlying lease terms), customer relationships of approximately $45.0 million (amortized over 15 years) and order backlog of $2.0 million (amortized over 6 months). Favorable lease rights were valued based on a comparison of market participant information and Company-specific lease terms. The customer relationship intangible asset was valued using the excess earnings method, which discounts the estimated after-tax cash flows associated with the existing base of customers as of the acquisition date, factoring in expected attrition of the existing base. The order backlog intangible asset was valued using the excess earnings method, which discounts the estimated after-tax cash flows associated with open customer orders as of the acquisition date.

(6)

The Company acquired approximately $200.1 million of net deferred tax assets related to Kate Spade historical federal and state net operating losses, net of a $39.3 million valuation allowance, which the Company expects to be able to utilize. The deferred tax adjustments resulting from the step-up in basis of acquired assets, most notably the brand intangible asset, resulted in an overall deferred tax liability. Refer to Note 14, "Income Taxes," for more information about changes to the Company's deferred tax position as a result of the enactment of the new tax legislation.

(7)	Includes an adjustment for unfavorable lease rights of approximately $49.5 million (amortized over the remainder of the underlying lease terms).

The operational results of Kate Spade for the post-acquisition period from July 11, 2017 to June 30, 2018 are included in the Company’s accompanying Consolidated Statement of Operations for the year ended June 30, 2018. Refer to Note 16, "Segment Information," for the operating results of the Kate Spade business.

The following pro forma information has been prepared as if the Kate Spade acquisition and the related debt financing had occurred as of the beginning of fiscal 2017. These adjustments include the removal of certain historical amounts. The pro forma amounts reflect the combined historical operational results for Tapestry and Kate Spade, after giving effect to adjustments related to the impact of purchase accounting, transaction costs and financing. The pro forma financial information is not indicative of the operational results that would have been obtained had the transactions actually occurred as of that date, nor is it necessarily indicative of the Company’s future operational results. The following adjustments have been made:

(i)	Depreciation and amortization expenses related to the fair value adjustments to Kate Spade's property and equipment and intangible assets have been reflected in the year ended July 1, 2017. Short-term purchase accounting amortization has been excluded from the pro forma amounts due to the non-recurring nature.

(ii)	Transaction costs in the year ended June 30, 2018 have been excluded from the pro forma amounts due to their non-recurring nature.

(iii)	Interest expense of debt issued to finance the acquisition, including amortization of deferred financing fees, has been reflected in the year ended July 1, 2017. Historical interest expense for Kate Spade has been removed.

(iv)	The tax effects of the pro forma adjustments at an estimated statutory rate of 40.0%.

(v)	Earnings per share amounts are calculated using unrounded numbers and the Company's historical weighted average shares outstanding.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

	Year Ended
	June 30, 2018				July 1, 2017
	(unaudited)
	(millions, except per share data)
Pro forma Net sales(1)	$	5,912.9			$	5,837.4
Pro forma Net income(1)	472.8				695.4
Pro forma Net income per share:
Basic	$	1.66			$	2.48
Diluted	$	1.64			$	2.46

(1)	The pro forma results for the year ended June 30, 2018 include revenue and operating income from the pre-combination period in fiscal 2018.

Distributor Acquisitions and Kate Spade Joint Ventures Operational Control

During the third quarter of fiscal 2018, the Company acquired designated assets of its Stuart Weitzman distributor in Northern China, entered into an agreement to obtain operational control of the Kate Spade Joint Ventures that operate in mainland China, Hong Kong, Macau and Taiwan in which the Company has 50% interest, and acquired designated assets of its Coach distributor in Australia and New Zealand.

The aggregate purchase consideration for the three acquisitions was $153.7 million, of which $106.9 million will be paid in cash and the remaining is related to non-cash consideration. Of the cash consideration, $61.5 million (or $55.6 million net of cash acquired) was paid during fiscal 2018 and the remaining will be paid in the future. Of the total purchase consideration of $153.7 million, $50.0 million of net assets were recorded at their fair values, and the excess of the purchase consideration over the fair value of the net assets acquired was recorded as non-tax deductible goodwill in the amount of $103.7 million. Of this amount, $52.8 million, $49.3 million and $1.6 million were recorded to the Company's Kate Spade, Stuart Weitzman and Coach segments, respectively. During the fourth quarter of fiscal 2018, there were measurement period adjustments of $2.3 million and $0.5 million, related to the Kate Spade and Stuart Weitzman segments, respectively, which decreased Goodwill. Refer to Note 13, "Goodwill and Other Intangible Assets," for further information.

The results of the operations of each acquired entity have been included in the consolidated financial statements since the respective date of each acquisition. The purchase price allocation for these assets acquired and liabilities assumed is substantially complete, however may be subject to change as additional information is obtained during the acquisition measurement period. The pro forma results are not presented for these acquisitions as they are immaterial.

4. INTEGRATION AND ACQUISITION COSTS

Fiscal 2018

The Company completed its acquisition of Kate Spade & Company during the first quarter of fiscal 2018. Furthermore, the Company completed its acquisitions of certain distributors for the Coach and Stuart Weitzman brands and assumed operational control of the Kate Spade Joint Ventures during the third quarter of fiscal 2018. As a result of these acquisitions, during the fiscal year ended June 30, 2018, the Company incurred integration and acquisition-related costs of $301.6 million. The charges recorded in cost of sales for the fiscal year ended June 30, 2018 were $116.4 million. Of the amount recorded to cost of sales for the fiscal year ended June 30, 2018, $106.5 million was recorded within the Kate Spade segment, $5.8 million was recorded within the Stuart Weitzman segment and $4.1 million was recorded within the Coach segment. The charges recorded in SG&A expenses for the fiscal year ended June 30, 2018 were $185.2 million. Of the amount recorded to SG&A expenses for the fiscal year ended June 30, 2018, $113.7 million was recorded in the Kate Spade segment, $63.2 million was recorded within Corporate, $7.8 million was recorded within the Stuart Weitzman segment and $0.5 million was recorded within the Coach segment.

The Company currently estimates that it will incur approximately $50-60 million in pre-tax charges, of which approximately $5-10 million are expected to be non-cash charges, in fiscal 2019.

Refer to Note 3, "Acquisitions," for more information.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

A summary of the integration and acquisition charges and related liabilities, which are recorded as accrued liabilities as of June 30, 2018, is as follows:

	Purchase Accounting Adjustments (1)				Acquisition Costs (2)				Inventory-Related Charges (3)				Contractual Payments (4)				Organization-Related (5)				Other(6)				Total
	(millions)
Addition Related to Acquisitions	$	—			$	—			$	2.5			$	—			$	—			$	—			$	2.5
Fiscal 2018 charges	82.8				42.9				35.4				50.6				39.8				50.1				301.6
Cash payments	—				(42.2		)		(2.8		)		(50.6		)		(22.4		)		(37.4		)		(155.4		)
Non-cash charges	(82.8		)		—				(34.8		)		—				(5.8		)		(9.7		)		(133.1		)
Liability as of June 30, 2018	$	—			$	0.7			$	0.3			$	—			$	11.6			$	3.0			$	15.6

(1)

Purchase accounting adjustments, of which $79.6 million was recorded within cost of sales and $3.2 million was recorded in SG&A expenses for the fiscal year ended June 30, 2018, relate to the short-term impact of the amortization of fair value adjustments. Of the amount recorded to cost of sales for the year ended June 30, 2018, $71.8 million was recorded within the Kate Spade segment, $4.1 million was recorded within the Coach segment and $3.7 million was recorded within the Stuart Weitzman segment. Of the amount recorded to SG&A expenses, $3.2 million was recorded within the Kate Spade segment.

(2)	Acquisition costs, which were recorded to SG&A expenses, and of which $23.6 million were within Corporate, $19.1 million were within the Kate Spade segment, and $0.2 million were within the Coach segment for the fiscal year ended June 30, 2018, primarily relate to deal fees associated with the acquisitions.

(3)

Inventory-related charges, recorded within cost of sales, of which $34.7 million was recorded within the Kate Spade segment and $0.7 million was recorded within the Stuart Weitzman segment, primarily related to reserves for the future destruction of certain on-hand inventory and non-cancelable inventory purchase commitments related to raw materials. As of June 30, 2018, a reserve of $4.9 million is included within inventories on the Company's Consolidated Balance Sheets.

(4)	Contractual payments, which were recorded to SG&A expenses within the Kate Spade segment, primarily related to severance and related costs as a result of pre-existing agreements that were in place with certain Kate Spade executives which became effective upon the closing of the acquisition.

(5)

Organization-related costs, which were recorded to SG&A expenses, and of which $25.6 million were within the Kate Spade segment, $10.4 million within Corporate and $3.8 million within the Stuart Weitzman segment for the fiscal year ended June 30, 2018, primarily related to severance related charges. The severance related charges includes $6.0 million of accelerated share-based compensation expense.

(6)

Other primarily relates to professional fees, asset write-offs and inventory true-up. The charges were primarily recorded in SG&A expenses, of which $29.2 million was recorded within Corporate, $15.2 million was recorded within the Kate Spade segment, $4.0 million was recorded within the Stuart Weitzman segment and $0.3 million was recorded within the Coach segment. Furthermore, $1.4 million was recorded in cost of sales within Stuart Weitzman for the fiscal year ended June 30, 2018.

Fiscal 2017

The Company incurred integration and acquisition-related cost of $10.7 million during the fiscal year ended July 1, 2017 as a result of the acquisitions of Stuart Weitzman LLC and Kate Spade & Company. The charges recorded to cost of sales were $2.9 million within the Stuart Weitzman segment. Amounts recorded to SG&A related to expense incurred in the Stuart Weitzman segment of $17.7 million which were more than offset by the reversal of $19.4 million within Corporate, which primarily related to the reversal of an accrual for estimated contingent purchase price payments which were not paid for the Stuart Weitzman LLC acquisition. The Company incurred $9.5 million recorded within Corporate as Interest expense related to bridge financing for the Kate Spade and Company acquisition.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

5. 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 optimize international supply chain and office locations. 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.

During fiscal years 2018 and 2017, the Company incurred Operational Efficiency Plan related charges within SG&A expenses of $19.5 million and $24.0 million, respectively, primarily due to technology infrastructure costs, organizational efficiency costs and to a lesser extent, network optimization costs. Total cumulative charges incurred under the Operational Efficiency Plan to date are $87.4 million. The plan was completed in fiscal 2018.

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

	Organizational Efficiency(1)				Technology Infrastructure(2)				Network Optimization(3)				Total
	(millions)
Liability 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		)
Liability 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		)
Liability as of July 1, 2017	$	6.6			$	0.3			$	—			$	6.9
Fiscal 2018 charges	0.6				18.9				—				19.5
Cash payments	(5.6		)		(17.6		)		—				(23.2		)
Non-cash charges	(0.8		)		(1.0		)		—				(1.8		)
Liability as of June 30, 2018	$	0.8			$	0.6			$	—			$	1.4

(1)	Organizational efficiency charges, recorded within SG&A expenses, primarily related to accelerated depreciation associated with the retirement of information technology systems, severance and related costs of corporate employees, 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 June 30, 2018 and July 1, 2017 are included within Accrued liabilities on the Company's Consolidated Balance Sheets. The above charges were recorded as Corporate expenses within the Company's Consolidated Statements of Operations. Refer to Note 16, "Segment Information," for further information.

Transformation Plan

During the 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.

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, as such, there were no transformation-related charges incurred in fiscal 2018 or fiscal 2017. In fiscal 2016, the Company recorded charges of $44.1 million ($33.4 million

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Notes to Consolidated Financial Statements (Continued)

after-tax, or $0.12 per diluted share), which were largely related to Coach brand's North America business and recorded as Corporate expense within SG&A expenses.

There were no remaining liabilities under the Company's Transformation Plan at June 30, 2018 and July 1, 2017.

6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

	Unrealized (Losses) Gains on Cash Flow Hedging Derivatives(1)				Unrealized Gains (Losses) on Available-for-Sale Investments				Cumulative Translation Adjustment				Other(2)				Total
	(millions)
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	)
Other comprehensive (loss) income before reclassifications	(1.2		)		0.5				3.8				—				3.1
Less: income (losses) reclassified from accumulated other comprehensive income	0.4				0.1				—				(1.5		)		(1.0		)
Net current-period other comprehensive (loss) income	(1.6		)		0.4				3.8				1.5				4.1
Balances at June 30, 2018	$	1.4			$	—			$	(85.3	)		$	1.1			$	(82.8	)

(1)	The ending balances of AOCI related to cash flow hedges are net of tax of $(0.9) million and $(1.8) million as of June 30, 2018 and July 1, 2017, respectively. The amounts reclassified from AOCI are net of tax of $(1.1) million and $2.2 million as of June 30, 2018 and July 1, 2017, respectively.

(2)	Other represents the accumulated loss on the Company's minimum pension liability adjustment. The balances at June 30, 2018 and July 1, 2017 are net of tax of $0.6 million and $0.2 million, respectively.

7. 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 Operations:

	June 30, 2018(1)				July 1, 2017(1)				July 2, 2016(1)
	(millions)
Share-based compensation expense	$	88.1			$	76.1			$	95.3
Income tax benefit related to share-based compensation expense(2)	23.5				24.4				28.6

(1)	During the year ended June 30, 2018, the Company incurred $6.0 million of share-based compensation expense related to severance as a result of integration. During the fiscal years ended June 30, 2018, July 1, 2017 and July 2, 2016, the Company incurred $0.8 million, $2.5 million and $8.5 million of share-based compensation expense under the Company's Operational

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Efficiency Plan, respectively, primarily as a result of the accelerated vesting of certain awards. Refer to Note 4, "Integration and Acquisition Costs," and Note 5, "Restructuring Activities," for further information.

(2)	The tax rates used to calculate the income tax benefit for fiscal 2018 are based on the enactment of the new tax legislation. Refer to Note 14, "Income Taxes," for further 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 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 four years. Stock option and share awards are subject to forfeiture until completion of the vesting period, which ranges from one to four 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 June 30, 2018 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 1, 2017	15.0			$	39.75
Granted	3.1			41.12
Exercised	(4.6	)		35.37
Forfeited or expired	(1.0	)		45.06
Outstanding at June 30, 2018	12.5			42.94				6.6		$	75.8
Vested and expected to vest at June 30, 2018	12.2			42.99				6.5		74.4
Exercisable at June 30, 2018	6.5			46.35				4.9		33.3

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:

	June 30, 2018			July 1, 2017			July 2, 2016
Expected term (years)	5.1			4.4			4.2
Expected volatility	28.4	%		30.5	%		32.2	%
Risk-free interest rate	1.8	%		1.1	%		1.4	%
Dividend yield	3.3	%		3.4	%		4.3	%

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 2018, fiscal 2017 and fiscal 2016 was $7.76, $7.36 and $5.65, respectively. The total intrinsic value of options exercised during fiscal 2018, fiscal 2017 and fiscal 2016 was $59.2 million, $15.4 million and $6.2 million, respectively. The total cash received from option exercises was $161.5 million, $68.2

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

million and $25.7 million in fiscal 2018, fiscal 2017 and fiscal 2016, respectively, and the cash tax benefit realized for the tax deductions from these option exercises was $11.4 million, $4.9 million and $2.3 million, respectively.

At June 30, 2018, $25.1 million of total unrecognized compensation cost related to non-vested stock option awards is expected to be recognized over a weighted-average period of 1.3 years.

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

A summary of service-based RSU activity during the year ended June 30, 2018 is as follows:

	Number of Non-vested RSUs			Weighted- Average Grant- Date Fair Value per RSU
	(millions)
Non-vested at July 1, 2017	3.5			$	50.28
Granted	1.8			41.75
Awards issued in connection with acquisition	0.4			47.26
Vested	(1.8	)		39.14
Forfeited	(0.4	)		39.98
Non-vested at June 30, 2018	3.5			40.26

At June 30, 2018, $72.2 million of total unrecognized compensation cost related to non-vested share awards is expected to be recognized over a weighted-average period of 1.3 years.

The weighted-average grant-date fair value of share awards granted during fiscal 2018, fiscal 2017 and fiscal 2016 was $41.75, $39.57 and $31.65, respectively. The total fair value of shares vested during fiscal 2018, fiscal 2017 and fiscal 2016 was $83.4 million, $68.9 million and $45.8 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 June 30, 2018 is as follows:

	Number of Non-vested PRSUs			Weighted- Average Grant- Date Fair Value per PRSU
	(millions)
Non-vested at July 1, 2017	1.5			$	37.78
Granted	0.4			43.80
Change due to performance condition achievement	(0.6	)		47.32
Vested	(0.3	)		36.29
Forfeited	(0.1	)		37.17
Non-vested at June 30, 2018	0.9			38.27

At June 30, 2018, $15.9 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 per share of PRSU awards granted during fiscal 2018, fiscal 2017 and fiscal 2016 was $43.80, $39.61 and $31.67, respectively. The total fair value of awards that vested during fiscal 2018, fiscal 2017 and fiscal 2016 was $11.4 million, $0.9 million and $1.4 million, respectively.

During the fiscal years ended June 30, 2018 and July 1, 2017, the Company granted 0.4 million shares (with a fair value of $16.0 million) and 0.3 million shares (with a fair value of $10.0 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

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

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.

In fiscal 2018, fiscal 2017 and fiscal 2016, the cash tax benefit realized for the tax deductions from all RSUs (service and performance-based) was $17.9 million, $19.0 million and $14.2 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 2018, fiscal 2017 and fiscal 2016, respectively. Compensation expense is calculated for the fair value of employees’ purchase rights using the Black-Scholes model and the following weighted-average assumptions:

	Fiscal Year Ended
	June 30, 2018			July 1, 2017			July 2, 2016
Expected term (years)	0.5			0.5			0.5
Expected volatility	26.9	%		24.7	%		28.6	%
Risk-free interest rate	1.3	%		0.6	%		0.3	%
Dividend yield	3.1	%		3.6	%		4.1	%

The weighted-average fair value of the purchase rights granted during fiscal 2018, fiscal 2017 and fiscal 2016 was $9.62, $8.08 and $7.43, respectively. The Company issues new shares for employee stock purchases.

8. INVESTMENTS

The following table summarizes the Company’s primarily U.S. dollar-denominated investments, recorded within the Consolidated Balance Sheets as of June 30, 2018 and July 1, 2017:

	June 30, 2018												July 1, 2017
	Short-term				Long-Term				Total				Short-term				Long-term				Total
	(millions)
Available-for-sale investments:
Commercial paper	$	—			$	—			$	—			$	68.8			$	—			$	68.8
Government securities – U.S.	—				—				—				130.4				—				130.4
Corporate debt securities – U.S.	—				—				—				116.2				46.9				163.1
Corporate debt securities – non-U.S.	—				—				—				92.6				28.2				120.8
Available-for-sale investments, total	$	—			$	—			$	—			$	408.0			$	75.1			$	483.1
Other:
Time deposits(1)	0.6				—				0.6				0.6				—				0.6
Other	6.0				—				6.0				2.1				—				2.1
Total Investments	$	6.6			$	—			$	6.6			$	410.7			$	75.1			$	485.8

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

There were no material gross unrealized gains or losses on available-for-sale investments as of the periods ended June 30, 2018 and July 1, 2017.

9. LEASES

The Company leases retail, distribution and office facilities. The lease agreements, which expire at various dates through 2037, are subject, in most cases, to renewal options and provide for the payment of taxes, insurance and maintenance. Certain

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

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.

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

	Fiscal Year Ended
	June 30, 2018				July 1, 2017				July 2, 2016
	(millions)
Minimum rent(1)	$	359.8			$	295.1			$	229.9
Contingent rent	164.7				129.4				134.8
Total rent expense	$	524.5			$	424.5			$	364.7

(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 June 30, 2018, are as follows:

Fiscal Year		Amount
		(millions)
2019		$	384.8
2020		343.1
2021		300.7
2022		279.0
2023		249.6
Subsequent to 2023		1,211.1
Total minimum future rental payments		$	2,768.3

During the first quarter of fiscal 2017, the Company announced the lease of its new global headquarters. Refer to Note 20, "Headquarters Transactions," for further information.

10. 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. The Company does not have any Level 3 investments.

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Notes to Consolidated Financial Statements (Continued)

The following table shows the fair value measurements of the Company’s financial assets and liabilities at June 30, 2018 and July 1, 2017:

	Level 1								Level 2
	June 30, 2018				July 1, 2017				June 30, 2018				July 1, 2017
	(millions)
Assets:
Cash equivalents(1)	$	592.5			$	760.0			$	0.4			$	226.0
Short-term investments:
Time deposits(2)	—				—				0.6				0.6
Commercial paper(2)	—				—				—				68.8
Government securities - U.S.(2)	—				130.4				—				—
Corporate debt securities - U.S.(2)	—				—				—				116.2
Corporate debt securities - non U.S.(2)	—				—				—				92.6
Other	—				—				6.0				2.1
Long-term investments:
Corporate debt securities - U.S.(3)	—				—				—				46.9
Corporate debt securities - non U.S.(3)	—				—				—				28.2
Derivative Assets:
Inventory-related instruments(4)	—				—				5.6				3.5
Intercompany loan hedges(4)	—				—				0.3				—
Liabilities:
Derivative liabilities:
Inventory-related instruments(4)	$	—			$	—			$	2.3			$	1.0
Intercompany loan hedges(4)	—				—				0.1				0.7

(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.

(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.

Refer to Note 11, "Debt," for the fair value of the Company's outstanding debt instruments.

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 3, "Acquisitions," for further discussion of the approaches used in valuing acquired assets and assumed liabilities.

The company recorded $9.1 million of impairment charges in fiscal 2018 to reduce the carrying amount of certain store assets (primarily leasehold improvements at selected retail store locations) to their fair values of $1.2 million as of June 30, 2018. 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. The fair

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Notes to Consolidated Financial Statements (Continued)

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. No material impairment charges were recorded in fiscal 2016.

11. DEBT

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

	June 30, 2018				July 1, 2017
	(millions)
Current Debt:
Capital Lease Obligations	$	0.7			$	—
Total Current Debt	$	0.7			$	—
Long-Term Debt:
4.250% Senior Notes due 2025	600.0				600.0
3.000% Senior Notes due 2022	400.0				400.0
4.125% Senior Notes due 2027	600.0				600.0
Note Payable	11.4				—
Capital Lease Obligations	6.0				—
Total Long-Term Debt	1,617.4				1,600.0
Less: Unamortized Discount and Debt Issuance Costs on Senior Notes	(17.5		)		(20.5		)
Total Long-Term Debt, net	$	1,599.9			$	1,579.5

During fiscal 2018, 2017 and 2016 the Company recognized interest expense related to the outstanding debt of $86.3 million, $26.8 million and $32.9 million, respectively.

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. On July 10, 2017, the Company borrowed $800.0 million under the Six-Month Term Loan Facility and $300.0 million under the Three-Year Term Loan Facility to pay a portion of the purchase price of the Company's acquisition of Kate Spade. On January 10, 2018, the Company repaid the Six-Month Term Loan Facility in accordance with the terms of the agreement. On January 24, 2018, the Company repaid the Three-Year Term Loan Facility, earlier than the terms in the agreement. Accordingly, there were no outstanding borrowings on either the Term Loan Facilities or the Revolving Credit Facility as of June 30, 2018.

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)

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

consolidated EBITDAR. Additionally, the Company pays a commitment fee at a rate determined by the reference to the aforementioned pricing grid.

4.250% Senior Notes due 2025

On March 2, 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.

3.000% Senior Notes due 2022

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 2022 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.

4.125% Senior Notes due 2027

On June 20, 2017, the Company issued $600.0 million aggregate principal amount of 4.125% senior unsecured notes due July 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 June 30, 2018, the fair value of the 2025, 2022 and 2027 Senior Notes was approximately $592.5 million, $389.0 million, and $574.1 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 1, 2017, the fair value of the 2025, 2022 and 2027 Senior Notes was approximately $624 million, $395.0 million and $596.0 million, respectively.

Note Payable

As a result of taking operational control of the Kate Spade Joint Ventures, the Company has an outstanding Note Payable of $11.4 million as of June 30, 2018 to the other partner of the Kate Spade Joint Ventures to be payable in fiscal 2021.

Capital Lease Obligations

As a result of the Company's sale-leaseback agreement for its office building in North Bergen, NJ, the Company has total capital lease obligations of $0.7 million recorded within Current debt and $6.0 million recorded within Long-Term debt on the Consolidated Balance Sheets as of June 30, 2018. The remaining lease obligations will be amortized through May 1, 2025.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Debt Maturities

As of June 30, 2018, the Company's aggregate debt, excluding capital lease obligations, is approximately $1.6 billion, of which $11.4 million is due in fiscal 2021, $400.0 million is due in fiscal 2023 and $1.2 billion is due subsequent to fiscal 2023.

12. COMMITMENTS AND CONTINGENCIES

Letters of Credit

The Company had standby letters of credit, surety bonds and bank guarantees totaling $35.1 million and $9.0 million outstanding at June 30, 2018 and July 1, 2017, respectively. The agreements, which expire at various dates through calendar 2039, primarily collateralize the Company’s obligation to third parties for duty, leases, insurance claims and materials used in product manufacturing. The Company pays certain fees with respect to letters of credit that are issued.

Tax Legislation

The Tax Legislation requires the Company to pay a one-time tax, or Transition Tax, on previously unremitted earnings of certain non-U.S. subsidiaries. The Company expects to pay approximately $266 million related to the Transition Tax. Refer to Note 14, "Income Taxes," for more information related to the impact of the Tax Legislation.

Other

The Company had other contractual cash obligations as of June 30, 2018, including $342.8 million related to inventory purchase obligations, $21.5 million related to capital expenditure purchase obligations, $31.0 million of other purchase obligations, $9.7 million of payments related to the capital lease obligations, $1.61 billion of debt repayments and $468.6 million of interest payments on the outstanding debt. Refer to Note 9, "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.

13. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

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

	Coach				Kate Spade				Stuart Weitzman				Total
	(millions)
Balance at July 2, 2016	$	346.9			$	—			$	155.5			$	502.4
Measurement period adjustment	—				—				0.5				0.5
Foreign exchange impact	(22.4		)		—				—				(22.4		)
Balance at July 1, 2017	324.5				—				156.0				480.5
Acquisition of goodwill(1)	1.6				968.9				49.3				1,019.8
Allocation of goodwill(2)	324.0				(324.0		)		—				—
Measurement period adjustment(1)	—				(18.4		)		(0.5		)		(18.9		)
Foreign exchange impact	4.7				0.5				(2.3		)		2.9
Balance at June 30, 2018	$	654.8			$	627.0			$	202.5			$	1,484.3

(1)	Refer to Note 3, "Acquisitions," for further information.

(2)	The Company assigned a portion of goodwill associated with the Kate Spade acquisition to Coach brand reporting units based upon the analysis of expected synergies, including the allocation of corporate synergies to the brands.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Intangible Assets

Intangible assets consist of the following:

	Fiscal Year Ended(1)
	June 30, 2018												July 1, 2017
	Gross Carrying Amount				Accum. Amort.				Net				Gross Carrying Amount				Accum. Amort.				Net
	(millions)
Intangible assets subject to amortization:
Customer relationships	$	100.5			$	(17.3	)		$	83.2			$	54.7			$	(9.7	)		$	45.0
Order backlog	2.0				(2.0		)		—				—				—				—
Favorable lease rights	97.3				(24.4		)		72.9				26.1				(7.1		)		19.0
Total intangible assets subject to amortization	199.8				(43.7		)		156.1				80.8				(16.8		)		64.0
Intangible assets not subject to amortization:
Brand intangible assets	1,576.8				—				1,576.8				276.8				—				276.8
Total intangible assets	$	1,776.6			$	(43.7	)		$	1,732.9			$	357.6			$	(16.8	)		$	340.8

(1)	Refer to Note 3, "Acquisitions," for further information.

As of June 30, 2018, the expected amortization expense for intangible assets is as follows:

	Amortization Expense
	(millions)
Fiscal 2019	$	21.8
Fiscal 2020	20.2
Fiscal 2021	18.7
Fiscal 2022	16.7
Fiscal 2023	15.7
Thereafter	63.0
Total	$	156.1

The expected future amortization expense above reflects remaining useful lives ranging from approximately 11.8 years to 14.0 years for customer relationships and the remaining lease terms ranging from approximately seven months to 16.8 years for favorable lease rights.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

14. INCOME TAXES

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

	Fiscal Year Ended
	June 30, 2018							July 1, 2017							July 2, 2016
	Amount				Percentage			Amount				Percentage			Amount				Percentage
	(millions)
Income before provision for income taxes:
United States	$	161.2			27.0	%		$	365.5			48.2	%		$	357.5			57.1	%
Foreign	435.6				73.0			393.5				51.8			269.1				42.9
Total income before provision for income taxes	$	596.8			100.0	%		$	759.0			100.0	%		$	626.6			100.0	%
Tax expense at U.S. statutory rate	$	167.0			28.0	%		$	265.7			35.0	%		$	219.3			35.0	%
State taxes, net of federal benefit	2.4				0.4			15.1				2.0			11.2				1.8
Effects of foreign operations	(55.6		)		(9.3	)		(86.7		)		(11.4	)		(53.7		)		(8.6	)
Transition tax on deferred foreign earnings	266.0				44.6			—				—			—				—
Re-measurement of deferred taxes	(87.8		)		(14.7	)		—				—			—				—
Effects of foreign tax credits and acquisition reorganization	(36.2		)		(6.1	)		(12.3		)		(1.6	)		(19.6		)		(3.1	)
Release of state valuation allowance	(40.7		)		(6.8	)		—				—			—				—
Other, net	(15.8		)		(2.7	)		(13.8		)		(1.9	)		8.9				1.4
Taxes at effective worldwide rates	$	199.3			33.4	%		$	168.0			22.1	%		$	166.1			26.5	%

Current and deferred tax provision (benefit) was:

	Fiscal Year Ended
	June 30, 2018								July 1, 2017								July 2, 2016
	Current				Deferred				Current				Deferred				Current				Deferred
	(millions)
Federal	$	181.1			$	(1.9	)		$	42.9			$	56.4			$	145.8			$	(52.0	)
Foreign	79.1				(11.2		)		39.7				7.4				46.8				2.2
State	(10.0		)		(37.8		)		7.4				14.2				25.8				(2.5		)
Total current and deferred tax provision (benefit)	$	250.2			$	(50.9	)		$	90.0			$	78.0			$	218.4			$	(52.3	)

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

The components of deferred tax assets and liabilities were:

	June 30, 2018				July 1, 2017
	(millions)
Share-based compensation	$	27.1			$	64.8
Reserves not deductible until paid	39.2				39.2
Deferred rent	22.5				22.7
Employee benefits	19.0				40.9
Foreign investments	—				1.1
Net operating loss	395.2				199.2
Other	9.5				10.4
Prepaid expenses	—				0.6
Inventory	18.9				21.6
Capital loss carryforward	56.8				—
Gross deferred tax assets	588.2				400.5
Valuation allowance	305.9				196.1
Deferred tax assets after valuation allowance	$	282.3			$	204.4
Goodwill	84.3				82.6
Other intangibles	347.9				—
Property and equipment	25.8				8.4
Foreign investments	5.7				—
Prepaid expenses	0.5				—
Other	—				6.2
Gross deferred tax liabilities	464.2				97.2
Net deferred tax (liabilities) assets	$	(181.9	)		$	107.2
Consolidated Balance Sheets Classification
Deferred income taxes – noncurrent asset	24.3				170.5
Deferred income taxes – noncurrent liability	(206.2		)		(63.3		)
Net deferred tax (liabilities) assets	$	(181.9	)		$	107.2

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.

In fiscal 2018, the Company recorded a net deferred tax liability of $325.7 million as part of the opening balance sheet recorded in purchase accounting for fiscal 2019 acquisitions. Given that this balance was recorded as part of purchase accounting, it has no impact on total deferred tax expense recorded during fiscal 2018.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

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

	June 30, 2018				July 1, 2017				July 2, 2016
	(millions)
Balance at beginning of fiscal year	$	94.1			$	138.6			$	168.1
Gross increase due to tax positions related to prior periods	3.8				2.7				25.5
Gross decrease due to tax positions related to prior periods	(4.0		)		(2.7		)		(4.4		)
Gross increase due to tax positions related to current period	6.4				8.1				8.7
Decrease due to lapse of statutes of limitations	(23.9		)		(39.5		)		(59.0		)
Decrease due to settlements with taxing authorities	(25.1		)		(13.1		)		(0.3		)
Increase due to current year acquisitions	24.0				—				—
Balance at end of fiscal year	$	75.3			$	94.1			$	138.6

In fiscal 2018, the Company recorded $24.0 million of unrecognized tax benefit as part of a purchase accounting adjustment for fiscal 2018 acquisitions, which did not impact the effective tax rate in fiscal 2018. Of the $75.3 million ending gross unrecognized tax benefit balance as of June 30, 2018, $57.0 million relates to items which, if recognized, would impact the effective tax rate. 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. As of June 30, 2018 and July 1, 2017, gross interest and penalties payable was $12.9 million and $24.1 million, respectively, which are included in Other liabilities on the Company's Consolidated Balance Sheet. During fiscal 2018, fiscal 2017 and fiscal 2016, the Company recognized gross interest and penalty income of $10.8 million, gross interest and penalty income of $2.8 million and gross interest and penalty expense of $11.5 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 2015 to present are open to examination in the U.S. federal jurisdiction, fiscal 2010 to present in select state jurisdictions and fiscal 2011 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, the Company cannot reasonably estimate the impact these audits may have in the next 12 months, if any, to previously recorded uncertain tax positions. The Company accrues for certain known and reasonably anticipated income tax obligations after assessing the likely outcome based on the weight of available evidence. 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 income tax provisions and recorded assets and liabilities. With respect to all jurisdictions, the Company has made adequate provision for all income tax uncertainties.

As of June 30, 2018, the Company had the following tax loss carryforwards available: U.S. federal loss carryforwards of $448.4 million, U.S. federal capital loss carryforwards of $216.9 million, state tax loss carryforwards of approximately $831 million and tax loss carryforwards of various foreign jurisdictions of $921.9 million. As of July 1, 2017, the Company had tax loss carryforwards in various foreign jurisdictions of $715.3 million. The federal and state net operating loss carryforwards generally start to expire in 2027 and 2018, respectively. The U.S. federal capital loss carryforward will expire in fiscal 2019. The majority of the foreign net operating loss can be carried forward indefinitely. Deferred tax assets, including the deferred tax assets recognized on these net operating and capital losses, have been reduced by a valuation allowance of $305.9 million as of June 30, 2018 and $196.1 million as of July 1, 2017.

The total estimated amount of unremitted earnings of foreign subsidiaries as of June 30, 2018 and July 1, 2017 was $3.09 billion and $2.91 billion, respectively. Before the Tax Legislation, the Company considered the earnings of its non-U.S. subsidiaries to be indefinitely reinvested, and accordingly, recorded no deferred income taxes on these earnings. The Tax Legislation imposed a one-time Transition Tax on the deemed repatriated earnings, thereby removing the potential federal income tax consequences of repatriating these earnings to the U.S. However actual remittance from non-U.S. subsidiaries may result in additional foreign withholding taxes, U.S. state taxes and taxes related foreign currency gains or losses. Based on the Company’s current analysis and amount it anticipates will be remitted from certain jurisdictions, it has recorded an estimate for state taxes of $5.5 million. The Company continues to be indefinitely reinvested with respect to all other unremitted earnings. Determination of the amount of unrecognized deferred income tax liabilities on those 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.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Tax Legislation

On December 22, 2017, H.R.1, formerly known as the Tax Cuts and Jobs Act (the “Tax Legislation”) was enacted. The Tax Legislation significantly revises the U.S. tax code by (i) lowering the U.S federal statutory income tax rate from 35% to 21%, (ii) implementing a territorial tax system, (iii) imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax"), (iv) requiring current inclusion of global intangible low taxed income (“GILTI”) of certain earnings of controlled foreign corporations in U.S. federal taxable income, (v) creating the base erosion anti-abuse tax (“BEAT”) provision, (vi) implementing bonus depreciation that will allow for full expensing of qualified property, (vii) enacting a beneficial rate to be applied against Foreign Derived Intangible Income ("FDII") and (viii) limiting deductibility of interest and executive compensation expense, among other changes. Due to the fact that the Company is a fiscal year filer, the blended U.S. federal statutory rate for fiscal 2018 is 28.0%. The U.S. federal statutory rate will be 21.0% in fiscal 2019 and thereafter.

The Company has recorded the required income tax effects under the Tax Legislation and provided disclosure pursuant to ASC 740, Income Taxes, and the SEC Staff Accounting Bulletin ("SAB") 118, using its best estimates based on reasonable and supportable assumptions and available inputs and underlying information as of the reporting date. The two provisions that significantly impact the Company for fiscal 2018 are the calculation of the Transition Tax and the impact of the U.S. federal statutory tax rate reduction, from 35% to 21%, on the current and deferred tax provision and related accounts. These amounts were recorded as provisional pursuant to SAB 118 since both require more detailed information before these amounts can be finalized. Pursuant to SAB 118, for certain elements of the Tax Legislation for which a reasonable estimate could not be determined, the Company has not reported provisional amounts related to these elements and has continued to account for them in accordance with ASC 740 based on the tax laws in effect before the Tax Legislation. The amounts recorded in the year ended June 30, 2018 are subject to adjustment as future guidance becomes available, additional facts become known or estimation approaches are refined.

The following table represents amounts recorded to provision for income taxes in the year ended June 30, 2018 for items related to the Tax Legislation:

	Year Ended
	June 30, 2018
	(millions)
Impact of Change in U.S. Federal Statutory Rate on Pre-Tax Income	$	(10.9	)
Discrete Impacts of Tax Legislation:
Transition Tax - Federal and State(1)	266.0
Re-measurement of deferred taxes(2)	(87.8		)
Total Impact of Tax Legislation(3)	$	167.3

(1)

The Tax Legislation requires the Company to pay a Transition Tax on previously unremitted earnings of certain non-U.S. subsidiaries. The Transition Tax is payable in installments over 8 years beginning in the Company's fiscal 2018. In the year ended June 30, 2018, the Company recorded a cumulative charge of $266.0 million for the Transition Tax. In the year ended June 30, 2018, $222.4 million is recorded as long-term income taxes payable and $43.6 million is recorded in accrued liabilities related to the current portion of this payable on the Company's Consolidated Balance Sheet as of June 30, 2018. Additional detailed information required to complete the calculation includes, but is not limited to, (i) completing a foreign earnings and profit study to determine the Company’s deferred foreign income since 1986, including all acquisitions; (ii) determining foreign taxes paid against deferred foreign income; and (iii) concluding on the total balance of cash and cash equivalents.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Based on the interpretation of available guidance, the Company expects to remit the first payment on the due date of its fiscal year 2018 income tax return, which will be in fiscal 2019. The balance of annual payments will be paid ratably in our quarterly estimated tax payments. The following table presents the expected timing of income tax payments related to the Transition Tax expected to be recognized by the Company:

	Transition Tax Payments
	(millions)
Fiscal 2019	$	43.6
Fiscal 2020	21.2
Fiscal 2021	21.2
Fiscal 2022	21.2
Fiscal 2023	39.7
Fiscal 2024 and 2025	119.1
Total	$	266.0

(2)

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The Company has estimated the rate change adjustment related to the deferred tax balances that reverses within the 2018 fiscal year at a blended U.S federal statutory income tax rate of 28% and those that will reverse after the 2018 fiscal year at the U.S federal statutory income tax rate of 21%. This deferred tax rate change adjustment is provisional and will be finalized after the Company files its federal and state tax returns for fiscal year 2018. The estimated impact recorded in fiscal 2018 will change if the timing of the deferred tax impacts shifts between fiscal 2018 and fiscal 2019 and beyond. The Company’s estimated adjustment may also be affected by other analysis related to the Tax Legislation, including, but not limited to, the calculation of deemed repatriation of deferred foreign income and the U.S. state income tax effect of adjustments made to federal temporary differences, such as the full expensing of qualified property which may not be allowed from a state tax perspective.

(3)

This table does not include the $40.7 million of valuation allowances that were initially established during purchase accounting, but were reversed based on facts introduced subsequent to the acquisition date that relate, in part, to the enactment of Tax Legislation. In addition, this table does not include $5.5 million of state taxes due on the expected remittance of earnings from non-U.S. subsidiaries.

The Tax Legislation includes substantial changes to the taxation of foreign income, effectively converting the U.S. to a territorial income tax regime. Notable changes include that foreign earnings after December 31, 2017 will generally be eligible for a 100% dividends received exemption, however companies may be subject to the BEAT and GILTI, which would increase the Company's effective tax rate, and FDII, which would decrease the effective tax rate below 21%. These tax provisions do not impact the Company until fiscal year 2019, and based on current facts and circumstances, the Company believes that GILTI is the tax provision most likely to apply. Under GILTI, a portion of the Company’s foreign earnings will be subject to U.S. taxation, offset by available foreign tax credits subject to limitations. For companies subject to GILTI, the FASB has indicated that companies are allowed to record a deferred tax liability related to the outside basis difference in the fiscal year of enactment or record the tax associated with GILTI as a period cost in the period the earnings are included on the U.S. tax return. The Company has chosen to record the future tax associated with GILTI as a period cost, and accordingly, the Company has recorded no additional deferred tax liability in fiscal 2018.

Other provisions of the new legislation that are not applicable to the Company until fiscal 2019 include, but are not limited to, limiting deductibility of interest and executive compensation expense. Based on current facts and circumstances, the Company does not anticipate the impact of these provisions to be material to the overall financial statements.

15. DEFINED CONTRIBUTION PLAN

The Company maintains the Tapestry, 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 $12.3 million, $9.1 million and $8.3 million in fiscal 2018, fiscal 2017 and fiscal 2016, respectively.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

16. SEGMENT INFORMATION

Prior to fiscal 2018, the Company had three reportable segments: North America (Coach brand), International (Coach brand) and Stuart Weitzman. Beginning in fiscal 2018 and as a result of the Kate Spade acquisition, the Company aligned its reportable segments with the new structure of its business. As a result, the Company has three reportable segments:

•	Coach - Includes global sales of Coach brand products to customers through Coach operated stores, including the Internet and concession shop-in-shops, and sales to wholesale customers and through independent third party distributors.

•	Kate Spade - Includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including the Internet, to wholesale customers, through concession shop-in-shops and through independent third party distributors.

•	Stuart Weitzman - Includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, including the Internet, to wholesale customers and through numerous independent third party distributors.

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. Additionally, certain costs were reclassified in fiscal 2017 results from Corporate to the Coach and Stuart Weitzman segments, as the costs can now be specifically identified to a segment. Starting in fiscal 2019, certain SG&A expenses that were reported within our reportable segments in fiscal 2018 will be reflected as Corporate expense. The costs primarily relate to employee costs within shared functional groups. The Company intends to recast its fiscal 2018 segment results for comparability purposes for the quarter ended September 30, 2018. There will be no change to the Company's consolidated results.

The following table summarizes segment performance for fiscal 2018, fiscal 2017 and fiscal 2016:

	Coach(1)				Kate Spade(1)				Stuart Weitzman(1)				Corporate(2)				Total
	(millions)
Fiscal 2018
Net sales	$	4,221.5			$	1,284.7			$	373.8			$	—			$	5,880.0
Gross profit	2,931.5				711.1				211.3				—				3,853.9
Operating income (loss)	1,084.2				(61.9		)		(2.6		)		(348.9		)		670.8
Income (loss) before provision for income taxes	1,084.2				(61.9		)		(2.6		)		(422.9		)		596.8
Depreciation and amortization expense(3)	139.5				67.2				20.8				43.8				271.3
Total assets	2,256.8				2,626.3				746.4				1,048.8				6,678.3
Additions to long-lived assets(4)	134.4				34.4				7.8				90.8				267.4

Fiscal 2017
Net sales	$	4,114.7			$	—			$	373.6			$	—			$	4,488.3
Gross profit	2,855.0				—				226.1				—				3,081.1
Operating income (loss)	1,040.0				—				15.5				(268.1		)		787.4
Income (loss) before provision for income taxes	1,040.0				—				15.5				(296.5		)		759.0
Depreciation and amortization expense(3)	149.9				—				18.9				50.1				218.9
Total assets	1,937.1				—				628.4				3,266.1				5,831.6
Additions to long-lived assets(4)	170.5				—				20.2				92.4				283.1

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Fiscal 2016
Net sales	$	4,147.1			$	—			$	344.7			$	—			$	4,491.8
Gross profit	2,848.9				—				202.4				—				3,051.3
Operating income (loss)	1,024.4				—				32.5				(403.4		)		653.5
Income (loss) before provision for income taxes	1,024.4				—				32.5				(430.3		)		626.6
Depreciation and amortization expense(3)	132.6				—				19.6				66.9				219.1
Total assets	1,975.5				—				631.2				2,286.0				4,892.7
Additions to long-lived assets(4)	210.2				—				11.5				174.7				396.4

(1)

During the first quarter of fiscal 2018, the Company completed its acquisition of Kate Spade & Company. During the third quarter of fiscal 2018, the Company completed its acquisition of certain distributors for the Coach and Stuart Weitzman brands and obtained operational control of the Kate Spade Joint Ventures. The operating results of the respective entity have been consolidated commencing on the date of each transaction.

(2) Corporate, which is not a reportable segment, represents certain costs that are not directly attributable to a brand. These costs primarily represent administrative and information systems expense. Furthermore, certain integration and acquisition costs as well as costs under the Company's Operational Efficiency Plan and Transformation Plan as described in Note 5, "Restructuring Activities," are included within Corporate.

(3)

Depreciation and amortization expense includes $11.0 million of Integration & Acquisition costs for the fiscal year ended June 30, 2018. There were no costs incurred related to the Operational Efficiency Plan for the fiscal year ended June 30, 2018. Depreciation and amortization expenses includes $6.1 million of Operational Efficiency Plan charges and $8.5 million of Operational Efficiency Plan and Transformation Plan charges for the fiscal years ended July 1, 2017 and July 2, 2016, respectively. These charges are recorded within Corporate. Depreciation and amortization expense for the segments includes an allocation of expense related to assets which support multiple segments.

(4)	Additions to long-lived assets for the reportable segments primarily includes store assets as well as assets that support a specific brand. Corporate additions include all other assets which includes a combination of Corporate assets, as well as assets that may support all segments. As such, depreciation expense for these assets may be subsequently allocated to a reportable segment.

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

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

	Fiscal Year Ended
	June 30, 2018							July 1, 2017							July 2, 2016
	Amount				% of total net sales			Amount				% of total net sales			Amount				% of total net sales
	(millions)
Coach:
Women's Handbags	$	2,298.2			39	%		$	2,308.0			52	%		$	2,392.9			53	%
Men's	844.6				14			808.0				18			725.7				16
Women's Accessories	747.1				13			721.0				16			721.6				16
Other Products	331.6				6			277.7				6			306.9				7
Total Coach	$	4,221.5			72	%		$	4,114.7			92	%		$	4,147.1			92	%
Kate Spade:(1)
Women's Handbags	$	703.4			12	%		$	—			—	%		$	—			—	%
Other Products	311.6				5			—				—			—				—
Women's Accessories	269.7				5			—				—			—				—
Total Kate Spade	$	1,284.7			22	%		$	—			—	%		$	—			—	%
Stuart Weitzman(2)	$	373.8			6	%		$	373.6			8	%		$	344.7			8	%
Total Net Sales	$	5,880.0			100	%		$	4,488.3			100	%		$	4,491.8			100	%

(1)	On July 11, 2017, the Company completed its acquisition of Kate Spade. The operating results of the Kate Spade brand have been consolidated in the Company's operating results commencing on July 11, 2017.

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

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Geographic Area Information

As of June 30, 2018, the Company operated 322 retail stores and 281 outlet stores in the United States and 51 retail stores and 16 outlet stores in Canada. Outside of North America, the Company operated 276 concession shop-in-shops within department stores, retail stores and outlet stores in Japan, 275 in Greater China (including mainland China, Hong Kong and Macau) and 211 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 2018
Net sales(1)	$	3,457.4			$	695.7			$	737.4			$	989.5			$	5,880.0
Long-lived assets	663.3				60.6				98.4				181.9				1,004.2
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

(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 Europe, Canada, Taiwan, South Korea, Malaysia and Singapore.

17. EARNINGS PER SHARE

Basic net income per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted net income per share is calculated similarly but includes potential dilution from the exercise of stock options and 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
	June 30, 2018				July 1, 2017				July 2, 2016
	(millions, except per share data)
Net income	$	397.5			$	591.0			$	460.5
Weighted-average basic shares	285.4				280.6				277.6
Dilutive securities:
Effect of dilutive securities	3.2				2.2				1.7
Weighted-average diluted shares	288.6				282.8				279.3
Net income per share:
Basic	$	1.39			$	2.11			$	1.66
Diluted	$	1.38			$	2.09			$	1.65

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

At June 30, 2018, options to purchase 3.4 million shares of common stock were outstanding but not included in the computation of diluted earnings per share, as these options’ exercise prices, ranging from $48.08 to $78.46, were greater than the average market price of the common shares.

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.

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 June 30, 2018, July 1, 2017 and July 2, 2016, there were approximately 4.2 million, 5.6 million, and 5.9 million, respectively, of 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.

18. RELATED PARTIES

The Stuart Weitzman brand owns approximately 50% of a factory and one of its former employees, who left the Company during fiscal 2017, 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 $17.1 million and $27.6 million in fiscal 2018 and fiscal 2017, respectively. Amounts payable to these factories were not material at June 30, 2018 or July 1, 2017.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

19. SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of certain balance sheet accounts are as follows:

	June 30, 2018				July 1, 2017
	(millions)
Property and equipment
Land and building	$	19.0			$	13.7
Machinery and equipment	56.0				34.4
Software and computer equipment	409.1				310.4
Furniture and fixtures	322.5				329.6
Leasehold improvements	891.0				729.7
Construction in progress	142.2				71.7
Less: accumulated depreciation	(954.4		)		(798.1		)
Total property and equipment, net	$	885.4			$	691.4
Accrued liabilities
Payroll and employee benefits	$	174.3			$	152.7
Accrued rent	53.9				45.5
Dividends payable	97.2				95.1
Operating expenses	347.8				265.9
Total accrued liabilities	$	673.2			$	559.2
Other liabilities
Deferred lease obligation	$	200.7			$	204.2
Gross unrecognized tax benefit	75.3				94.1
Other	191.0				134.8
Total other liabilities	$	467.0			$	433.1

20. 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.

TAPESTRY, INC.

Notes to Consolidated Financial Statements (Continued)

Sublease Agreement

On September 13, 2017, the Company entered into a Sublease (the "Sublease"), as sublandlord, with The Guardian Life Insurance Company of America, a New York mutual insurance company ("Guardian"), as subtenant, pursuant to which the Company has agreed to sublease to Guardian three floors of the Company's leased space at 10 Hudson Yards, New York, NY, consisting of approximately 148,813 square feet of office space. The term of the Sublease expires on June 29, 2036 (the "Expiration Date"). The rent commencement date under the Sublease is estimated to occur on February 1, 2019.

Under the terms of the Sublease, and assuming a rent commencement date of February 1, 2019, Guardian has agreed to pay monthly base rent to the Company of approximately $0.8 million from March 1, 2019 through June 30, 2019 and monthly base rent ranging from approximately $1.1 million to $1.3 million depending on the period from July 1, 2019 through the Expiration Date. In addition to monthly base rent, Guardian has agreed to pay to the Company Guardian’s proportionate share of increases in payments in lieu of taxes and taxes over the tax year commencing July 1, 2019, as well as Guardian’s proportionate share of increases in operating expenses over the operating year commencing January 1, 2019. Subject to certain customary conditions set forth in the Sublease, the Company has agreed to reimburse Guardian for certain subtenant improvements in an amount equal to $80.00 per rentable square foot, or approximately $11.9 million in the aggregate, subject to a deduction equal to $10.00 per rentable square foot, or approximately $1.5 million in the aggregate, for work previously performed by or on behalf of the Company.

TAPESTRY, INC.

Schedule II — Valuation and Qualifying Accounts

For the Fiscal Years Ended June 30, 2018, July 1, 2017 and July 2, 2016

	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 2018
Allowance for bad debts	$	1.9			$	1.3			$	—			$	(1.7	)		$	1.5
Allowance for returns	4.4				12.9				5.0				(10.8		)		11.5
Allowance for markdowns	9.4				51.4				9.1				(53.2		)		16.7
Valuation allowance	196.1				20.7				129.8				(40.7		)		305.9
Total	$	211.8			$	86.3			$	143.9			$	(106.4	)		$	335.6
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

TAPESTRY, INC.

Quarterly Financial Data

(unaudited)

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(millions, except per share data)
Fiscal 2018(1)
Net sales	$	1,288.9			$	1,785.0			$	1,322.4			$	1,483.7
Gross profit	764.4				1,177.4				908.9				1,003.2
Net income	(17.7		)		63.2				140.3				211.7
Net income per common share:
Basic	$	(0.06	)		$	0.22			$	0.49			$	0.74
Diluted	$	(0.06	)		$	0.22			$	0.48			$	0.73
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

(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 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 the Registrant's Quarterly Report on Form 10-Q for the period ended April 1, 2017
3.1		Amended and Restated Bylaws of Tapestry, Inc., effective as of October 31, 2017, which is incorporated herein by reference from Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 31, 2017
3.2		Articles Supplementary of Coach, Inc., dated May 3, 2001, which is incorporated herein by reference from Exhibit 3.2 to the Registrant’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 the Registrant’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 the Registrant’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 the Registrant’s Current Report on Form 8-K filed on February 2, 2005
3.6		Articles of Amendment to Charter of Tapestry, Inc., effective as of October 31, 2017, which is incorporated by reference from Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on October 31, 2017
4.1		Specimen Certificate for Common Stock of Tapestry, Inc.
4.2		Indenture, dated as of March 2, 2015, between Coach, Inc. and U.S. Bank National Association, as trustee, which is incorporated herein by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 2, 2015
4.3		First Supplemental Indenture, dated as of March 2, 2015, relating to the 4.250% senior unsecured notes due 2025, between Coach, Inc. and U.S. Bank National Association, as trustee, which is incorporated herein by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on March 2, 2015
4.4		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 the Registrant’s Current Report on Form 8-K filed on March 2, 2015
4.5		Second Supplemental Indenture, dated as of June 20, 2017, relating to the 3.000% senior unsecured notes due 2022, between Coach, Inc. and U.S. Bank National Association, as trustee, which is incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on June 20, 2017
4.6		Third Supplemental Indenture, dated as of June 20, 2017, relating to the 4.125% senior unsecured notes due 2027, between Coach, Inc. and U.S. Bank National Association, as trustee, which is incorporated by reference from Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on June 20, 2017
4.7		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 the Registrant's Current Report on Form 8-K, filed on June 20, 2017
4.8		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 the Registrant'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, Inc., dated January 5, 2015, which is incorporated by reference from Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended December 27, 2014
10.2		Letter Agreement between Stuart Weitzman and Coach, Inc., dated January 5, 2015, which is incorporated by reference from Exhibit 10.2 to the Registrant’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 the Registrant’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 The Registrant’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003
10.5†		Amended and Restated Coach, Inc. 2001 Employee Stock Purchase Plan, which is incorporated by reference to Appendix C to the Registrant'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

Exhibit		Description
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†		Coach, Inc. Amended and Restated 2010 Stock Incentive Plan (Amended and Restated as of September 20, 2017), which is incorporated herein by reference from Appendix B to the Registrant's Definitive Proxy Statement for the 2017 Annual Meeting of the Stockholders, filed on September 29, 2017
10.13†		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 the Registrant's Annual Report on Form 10-K for the period ended June 27, 2015
10.14†		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 the Registrant's Annual Report on Form 10-K for the period ended June 27, 2015
10.15†		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 the Registrant's Annual Report on Form 10-K for the period ended June 27, 2015
10.16†		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 the Registrant's Annual Report on Form 10-K for the period ended June 27, 2015
10.17†		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 the Registrant's Annual Report on Form 10-K for the period ended June 27, 2015
10.18†		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
10.19†		Tapestry, Inc. 2018 Performance-Based Annual Incentive Plan, which is incorporated herein by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on August 10, 2018
10.20†		Letter Agreement, dated February 13, 2013, between Coach, Inc. and Victor Luis, which is incorporated herein by reference from Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 29, 2013
10.21†		Employment Offer Letter, dated January 26, 2015, between Coach, Inc. and Ian Bickley, which is incorporated by reference from Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 28, 2015
10.22†		Employment Offer Letter, dated January 26, 2015, between Coach Inc. and Andre Cohen, which is incorporated by reference from Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 28, 2015
10.23†		Letter Agreement, dated June 22, 2015, between Coach, Inc. and Sarah Dunn, which is incorporated by reference from Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on June 22, 2015
10.24†		Letter Agreement, dated June 22, 2015, between Coach, Inc. and Todd Kahn, which is incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on June 22, 2015
10.25†		Letter Agreement, dated August 22, 2016, between Coach, Inc. and Victor Luis, which is incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on August 26, 2016
10.26†		Letter Agreement, dated August 22, 2016, between Coach, Inc. and Ian Bickley, which is incorporated by reference from Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed on August 26, 2016
10.27†		Letter Agreement, dated September 8, 2016, between Coach, Inc. and Andre Cohen, which is incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on September 9, 2016

Exhibit		Description
10.28		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 the Registrant's Quarterly Report on Form 10-Q for the period ended October 1, 2016
10.29		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 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended October 1, 2016
10.30		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 the Registrant's Quarterly Report on Form 10-Q for the period ended October 1, 2016
10.31		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 the Registrant's Quarterly Report on Form 10-Q for the period ended October 1, 2016
10.32†		Employment Offer Letter, dated December 12, 2016, between Coach, Inc. and Kevin Wills, which is incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 2016
10.33†		Employment Offer Letter, dated March 27, 2017, between Coach, Inc. and Joshua Schulman, which is incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended April 1, 2017
10.34		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 the Registrant's Quarterly Report on Form 10-Q for the period ended April 1, 2017
10.35		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 the Registrant's Current Report on Form 8-K, filed on May 31, 2017
10.36		Sublease, dated as of September 13, 2017 between Coach, Inc. and The Guardian Life Insurance Company of America, a New York mutual insurance company, which is incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on September 14, 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 the Registrant’s Quarterly Report on Form 10-Q for the period ended October 2, 2010
21.1*		List of Subsidiaries of Tapestry, 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.