Edgar Filing: COACH INC

COACH, INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


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

		For the Fiscal Year Ended June 28, 2003

or

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

Commission file number: 1-16153

Coach, Inc.

(Exact name of registrant as specified in its charter)


Maryland		52-2242751
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

516 West 34th Street, New York, NY		10001
(Address of principal executive offices)		(Zip Code)

(212) 594-1850

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class:		Name of Each Exchange on which Registered

Common Stock, par value $.01 per share		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

The approximate aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $5,287,719,864 as of August 29, 2003. For purposes of determining this amount only, the registrant has excluded shares of common stock held by directors and officers. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.

On August 29, 2003, the Registrant had 91,954,939 outstanding shares of common stock, which is the Registrant’s only class of capital stock.

TABLE OF CONTENTS


PART I
	Item 1. Business of Coach, Inc.
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data (in thousands except for per share data)
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
Notes to Consolidated Financial Statements
Market and Dividend Information
COACH, INC. 2000 STOCK INCENTIVE PLAN
COACH, INC. EXECUTIVE DEFERRED COMPENSATION PLAN
COACH, INC. 2000 NON-EMPLOYEE DIRECTOR STOCK PLAN
NON-QUALIFIED DEF. COMPENSATION PLAN OUTSIDE DIR.
EMPLOYMENT AGREEMENT - COACH AND LEW FRANKFORT
EMPLOYMENT AGREEMENT - COACH AND REED KRAKOFF
EMPLOYMENT AGREEMENT - COACH AND KEITH MONDA
LIST OF SUBSIDIARIES OF COACH
CONSENT OF DELOITTE & TOUCHE LLP
RULE 13A-14A/15D-14A CERTIFICATIONS
SECTION 1350 CERTIFICATIONS

COACH, INC.

TABLE OF CONTENTS FORM 10-K


		Page
		Number

PART I
Item 1.	Business of Coach, Inc. and Risk Factors		3
Item 2.	Properties		16
Item 3.	Legal Proceedings		16
Item 4.	Submission of Matters to a Vote of Security Holders		16
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		19
Item 6.	Selected Financial Data		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		32
Item 8.	Financial Statements and Supplementary Data		33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		33
Item 9A.	Controls and Procedures		33
PART III
Item 10.	Directors and Executive Officers of the Registrant		33
Item 11.	Executive Compensation		33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		33
Item 13.	Certain Relationships and Related Transactions		33
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		34
SIGNATURES			35

Founded in 1941, Coach has grown from a family-run workshop in a Manhattan loft to a premier accessories marketer in the United States. Coach developed its initial expertise in the small-scale production of classic, high-quality leather goods constructed from “glove-tanned” leather with close attention to detail. Coach has grown from a maker of traditionally styled, high-quality leather goods to a well-recognized marketer of a diversified modern classic assortment of leather and mixed material handbags and accessories, selling its products through upscale department and specialty stores, its own retail stores, its direct mail catalog and its internet site. Coach has built upon its national brand awareness, expanded into international sales, particularly in Japan and East Asia, further developed its multi-channel distribution strategy and licensed products with the Coach brand name.

SPECIAL NOTE ON FORWARD-LOOKING INFORMATION

This document and the documents incorporated by reference in this document contain forward-looking statements that involve risks and uncertainties. We use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “project,” “estimate,” “will,” “may,” “should,” “future,” “predicts,” “potential,” “continue” and similar expressions to identify these forward-looking statements.

Coach’s actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections of this Form 10-K filing entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Coach, Inc.”. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of the forward-looking statements contained in this Form 10-K.

WHERE YOU CAN FIND MORE INFORMATION

Coach’s quarterly financial results and other important information are available by calling the Investor Relations Department at (212) 629-2618.

Coach maintains a website at www.coach.com where investors and other interested parties may obtain, free of charge, press releases, other information and gain access to periodic reports to the SEC.

PART I


Item 1.	*Business of Coach, Inc.*

OVERVIEW

Coach is a designer, producer and marketer of high-quality, modern American classic accessories. Coach believes that it is one of the best recognized leather goods brands in the U.S. and is enjoying increased recognition in targeted international markets. Net sales were $953.2 million in the year ended June 28, 2003 (“fiscal 2003”), $719.4 million in the year ended June 29, 2002 (“fiscal 2002”) and $600.5 million in the year ended June 30, 2001, (“fiscal 2001”). Operating income was $243.8 million in fiscal 2003, $133.6 million in fiscal 2002 and $101.7 million in fiscal 2001. Coach’s primary product offerings include handbags, women’s and men’s accessories, business cases, weekend and travel accessories, leather outerwear, gloves, hats, scarves and personal planning products. Together with its licensing partners, Coach also offers watches, footwear and home and office furniture with the Coach brand name. Coach’s products are sold through a number of direct to consumer channels, which at the end of fiscal 2003 included:


	•	156 United States retail stores;

	•	direct mail catalogs;

	•	on-line store; and

	•	76 United States factory stores.

Coach’s direct-to-consumer business represented approximately 59% of its total sales in fiscal 2003. Its remaining sales were generated from products sold through a number of indirect channels, which at the end of fiscal 2003 included:


	•	approximately 1,400 department store and specialty retailer locations in the U.S.;

	•	107 international department store, retail store and duty free shop locations in 18 countries;

	•	93 retail and department locations operated by Coach Japan, Inc.; and

	•	corporate sales programs.

Over the last several years, Coach has successfully transformed itself from a manufacturer of classic leather products, to a marketer of more modern, fashionable handbags and accessories, using a broader range of fabrics and materials. Today, Coach’s updated styles and multiple product categories address an increasing portion of its consumer’s accessory wardrobe, responding to its customer’s demands for both fashion and function. Along with the rejuvenation of the product line, Coach has created a similarly modern environment to showcase its product assortments and reinforce a consistent brand position. Finally, Coach has established a flexible, cost-effective manufacturing model in which independent manufacturers supply most of its products which allows Coach to bring its broader range of products to market more rapidly and efficiently.

Coach has developed a number of key differentiating elements that set it apart from the competitive landscape including:


	•	*A Distinctive Brand* — Coach believes that it is one of America’s leading accessible luxury accessories brand offering an aspirational product that is relevant, extremely well made, and provides exceptional value.

	•	*A Market Leadership Position with Growing Share* — Coach is America’s leading accessories brand and each year, as its market share increases, our leadership position strengthens.

	•	*Coach’s Loyal and Involved Consumer* — Coach consumers have a specific emotional connection with the brand. Part of the Company’s everyday mission is to cultivate consumer relationships by strengthening this emotional connection.


	•	*Multi-Channel International Distribution* — This allows Coach to maintain a critical balance, as results do not depend solely on the performance of a single channel. Further, in the context of current global events, Coach finds itself fairly well insulated against disruptive factors such as declining international travel. This is because nearly 90% of the company’s sales come from consumers who purchase Coach products in their home country.

	•	*Coach is Innovative and Consumer-Centric* — Coach listens to its consumer through rigorous consumer research, strong customer orientation and it works to anticipate her changing needs by keeping the product assortment fresh and relevant.

Coach believes that these differentiating elements have enabled Coach to enjoy a unique proposition in the market place. In fiscal 2003 net sales increased 32.5% and operating income increased 82.4% compared to fiscal 2002. In fiscal 2002 net sales increased 19.8% and operating income increased 31.4% compared to fiscal 2001.

However, to remain competitive in its industry, Coach must also accurately anticipate consumer trends and tastes.

Growth Strategies

Based on its established strengths Coach is pursuing the following strategies for future growth:

Expand Market Share. Coach is driving market share by leveraging its leadership position as an accessible luxury lifestyle brand and gaining a greater share of its consumer’s accessories wardrobe. Coach is intensifying its awareness as an everyday lifestyle accessory resource for self purchase and gifts. As part of this strategy, Coach is emphasizing new usage occasions, such as weekend and evening and offering items at a broader range of prices.

Modernize Retail Presentation. Coach has modernized its brand image by remodeling its U.S. retail stores to create a distinctive environment to showcase its new product assortments and reinforce a consistent brand position. Coach recently completed its retail renovation program and opened an additional flagship location in Japan. Coach expects that:


	•	about ten international wholesale locations will be converted to, or opened with, the new store design by June 2004 (86 locations were remodeled as of end of fiscal 2003);

	•	at least 20 U.S. department store locations will be remodeled or opened in the new store design by June 2004 (67 U.S. department store locations were remodeled as of end of fiscal 2003); and

	•	about 20 U.S. factory locations will be remodeled or opened in the new store design by June 2004 (50 U.S. factory locations were remodeled as of the end of fiscal 2003).

Increase U.S. Retail Store Openings. Coach opened 20 new U.S. retail stores in both fiscal 2003 and fiscal 2002. In each of the next two years, Coach plans to expand its network of 156 retail stores by opening at least 20 new stores per year located primarily in high volume markets. Coach believes that it has a successful retail store format that reinforces its brand image, generates strong sales per square foot and can be readily adapted to different location requirements. The modernized store environment has an open, loft-like feeling, with crisp white brick walls, ebony-stained wood floors and a timeless, uncluttered look. It generally takes four to six months from the time Coach takes possession of a store to open it.

Expand Business with the Japanese Consumer. In June 2001, Coach and Sumitomo Corporation (“Sumitomo”) commenced a joint venture to form Coach Japan, Inc., to manage the Coach business in Japan. Coach owns 50% of Coach Japan and is deemed to have control, as Coach appoints a majority of the Board of Directors; as such, Coach Japan is accounted for as a consolidated subsidiary. Under the terms of the joint venture agreement, Coach supplies its merchandise to Coach Japan for distribution and sale in Japan. In order to expand its presence in the Japanese market and to exercise greater control over its brand in that country, Coach Japan acquired the existing distributors of Coach products in Japan.

On July 31, 2001, Coach Japan completed the purchase of 100% of the capital stock of P.D.C. Co. Ltd. (“PDC”) from the Mitsukoshi Department Store Group for a total purchase price of $9.0 million. At the time of acquisition PDC operated 63 retail and department store locations in Japan. This acquisition was accounted for under the purchase method of accounting and as such, the results of the acquired business are included in the consolidated financial statements from August 1, 2001 onward.

On January 1, 2002, Coach Japan completed the buyout of the distribution rights and assets, related to the Coach business, from J. Osawa and Company, Ltd. (“Osawa”) for $5.8 million. At the time of the acquisition, Osawa operated 13 retail and department store locations in Japan. This acquisition was accounted for under the purchase method of accounting and as such, the results of the acquired business are included in the consolidated financial statements from January 1, 2002, onward.

As of June 28, 2003 there were 95 Coach locations in Japan, including 75 department stores, 16 Coach stores and two flagship locations managed by Coach Japan and two airport locations operated by a distributor. Coach Japan plans to open additional locations within existing major retailers, enter new department store relationships and open freestanding retail locations.

Further Penetrate International Markets. Coach is increasing its international distribution and targeting international consumers, and Japanese travelers in particular, to take advantage of substantial growth opportunities for Coach. Its current network of international distributors serves markets such as, Australia, the United Kingdom, the Caribbean, Korea, Hong Kong, Singapore and Japan. Coach has significant opportunities to increase sales through existing and new international distribution channels. Coach believes Japanese consumers represent a major growth opportunity because they spend substantially more on a per capita basis on luxury accessories than U.S. consumers.

Improve Operational Efficiencies. Coach has upgraded and reorganized its manufacturing, distribution and information systems over the past five years to allow it to bring new and existing products to market more efficiently. While enhancing its quality control standards, Coach has shifted its manufacturing processes from owned domestic factories to independent manufacturers in lower cost markets. As a result, Coach has increased its flexibility, improved its quality and lowered its costs. In fiscal 2003, Coach’s gross margin increased to 71.1% from 67.2% during fiscal 2002. This improvement was driven by a shift in product mix and channel mix; combined with the operating efficiencies previously discussed. Coach intends to continue to increase efficiencies in its sourcing, manufacturing and distribution processes by:


	•	strengthening the coordination of design, merchandising, product development and manufacturing to streamline product introduction;

	•	continuing to improve the new product development process and timeline;

	•	improving time-to-market capabilities and efficiencies;

	•	integrating computer-assisted design into the product design and development processes;

	•	strengthening product development capabilities to test new materials and new design functionality;

	•	expanding its East Asian organization to improve independent manufacturing capabilities in those areas;

	•	introducing new business systems that use sales information and demographic data to tailor the mix of product offerings at different retail locations to consumer preferences at such locations;

	•	shortening product lead times to improve inventory management; and

	•	continuing implementation of a comprehensive supply chain management strategy.

Promote Gift Purchases of its Products. Coach believes that a substantial amount of its U.S. sales are gift purchases, as evidenced by Coach’s higher sales during the holiday season. Coach intends to further promote the Coach brand as an appealing resource for gift-giving occasions by developing new products well-suited for gift selection, such as coin purses, mirrors, notepad holders and card cases in new styles and designs.

In addition, Coach’s marketing communication efforts, including advertising, catalog mailings and outbound e-mails, are timed to reach consumers before important holidays throughout the year.

Capitalize on Growing Interest in e-Commerce. In October 1999 Coach launched its on-line store. Coach’s website meets growing consumer demand for the flexibility and convenience of shopping over the Internet by offering a selective array of its products. Coach views its website, like its catalogs, as a key communications vehicle for the brand that also promotes store traffic.

Coach’s Products

Handbags. Coach’s original business was the design, manufacture and distribution of fine handbags, which accounted for approximately 56% of its net sales in fiscal 2003. Coach makes quarterly offerings of its handbag collections, featuring classically inspired designs as well as fashion trend designs. Typically, there are three to four collections per quarter and four to seven styles per collection, depending on the concept and opportunity.

Accessories. Women’s accessories, consisting of wallets, cosmetic cases, wristlets, key fobs and belts, represented approximately 15% of Coach’s net sales in fiscal 2003. Coach recently completed a comprehensive updating in the design of the small leather goods collections to coordinate them with its popular handbag collections. Men’s accessories, consisting of belts, leather gift boxes and other small leather goods, represented approximately 3% of Coach’s net sales in fiscal 2003.

Business Cases. Business cases represented approximately 5% of Coach’s net sales in fiscal 2003. We recently expanded this category to include nylon cases and computer bags.

Outerwear, Gloves, Hats and Scarves. Primarily a cold weather category, the assortment is approximately 70% women’s and contains a fashion assortment in all three components of this category. In total, this category represented approximately 5% of Coach’s net sales in fiscal 2003.

Weekend and Travel Accessories. The Coach weekend collection is comprised of cabin bags, duffels, suitcases, garment bags and a comprehensive collection of travel accessories. Weekend and travel accessories represented approximately 3% of Coach’s net sales in fiscal 2003.

Personal Planning Products. A complement to Coach’s business cases and handbag collections, its personal planning assortment includes folios, planners and desk agendas in a variety of leathers and fabrics. The category represented approximately 2% of Coach’s net sales in fiscal 2003.

Watches. Movado Group, Inc. (“Movado”) has been Coach’s watch licensee since 1998 and has developed a distinctive collection of watches inspired by both the women’s and men’s collections. These watches are manufactured in Switzerland and are branded with the Coach name and logo.

Footwear. Jimlar Corporation (“Jimlar”) has been Coach’s footwear licensee since 1999. The footwear is developed and manufactured primarily in Italy and is distributed through more than 600 locations in the U.S., including a majority of Coach retail stores and U.S. department stores. Approximately 90% of the business is in women’s footwear, which coordinates with Coach handbags and employs fine materials, including calf and suede.

Furniture and Home Furnishings. The Coach for Baker furniture collection was launched in the Spring of 1999 with Baker Knapp & Tubbs, Inc. (“Baker”) as the licensee. The furniture collection is comprised of classic styles of sofas, chairs and benches that are given a modern interpretation through crisp tailoring, straightforward lines and chic details. The collection is sold through Baker showrooms and select dealers across the U.S.

Office/ Home Office. Coach office furniture launched in the Fall of 2001 with Steelcase Inc. (“Steelcase”) as the licensee. Steelcase and Coach offer consumers high-end furniture products to outfit the home office and executive workplace.

Jewelry. In November 2001, Coach, in conjunction with Carolee Designs, Inc., launched its first jewelry collection. The collection consists of pure sterling silver and leather combinations, some with a touch of brass. Select cuff bracelets are also offered in a variety of colors of genuine crocodile.

Eyewear. Coach eyewear will launch in the Fall of 2003 with Marchon Eyewear (“Marchon”) as the licensee. The eyewear collection is a collaborative effort from Marchon and Coach that combines the Coach aesthetic for fashion accessories with the latest fashion directions in eyewear and sunglasses. Coach sunglasses will be sold in Coach retail stores, department stores, select sunglass retailers and optical retailers in major markets. Marchon also plans to unveil the ophthalmic collection later in 2003 through their extensive network of optical retailers.

Design and Merchandising

Coach’s New York-based design team, led by its executive creative director, is responsible for conceptualizing and directing the design of all Coach products. Designers have access to Coach’s extensive archives of product designs created over the past 50 years which are a valuable resource for new product concepts. Coach designers are also supported by a strong merchandising team that analyzes sales, market trends and consumer preferences to identify business opportunities that help guide each season’s design process. Merchandisers also analyze products to edit, add and delete styles with the objective of profitable sales across channels. Three product category teams, each comprised of design, merchandising/ product development and manufacturing specialists, help Coach execute design concepts that are consistent with the brand’s strategic direction.

Coach’s merchandising team works in close collaboration with our licensing partners to ensure that the licensed products, such as watches, footwear and furniture, are conceptualized and designed to address the intended market opportunity and convey the distinctive perspective and lifestyle associated with the Coach brand. While Coach’s licensing partners employ their own designers, Coach oversees the development of their collection concepts and the design of licensed products. Licensed products are also subject to Coach’s quality control standards, and we exercise final approval for all new licensed products prior to their sale.

Marketing

Coach’s marketing strategy is to deliver a consistent message every time the consumer comes in contact with the Coach brand through all of its communications and visual merchandising. The Coach image is created and executed internally by the creative marketing, visual merchandising and public relations teams.

In conjunction with promoting a consistent global image, Coach uses its extensive customer database and consumer knowledge to target specific products and communications to specific consumers to efficiently stimulate sales across all distribution channels.

Coach engages in a wide range of direct marketing activities, including catalogs, brochures and email contacts targeted to stimulate sales to consumers in their preferred shopping venue. As part of Coach’s direct marketing strategy, it uses its database consisting of approximately seven million active U.S. households. Catalogs and email contacts are Coach’s principal means of communication and are sent to selected households to stimulate consumer purchases and build brand awareness. The growing number of visitors to the www.coach.com on-line store provides an opportunity to increase the size of this database in order to increase on-line and store sales and build brand awareness. Coach’s on-line store, like its catalogs and brochures, provides a showcase environment where consumers can browse through a strategic offering of our latest styles and colors.

In the U.S., Coach spent approximately $20 million, or 2% of net sales in fiscal 2003, for national, regional and local advertising, primarily print and outdoor advertising, in support of its major selling seasons. Coach catalogs and www.coach.com also serve as effective brand communications vehicles, driving store traffic as well as direct-to-consumer sales. Coach’s co-branding partners include Lexus, Palm and Motorola. Through their targeted sales and advertising programs, they have helped to strengthen Coach’s brand cachet. Advertising by the co-branding partners provides important additional exposure of the Coach brand, although

the revenues generated from the purchase of Coach products by the co-branding partners are not material to the Coach business.

Coach also has a sophisticated consumer and market research capability, which helps us assess consumer attitudes and trends and gauge likelihood of success in the marketplace prior to product introduction.

Channels of Distribution

Direct Channels

Coach has four different direct channels that provide it with immediate, controlled access to consumers: retail stores, factory stores, e-commerce and direct mail. The direct-to-consumer business represented approximately 59% of Coach’s total net sales in fiscal year 2003.

North America Retail Stores. Coach’s retail stores establish, reinforce and capitalize on the image of the Coach brand. Coach operates 156 retail stores in North America that are located in upscale regional shopping centers and metropolitan areas. It operates flagship stores, which offer the broadest assortment of Coach products in high-visibility locations in New York, Chicago and San Francisco. The following table shows the number of Coach retail stores and their total and average square footage:



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001

Retail stores			156			138			121
	Net increase vs. prior year		18			17			15
	Percentage increase vs. prior year		13.0	%		14.0	%		14.2	%
Retail square footage			363,310			301,501			251,136
	Net increase vs. prior year		61,809			50,365			42,077
	Percentage increase vs. prior year		20.5	%		20.1	%		20.1	%
Average square footage			2,329			2,185			2,076

Depending on their size and location, the retail stores present product lines that include handbags, business cases, wallets, footwear, watches, weekend and related accessories. The modern store design creates a distinctive environment that showcases the various products. Store associates are trained to maintain high standards of visual presentation, merchandising and customer service. The result is a complete statement of the Coach modern American style at the retail level.

U.S. Factory Stores. Coach’s 76 factory stores serve as an efficient means to sell discontinued and irregular inventory, as well as manufactured-for-factory-store product, outside the retail channels. These stores operate under the Coach Factory name and are geographically positioned primarily in established centers that are usually between 50 and 100 miles from major markets. The following table shows the number of Coach factory stores and their total and average square footage:



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001

Factory stores			76			74			68
	Net increase vs. prior year		2			6			5
	Percentage increase vs. prior year		2.7	%		8.8	%		7.9	%
Factory square footage			232,898			219,507			198,924
	Net increase vs. prior year		13,391			20,583			16,414
	Percentage increase vs. prior year		6.1	%		10.3	%		9.0	%
Average square footage			3,064			2,966			2,925

Coach’s factory store design, visual presentations and customer service levels support and reinforce the brand’s image. Prices are generally discounted from 15% to 50% below full retail prices. Through these factory

stores, Coach targets both value-oriented customers who would not otherwise buy the Coach brand and dual channel shoppers.

e-Commerce. Coach views its e-commerce website as a key communications vehicle for the brand, which also promotes store traffic. Like Coach catalogs and brochures, the on-line store provides a showcase environment where consumers can browse through a selected offering of the latest styles and colors.

Direct Mail. Coach mailed its first Coach catalog in 1980. In fiscal 2003, it mailed at least one Coach catalog to approximately 2 million strategically selected households, primarily from its database. While direct mail sales comprise a small portion of Coach’s net sales, Coach views its catalog as a key communications vehicle for the brand, because it promotes store traffic. As an integral component of its communications strategy, the graphics, models and photography are upscale and modern and present the product in an environment consistent with the Coach brand position. The catalogs highlight selected products and serve as a reference for customers, whether ordering through the catalog, making in-store purchases or purchasing over the Internet.

Indirect Channels

Coach began as a wholesaler to department stores. This channel remains very important to its overall consumer reach. Coach has grown its indirect business by the formation of Coach Japan and working closely with its partners, both domestic and international, to ensure a clear and consistent product presentation. As part of Coach’s business transformation, selected shop-within-shop locations in major department stores are being renovated to achieve the same modern look and feel as the Coach retail stores. At the end of fiscal 2003, 86 international locations and 67 U.S. department stores had been renovated to reflect the new modern design. The indirect channel represented approximately 41% of total net sales in fiscal 2003.

Coach Japan, Inc. In order to expand its presence in the Japanese market and to exercise greater control over its brand in that country, Coach formed Coach Japan. This entity manages the Coach business in Japan and is a joint venture with Sumitomo. This channel represented approximately 18% of total net sales in fiscal 2003. On July 31, 2001 Coach Japan purchased P.D.C., Coach’s largest distributor in Japan, and on January 1, 2002 completed the buyout of the distribution rights and assets related to the Coach business from Osawa. Coach Japan operates two flagship stores, which offer the broadest assortment of Coach products, in the Ginza and Shibuya shopping districts of Tokyo. The following table shows the number of Coach Japan locations and their total and average square footage:



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001(1)

Total locations			93			83			76
	Net increase vs. prior year		10			7			6
	Percentage increase vs. prior year		12.0	%		9.2	%		8.6	%
Total square footage			102,242			76,975			63,371
	Net increase vs. prior year		25,267			13,604			7,229
	Percentage increase vs. prior year		32.8	%		21.5	%		12.9	%
Average square footage			1,099			927			834


(1)	Fiscal 2001 represents locations operated by PDC and Osawa prior to their acquisition by Coach Japan.

U.S. Wholesale. Coach’s products are sold in the U.S. at approximately 1,400 wholesale locations. This channel represented approximately 11% of total sales in fiscal 2003. Recognizing the continued importance of U.S. department and specialty stores as a distribution channel for premier accessories, Coach is strengthening its longstanding relationships with its key customers through its products and styles and Coach’s renovation program. This channel offers access to Coach partners who prefer shopping at department and specialty stores or who live in geographic areas that are not large enough to support a Coach retail store. Coach’s more significant U.S. wholesale customers include Federated Department Stores (including Macy’s, Blooming-

dale’s, Rich’s/ Lazarus, Burdine’s, and Bon Marche), May Co. (including Lord & Taylor, Filene’s, Hecht’s, Foley’s, Robinson’s/ May and Famous Barr), Dillard’s, Marshall Fields, Saks Inc. and Nordstrom.

International Wholesale. Coach’s international business, which represented approximately 6% of total sales in fiscal 2003, is generated through wholesale distributors and authorized retailers. Coach has developed relationships with a select group of distributors who market Coach products through specialty retailers, department stores, travel shopping locations, and freestanding Coach stores in 18 countries. Coach’s current network of international distributors serves markets such as Australia, the United Kingdom, the Caribbean, Korea, Hong Kong and Singapore. Coach has created image enhancing environments in these locations to increase brand appeal and stimulate growth. Within the international arena, the primary focus is the Japanese consumer. Coach targets this consumer in Japan and in areas with significant levels of Japanese tourism. The importance of Japanese consumers is illustrated by a comparison of consumption levels: per capita spending on handbags in Japan is substantially greater than in the U.S. Coach’s more significant international wholesale customers include Dickson Concepts, Inc., Duty Free Shops and Unisia.

On July 1, 2002 Coach signed an agreement with Case London Ltd. (“Case”) for the exclusive distribution of Coach products in the United Kingdom and Ireland. Over the next three years, Case, a privately held British retailer and distributor of fine accessories and luggage, plans to open up to 25 Coach locations in the United Kingdom. Case will develop a multi channel distribution strategy consistent with the successful Coach model in the United States and Japan. In addition, Case assumed the responsibility of operating the existing Coach store on Sloane Street and the Coach shop in Harrods in London.

The following table shows the number of international retail stores, international department store locations and other international locations at which Coach products are sold:



	Fiscal Year Ended

	June 30,		June 29,		June 30,
	2003		2002		2001

International freestanding stores		18		12		6
International department store locations		49		71		69
Other international locations		40		35		28

Total international wholesale locations		107		118		103

Business to Business. As part of the indirect channel of distribution, Coach sells some of its products in selected military locations and through corporate incentive and gift-giving programs.

Licensing. In our licensing relationships, Coach takes an active role in the design process and controls the marketing and distribution of products under the Coach brand. The current licensing relationships as of June 28, 2003 are as follows:

License

Licensing

Introduction

Expiration

Category

Partner

Date

Territory

Date

Watches

Movado

Spring ’98

U.S. and Japan

2006

Footwear

Jimlar

Spring ’99

U.S

2008

Furniture

Baker

Spring ’99

U.S. and Canada

2008

Office furniture

Steelcase

Fall ’01

U.S

2006

Eyewear

Marchon

Fall ’03

Worldwide

2007

Products made under license are, in most cases, sold through all of the channels discussed above and, with Coach’s approval, these licensees have the right to distribute Coach brand products selectively through several other channels: shoes in department store shoe salons, furniture through Baker’s own showrooms, watches in selected jewelry stores and eyewear in selected optical retailers. These venues provide additional, yet controlled, exposure of the Coach brand. Coach’s licensing partners pay Coach royalties on their sales of Coach branded products. However, such royalties currently comprise less than 1% of Coach’s revenues and are

not material to the Coach business. The licensing agreements generally give Coach the right to terminate the license if specified sales targets are not achieved.

Manufacturing

Coach has refined its production capabilities in coordination with the repositioning of its brand. By shifting its production from owned domestic facilities to independent manufacturers in lower-cost markets, it can support a broader mix of product types, materials and a seasonal influx of new, more fashion-oriented styles. During fiscal year 2003, approximately 47% of Coach’s net sales, excluding Coach Japan, were generated from products introduced within the fiscal year. At the same time, we help manage total inventory and limit our exposure to excess and obsolete inventory by designating a large number of the new styles as “limited editions” that are planned to be discontinued and replaced with fresh new products.

Coach has developed a flexible model that meets shifts in marketplace demand and changes in consumer preferences. It uses two main sources to make Coach products: outsourcing with skilled partners and production by its licensing partners. All product sources must achieve and maintain Coach’s high quality standards which are an integral part of the Coach identity. One of Coach’s keys to success lies in the rigorous selection of raw materials. Coach has long-standing relationships with purveyors of fine leathers and hardware. As it has moved its production to external sources, Coach still requires that these same raw materials are used in all of its products, wherever they are made. We monitor compliance with the quality control standards through on-site quality inspections at all independent manufacturing facilities.

All of Coach’s fiscal year 2003 product requirements were supplied by independent manufacturers. Coach buys independently manufactured products from a variety of countries including China, Costa Rica, Mexico, India, Italy, Spain, Hungary and Turkey. It operates a European sourcing and product development organization based in Florence, Italy that works closely with the New York design team. This broad-based multi-country manufacturing strategy is designed to optimize the mix of cost, lead times and construction capabilities. Coach carefully balances its commitments to a limited number of “better brand” partners with demonstrated integrity, quality and reliable delivery. No one vendor provides more than 15% of Coach’s total requirements. Before partnering with a vendor, Coach evaluates each facility by conducting a quality and business practice standards audit. Periodic evaluations of existing, previously approved facilities are conducted on a random basis. We believe that all of our manufacturing partners are in compliance with Coach’s integrity standards.

As part of the strategy to shift production to independent manufacturers in lower-cost markets, Coach ceased operations at its remaining facility, located in Lares, Puerto Rico, in April 2002.

Distribution

In July 1999, Coach consolidated its worldwide warehousing, distribution and repair functions into one location in Jacksonville, Florida. This highly automated, computerized, 560,000 square foot facility uses a bar code scanning warehouse management system. Coach’s distribution center employees use handheld optical scanners to read product bar codes which allows them to more accurately process and pack orders, track shipments, manage inventory and generally provide better service to our customers. Coach’s products are primarily shipped via Federal Express and common carriers to Coach retail stores and wholesale customers and via Federal Express direct to consumers.

Management Information Systems

The foundation of Coach’s information systems is its Enterprise Resource Planning system. Implemented in 1997, this fully integrated system supports all aspects of finance and accounting, procurement, inventory control, sales and store replenishment, resulting in increased efficiencies, improved inventory control and a better understanding of consumer demand. The system functions as a central repository for all of Coach’s transactional information, resulting in increased efficiencies and greater inventory control. This system is fully scalable to accommodate rapid growth.

Complementing its Enterprise Resource Planning system are several other system solutions, each of which Coach believes is well-suited for its needs. The data warehouse system summarizes the transaction information and provides a single platform for all management reporting. The supply chain management system supports corporate sales and inventory functions, creating a monthly demand plan and reconciling production/ procurement with financial plans. Product fulfillment is facilitated by Coach’s highly automated warehouse management system and electronic data interchange system, while the unique requirements of Coach’s catalog and Internet businesses are supported by Coach’s direct sales system. Finally, the point-of-sale system supports all in-store transactions, distributes management reporting to each store, and collects sales and payroll information on a daily basis. This daily collection of store sales and inventory information results in early identification of business trends and provides a detailed baseline for store inventory replenishment. Updates and upgrades of these systems are made on a periodic basis in order to ensure that we constantly improve our functionality. All complementary systems are integrated with the central Enterprise Resource Planning system.

Trademarks and Patents

Coach owns all of the material trademark rights used in connection with the production, marketing and distribution of all of its products, both in the U.S. and in other countries in which the products are principally sold. Coach owns and maintains worldwide registrations for trademarks in all relevant classes of products in each of the countries in which Coach products are sold. Its major trademarks include Coach, Coach and lozenge design and Coach and tag design and it has applications pending for a proprietary “C” signature fabric design. Coach is not dependent on any one particular trademark or design patent although Coach believes that the Coach name is important for its business. In addition, several of Coach’s products are covered by design patents or patent applications. Coach aggressively polices its trademarks and trade dress, and pursues infringers both domestically and internationally. It also pursues counterfeiters domestically and internationally through leads generated internally, as well as through its network of investigators, the Coach hotline and business partners around the world.

Coach’s trademarks in the United States will remain in existence for as long as Coach continues to use and renew them on their expiration date. Coach has no material patents.

Employees

As of June 28, 2003, Coach employed approximately 3,200 people, approximately 50 of which were covered by collective bargaining agreements. Of the total, approximately 1,700 are engaged in retail selling and administration positions, approximately 400 are engaged in manufacturing, sourcing or distribution functions and approximately 600 are employed through Coach Japan. The remaining employees are engaged in other aspects of the Coach business. Coach believes that its relations with its employees are good, and it has never encountered a strike or significant work stoppage.

Government Regulation

Most of Coach’s imported products are subject to existing or potential duties, tariffs or quotas that may limit the quantity of products that Coach may import into the U.S. and other countries or may impact the cost of such products. Coach has not been restricted by quotas in the operation of its business and customs duties have not comprised a material portion of the total cost of its products. In addition, Coach is subject to foreign governmental regulation and trade restrictions, including U.S. retaliation against certain prohibited foreign practices, with respect to its product sourcing and international sales operations.

RISK FACTORS

You should consider carefully all of the information set forth or incorporated by reference in this document and, in particular, the following risk factors associated with the Business of Coach and forward-looking information in this document. Please also see “Special Note on Forward-Looking Information” on page 2.

If Coach is unable to successfully implement its growth strategies or manage its growing business, its future operating results will suffer.

Successful implementation of Coach’s strategies and initiatives will require it to manage its growth. To manage growth effectively, Coach will need to continue to increase its outsourced manufacturing while maintaining strict quality control. Coach will also need to continue to improve its operating systems to respond to any increased demand. It could suffer a loss of consumer goodwill and a decline in sales if its products do not continue to meet its quality control standards or if it is unable to adequately respond to increases in consumer demand for its products.

Coach’s inability to respond to changes in consumer demands and fashion trends in a timely manner could adversely affect its sales.

Coach’s success depends on its ability to identify, originate and define product and fashion trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. Its products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. Coach cannot assure that it will be able to continue to develop appealing styles or meet changing consumer demands in the future.

If Coach misjudges the demand for its products it may incur increased costs due to excess inventories.

If Coach misjudges the market for its products it may be faced with significant excess inventories for some products and missed opportunities for other products. In addition, because Coach places orders for products with its manufacturers before it receives wholesale customers’ orders, it could experience higher excess inventories if wholesale customers order fewer products than anticipated.

Competition in the markets in which Coach operates is intense, and our competitors may develop products that are more popular with consumers.

Coach faces intense competition in the product lines and markets in which it operates. Coach’s products compete with other brands of products within their product category and with private label products sold by retailers, including some of Coach’s wholesale customers. In its wholesale business, Coach competes with numerous manufacturers, importers and distributors of handbags, accessories and other products for the limited space available for the display of these products to the consumer. Moreover, the general availability of contract manufacturing allows new entrants easy access to the markets in which Coach operates, which may increase the number of competitors and adversely affect its competitive position and business. Some of Coach’s competitors have achieved significant recognition for their brand names or have substantially greater financial, distribution, marketing and other resources than the Company.

A downturn in the economy may affect consumer purchases of discretionary luxury items, which could adversely affect Coach’s sales.

Many factors affect the level of consumer spending in the handbag and luxury accessories industry, including, among others, general business conditions, interest rates, the availability of consumer credit, taxation and consumer confidence in future economic conditions. Consumer purchases of discretionary luxury items, such as Coach products, tend to decline during recessionary periods, when disposable income is lower. A downturn in the economies in which Coach sells its products may adversely affect Coach’s sales.

Coach’s business is subject to foreign exchange risk.

Coach sells products to its international wholesale customers in U.S. dollars. However those distributors sell Coach product in the relevant local currency. Currency exchange rate fluctuations could adversely affect the retail prices of the products and result in decreased international demand.

In order to manage this risk, Coach Japan enters into forward exchange contracts that allow them to obtain dollars at a rate that is set concurrent with the requisition of inventory. These contracts meet the

definition of a derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”. As these contracts are entered into before the receipt of inventory, the contract rate may be higher or lower than market rates when the goods are received and the payment is completed. All contracts are fair valued at the end of the reporting period. If the derivative is designated as a cash flow hedge, effective subsequent changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged items affect earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings immediately. This non-cash charge or credit can result in fluctuations in the reported financial results.

Coach consolidates the financial results of Coach Japan into its financial statements. The functional currency of Coach Japan is the Japanese Yen. These operating results are converted to U.S. dollars based on the average exchange rate during the period and the balance sheet is converted to U.S. dollars based on the exchange rate at the end of the reporting period.

If Coach loses key management or design personnel or is unable to attract and retain the talent required for its business, its operating results could suffer.

Coach’s performance depends largely on the efforts and abilities of its senior management and design teams. These executives and employees have substantial experience and expertise in Coach’s business and have made significant contributions to its growth and success. Coach is a party to employment agreements with certain executives which provide for compensation and other benefits. The agreements also provide for severance payments under certain circumstances. The unexpected loss of services of one or more of these individuals could have an adverse effect on Coach’s business. As the business grows, Coach will need to attract and retain additional qualified personnel and develop, train and manage an increasing number of management-level, sales and other employees. Coach cannot guarantee that it will be able to attract and retain personnel as needed in the future.

Coach’s operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of its common stock.

Because Coach products are frequently given as gifts, Coach has experienced, and expects to continue to experience, substantial seasonal fluctuations in its sales and operating results. Over the past two fiscal years approximately 33% of Coach’s annual sales and approximately 47% of its operating income were recognized in the second fiscal quarter, which includes the holiday months of November and December.

Coach’s gross profit may decrease if it becomes unable to obtain its products from, or sell its products in, other countries due to adverse international events that are beyond its control.

In order to lower its sourcing costs and increase its gross profit, Coach has shifted its production to independent non-U.S. manufacturers in lower-cost markets. Coach’s international manufacturers are subject to many risks, including foreign governmental regulations, political unrest, disruptions or delays in shipments, changes in local economic conditions and trade issues. These factors, among others, could influence the ability of these independent manufacturers to make or export Coach products cost-effectively or at all or to procure some of the materials used in these products. The violation of labor or other laws by any of Coach’s independent manufacturers, or the divergence of an independent manufacturer’s labor practices from those generally accepted as ethical by Coach or others in the U.S., could damage Coach’s reputation and force it to locate alternative manufacturing sources. Currency exchange rate fluctuations could increase the cost of raw materials for these independent manufacturers, which they could pass along to Coach, resulting in higher costs and decreased margins for its products. If any of these factors were to render a particular country undesirable or impractical as a source of supply, there could be an adverse effect on Coach’s business, including its gross profit.

Coach’s failure to continue to increase sales of its products in international markets could adversely affect its gross profit. International sales are subject to many risks, including foreign governmental regulations, foreign consumer preferences, political unrest, disruptions or delays in shipments to other nations, tourism and

changes in local economic conditions. These factors, among others, could influence Coach’s ability to sell products successfully in international markets. Coach generally purchases products from international manufacturers in U.S. dollars and sells these products in the U.S. and to its international wholesale customers in U.S. dollars. However, Coach’s international wholesale customers sell Coach products in the relevant local currencies, and currency exchange rate fluctuations could adversely affect the retail prices of the products and result in decreased international consumer demand.

Coach’s trademark and other proprietary rights could potentially conflict with the rights of others and it may be inhibited from selling some of its products. If Coach is unable to protect its trademarks and other proprietary rights, others may sell imitation brand products.

Coach believes that its registered and common law trademarks and design patents are important to its ability to create and sustain demand for Coach products. Coach cannot assure you that it will not encounter trademark, patent or trade dress disputes in the future as it expands its product line and the geographic scope of its marketing. Coach also cannot assure that the actions taken by it to establish and protect its trademarks and other proprietary rights will be adequate to prevent imitation of its products or infringement of its trademarks and proprietary rights by others. The laws of some foreign countries may not protect proprietary rights to the same extent as do the laws of the U.S. and it may be more difficult for Coach to successfully challenge the use of its proprietary rights by other parties in these countries.

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

Coach’s charter and bylaws and Maryland law contain provisions that could make it harder for a third party to acquire Coach without the consent of Coach’s Board of Directors. Coach’s charter permits its Board of Directors, without stockholder approval, to amend the charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that Coach has the authority to issue. In addition, Coach’s Board of Directors may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, rights and other terms of the classified or reclassified shares. Although Coach’s Board of Directors has no intention to do so at the present time, it could establish a series of preferred stock that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for Coach’s common stock or otherwise be in the best interest of Coach’s stockholders.

On May 3, 2001 Coach declared a “poison pill” dividend distribution of rights to buy additional common stock to the holder of each outstanding share of Coach’s common stock. Subject to limited exceptions, these rights may be exercised if a person or group intentionally acquires 10% or more of Coach’s common stock or announces a tender offer for 10% or more of the common stock on terms not approved by the Coach Board of Directors. In this event, each right would entitle the holder of each share of Coach’s common stock to buy one additional common share of Coach stock at an exercise price far below the then-current market price. Subject to certain exceptions, Coach’s Board of Directors will be entitled to redeem the rights at $0.001 per right at any time before the close of business on the tenth day following either the public announcement that, or the date on which a majority of Coach’s Board of Directors becomes aware that, a person has acquired 10% or more of the outstanding common stock. We are currently aware of one institutional shareholder whose common stock holdings exceed the 10% threshold established by the rights plan. This holder has been given permission to increase its ownership in the Company to a maximum of 15%, subject to certain exceptions, before triggering the provision of the rights plan.

Coach’s bylaws can only be amended by Coach’s Board of Directors. Coach’s bylaws also provide that nominations of persons for election to Coach’s Board of Directors and the proposal of business to be considered at a stockholders meeting may be made only in the notice of the meeting, by Coach’s Board of Directors or by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures of Coach’s bylaws. Also, under Maryland law, business combinations, including issuances of equity securities, between Coach and any person who beneficially owns 10% or more of Coach’s common stock or an affiliate of such person are prohibited for a five-year period unless exempted in accordance with the statute.

After this period, a combination of this type must be approved by two super-majority stockholder votes, unless some conditions are met or the business combination is exempted by Coach’s Board of Directors. Coach’s Board has exempted any business combination with us or any of our affiliates from the five-year prohibition and the super-majority vote requirements.

These and other provisions of Maryland law or Coach’s charter and bylaws could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for Coach’s common stock or otherwise be in the best interest of Coach’s stockholders.

Item 2. Properties

The following table sets forth the location, use and size of Coach’s distribution, corporate and product development facilities as of June 28, 2003, all of which are leased. The leases expire at various times through 2015, subject to renewal options.


		Approximate
Location	Use	Square Footage

Jacksonville, Florida	Distribution and customer service		560,000
New York, New York	Corporate		160,000
Carlstadt, New Jersey	Corporate and product development		55,000
Florence, Italy	Product development		16,000
Tokyo, Japan	Coach Japan, corporate		7,000
Shenzhen, People’s Republic of China	Quality control		1,600

Coach also occupies 156 retail and 76 factory leased retail stores located in North America as of June 28, 2003. Indirectly, through Coach Japan, Coach operates 93 retail and department store locations in Japan. Coach considers these properties to be in good condition generally and believes that its facilities are adequate for its operations and provide sufficient capacity to meet its anticipated requirements.

Item 3. Legal Proceedings

Coach is involved in various routine legal proceedings as both plaintiff and defendant incident to the ordinary course of its business, including proceedings to protect Coach’s intellectual property rights. Litigation instituted by persons alleged to have been injured upon premises within Coach’s control and litigation with present or former employees. As part of its policing program for its intellectual property rights, from time to time, Coach files lawsuits in the U.S. and abroad alleging acts of trademark counterfeiting, trademark infringement, patent infringement, trade dress infringement, trademark dilution and/or state or foreign law claims. At any given point in time, Coach may have one or more of such actions pending. These actions often result in seizure of counterfeit merchandise and/or out of court settlements with defendants. From time to time, defendants will raise as affirmative defenses or as counterclaims the invalidity or unenforceability of certain of Coach’s intellectual properties. Although Coach’s litigation with present or former employees is routine and incidental to the conduct of Coach’s business, as well as for any business employing significant numbers of U.S.-based employees, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages for actions claiming discrimination on the basis of age, gender, race, religion, disability or other legally protected characteristic or for termination of employment that is wrongful or in violation of implied contracts. Coach believes, however, that the outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on Coach’s business, cash flows, results of operations or financial position.


Item 4.	*Submission of Matters to a Vote of Security Holders*

None

Executive Officers and Directors

The following table sets forth information regarding each of Coach’s executive officers and directors serving as of June 28, 2003:


Name	Age		Position(s)(1)

Lew Frankfort		57	Chairman, Chief Executive Officer and Director
Keith Monda		57	President, Chief Operating Officer and Director
Reed Krakoff		39	President, Executive Creative Director
Michael Tucci		42	President, North American Retail Division
Mike Devine		44	Senior Vice President, Chief Financial Officer and Chief Accounting Officer
Carole Sadler		44	Senior Vice President, General Counsel and Secretary
Felice Schulaner		43	Senior Vice President, Human Resources
Joseph Ellis(3)		61	Director
Sally Frame Kasaks(2)(3)		59	Director
Gary Loveman(2)(3)		43	Director
Irene Miller(2)(3)		51	Director
Michael Murphy(2)(3)		66	Director


(1)	Coach’s executive officers serve indefinite terms and may be appointed and removed by Coach’s board of directors at any time. Coach’s directors are elected at the annual stockholders meeting and serve terms of one year.

(2)	Member of the audit committee.

(3)	Member of the human resources and governance committee.

Lew Frankfort has been involved with the Coach business in excess of 20 years. He has served as Chairman and Chief Executive Officer of Coach since November 1995. He has served as a member of Coach’s board of directors since June 1, 2000, the date of incorporation. Mr. Frankfort served as Senior Vice President of Sara Lee from January 1994 to October 2000. Mr. Frankfort was appointed President and Chief Executive Officer of the Sara Lee Champion, Intimates & Accessories group in January 1994, and held this position through November 1995. From September 1991 through January 1994, Mr. Frankfort held the positions of Executive Vice President, Sara Lee Personal Products and Chief Executive Officer of Sara Lee Accessories. Mr. Frankfort was appointed President of Coach in July 1985, after Sara Lee acquired Coach, and held this position through September 1991. Mr. Frankfort joined Coach in 1979 as Vice President of New Business Development. Prior to joining Coach, Mr. Frankfort held various New York City government management positions and served as Commissioner, New York City Agency for Child Development. Mr. Frankfort holds a Bachelor of Arts degree from Hunter College and an MBA in Marketing from Columbia University.

Keith Monda was appointed President of Coach in May 2002 after serving as Executive Vice President and Chief Operating Officer of Coach from June 1998. He has served as a member of Coach’s board of directors since June 1, 2000, the date of incorporation. Prior to joining Coach, Mr. Monda served as Senior Vice President, Finance & Administration and Chief Financial Officer of Timberland Company from December 1993 until May 1996, and was promoted to, and held the position of, Senior Vice President, Operations from May 1996 until January 1998. From May 1990 to December 1993, Mr. Monda served as Executive Vice President, Finance and Administration of J. Crew. Mr. Monda holds Bachelor of Science and Master of Arts degrees from Ohio State University.

Reed Krakoff was appointed President, Executive Creative Director in September 1999 after joining Coach as Senior Vice President and Executive Creative Director in December 1996. Prior to joining Coach, Mr. Krakoff served as Senior Vice President, Marketing, Design & Communications from January 1993 until December 1996, and as Head Designer, Sportswear from April 1992 until January 1993 at Tommy Hilfiger USA, Inc. From July 1988 through April 1992, Mr. Krakoff served as a Senior Designer in Design and Merchandising for Polo/ Ralph Lauren. Mr. Krakoff holds an A.A.S. degree in Fashion Design from Parsons School of Design and a Bachelor of Arts degree in Economics and Art History from Tufts University.

Michael Tucci joined Coach as President, Retail Division, North America in January 2003. Mr. Tucci joined Coach from Gap, Inc., where he held the position of Executive Vice President, Gap, Inc. Direct from May 2002 until January 2003. He held the position of Executive Vice President of Gap Body from April 2000 until May 2002. From April 1999 to May 2000, Mr. Tucci served as Executive Vice President, Customer Store Experience, Gap Brand. Between May 1996 and April 1999, Mr. Tucci served as Executive Vice President for GAP Kids and Baby Gap. He had joined Gap in December 1994 as Vice President of Merchandising for Old Navy. Prior to joining Gap, he served as President of Aeropostale, a specialty store division of Macy’s, which culminated his twelve-year career with the company that included senior buying and merchandising roles. He joined Macy’s Executive Training Program from Trinity College, where he earned a Bachelor of Arts degree in English.

Mike Devine has served as Senior Vice President and Chief Financial Officer of Coach since December 2001. Prior to Joining Coach, Mr. Devine served as Chief Financial Officer and Vice President-Finance of Mothers Work, Inc. from February 2000 until November 2001. From 1997 to 2000, Mr. Devine was Chief Financial Officer of Strategic Distribution, Inc., a Nasdaq-listed industrial store operator. Previously, Mr. Devine was Chief Financial Officer at Industrial System Associates, Inc. from 1995 to 1997, and for the prior six years he was the Director of Finance and Distribution for McMaster-Carr Supply Co. Mr. Devine holds a Bachelor of Science degree in Finance and Marketing from Boston College and an MBA degree in Finance from the Wharton School of the University of Pennsylvania.

Carole Sadler has served as Senior Vice President, General Counsel and Secretary since May 2000. She joined Coach as Vice President, Chief Counsel in March 1997. From April 1991 until February 1997, Ms. Sadler was Vice President and Associate General Counsel of Saks Fifth Avenue. From September 1984 until March 1991, Ms. Sadler practiced law as a litigation associate in New York City, most recently at the firm of White & Case, and prior to that at Paskus Gordon & Mandel and Mound Cotton & Wollan. Ms. Sadler holds a Juris Doctor degree from American University, Washington College of Law, and a Bachelor of Arts degree, cum laude, in American Studies from Smith College.

Felice Schulaner joined Coach as Senior Vice President, Human Resources in January 2000. Prior to joining Coach, Ms. Schulaner served as Senior Vice President, Human Resources of Optimark Technologies from February 1999 through December 1999 and as Senior Vice President, Human Resources of Salant Corporation from July 1997 through February 1999. Ms. Schulaner was Vice President, Worldwide Recruitment & Selection at American Express from July 1996 until June 1997. From 1990 through 1996, she served in various other human resources positions at American Express, including Vice President, Human Resources Reengineering, and, from 1986 until 1990, Ms. Schulaner held human resources positions at Macy’s Northeast in New York City. Ms. Schulaner holds a Bachelor of Arts degree from New College of the University of South Florida. In December 1998, Salant Corporation commenced bankruptcy proceedings, which concluded in April 1999.

Joseph Ellis was elected to Coach’s Board of Directors in September 2000. Mr. Ellis has served as an Advisory Director of Goldman, Sachs & Co. since May 1999 and served as a Limited Partner of Goldman, Sachs from 1994 to May 1999, and a General Partner from 1986 to 1994. Mr. Ellis served as senior retail-industry analyst from 1970 through 1994. Before joining Goldman, Sachs in 1970, Mr. Ellis was Vice President and Investment Analyst with The Bank of New York. Mr. Ellis also serves as a Director of The New York State Nature Conservancy and Waterworks, Inc. He is a member of the Steering Committee of the Center for Environmental Research and Conservation of Columbia University, a Northeast trustee of CARE

and a trustee for the RARE Center for Tropical Conservation. Mr. Ellis holds a Bachelor of Arts degree from Columbia University.

Sally Frame Kasaks was elected to Coach’s Board of Directors in November 2001. Ms. Kasaks has served as a marketing and retail consultant for ISTA Incorporated since January 1997. Prior to this, she served as Chairman and Chief Executive Officer of Ann Taylor Stores, Inc. from February 1992 until August, 1996. Ms. Kasaks was the President and Chief Executive Officer of Abercrombie and Fitch, a division of The Limited, Inc., from February 1989 through February 1992 and the Chairman and Chief Executive Officer of The Talbots, Inc., which was a specialty apparel retailing division of General Mills Co., from November 1985 through September 1988. Ms. Kasaks also serves as a Director of Pacific Sunwear of California, Inc., Cortefiel, S.A., Tuesday Morning, Inc., The Children’s Place, Inc. and Crane & Co. She holds a Bachelor of Arts degree from American University.

Gary Loveman was elected to Coach’s Board of Directors in February 2002. Mr. Loveman has served as Chief Executive Officer and President of Harrah’s Entertainment, Inc. since January 2003; he had served as President of Harrah’s since April 2001 and as Chief Operating Officer of Harrah’s since May 1998. He was a member of the three-executive Office of the President of Harrah’s from May 1999 to April 2001 and was Executive Vice President from May 1998 to May 1999. From 1994 to 1998, Mr. Loveman was Associate Professor of Business Administration, Harvard University Graduate School of Business Administration, where his responsibilities included teaching MBA and executive education students, research and publishing in the field of service management, and consulting and advising large service companies. Mr. Loveman also serves as a Director of Harrah’s. He holds a Bachelor of Arts degree in Economics from Wesleyan University and a Ph.D. in Economics from the Massachusetts Institute of Technology.

Irene Miller was elected to Coach’s Board of Directors in May 2001. Ms. Miller is Chief Executive Officer of Akim, Inc., an investment management and consulting firm and, until June 1997, was Vice Chairman and Chief Financial Officer of Barnes and Noble, Inc., the world’s largest bookseller. She joined Barnes & Noble in 1991, became Chief Financial Officer in 1993 and Vice Chairman in 1995. From 1986 to 1990, Ms. Miller was an investment banker at Morgan Stanley & Co. Incorporated, serving as Principal in her last position. Ms. Miller also serves as a director on the Boards of Barnes & Noble, Inc., Oakley, Inc., Inditex, S.A. and The Body Shop International PLC. Ms. Miller holds a Master of Science degree from Cornell University and a Bachelor of Science degree from the University of Toronto.

Michael Murphy was elected to Coach’s Board of Directors on September 12, 2000. From 1994 to 1997, Mr. Murphy served as Vice Chairman and Chief Administrative Officer of Sara Lee. Mr. Murphy also served as a director of Sara Lee from 1979 through October 1997. Mr. Murphy joined Sara Lee in 1979 as Executive Vice President and Chief Financial and Administrative Officer and, from 1993 until 1994, also served as Vice Chairman. Mr. Murphy is also a director of Bassett Furniture Industries, Inc., Civic Federation, Big Shoulders Fund, Chicago Cultural Center Foundation, GATX Corporation, Payless Shoe Source, Inc. and CNH Global N.V. He is also a member of the Board of Trustees of Northern Funds (a family of mutual funds). Mr. Murphy holds a Bachelor of Science degree in Business Administration from Boston College and an MBA degree from the Harvard Business School.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Refer to the information regarding the market for Coach’s Common Stock and the quarterly market price information appearing under the caption “Market and Dividend Information” included herein.

Item 6. Selected Financial Data (in thousands except for per share data)

The selected historical financial data presented below as of and for each of the fiscal years in the five-year period ended June 28, 2003 have been derived from Coach’s audited Consolidated Financial Statements. The financial data should be read in conjunction with “Item 7, Management’s Discussion and Analysis of Financial

Condition and Results of Operations”, the Consolidated Financial Statements and Notes thereto and other financial data included elsewhere herein.



			Fiscal Year Ended

			June 28,			June 29,			June 30,			July 1,			July 3,
			2003			2002			2001			2000			1999

Consolidated Statements of Income:(1)
	Net sales		$	953,226		$	719,403		$	600,491		$	537,694		$	500,944
	Cost of sales			275,797			236,041			218,507			220,085			226,190

	Gross profit			677,429			483,362			381,984			317,609			274,754
	Selling, general and administrative expenses			433,667			346,354			275,727			261,592			248,171
	Reorganization costs(2)			—			3,373			4,569			—			7,108

	Operating income			243,762			133,635			101,688			56,017			19,475
	Interest (income) expense, net			(1,059	)		299			2,258			387			414

	Income before provision for income taxes and minority interest			244,821			133,336			99,430			55,630			19,061
	Provision for income taxes			90,585			47,325			35,400			17,027			2,346
	Minority interest, net of tax			7,608			184			—			—			—

	Net income		$	146,628		$	85,827		$	64,030		$	38,603		$	16,715

	Net income per share
		Basic	$	1.63		$	0.97		$	0.78		$	0.55		$	0.24

		Diluted	$	1.58		$	0.94		$	0.76		$	0.55		$	0.24

	Shares used in computing net income per share:
		Basic		89,779			88,048			81,860			70,052			70,052

		Diluted		92,921			90,952			84,312			70,052			70,052

Consolidated Percentage of Net Sales Data:
	Gross margin			71.1	%		67.2	%		63.6	%		59.1	%		54.8	%
	Selling, general and administrative expenses			45.5	%		48.1	%		45.9	%		48.7	%		49.5	%
	Operating income			25.6	%		18.6	%		16.9	%		10.4	%		3.9	%
	Net income			15.4	%		11.9	%		10.7	%		7.2	%		3.3	%
Consolidated Balance Sheet Data:
	Working capital		$	287,077		$	128,160		$	47,119		$	54,089		$	51,685
	Total assets			617,652			440,571			258,711			296,653			282,088
	Inventory			143,807			136,404			105,162			102,097			101,395
	Receivable from Sara Lee			—			—			—			63,783			54,150
	Revolving credit facility			26,471			34,169			7,700			—			—
	Long-term debt			3,535			3,615			3,690			3,775			3,810
	Stockholders’ equity		$	426,929		$	260,356		$	148,314		$	212,808		$	203,162


(1)	Coach’s fiscal year ends on the Saturday closest to June 30. Fiscal year 1999 was a 53-week year, while fiscal years 2000, 2001, 2002 and 2003 were 52-week years.

(2)	During fiscal 1999, Coach committed to and completed a reorganization plan involving the closure of its Carlstadt, New Jersey, warehouse and distribution center, the closure of its Italian manufacturing operation, and the reorganization of its Medley, Florida, manufacturing facility. During fiscal 2001, Coach committed to and completed a reorganization plan involving the complete closure of its Medley, Florida manufacturing

operation. These actions, intended to reduce costs, resulted in the transfer of production to lower cost third-party manufacturers and the consolidation of all of its distribution functions at the Jacksonville, Florida, distribution center. During fiscal 2002, Coach committed to and completed a reorganization plan involving the complete closure of its Lares, Puerto Rico, manufacturing operation. These actions were intended to reduce costs and resulted in the transfer of production to lower cost third-party manufacturers.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion of Coach’s financial condition and results of operations should be read together with Coach’s financial statements and notes to those statements included elsewhere in this document.

Overview

Coach was founded in 1941 and was acquired by Sara Lee Corporation in July 1985. In October 2000, Coach was listed on the New York Stock Exchange and sold 17.0 million shares of stock in an initial public offering. In April 2001, Sara Lee ended its ownership with a distribution of its remaining shares in Coach via an exchange offer.

Coach is a designer and marketer of high-quality, modern American classic accessories. Coach’s primary product offerings include handbags, women’s and men’s accessories, business cases, weekend and travel accessories, personal planning products, leather outerwear, gloves and scarves.

Coach generates revenue by selling its products directly to consumers and indirectly through wholesale customers and by licensing its brand name to select manufacturers. Direct-to-consumer sales consist of sales of Coach products through its 156 Company-operated U.S. retail stores, 76 Company-operated U.S. factory stores, its direct mail catalogs and its e-commerce website. Indirect sales consist of sales of Coach products to approximately 1,400 department store and specialty retailer locations in the United States, 107 international department store, retail store, factory store and duty-free shop locations in 18 countries and 93 retail and department store locations managed by its joint venture Coach Japan, Inc. Coach generates additional wholesale sales through business-to-business programs, in which companies purchase Coach products to use as gifts or incentive rewards. Licensing revenues consist of royalties paid to Coach under licensing arrangements with select partners for the sale of Coach branded watches, footwear and furniture.

Coach’s cost of sales consists of the costs associated with the sourcing of its products. Coach’s gross profit is dependent upon a variety of factors and may fluctuate from quarter to quarter. These factors include changes in the mix of products it sells, fluctuations in cost of materials and changes in the relative sales mix among its distribution channels.

Selling, general and administrative expenses comprise four categories of expenses: selling; advertising, marketing and design; distribution and customer service; and administration and information services. Selling expenses comprise store employee compensation, store occupancy costs, store supply costs, wholesale account administration compensation and all Coach Japan operating expenses. Advertising, marketing and design expenses include employee compensation, media space and production, advertising agency fees, new product design costs as well as public relations, market research expenses and mail order costs. Distribution and customer services expenses comprise warehousing, order fulfillment, shipping and handling, customer service and bag repair costs. Administration and information services expenses comprise compensation costs for the information systems, executive, finance, human resources and legal departments as well as consulting and software expenses. Selling, general and administrative expenses are affected by the number of stores Coach operates in any fiscal period and the relative proportions of retail and wholesale sales. Selling, general and administrative expenses increase as Coach and Coach Japan operate more stores, although an increase in the number of stores generally enables them to spread the fixed portion of its selling, general and administrative expenses over a larger sales base.

As part of the transformation of Coach’s business, Coach ceased production at the Medley, Florida, manufacturing facility in October 2000. This reorganization involved the termination of 362 manufacturing,

warehousing and management employees at the Medley facility. These actions reduced costs by the resulting transfer of production to lower cost third-party manufacturers.

In April 2002, Coach ceased production at the Lares, Puerto Rico, manufacturing facility. This reorganization involved the termination of 394 manufacturing, warehousing and management employees at the Lares facility. These actions reduced costs by the resulting transfer of production to lower cost third-party manufacturers.

Coach’s fiscal year ends on the Saturday closest to June 30.

Results Of Operations

The following is a discussion of the results of operations for fiscal 2003 compared to fiscal 2002, and fiscal 2002 compared to fiscal 2001 along with a discussion of the changes in financial condition during fiscal 2003.

Net sales by business segment for fiscal 2003 compared to fiscal 2002 and fiscal 2001 are as follows:



	Fiscal Year Ended												Percentage of Total Net Sales

	June 28,		June 29,		June 30,								June 28,			June 29,			June 30,
	2003		2002		2001		Rate of Increase						2003			2002			2001


	(dollars in millions)						(’03 v. ’02)			(’02 v. ’01)

Direct	$	559.5	$	447.1	$	391.8		25.1	%		14.1	%		58.7	%		62.1	%		65.2	%
Indirect		393.7		272.3		208.7		44.6			30.5			41.3			37.9			34.8

Total net sales	$	953.2	$	719.4	$	600.5		32.5	%		19.8	%		100.0	%		100.0	%		100.0	%

Consolidated statements of income for fiscal 2003 compared to fiscal 2002 and fiscal 2001 are as follows:



	Fiscal Year Ended


	June 28, 2003						June 29, 2002					June 30, 2001

	$			% of net sales			$		% of net sales			$		% of net sales


	(dollars and shares in millions, except for earnings per share)
Net sales	$	949.4			99.6	%	$	716.5		99.6	%	$	598.3		99.6	%
Licensing revenue		3.8			0.4			2.9		0.4			2.2		0.4

Total net sales		953.2			100.0			719.4		100.0			600.5		100.0
Cost of sales		275.8			28.9			236.0		32.8			218.5		36.4

Gross profit		677.4			71.1			483.4		67.2			382.0		63.6
Selling, general and administrative expenses		433.7			45.5			346.4		48.1			275.7		45.9
Reorganization costs		—			0.0			3.4		0.5			4.6		0.8

Operating income		243.7			25.6			133.6		18.6			101.7		16.9
Interest (income) expense, net		(1.1	)		(0.1	)		0.3		0.1			2.3		0.4

Income before provision for income taxes and minority interest		244.8			25.7			133.3		18.5			99.4		16.6
Provision for income taxes		90.6			9.5			47.3		6.6			35.4		5.8
Minority interest, net of tax		7.6			0.8			0.2		0.0			—		0.0

Net income	$	146.6			15.4	%	$	85.8		11.9	%	$	64.0		10.7	%



		Fiscal Year Ended

		June 28,		June 29,		June 30,
		2003		2002		2001

Earnings per share:
	Basic	$	1.63	$	0.97	$	0.78
	Diluted	$	1.58	$	0.94	$	0.76
Weighted-average number of common shares:
	Basic		89.8		88.0		81.9
	Diluted		92.9		91.0		84.3


	*Fiscal 2003 Compared to Fiscal 2002*

Net Sales

Net sales increased by 32.5% to $953.2 million in fiscal 2003, from $719.4 million in fiscal 2002. These results reflect increased volume in both the direct-to-consumer and the indirect segments.

Direct. Net sales increased 25.1% to $559.5 million during fiscal 2003, from $447.1 million in fiscal 2002. Comparable store sales growth for retail stores and factory stores open for one full year was 24.6% and 5.0%, respectively. Comparable store growth for the entire domestic store chain, for stores open for one full year was 15.2%, which represented approximately $62 million of the net sales increase. Since the end of fiscal 2002, Coach opened 20 retail stores and three factory stores; and expanded four retail and five factory stores and had wrap from fiscal 2002 openings, which accounted for approximately $45 million of the increase in net sales. The Internet and direct marketing businesses accounted for the remaining sales increase. The increase in net sales was partially offset by the two retail stores and one factory store that were closed since the end of fiscal 2002.

Indirect. Net sales increased 44.6% to $393.7 million in fiscal 2003 from $272.3 million during fiscal 2002. The increase was primarily driven by Coach Japan, in which net sales increased $89.4 million over the prior year. We opened 14 locations in Japan since the end of fiscal 2002, which represented approximately $42 million of the increase. Our Japan locations experienced double-digit net sales gains in comparable locations over the prior year, which represented approximately $30 million of the increase. In addition, fiscal 2002 only included 11 months of Coach Japan operations, while fiscal 2003 included a full year. In the third quarter of fiscal 2002, Coach Japan acquired the distribution rights and assets of Osawa. The effect of the incremental month of operations and acquisition of Osawa locations represented approximately $19 million of the increase in net sales. These increases were partially offset by the closure of four locations since the end of fiscal 2002. This decrease was approximately $2 million. The U.S. wholesale and business-to-business divisions contributed increased sales of $21.3 million and $8.3 million, respectively. The increase in net sales was partially offset by decreased net sales in the international wholesale division of $1.3 million. The remaining change in net sales was due to increases in other indirect channels.

Gross Profit

Gross profit increased 40.1% to $677.4 million in fiscal 2003 from $483.4 million in fiscal 2002. Gross margin increased 388 basis points to 71.1% in fiscal 2003 from 67.2% in fiscal 2002. This improvement was primarily driven by a shift in product mix reflecting the continued diversification into new and successful fabric and leather collections, which contributed approximately 140 basis points. There were sourcing cost initiatives, which contributed approximately 120 basis points. In addition, there was a shift in channel mix, which contributed approximately 100 basis points. The remaining improvement was driven primarily by the consolidation of Coach Japan.

The following chart illustrates the gross margin performance we have experienced over the last 12 quarters:


	First			Second			First			Third			Fourth			Second			Total
	Quarter			Quarter			Half			Quarter			Quarter			Half			Year


	(unaudited)
Fiscal 2003		68.1	%		70.3	%		69.4	%		72.5	%		73.2	%		72.9	%		71.1	%
Fiscal 2002		64.1	%		68.6	%		66.8	%		68.8	%		66.6	%		67.6	%		67.2	%
Fiscal 2001		62.3	%		64.9	%		63.9	%		64.0	%		62.6	%		63.3	%		63.6	%


	Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 25.2% to $433.7 million in fiscal 2003 from $346.4 million in fiscal 2002. The dollar increase was caused primarily by increased operating expenses in Coach Japan and the U.S. stores. These increased expenses were due to new stores and variable expenses to support increased net sales. Fiscal 2002 selling, general and administrative expenses included 11 months of Coach Japan, while fiscal 2003 included a full year. As a percentage of net sales, selling, general and administrative expenses during fiscal 2003 were 45.5% compared to 48.1% during fiscal 2002. The decline was due to leveraging our expense base on higher sales.

Selling expenses increased by 28.6% to $294.9 million in fiscal 2003 from $229.3 million in fiscal 2002. The dollar increase in these expenses was primarily due to the operating costs associated with Coach Japan and operating costs associated with new retail and factory stores. Fiscal 2002 expenses included 11 months of Coach Japan, while fiscal 2003 included a full year. The increase in Coach Japan expenses was $34.6 million. Included in the current year costs was a $3.4 million favorable fair value adjustment for foreign currency forward contracts, compared to a $3.3 million unfavorable fair value adjustment in fiscal 2002. Domestically, Coach opened 20 new retail stores and three new factory stores since the end of fiscal 2002. The increase in the U.S. stores expense was $28.1 million. The remaining increase to selling expenses was due to increased variable expenses to support comparable store growth. As a percentage of net sales, selling expenses improved from 31.9% in fiscal 2002 to 30.9% in fiscal 2003. The decline was due to leveraging higher sales in the domestic stores division.

Advertising, marketing, and design costs increased by 10.8% to $57.3 million, or 6.0% of net sales, in fiscal 2003, from $51.7 million, or 7.2% of net sales, in fiscal 2002. The dollar increase was primarily due to increased staffing costs and increased design expenditures.

Distribution and customer service expenses increased to $29.7 million in fiscal 2003 from $26.9 million in fiscal 2002. The dollar increase in these expenses was primarily due to higher sales volumes. However, efficiency gains at the distribution and customer service facility resulted in a decline in the ratio to net sales from 3.7% in fiscal 2002 to 3.1% in fiscal 2003.

Administrative expenses increased by 34.5% to $51.8 million, or 5.5% of net sales, in fiscal 2003 from $38.5 million, or 5.4% of net sales, in fiscal 2002. The absolute dollar increase in these expenses was due to increased total compensation cost of approximately $8 million. The increase was due primarily to increased base salary and employment agreements with certain executives, which accounted for $9 million of the increase. The increase was partially offset by decreased temporary employee costs. There were higher occupancy costs of approximately $2 million associated with the full year impact of acquiring additional space in our New York City headquarters. Insurance settlement proceeds decreased approximately $2 million due to the nonrecurrence of store inventory and fixed asset recoveries relating to our World Trade Center location.

Reorganization Costs

of $3.4 million. The reorganization costs included $2.2 million for worker separation costs, $0.7 million for lease termination costs and $0.5 million for the write-down of long-lived assets to net realizable value.

Operating Income

Operating income increased 82.4% to $243.7 million in fiscal 2003 from $133.6 million in fiscal 2002. This increase resulted from higher sales, improved gross margins and the nonrecurrence of reorganization costs, partially offset by an increase in selling, general and administrative expenses.

Interest Income, Net

Net interest income was $1.1 million in fiscal 2003, as compared to an expense of $0.3 million in fiscal 2002. The dollar change was due to reduced borrowings and positive cash balances during fiscal 2003.

Income Taxes

The effective tax rate increased to 37.0% in fiscal 2003 compared with the 35.5% recorded in fiscal 2002. This increase was due in part to the closure of our facility in Lares, Puerto Rico and the elimination of related tax benefits.

Minority Interest

Minority interest, net of tax increased to $7.6 million, or 0.8% of net sales, in fiscal 2003 from $0.2 million in fiscal 2002. The dollar change was due to increased profitability in Coach Japan coupled with a stronger yen.

Net Income

Net income increased 70.8% to $146.6 million in fiscal 2003 from $85.8 million in fiscal 2002. This increase was the result of increased operating income partially offset by a higher provision for income taxes and higher minority interest.

Earnings Per Share

Diluted net income per share was $1.58 in fiscal 2003 and $0.94 in fiscal 2002, which includes the effect of the two-for-one stock split in July 2002.

Fiscal 2002 Compared to Fiscal 2001

Net Sales

Net sales increased by 19.8% to $719.4 million in fiscal 2002 from $600.5 million in fiscal 2001. These results reflect increased volume in both the direct-to-consumer and indirect channels.

Direct. Net sales increased 14.1% to $447.1 million in fiscal 2002 from $391.8 million in fiscal 2001. The increase was primarily due to new store openings. Net sales from new retail and factory stores accounted for approximately 78% or $42.9 million of the increase in net sales. Since the end of fiscal 2001, Coach opened 20 retail stores and six factory stores. In addition, comparable store sales growth for retail stores and factory stores open for one full year was 4.3% and 3.4%, which primarily represented the balance of the increase in net sales, which was partially offset by the three retail stores that were closed during fiscal 2002.

Indirect. Net sales increased 30.5% to $272.3 million in fiscal 2002 from $208.7 million in fiscal 2001. This increase was driven primarily by the consolidation of Coach Japan and comparable store sales growth in Japan. Coach Japan sales to consumers are recorded at retail, versus sales to the former distributors, which were recorded at wholesale value. The impact of Coach Japan accounted for approximately $55 million of the increase in net sales. This increase is a result of the shift to retail from wholesale pricing, which contributed approximately $37 million of the increase, with the balance of this increase resulting from increased sales volume. The international wholesale business was relatively consistent compared to the prior year. The

U.S. wholesale category accounted for approximately $8 million of the increase in net sales offset by a decrease in net sales of approximately $4 million in the business-to-business category.

Gross Profit

Gross profit increased 26.5% to $483.4 million in fiscal 2002 from $382.0 million in fiscal 2001. Gross margin increased approximately 360 basis points to 67.2% in fiscal 2002 from 63.6% in fiscal 2001. This improvement was driven by the consolidation of Coach Japan, which contributed approximately 230 basis points. There was a shift in product mix, reflecting the continued diversification into non-leather fabrications with new and successful mixed-material collections. This contributed approximately 100 basis points. In addition, gross margin benefited from the continuing impact of sourcing cost reductions, which contributed 30 basis points.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 25.6% to $346.4 million in fiscal 2002 from $275.7 million in fiscal 2001. Selling, general and administrative expenses increased to 48.1% as a percentage of net sales versus 45.9% in fiscal 2001.

Selling expenses increased by 40.9% to $229.3 million, or 31.9% of net sales, in fiscal 2002 from $162.7 million, or 27.1% of net sales, in fiscal 2001. The dollar increase in these expenses was primarily due to the operating costs associated with Coach Japan, which were borne by former distributors in prior periods. Operating costs associated with Coach Japan totaled $46.6 million in fiscal 2002. Included in these costs was a $3.3 million fair value adjustment for open foreign currency forward contracts. Also contributing to the increase was $20.1 million in operating costs associated with new retail and factory stores; increased variable costs for comparable store sales; store remodels; costs to support the additional stores; and store sales promotions to enhance sales.

Advertising, marketing, and design expenses decreased by 0.8% to $51.7 million, or 7.2% of net sales, in fiscal 2002 from $52.2 million, or 8.7% of net sales, in fiscal 2001. The dollar decrease in these expenses was primarily due to the leveraging of costs through focused media placements, as well as greater usage of postcards and direct mail.

Distribution and customer service expenses increased to $26.9 million in fiscal 2002 from $25.8 million in fiscal 2001. The dollar increase in these expenses was primarily due to higher sales volumes, partially offset by efficiency gains at the distribution and customer service facility, which resulted in a decline in the ratio to net sales from 4.3% in fiscal 2001 to 3.7% in fiscal 2002.

Administrative expenses increased to $38.5 million, or 5.4% of net sales, in fiscal 2002 from $35.0 million, or 5.8% of net sales, in fiscal 2001. The absolute dollar increase in these expenses was primarily due to increased staffing costs and consulting services related to Coach becoming a stand-alone company, offset by a business interruption proceeds gain recorded for $1.4 million in fiscal 2002 relating to our World Trade Center location.

Reorganization Costs

In the third fiscal quarter of 2002, management of Coach committed to and announced a plan to cease production at the Lares, Puerto Rico, manufacturing facility in March 2002. This reorganization involved the termination of 394 manufacturing, warehousing and management employees at the Lares facility. These actions were intended to reduce costs by the resulting transfer of production to lower cost third-party manufacturers. Coach recorded a reorganization cost of $3.4 million. The reorganization cost included $2.2 million for worker separation costs, $0.7 million for lease termination costs and $0.5 million for the write-down of long-lived assets to net realizable value. By June 28, 2003, production ceased at the Lares facility and disposition of the fixed assets and the termination of all employees had been completed.

Operating Income

Operating income increased 31.4% to $133.6 million from $101.7 million in fiscal 2001. This increase resulted from higher sales and improved gross margins, partially offset by an increase in selling, general and administrative expenses. Excluding the impact of both fiscal 2002 and fiscal 2001 reorganization costs, operating income increased 28.9% to $137.0 million, or 19.0% of net sales, in fiscal 2002 from $106.3 million, or 17.7% of net sales, in fiscal 2001.

Interest Expense, Net

Net interest expense decreased 86.8% to $0.3 million, or 0.04% of net sales, in fiscal 2002 from $2.3 million, or 0.4% of net sales, in fiscal 2001. The dollar decrease was due to reduced borrowings as a result of positive cash flow and cash on hand in fiscal 2002.

Income Taxes

The effective tax rate decreased to 35.5% in fiscal 2002 compared with the 35.6% recorded in fiscal 2001.

Minority Interest

Minority interest, net of tax was $0.2 million in fiscal 2002. There was no minority interest in fiscal 2001. Included in minority interest was the joint venture partner’s portion of the net income generated from the operations of Coach Japan.

Net Income

Net income increased 34.0% to $85.8 million from $64.0 million in fiscal 2001. This increase was the result of increased operating income and decreased interest expense partially offset by a higher provision for income taxes and minority interest.

Earnings Per Share

Diluted net income per share was $0.94 in fiscal 2002 and $0.76 in fiscal 2001, which includes the effect of the two-for-one stock split in July 2002.

FINANCIAL CONDITION

Liquidity and Capital Resources

Net cash provided from operating and investing activities was $164.5 million in fiscal 2003. Net cash provided from operating and investing activities was $52.0 million in fiscal 2002. The year-to-year improvement was primarily the result of increased earnings of $60.8 million, and increases in the tax benefit from the exercise of stock options of $27.7 million. Prior year distributor acquisition costs of $14.8 million did not recur in the current year. The decrease in deferred taxes was $13.7 million more than the prior year and the increase in inventory was $9.2 million less than the prior year. This increase was partially offset by increased capital spending of $14.3 million over the prior year.

Capital expenditures amounted to $57.1 million in fiscal 2003, compared to $42.8 million in fiscal 2002, and in both periods related primarily to new and renovated retail stores. Coach’s future capital expenditures will depend on the timing and rate of expansion of our businesses, new store openings, store renovations and international expansion opportunities.

Net cash used in financing activities was $29.3 million in fiscal 2003 as compared to cash provided of $38.3 million in fiscal 2002. The year-to-year decrease primarily resulted from an increase of $40.1 million in funds expended to repurchase common stock, while net borrowings decreased by $20.7 million, primarily under our Coach Japan revolving credit facility agreements. Proceeds received of $14.4 from the joint venture partner in the prior year did not recur in the current year. These amounts were partially offset by increased proceeds of $7.6 million from the exercise of stock options.

To provide funding for working capital for operations and general corporate purposes, on February 27, 2001, Coach, certain lenders and Fleet National Bank (“Fleet”), as primary lender and administrative agent, entered into a $100 million senior unsecured revolving credit facility(the “Fleet facility”). Indebtedness under this revolving credit facility bears interest calculated, at Coach’s option, at either a rate of LIBOR plus a margin or the prime rate announced by Fleet. This facility expires on February 27, 2004. Management has begun discussions with Fleet and the other banks to renew the facility. We expect to enter into a new agreement prior to the expiration of the current facility.

The Fleet facility contains various covenants and customary events of default. Coach has been in compliance with all covenants since its inception.

The initial LIBOR margin under the facility was 125 basis points. For the year ended June 28, 2003, the LIBOR margin was 100 basis points, reflecting an improvement in our fixed-charge coverage ratio. Under this revolving credit facility, Coach pays a commitment fee of 20 to 35 basis points based on any unused amounts. The initial commitment fee was 30 basis points. For the year ended June 28, 2003, the commitment fee was 25 basis points.

During fiscal 2003 there were no borrowings under the Fleet facility. In fiscal 2002 peak borrowings under the Fleet facility were $46.9 million. As of June 28, 2003, there were no outstanding borrowings under the Fleet facility. The facility remains available for seasonal working capital requirements or general corporate purpose.

In order to provide funding for working capital and general corporate purposes, Coach Japan has entered into credit facilities with several Japanese financial institutions. These facilities allow a maximum borrowing of 7.1 billion yen or approximately $60 million at June 28, 2003. Interest is based on the Tokyo Interbank rate plus a margin of up to 50 basis points.

These Japanese facilities contain various covenants and customary events of default. Coach Japan has been in compliance with all covenants since their inception. Coach, Inc. is not a guarantor on these facilities. These facilities include automatic renewals based on compliance with the covenants.

During fiscal 2003 the peak borrowings under the Japanese credit facilities were $43.4 million. In fiscal 2002 peak borrowings under the under the Japanese facilities were $35.4 million. As of June 28, 2003 and June 29, 2002, borrowings under the Japanese revolving credit facility agreements were $26.5 million and $34.2 million, respectively.

On September 17, 2001, the Coach Board of Directors authorized the establishment of a common stock repurchase program. Under this program, up to $80 million may be utilized to repurchase common stock through September 2004.

On January 30, 2003, the Coach Board of Directors approved an additional common stock repurchase program to acquire up to $100 million of Coach’s outstanding common stock through January 2006. The duration of Coach’s existing repurchase program was also extended through January 2006. Purchases of Coach stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases. Repurchased shares will be retired and may be reissued in the future for general corporate or other purposes. The Company may terminate or limit the stock repurchase program at any time.

During fiscal 2003, Coach repurchased 1.9 million shares of common stock at an average cost of $25.89 per share. In fiscal 2002, Coach repurchased 0.9 million shares of common stock at an average cost of $11.45 per share.

As of June 28, 2003, Coach had approximately $120 million remaining in the stock repurchase program.

In fiscal 2003 capital expenditures were $57.1 million. We opened 20 new U.S. retail stores in fiscal 2003. Capital expenditures for these new U.S. retail and factory stores were $19 million. Store expansions and renovations were $15 million. In Japan, we invested approximately $10 million for the opening of 14 new locations. In addition, spending on department store renovations and distributor locations was $6 million. The

remaining $7 million was used for information systems and corporate facilities. We financed these investments from on hand cash, internally generated cash flows and funds from our revolving credit facilities.

Coach experiences significant seasonal variations in its working capital requirements. During the first fiscal quarter Coach builds inventory for the holiday selling season, opens new retail stores and generates higher levels of trade receivables. In the second fiscal quarter its working capital requirements are reduced substantially as Coach generates consumer sales and collects wholesale accounts receivable. In fiscal 2003, Coach purchased approximately $283 million of inventory, which was funded by on hand cash, operating cash flow and by borrowings under its revolving credit facility.

Management believes that cash flow from operations and availability under the revolving credit facilities will provide adequate funds for the foreseeable working capital needs, planned capital expenditures and the common stock repurchase program. Any future acquisitions, joint ventures or other similar transactions may require additional capital, and there can be no assurance that any such capital will be available to Coach on acceptable terms or at all. Coach’s ability to fund its working capital needs, planned capital expenditures and scheduled debt payments, and to comply with all of the financial covenants under its debt agreements, depends on its future operating performance and cash flow, which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond Coach’s control.

Currently, Sara Lee is a guarantor or a party to many of Coach’s leases. Coach has agreed to make efforts to remove Sara Lee from all of its existing leases, and Sara Lee is not a guarantor or a party to any new or renewed leases. Coach has obtained a letter of credit for the benefit of Sara Lee in an amount approximately equal to the annual minimum rental payments under leases transferred to Coach by Sara Lee, but for which Sara Lee retains contingent liability. Coach is required to maintain this letter of credit until the annual minimum rental payments under the relevant leases are less than $2.0 million. The initial letter of credit had a face amount of $20.6 million, and we expect this amount to decrease annually as Coach’s guaranteed obligations are reduced. As of June 28, 2003 the letter of credit was $19.8 million. We expect that we will be required to maintain the letter of credit for at least 10 years.

The following represents the scheduled maturities of Coach’s long-term contractual obligations as of June 28, 2003.



	Payments Due by Period

	Less than		1-3		4-5		After 5
	1 year		Years		Years		Years		Total


	(amounts in millions)
Operating leases	$	47.0	$	90.5	$	79.1	$	163.0	$	379.6
Revolving credit facility		26.5		—		—		—		26.5
Long-term debt, including the current portion		0.1		0.3		0.4		2.9		3.6

Total	$	73.6	$	90.8	$	79.5	$	165.9	$	409.7

Coach does not have any off-balance-sheet financing or unconsolidated special purpose entities. Coach’s risk management policies prohibit the use of derivatives for trading purposes. The valuation of financial instruments that are marked-to-market are based upon independent third party sources.

Long-Term Debt

Coach is party to an industrial revenue bond related to its Jacksonville facility. This loan has a remaining balance of $3.6 million and bears interest at 8.77%. Principal and interest payments are made semi-annually, with the final payment due in 2014.

Tax Rate

Coach has completed the shutdown of its Lares, Puerto Rico, manufacturing facility. The shutdown eliminated the tax benefit Coach has received under Section 936 of the Internal Revenue Code. As a result, in fiscal year 2003 the effective tax rate increased to 37%.

Seasonality

Because its products are frequently given as gifts, Coach has historically realized, and expects to continue to realize, higher sales and operating income in the second quarter of its fiscal year, which includes the holiday months of November and December. We anticipate that our sales and operating profit will continue to be very seasonal.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and as such requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements. The accounting policies discussed below are considered critical because changes to certain judgments and assumptions inherent in these policies could affect the financial statements.

In certain instances, accounting principles generally accepted in the United States of America allow for the selection of alternative accounting methods. The Company’s significant policies that involve the selection of alternative methods are accounting for stock options and inventories.

Stock-Based Compensation

Two alternative methods for accounting for stock options are available: the intrinsic value method and the fair value method. The Company uses the intrinsic value method of accounting for stock options, and accordingly, no compensation expense has been recognized. Under the fair value method, the determination of the pro forma amounts involves several assumptions including option life and future volatility. See Note 1 of the Consolidated Financial Statements for expanded disclosures.

Inventories

U.S. inventories are valued at the lower of cost (determined by the first-in, first-out method) or market. Inventories in Japan are valued at the lower of cost (determined by the last-in, first-out method) or market. Inventory costs include material, conversion costs, freight and duties. Reserves for slow moving and aged merchandise are provided based on historical experience and current product demand. We evaluate the adequacy of reserves quarterly. A decrease in product demand due to changing customer tastes, buying patterns or increased competition could impact Coach’s evaluation of its slow moving and aged merchandise.

For more information on Coach’s accounting policies please refer to the Notes to Consolidated Financial Statements. Other critical accounting policies are as follows:

Valuation of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which the Company adopted effective with the beginning of fiscal 2002, the Company assesses the carrying value of its long-lived assets for possible impairment based on a review of forecasted operating cash flows and the profitability of the related business. The Company did not record any impairment losses in fiscal 2003. See Note 6 of the Consolidated Financial Statements for long-lived asset write-downs recorded in connection with the Company’s fiscal 2002 and fiscal 2001 reorganization plans.

Revenue Recognition

Sales are recognized at the point of sale, which occurs when merchandise is sold in an over-the-counter consumer transaction or, for the wholesale channels, upon shipment of merchandise, when title passes to the customer. Allowances for estimated uncollectible accounts, discounts, returns and allowances are provided when sales are recorded based upon historical experience and current trends. Royalty revenues are earned

through license agreements with manufacturers of other consumer products that incorporate the Coach brand. Revenue earned under these contracts is recognized based upon reported sales from the licensee.

New Accounting Standards

On December 31, 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company does not expense stock options; therefore the adoption of this statement will not have any impact on Coach’s consolidated financial position or results of operations. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. See Note 1 of the Consolidated Financial Statements for these expanded disclosures.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit and product warranties. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligation it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations do not apply to guarantees accounted for as derivatives. The initial recognition and measurements provisions were effective for interim or annual periods ending after December 31, 2002 (see Note 7 of the Consolidated Financial Statements). The adoption of this statement did not have a material impact on Coach’s consolidated financial position or results of operations.

In January 2003, the FASB issued FIN No. 46, “Consolidations of Variable Interest Entities”. This interpretation requires a company to consolidate variable interest entities (“VIE”) if the enterprise is a primary beneficiary (holds a majority of the variable interest) of the VIE and the VIE possesses specific characteristics. It also requires additional disclosure for parties involved with VIEs. The provisions of FIN No. 46 are effective for fiscal 2003. Since the Company does not have any unconsolidated VIEs, the adoption of FIN No. 46 did not have an impact on its financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” to amend and clarify financial accounting and reporting for derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly and clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative as discussed in SFAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company believes that the adoption of SFAS No. 149 will not have an impact on its financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company believes that the adoption of SFAS No. 150 will not have an impact on its financial position or results of operations.


Item 7A.	*Quantitative and Qualitative Disclosures about Market Risk*

The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising from adverse changes in interest rates or foreign currency exchange rates. Coach manages these exposures through operating and financing activities and, when appropriate through the use of derivative financial instruments with respect to Coach Japan. The following quantitative disclosures are based on quoted market prices obtained through independent pricing sources for the same or similar types of financial instruments, taking into consideration the underlying terms and maturities and theoretical pricing models. These quantitative disclosures do not represent the maximum possible loss or any expected loss that may occur, since actual results may differ from those estimates.

Foreign Exchange

Foreign currency exposures arise from transactions, including firm commitments and anticipated contracts, denominated in a currency other than the entity’s functional currency, and from foreign-denominated revenues translated into U.S. dollars.

Approximately 92% of Coach’s fiscal 2003 non-licensed product needs were purchased from independent manufacturers in countries other than the United States. These countries include China, Costa Rica, Italy, India, Indonesia, Malaysia, Spain, Turkey, Thailand, Taiwan, Korea, Hungary, Singapore, Great Britain and the Dominican Republic. Additionally, sales are made through international channels to third party distributors. Substantially all purchases and sales involving international parties, excluding Coach Japan are denominated in U.S. dollars and, therefore, are not hedged by Coach using any derivative instruments.

Coach is exposed to market risk from foreign currency exchange rate fluctuations with respect to Coach Japan as a result of its U.S. dollar denominated inventory purchases. The Company, through Coach Japan, enters into certain foreign currency derivative contracts, primarily foreign exchange forward contracts, to manage these risks. These transactions are in accordance with Company risk management policies. Coach does not enter into derivative transactions for speculative or trading purposes. Prior to the formation of Coach Japan, the Company had not used foreign currency derivative instruments to hedge forecasted inventory purchases. In addition, the Company is exposed to foreign currency exchange rate fluctuations related to the euro-denominated expenses of its Italian sourcing office. During the third quarter of fiscal 2003, the Company began a program to enter into certain foreign currency derivative contracts, primarily foreign exchange forward contracts, in order to manage these fluctuations.

The foreign currency contracts entered into by the Company have durations no greater than 12 months. The fair values of open foreign currency derivatives included in accrued liabilities at June 28, 2003 and June 29, 2002 were $0 and $3.3 million, respectively. The fair value of open foreign currency derivatives included in current assets was $0.4 million and $0 at June 28, 2003 and June 29, 2002, respectively. For fiscal 2003, open foreign currency forward contracts not designated as hedges with a notional amount of $33.2 million were fair valued and resulted in a pretax non cash benefit to earnings of $3.4 million. At June 29, 2002, open foreign currency forward contracts not designated as hedges with a notional amount of $33.2 million were fair valued and resulted in a pretax non cash charge to earnings of $3.3 million. The fair value adjustment is included as a component of selling, general and administrative expenses. Also, as of June 28, 2003, open foreign currency forward contracts designated as hedges with a notional amount of $39.3 million were fair valued resulting in an increase to equity as a benefit to other comprehensive income of $0.2 million, net of taxes. There were no foreign currency forward contracts entered into by the Company as of June 30, 2001.

Interest Rate

Coach faces minimal interest rate risk exposure in relation to its outstanding debt of $30.0 million at June 28, 2003. Of this amount $26.5 million, under revolving credit facilities, is subject to interest rate fluctuations. A hypothetical 1% change in the interest rate applied to the fair value of debt would not have a material impact on earnings or cash flows of Coach.


Item 8.	*Financial Statements and Supplementary Data*

See the “Index to Financial Statements”, which is located on page 36 of this report.


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

None


Item 9A.	*Controls and Procedures*

Based on the evaluation of the Company’s disclosure controls and procedures as of June 28, 2003, each of Lew Frankfort, the Chief Executive Officer of the Company, and Michael F. Devine, III, the Chief Financial Officer of the Company, has concluded that the Company’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

Based on an evaluation by management, with the participation of Messrs. Frankfort and Devine, there was no change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably like to materially affect, the Company’s internal control over financial reporting.

PART III


Item 10.	*Directors and Executive Officers of the Registrant*

The information set forth in the Proxy Statement for the 2003 annual meeting of stockholders is incorporated herein by reference. The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.


Item 11.	*Executive Compensation*

The information set forth in the Proxy Statement for the 2003 annual meeting of stockholders is incorporated herein by reference. The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by the Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*


	(a) Security ownership of management set forth in the Proxy Statement for the 2003 annual meeting of stockholders is incorporated herein by reference.

	(b) There are no arrangements known to the registrant that may at a subsequent date result in a change in control of the registrant.


Item 13.	*Certain Relationships and Related Transactions*

PART IV


Item 15.	*Exhibits, Financial Statement Schedules and Reports on Form 8-K*


	(a) Financial Statements and Financial Statement Schedule. See the “Index to Financial Statements” which is located on page 36 of this report.

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

	(c) Reports on Form 8-K. See the exhibit index which is included herein.

SIGNATURES

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


	COACH, INC.


	By:	/s/ LEW FRANKFORT



	Name: Lew Frankfort
	Title: Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities 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 September 17, 2003.


Signature		Title

/s/ LEW FRANKFORT Lew Frankfort		Chairman, Chief Executive Officer and Director
/s/ KEITH MONDA Keith Monda		President, Chief Operating Officer and Director
/s/ MICHAEL F. DEVINE, III Michael F. Devine, III		Senior Vice President and Chief Financial Officer (as principal financial officer and principal accounting officer of Coach)
/s/ JOSEPH ELLIS Joseph Ellis		Director
/s/ SALLY FRAME KASAKS Sally Frame Kasaks		Director
/s/ GARY LOVEMAN Gary Loveman		Director
/s/ IRENE MILLER Irene Miller		Director
/s/ MICHAEL MURPHY Michael Murphy		Director

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FINANCIAL STATEMENTS

For the Fiscal Year Ended June 28, 2003

COACH, INC.

New York, New York 10001

INDEX TO FINANCIAL STATEMENTS


	Page
	Number

Financial Statements
Independent Auditors’ Report		37
Report of Independent Public Accountants		38
Consolidated Balance Sheets — At June 28, 2003 and June 29, 2002		39
Consolidated Statements of Income — For Fiscal Years Ended June 28, 2003, June 29, 2002 and June 30, 2001		40
Consolidated Statement of Stockholders’ Equity — For Fiscal Years Ended June 28, 2003, June 29, 2002 and June 30, 2001		41
Consolidated Statements of Cash Flows — For Fiscal Years Ended June 28, 2003, June 29, 2002 and June 30, 2001		42
Notes to Consolidated Financial Statements		43
Market and Dividend Information		67
Financial Statement Schedules for the years ended June 28, 2003, June 29, 2002 and June 30, 2001:
Schedule II — Valuation and Qualifying Accounts		68

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of Coach, Inc.:

We have audited the accompanying consolidated balance sheets of Coach, Inc. and subsidiaries (the “Company”) as of June 28, 2003 and June 29, 2002 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the two years in the period ended June 28, 2003. Our audits also included the financial statement schedule for each of the two years in the period ended June 28, 2003 listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the 2003 and 2002 financial statements and financial statement schedules based on our audits. The financial statements and financial statement schedule as of June 30, 2001 and for the year then ended, before the revisions discussed in Notes 1, 13 and 20 to the financial statements, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that such 2001 financial statement schedule, when considered in relation to the 2001 basic financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein, in their report dated July 26, 2001 (except with respect to the matter discussed in Note 16, as to which the date is July 31, 2001. Such information is included as a component of Note 11 for the year ended June 28, 2003).

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

In our opinion, the 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 28, 2003 and June 29, 2002 and the results of their operations and their cash flows for each of the two years in the period ended June 28, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule for each of the two years ended June 28, 2003 when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed above, the financial statements of the Company as of June 30, 2001 and for the year then ended were audited by other auditors who have ceased operations. As described in Note 1, those financial statements have been revised to give retroactive effect to the change in the method of accounting for consideration provided to distributors or retailers to conform to Emerging Issues Task Force of the Financial Accounting Standards Board Issue 00-25, as codified by Issue 01-09 and the two-for-one split of the Company’s common stock distributed on July 3, 2002. These financial statements have also been revised to provide the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, as described in Note 13, and the proforma disclosure of earnings per share on the 2001 consolidated statement of income related to the two-for-one split of the Company’s common stock described in Note 20. We audited the reclassification described in Note 1, the disclosure in Note 13 and the proforma disclosure of earnings per share on the 2001 consolidated statement of income that revised the 2001 financial statements. In our opinion, such revisions are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the fiscal 2001 financial statements of the Company other than with respect to such revisions and, accordingly, we do not express an opinion or any other form of assurance on the fiscal 2001 financial statements taken as a whole.


	/s/ Deloitte & Touche LLP

New York, New York

July 28, 2003 (August 7,

2003 as to Note 20)

The following report is a copy of a previously issued Report of Independent Public Accountants. This report relates to prior years financial statements. This report has not been reissued by Arthur Andersen LLP.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Coach, Inc.:

We have audited the accompanying consolidated balance sheets of Coach, Inc. (a Maryland corporation) as of June 30, 2001 and July 1, 2000, and the related consolidated statements of income, stockholders’ equity and cash flows for the fiscal years ended June 30, 2001, July 1, 2000 and July 3, 1999. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Coach, Inc. as of June 30, 2001 and July 1, 2000 and the results of its operations and its cash flows for the fiscal years ended June 30, 2001, July 1, 2000 and July 3, 1999, in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.


	/s/ Arthur Andersen LLP

New York, New York

July 26, 2001 (except

with respect to the

matter discussed in

Note 16, as to which the

date is July 31, 2001)

COACH, INC.

CONSOLIDATED BALANCE SHEETS


		June 28,			June 29,
		2003			2002


		(amounts in thousands
		except share data)
ASSETS
Cash and cash equivalents		$	229,176		$	93,962
Trade accounts receivable, less allowances of $6,095 and $4,176, respectively			35,470			30,925
Inventories			143,807			136,404
Deferred income taxes			21,264			14,123
Prepaid expenses and other current assets			18,821			12,174

Total current assets			448,538			287,588
Property and equipment, net			118,547			90,589
Deferred income taxes			9,112			25,031
Goodwill			13,009			13,006
Indefinite life intangibles			9,389			9,389
Other noncurrent assets			19,057			14,968

Total assets		$	617,652		$	440,571

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	26,637		$	25,819
Accrued liabilities			108,273			99,365
Revolving credit facility			26,471			34,169
Current portion of long-term debt			80			75

Total current liabilities			161,461			159,428
Long-term debt			3,535			3,615
Other liabilities			3,572			2,625
Minority interest			22,155			14,547

Total liabilities			190,723			180,215
Commitments and contingencies (Note 7)
Stockholders’ equity
	Preferred stock: (authorized 25,000,000 shares; $0.01 par value) none issued		—			—
	Common stock: (authorized 250,000,000 shares; $0.01 par value) issued and outstanding — 91,504,628 and 89,453,722 shares, respectively		915			895
	Capital in excess of par value		215,399			155,403
	Retained earnings		217,622			105,509
	Accumulated other comprehensive income (loss)		(1,359	)		215
	Unearned compensation		(5,648	)		(1,666	)

Total stockholders’ equity			426,929			260,356

Total liabilities and stockholders’ equity		$	617,652		$	440,571

See accompanying Notes to the Consolidated Financial Statements.

COACH, INC.

CONSOLIDATED STATEMENTS OF INCOME



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001


		(amounts in thousands, except per share data)
Net sales		$	953,226		$	719,403		$	600,491
Cost of sales			275,797			236,041			218,507

Gross profit			677,429			483,362			381,984
Selling, general and administrative expenses			433,667			346,354			275,727
Reorganization costs			—			3,373			4,569

Operating income			243,762			133,635			101,688
Interest income			(1,754	)		(825	)		(305	)
Interest expense			695			1,124			2,563

Income before provision for income taxes and minority interest			244,821			133,336			99,430
Provision for income taxes			90,585			47,325			35,400
Minority interest, net of tax			7,608			184			—

Net income		$	146,628		$	85,827		$	64,030

Net income per share
	Basic	$	1.63		$	0.97		$	0.78

	Diluted	$	1.58		$	0.94		$	0.76

Shares used in computing net income per share
	Basic		89,779			88,048			81,860

	Diluted		92,921			90,952			84,312

Proforma disclosure for the impact of the two-for-one stock split (See Subsequent Event, Note 20)
Proforma net income per share
	Basic	$	0.82		$	0.49		$	0.39

	Diluted	$	0.79		$	0.47		$	0.38

Proforma shares used in computing net income per share
	Basic		179,558			176,096			163,719

	Diluted		185,842			181,904			168,624

See accompanying Notes to the Consolidated Financial Statements.

COACH, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


																Accumulated
		Total			Preferred		Common			Capital in						Other									Shares of
		Stockholders’			Stockholders’		Stockholders’			Excess of			Retained			Comprehensive			Unearned			Comprehensive			Common
		Equity			Equity		Equity			Par			Earnings			Income (loss)			Compensation			Income (loss)			Stock


		(amounts in thousands)
Balances at July 1, 2000		$	212,808		$	—	$	700		$	—		$	212,403		$	(295	)	$	—						70,052
	Net income		64,030			—		—			—			64,030			—			—		$	64,030
	Capitalization of receivable from Sara Lee		(63,783	)		—		—			—			(63,783	)		—			—
	Assumption of long-term debt		(190,000	)		—		—			—			(190,000	)		—			—
	Issuance of common stock, net		122,000			—		170			121,830			—			—			—						16,974
	Exercise of stock options		2,046			—		4			2,042			—			—			—						346
	Tax benefit from exercise of stock options		1,405			—		—			1,405			—			—			—
	Translation adjustments		338			—		—			—			—			338			—			338
	Minimum pension liability		(530	)		—		—			—			—			(530	)		—			(530	)

	Comprehensive income																					$	63,838

Balances at June 30, 2001		$	148,314		$	—	$	874		$	125,277		$	22,650		$	(487	)	$	—						87,372
	Net income		85,827			—		—			—			85,827			—			—		$	85,827
	Shares issued for stock options and employee benefit plans		20,802			—		29			20,773			—			—			—						2,942
	Tax benefit from exercise of stock options		13,793			—		—			13,793			—			—			—
	Repurchase of common stock		(9,848	)		—		(9	)		(6,871	)		(2,968	)		—			—						(860	)
	Grant of restricted stock awards		—			—		1			2,431			—			—			(2,432	)					—
	Amortization of restricted stock awards		766			—		—			—			—			—			766
	Translation adjustments		396			—		—			—			—			396			—			396
	Minimum pension liability		306			—		—			—			—			306			—			306

	Comprehensive income																					$	86,529

Balances at June 29, 2002		$	260,356		$	—	$	895		$	155,403		$	105,509		$	215		$	(1,666	)					89,454
	Net income		146,628			—		—			—			146,628			—			—			146,628
	Shares issued for stock options and employee benefit plans		28,395			—		39			28,356			—			—			—						3,950
	Tax benefit from exercise of stock options		41,503			—		—			41,503			—			—			—
	Repurchase of common stock		(49,947	)		—		(19	)		(15,413	)		(34,515	)		—			—						(1,929	)
	Grant of restricted stock awards		—			—		—			5,550			—			—			(5,550	)
	Amortization of restricted stock awards		1,568			—		—			—			—			—			1,568						30
	Unrealized gain on cash flow hedging derivatives, net		168			—		—			—			—			168						168
	Translation adjustments		(348	)		—		—			—			—			(348	)		—			(348	)
	Minimum pension liability		(1,394	)		—		—			—			—			(1,394	)		—			(1,394	)

	Comprehensive income																					$	145,054

Balances at June 28, 2003		$	426,929		$	—	$	915		$	215,399		$	217,622		$	(1,359	)	$	(5,648	)					91,505

See accompanying Notes to the Consolidated Financial Statements.

COACH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



			Fiscal Year Ended

			June 28,			June 29,			June 30,
			2003			2002			2001


			(amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income		$	146,628		$	85,827		$	64,030
	Adjustments for non cash charges included in net income:
	Depreciation and amortization			30,231			25,494			24,131
	Reorganization costs			—			3,373			4,569
	Tax benefit from exercise of stock options			41,503			13,793			1,405
	Decrease (increase) in deferred taxes			8,778			(4,969	)		(5,797	)
	Other non cash credits, net			6,639			1,666			(192	)
	Changes in current assets and liabilities:
		Increase in trade accounts receivable		(4,545	)		(5,855	)		(5,041	)
		Decrease in receivable from Sara Lee		—			—			31,437
		Increase in inventories		(7,403	)		(16,638	)		(3,065	)
		Increase in other assets and liabilities		(9,933	)		(12,843	)		(357	)
		Increase in accounts payable		818			8,671			6,447
		Increase in accrued liabilities		8,908			9,418			6,762

	Net cash from operating activities			221,624			107,937			124,329

CASH FLOWS USED IN INVESTMENT ACTIVITIES
	Purchases of property and equipment			(57,112	)		(42,764	)		(31,868	)
	Acquisitions of distributors, net of cash acquired			—			(14,805	)		—
	Proceeds from dispositions of property and equipment			27			1,592			799

	Net cash used in investment activities			(57,085	)		(55,977	)		(31,069	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Partner contribution to joint venture			—			14,363			—
	Issuance of common stock, net			—			—			122,000
	Repurchase of common stock			(49,947	)		(9,848	)		—
	Repayment of long-term debt			(75	)		(45	)		(190,040	)
	Borrowings from Sara Lee			—			—			451,534
	Repayments to Sara Lee			—			—			(482,971	)
	Borrowings on Revolving Credit Facility			63,164			200,006			68,300
	Repayments of Revolving Credit Facility			(70,862	)		(186,967	)		(60,600	)
	Proceeds from exercise of stock options			28,395			20,802			2,046

	Net cash (used in) from financing activities			(29,325	)		38,311			(89,731	)

Increase in cash and equivalents				135,214			90,271			3,529
Cash and equivalents at beginning of period				93,962			3,691			162

Cash and equivalents at end of period			$	229,176		$	93,962		$	3,691

Cash paid for income taxes			$	56,083		$	33,263		$	35,664

Cash paid for interest			$	679		$	786		$	2,349

See accompanying Notes to the Consolidated Financial Statements.

COACH, INC.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

1. Presentation, Organization and Significant Accounting Policies


	*Basis of Presentation and Organization*

Coach (the “Company”) was formed in 1941 and was acquired by Sara Lee Corporation in July 1985. On June 1, 2000, Coach was incorporated under the laws of the state of Maryland. Pursuant to the Separation Agreements, Sara Lee transferred to Coach the assets and liabilities that related to the Coach business on October 2, 2000 (the “Separation Date”).

In October 2000, Coach was listed on the New York Stock Exchange and sold 16,974 shares of its common stock, representing 19.5% of the outstanding shares in an initial public offering. In April 2001, Sara Lee completed a distribution of its ownership in Coach via an exchange offer.

Coach designs, produces and markets high-quality, modern American classic accessories. Coach products are manufactured primarily by third-party suppliers. Coach markets products via Company operated retail stores and factory stores, direct mail catalogs, an e-commerce website, and via selected upscale department and specialty retailer locations and international department, retail and duty-free shop locations.

The consolidated financial statements of Coach reflect the historical results of operations and cash flows of the Coach leather goods and accessories business of Sara Lee during each respective period until the Separation Date. The historical financial statements have been prepared using Sara Lee’s historical basis in the assets and liabilities and the results of Coach’s business. The financial information included herein may not reflect the consolidated financial position, operating results, changes in stockholders’ equity and cash flows of Coach in the future, or what they would have been had Coach been a separate, stand-alone entity during Sara Lee’s ownership. On the Separation Date, Coach began operating as a separate legal entity.

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 28, 2003 (“fiscal 2003”), June 29, 2002 (“fiscal 2002”) and June 30, 2001 (“fiscal 2001”) were 52-week periods.


	*Use of Estimates*

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities; the disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. The level of uncertainty in estimates and assumptions increases with the length of time the underlying transactions are completed. Actual results could differ from estimates in amounts that may be material to the financial statements.


	*Principles of Consolidation*

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

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)


	*Cash and Cash Equivalents*

Cash and cash equivalents consist of cash balances and highly liquid investments with a maturity of less than 90 days.


	*Concentration of Credit Risk*

Financial instruments which potentially expose Coach to concentration of credit risk, consist primarily of cash investments and accounts receivable. The Company places its cash investments with high-credit quality financial institutions and currently invests primarily in bank money market funds placed with major banks and financial institutions. Accounts receivable is generally diversified due to the number of entities comprising Coach’s customer base and their dispersion across many geographical regions. The Company’s allowance for bad debts, returns and allowances was $6,095 at June 28, 2003 and $4,176 at June 29, 2002. The Company believes no significant concentration of credit risk exists with respect to these cash investments and accounts receivable.


	*Inventories*

Inventories consist primarily of finished goods. U.S. inventories are valued at the lower of cost (determined by the first-in, first-out method (“FIFO”)) or market. Inventories in Japan are valued at the lower of cost (determined by the last-in, first-out method (“LIFO”)) or market. At the end of fiscal 2003 inventories recorded at LIFO were $650 higher than if they were valued at FIFO. In fiscal 2002 inventories recorded at LIFO were $525 lower than if they were valued at FIFO. Inventories valued under LIFO amounted to $23,484 and $27,555 in fiscal 2003 and 2002, respectively. Inventory costs include material, conversion costs, freight and duties.


	*Property and Equipment*

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Machinery and equipment are depreciated over lives of five to seven years and furniture and fixtures are depreciated over lives of three to five 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. Upon the disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts.


	*Goodwill and Other Intangible Assets*

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, the Company’s goodwill account is no longer being amortized but rather is being evaluated for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company adopted SFAS No. 142 effective with the beginning of fiscal 2002. Based on this annual evaluation the Company has concluded that there is no impairment of its goodwill and indefinite life intangible assets.


	*Valuation of Long-Lived Assets*

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which the Company adopted effective with the beginning of fiscal 2002, the Company assesses the carrying value of its long-lived assets for possible impairment based on a review of forecasted operating cash flows and the profitability of the related business. The Company did not record any impairment losses in fiscal 2003. See

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

Note 6 of the Consolidated Financial Statements for long-lived asset write-downs recorded in connection with the Company’s fiscal 2002 and fiscal 2001 reorganization plans.


	*Minority Interest in Subsidiary*

Minority interest in the statements of income represents Sumitomo Corporation’s share of the equity in Coach Japan. The minority interest in the consolidated balance sheets reflects the original investment by Sumitomo in that consolidated subsidiary, along with their proportional share of the cumulative income.


	*Revenue Recognition*

Sales are recognized at the point of sale, which occurs when merchandise is sold in an over-the-counter consumer transaction or, for the wholesale channels, upon shipment of merchandise, when title passes to the customer. Allowances for estimated uncollectible accounts, discounts, returns and allowances are provided when sales are recorded. Royalty revenues are earned through license agreements with manufacturers of other consumer products that incorporate the Coach brand. Revenue earned under these contracts is recognized based upon reported sales from the licensee.


	*Advertising*

Advertising costs, which include media and production, totaled $19,885, $17,279, $16,445 for fiscal year 2003, 2002 and 2001, respectively, and are included in selling, general and administrative expenses. Advertising costs are expensed when the advertising first appears.


	*Shipping and Handling*

Shipping and handling costs incurred were $11,290, $10,694, $10,087 for fiscal year 2003, 2002 and 2001, respectively and are included in selling, general and administrative expenses.


	*Income Taxes*

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, a deferred tax liability or asset is recognized for the estimated future tax consequences of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases.

For the periods prior to April 5, 2001, where Sara Lee owned greater than 80% of the Company’s outstanding capital stock, the Company’s operating results were included in Sara Lee’s consolidated U.S. and state income tax returns and in the tax returns of certain Sara Lee foreign operations. During these periods the provision for income taxes in the Company’s financial statements was prepared as if the Company were a stand-alone entity and filed separate tax returns.


	*Stock-Based Compensation*

The Company has adopted SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”, which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation plans; however, it also allows an entity to continue to measure compensation expense for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Under the fair value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic value based

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

method, compensation expense is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. The Company has elected to account for its stock-based employee compensation plans under APB Opinion No. 25 with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting defined in SFAS No. 123 had been applied.

The pro forma disclosure of net income and net income per share as if the fair value based method of accounting defined in the SFAS No. 123 had been applied is as follows:



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001

Net income, as reported		$	146,628		$	85,827		$	64,030
Deduct:
Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects			(15,947	)		(10,227	)		(5,146	)

Proforma net income		$	130,681		$	75,600		$	58,884

Earnings per share:
	Basic — as reported	$	1.63		$	0.97		$	0.78

	Basic — proforma	$	1.46		$	0.86		$	0.72

	Diluted — as reported	$	1.58		$	0.94		$	0.76

	Diluted — proforma	$	1.41		$	0.83		$	0.70


	*Fair Value of Financial Instruments*

The fair value of the revolving credit facility at June 28, 2003 and June 29, 2002 approximated its carrying value due to its floating interest rates. The Company has evaluated its industrial revenue bond and believes, based on the interest rate, related term and maturity, that the fair value of such instrument approximates its carrying amount. As of June 28, 2003 and June 29, 2002, the carrying values of cash and cash equivalents, trade accounts receivable, accounts payable, and accrued liabilities approximated their values due to the short-term maturities of these accounts.

Coach, through Coach Japan, enters into foreign currency forward contracts that hedge certain U.S. dollar denominated inventory risk, that have been designated for hedge accounting. The fair value of these contracts are recognized in other comprehensive income. The fair value of the foreign currency derivative is based on its market value as determined by an independent party. However, considerable judgment is required in developing estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that Coach could settle in a current market exchange. The use of different market assumptions or methodologies could affect the estimated fair value.


	*Foreign Currency*

The functional currency of the Company’s foreign operations is 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

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity. These gains and losses were not significant for fiscal 2003, 2002 and 2001.


	*Net Income Per Share*

Basic net income per share was calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted net income per share was calculated similarly but includes potential dilution from the exercise of stock options and stock awards.


	*Stock Split*

In May 2002, Coach’s Board of Directors authorized a two-for-one split of the Company’s common stock, to be effected in the form of a special dividend of one share of the Company’s common stock for each share outstanding. The additional shares issued as a result of the stock split were distributed on July 3, 2002 to stockholders of record on June 19, 2002. The effect of the stock split on earnings per share was retroactively applied to all periods presented. See Note 20 for Subsequent Event.


	*Recent Accounting Pronouncements*

In April 2001, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached a final consensus on Issue 00-25, “Accounting for Consideration from a Vendor to a Retailer in Connection with the Purchase or Promotion of the Vendor’s Products.” In November 2001, EITF 00-25 was codified in EITF 01-09. This issue addresses the recognition, measurement and income statement classification of consideration provided to distributors or retailers. Previously, the Company had recorded these activities within selling, general and administrative expenses. The Company adopted EITF 00-25 in the first quarter of fiscal 2002. In connection with this adoption, prior period amounts have been reclassified to conform with the current year’s presentation. The effect of the adoption resulted in a reclassification from selling, general and administrative expense to a reduction in net sales of $15,588 for fiscal 2001.

On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company does not intend to expense stock options; therefore the adoption of this statement will not have any impact on Coach’s consolidated financial position or results of operations. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. See above, “Stock-Based Compensation,” for these expanded disclosures.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 elaborates on the existing disclosures requirements for most guarantees, including loan guarantees such as standby letters of credit and product warranties. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligation it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations do not apply to guarantees accounted for as derivatives. The Company adopted this interpretation in second quarter of fiscal 2003. The adoption of this statement did not have a material impact on Coach’s consolidated financial position or results of operations.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

In January 2003, the FASB issued FIN No. 46 “Consolidations of Variable Interest Entities”. This interpretation requires a company to consolidate variable interest entities (“VIE”) if the enterprise is a primary beneficiary (holds a majority of the variable interest) of the VIE and the VIE possesses specific characteristics. It also requires additional disclosure for parties involved with VIEs. The provisions of FIN No. 46 are effective for fiscal 2003. Since the Company does not have any unconsolidated VIEs, the adoption of FIN No. 46 did not have an impact on its financial position or results of operations.

2. Balance Sheet Components

The components of certain balance sheet accounts are as follows:


		June 28, 2003			June 29, 2002

Property and Equipment
	Machinery and equipment	$	10,789		$	9,069
	Furniture and fixtures		101,137			82,279
	Leasehold improvements		153,442			123,279
	Construction in progress		26,470			22,933
	Less: accumulated depreciation		(173,291	)		(146,971	)

	Total property and equipment, net	$	118,547		$	90,589

Accrued Liabilities
	Income and other taxes	$	8,335		$	13,016
	Payroll and benefits		41,173			34,251
	Rent, utilities, insurance, interest and administrative		18,458			15,238
	Accrued operating expenses		40,307			36,860

	Total accrued liabilities	$	108,273		$	99,365

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

3. 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 28, 2003						June 29, 2002						June 30, 2001

		Amount			Percent			Amount			Percent			Amount			Percent

Income (loss) before provision for income taxes and minority interest:
	United States	$	224,380			91.7	%	$	125,273			94.0	%	$	92,163			92.7	%
	Puerto Rico		—			—			7,831			5.9			7,847			7.9
	Foreign		20,441			8.3			232			0.1			(580	)		(0.6	)

Total income before provision for income taxes and minority interest:		$	244,821			100.0	%	$	133,336			100.0	%	$	99,430			100.0	%

Tax expense at U.S. statutory rate:		$	85,687			35.0	%	$	46,668			35.0	%	$	34,801			35.0	%
State taxes, net of federal benefit			10,358			4.2			3,894			2.9			3,512			3.5
Difference between U.S. and Puerto Rico tax rates			—			0.0			(1,411	)		(1.1	)		(2,353	)		(2.4	)
Nontaxable foreign sourced income			(2,069	)		(0.8	)		(300	)		(0.2	)		(1,200	)		(1.2	)
Other, net			(3,391	)		(1.3	)		(1,526	)		(1.0	)		640			0.7

Taxes at effective worldwide rates		$	90,585			37.0	%	$	47,325			35.5	%	$	35,400			35.6	%

Current and deferred tax provisions (benefits) were:



	Fiscal Year Ended


	June 28, 2003					June 29, 2002					June 30, 2001

	Current		Deferred			Current		Deferred			Current		Deferred

Federal	$	67,432	$	1,728		$	41,497	$	245		$	34,686	$	(4,821	)
Puerto Rico		31		(1,182	)		50		12			267		86
Foreign		402		6,239			5,089		(5,559	)		—		(221	)
State		13,942		1,993			5,658		333			6,244		(841	)

Total current and deferred tax provisions (benefits)	$	81,807	$	8,778		$	52,294	$	(4,969	)	$	41,197	$	(5,797	)

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

The following are the components of the deferred tax provisions (benefits) occurring as a result of transactions being reported in different years for financial and tax reporting:



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001

Deferred tax provisions (benefits)
	Depreciation	$	2,269		$	(261	)	$	(2,909	)
	Employee benefits		1,048			5,346			(314	)
	Advertising accruals		348			—			(240	)
	Non-deductible reserves		(2,025	)		(65	)		113
	Other, net		7,138			(9,989	)		(2,447	)

	Total deferred tax provisions (benefits)	$	8,778		$	(4,969	)	$	(5,797	)

The deferred tax assets at the respective year-ends were as follows:


		June 28,		June 29,		June 30,
		2003		2002		2001

Deferred tax assets
	Reserves not deductible until paid	$	8,193	$	3,351	$	3,224
	Pension and other employee benefits		2,269		4,165		9,510
	Property, plant and equipment		11,906		10,549		10,288
	Other		8,008		21,089		9,960

	Total deferred tax assets	$	30,376	$	39,154	$	32,982

At June 28, 2003, foreign gross tax loss carryforwards totaled approximately $3,400. These loss carryforwards have no expiration. Coach believes that it is more likely than not that the deferred tax asset associated with these losses will be realized.

4. Debt


	*Revolving Credit Facilities*

Prior to February 27, 2001, Coach participated in a cash concentration system requiring that cash balances be deposited with Sara Lee, which were netted against borrowings/billings provided by Sara Lee.

On July 2, 2000, Coach entered into a revolving credit facility with Sara Lee. The maximum borrowing permitted under this facility was $75,000. Interest accrued at U.S. dollar LIBOR plus 30 basis points. Any receivable balance from Sara Lee under this facility earned interest at U.S. dollar LIBOR minus 20 basis points. The credit facility contained certain covenants, all of which were complied with. This facility was repaid and terminated on February 27, 2001.

During October 2000, Coach completed an equity restructuring, which included the assumption of $190,000 of long-term debt payable to a subsidiary of Sara Lee. This long-term debt had an original maturity date of September 30, 2002, accruing interest at U.S. dollar LIBOR plus 30 basis points. The note contained certain covenants, consistent with the above mentioned revolving credit facility. In fiscal 2001, this loan was fully paid off by the Company from the net proceeds of the initial public offering, redeeming the short-term investments with Sara Lee and drawing down on the Sara Lee revolving credit facility.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

To provide funding for working capital for operations and general corporate purposes, on February 27, 2001, Coach, certain lenders and Fleet National Bank (“Fleet”), as primary lender and administrative agent, entered into a $100,000 senior unsecured three-year revolving credit facility (the “Fleet facility”). This facility expires on February 27, 2004. Management has begun discussions with Fleet and the other banks to renew the facility. Coach expects to enter into a new agreement prior to the expiration of the current facility.

The initial LIBOR margin under the Fleet facility was 125 basis points. For the year ended June 28, 2003, the LIBOR margin was 100 basis points reflecting an improvement in our fixed-charge coverage ratio. Under this revolving credit facility, Coach pays a commitment fee of 20 to 35 basis points based on any unused amounts. The initial commitment fee was 30 basis points. For the year ended June 28, 2003, the commitment fee was 25 basis points. This credit facility may be prepaid without penalty or premium.

During fiscal 2003, there were no borrowings under the Fleet facility. During fiscal 2002, peak borrowings under the Fleet facility were $46,850, which was repaid from operating cash flow by June 29, 2002. As of June 28, 2003, there were no outstanding borrowings under the Fleet facility. This facility remains available for seasonal working capital requirements or general corporate purposes.

The Fleet facility prohibits Coach from paying dividends while the credit facility is in place, with certain exceptions. Any future determination to pay cash dividends will be at the discretion of Coach’s Board of Directors and will be dependent upon Coach’s financial condition, operating results, capital requirements and such other factors as the Board of Directors deems relevant.

The Fleet facility contains various covenants and customary events of default. The Company has been in compliance with all covenants since its inception.

In order to provide funding for working capital and general corporate purposes, Coach Japan has entered into credit facilities with several Japanese financial institutions. These facilities allow a maximum borrowing of 7.1 billion yen or approximately $60,000 at June 28, 2003. Interest is based on the Tokyo Interbank rate plus a margin of up to 50 basis points.

These facilities contain various covenants and customary events of default. Coach Japan has been in compliance with all covenants since their inception. Coach, Inc. is not a guarantor on any of these facilities. These facilities include automatic renewals based on compliance with the covenants.

During fiscal 2003, the peak borrowings under the Japanese credit facilities were $43,443. During fiscal 2002, the peak borrowings under the Japanese credit facilities were $35,426. As of June 28, 2003, the outstanding borrowings under the Japanese facilities were $26,471.

Long-Term Debt

Coach is party to an Industrial Revenue Bond related to its Jacksonville facility. This loan has a remaining balance of $3,615 and bears interest at 8.77%. Principal and interest payments are made semi- annually, with the final payment due in 2014.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

Future principal payments under the Industrial Revenue Bond are as follows:


Fiscal Year	Amount

2004	$	80
2005		115
2006		150
2007		170
2008		235
Subsequent to 2008		2,865

Total	$	3,615

5. Leases

Coach leases certain office, distribution, retail and manufacturing facilities. The lease agreements, which expire at various dates through 2019, are subject, in some cases, to renewal options and provide for the payment of taxes, insurance and maintenance. Certain leases contain escalation clauses resulting from the pass-through of increases in operating costs, property taxes and the effect on costs from changes in consumer price indices. Certain rentals are also contingent upon factors such as sales. Rent-free periods and other incentives granted under certain leases and scheduled rent increases are charged to rent expense on a straight-line basis over the related terms of such leases. Contingent rentals are recognized when the achievement of the target (i.e. sales levels), which triggers the related payment, is considered probable. Rent expense for the Company’s operating leases consisted of the following:



	Fiscal Year Ended

	June 28,		June 29,		June 30,
	2003		2002		2001

Minimum rentals	$	47,098	$	36,965	$	28,929
Contingent rentals		4,885		3,292		2,902

Total rent expense	$	51,983	$	40,257	$	31,831

Future minimum rental payments under noncancelable operating leases are as follows:


Fiscal Year	Amount

2004	$	46,996
2005		46,183
2006		44,395
2007		41,187
2008		37,841
Subsequent to 2008		163,036

Total minimum future rental payments	$	379,638

Certain operating leases provide for renewal for periods of three to five years at their fair rental value at the time of renewal. In the normal course of business, operating leases are generally renewed or replaced by new leases.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

6. Reorganization Costs

In March 2002, Coach ceased production at its Lares, Puerto Rico, manufacturing facility. This reorganization involved the termination of 394 manufacturing, warehousing and management employees and the disposition of the fixed assets at the Lares, Puerto Rico, facility. These actions reduced costs by the resulting transfer of production to lower cost third-party manufacturers. Coach recorded reorganization costs of $3,373 in fiscal 2002. The reorganization costs included $2,229 for worker separation costs, $659 for lease termination costs and $485 for the write-down of long-lived assets to net realizable value. The composition of the reorganization reserve, included in accrued liabilities, is set forth in the following table.


	Provision Recorded		Write-down of
	in Fiscal 2002		Long-Lived						Reorganization					Reorganization
	Reorganization		Assets to Net			Cash			Reserves as of		Cash			Reserves as of
	Reserves		Realizable Value			Payments			June 29, 2002		Payments			June 28, 2003

Workers’ separation costs	$	2,229	$	—		$	(2,073	)	$	156	$	(156	)	$	—
Lease termination costs		659		—			(616	)		43		(43	)		—
Losses on disposal of fixed assets		485		(485	)		—			—		—			—

Total reorganization reserve	$	3,373	$	(485	)	$	(2,689	)	$	199	$	(199	)	$	—

In the first quarter of fiscal 2001, management of Coach committed to and announced a plan to cease production at the Medley, Florida, manufacturing facility in October 2000. This reorganization involved the termination of 362 manufacturing, warehousing and management employees at that facility. These actions reduced costs by the resulting transfer of production to lower cost third-party manufacturers. Coach recorded a reorganization cost of $4,569 in fiscal 2001. The reorganization costs included $3,103 for worker separation costs, $832 for lease termination costs and $634 for the write-down of long-lived assets to net realizable value.

The composition of the reorganization reserve is set forth in the following table. By June 30, 2001, production ceased at the Medley facility and disposition of the fixed assets and the termination of the 362 employees had been completed.


	Provision Recorded		Write-down of
	in Fiscal 2001		Long-Lived						Reorganization
	Reorganization		Assets to Net			Cash			Reserves as of
	Reserves		Realizable Value			Payments			June 30, 2001

Workers’ separation costs	$	3,103	$	—		$	(3,103	)	$	—
Lease termination costs		832		—			(832	)		—
Losses on disposal of fixed assets		634		(634	)		—			—

Total reorganization reserve	$	4,569	$	(634	)	$	(3,935	)	$	—

7. Commitments and Contingencies

At June 28, 2003 and June 29, 2002, the Company had letters of credit outstanding totaling $48,336 and $40,116, respectively. Included in fiscal 2003 and fiscal 2002 balance is a letter of credit totaling $19,820, which relates to leases transferred to the Company by the Sara Lee, for which Sara Lee retains contingent liability. Coach expects that it will be required to maintain the letter of credit for at least 10 years. The remaining letters of credit have terms ranging from one to three months and primarily collateralize the Company’s obligation to third parties for the purchase of inventory.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

The adoption of FIN No. 45 did not require additional disclosures and did not impact the Company’s consolidated financial statements, as the Company does not issue guarantees related to third party indebtedness or performance.

Coach is a party to employment agreements with certain executives, which provide for compensation and other benefits. The agreements also provide for severance payments under certain circumstances.

Coach is a party to several pending legal proceedings and claims. Although the outcome of such items cannot be determined with certainty, Coach’s general counsel and management are of the opinion that the final outcome should not have a material effect on Coach’s cash flow, results of operations or financial position.

The Company is not party to any off-balance sheet transactions or unconsolidated special purpose entities for any of the periods presented herein.


8.	Stock-Based Compensation

Coach Stock-Based Plans. At the time of the initial public offering, Coach established the 2000 Stock Incentive Plan and the 2000 Non-Employee Director Stock Plan to award stock options and other forms of equity compensation to certain members of Coach management and the outside members of its Board of Directors. These plans were approved by Coach’s stockholders during fiscal 2002. The exercise price of each stock option equals 100% of the market price of Coach’s stock on the date of grant and generally has a maximum term of 10 years. Options generally vest ratably over three years.

Concurrent with its initial public offering in October 2000, Coach granted 6,382 options to essentially all full-time employees and 30 options to outside members of the Board of Directors at the initial public offering price of $8.

Coach employees, at the initial public offering date, converted 2,408 Sara Lee options into the same number of Coach options while maintaining the same exercise price.

Under Coach’s stock option plans, an active employee can receive a replacement stock option equal to the number of shares surrendered upon a stock-for-stock exercise. The exercise price of the replacement option was 100% of the market value at the date of exercise of the original option and will remain exercisable for the remaining term of the original option. Replacement stock options generally vest six months from the grant date. Replacement stock options of 1,840, 1,084 and 191 were granted in fiscal 2003, 2002 and 2001, respectively.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

A summary of options held by Coach employees under the Coach option plans follows:


		Number of			Weighted-				Weighted-
		Coach			Average				Average
		Outstanding			Exercise		Exercisable		Exercise
		Options			Price		Shares		Price

Outstanding at July 1, 2000			—		$	—		—	$	—
	Granted at the initial public offering		6,412			8.00
	Sara Lee options converted		2,408			12.06
	Granted		1,344			14.17
	Exercised		(482	)		9.06
	Canceled/expired		(238	)		8.83

Outstanding at June 30, 2001			9,444		$	9.91		1,751	$	12.06
	Granted		4,452			19.26
	Exercised		(3,558	)		10.17
	Canceled/expired		(328	)		10.07

Outstanding at June 29, 2002			10,010		$	13.97		1,592	$	13.63
	Granted		4,760			30.66
	Exercised		(5,088	)		15.02
	Canceled/expired		(917	)		15.81

Outstanding at June 28, 2003			8,765		$	22.23		1,437	$	21.73

The following table summarizes information about stock options under the Coach option plans at June 28, 2003.



	Options Outstanding						Options Exercisable

			Weighted-
			Average		Weighted-
Range of	Number		Remaining		Average		Number		Weighted-
Exercise	Outstanding at		Contractual		Exercise		Exercisable at		Average
Prices	June 28, 2003		Life (Years)		Price		June 28, 2003		Exercise Price

$ 8.00 – 20.00		4,389		7.14	$	13.53		750	$	12.55
$20.01 – 30.00		2,381		8.96		23.43		46		26.22
$30.01 – 40.00		1,065		7.16		32.80		641		32.17
$40.01 – 51.38		930		5.65		48.34		—		—

		8,765		7.48	$	22.23		1,437	$	21.73

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



	Fiscal Year Ended

	June 28,			June 29,			June 30,
	2003			2002			2001

Expected lives (years)		1.5			1.6			3.0
Risk-free interest rate		1.7	%		3.3	%		6.0	%
Expected volatility		35.2	%		48.3	%		49.0	%
Dividend yield		—	%		—	%		—	%

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

The weighted-average fair values of individual options granted were $4.89 during fiscal 2003, $4.81 during fiscal 2002 and $3.34 during fiscal 2001.

Employee Stock Purchase Plan. During fiscal 2002, Coach established the employee stock purchase plan and received stockholder approval of this program. Under this plan, full-time Coach employees are permitted to purchase a limited number of Coach common shares at 85% of market value. Under this plan, Coach sold 67 shares to employees in fiscal 2003 and 26 shares to employees in fiscal year 2002. Pro forma compensation expense is calculated for the fair value of employees purchase rights using the Black-Scholes model. Underlying assumptions are an expected life of .5 years, risk free interest of 1.2%, expected volatility of 38.3% and dividend yield of 0%. The weighted-average fair value of the purchase rights granted during fiscal 2003 was $10.37 and $5.88 in fiscal 2002.

Stock Unit Awards. Restricted stock unit awards of Coach common stock have been granted to employees as retention awards. The value of retention awards is determined based upon the fair value of Coach stock at the grant date.

Stock awards are generally restricted and subject to forfeiture until the retention period is completed. The retention period is generally three years. As of June 28, 2003, retention awards of 257 shares are outstanding. This value is initially recorded as unearned compensation and is charged to earnings over the retention period. The amortization expense related to these awards was $1,568 for fiscal 2003 and $766 for fiscal 2002.

Deferred Compensation. Under the Coach, Inc. Executive Deferred Compensation Plan, executive officers and employees at or above the director level may elect to defer all or a portion of their annual bonus or annual base salary into the plan. Under the Coach, Inc. Deferred Compensation Plan for Non-Employee Directors, Coach’s outside directors may similarly defer their director’s fees. Amounts deferred under these plans may, at the participants’ election, be either represented by deferred stock units, which represent the right to receive shares of Coach common stock on the distribution date elected by the participant, or placed in an interest-bearing account to be paid on such distribution date. The amounts accrued under these plans were $2,915 at June 28, 2003 and $2,051 at June 29, 2002. These amounts are reflected in other noncurrent liabilities in the consolidated balance sheets.

The following table summarizes share and exercise price information about Coach’s equity compensation plans as of June 28, 2003.

Number of

Weighted-

securities

securities to be

average

remaining

issued upon

exercise price of

available for

exercise of

outstanding

future issuance

outstanding

options,

under equity

options, warrants

warrants

compensation

Plan Category

or rights

and rights

plans

Equity compensation plans approved by security holders

9,022

21.60

5,672

Equity compensation plans not approved by security holders

233

10.84

777

9. Retirement Plans

Coach has established the Coach, Inc. Savings and Profit Sharing Plan, which is a noncontributory defined contribution plan. Employees who meet certain eligibility requirements and are not part of a collective bargaining agreement participate in this program.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

Coach sponsors a noncontributory defined benefit plan, The Coach Leatherware Company, Inc. Supplemental Pension Plan, for individuals who are a part of collective bargaining arrangements.

Employees who met certain eligibility requirements and were not part of a collective bargaining arrangement participate in defined benefit pension plans sponsored by Sara Lee through June 30, 2001. These defined benefit pension plans include employees from a number of domestic Sara Lee business units. The annual cost of the Sara Lee defined benefit plans is allocated to all of the participating businesses based upon a specific actuarial computation. All obligations pursuant to these plans are obligations of Sara Lee.

The annual expense incurred by Coach for the defined contribution and benefit plans is as follows:



	Fiscal Year Ended

	June 28,		June 29,		June 30,
	2003		2002		2001

Coach, Inc. Savings and Profit Sharing Plan	$	5,308	$	3,926	$	—
Coach Leatherware Company, Inc. Supplemental Pension Plan		51		71		110
Patricipation in Sara Lee sponsored defined benefit plans		—		—		3,542

Total expense	$	5,359	$	3,997	$	3,652

The components of the Coach Leatherware Company, Inc. Supplemental Pension Plan expense were:



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001

Components of defined benefit net periodic pension costs (benefit):
Service cost		$	15		$	15		$	183
Interest cost			370			350			337
Expected return on assets			(381	)		(381	)		(415	)
Amortization of:
	Net initial asset		—			—			(48	)
	Prior service cost		1			1			29
	Net actuarial loss		46			86			24

Net periodic pension cost		$	51		$	71		$	110

The funded status of the Coach Leatherware Company, Inc. Supplemental Pension Plan at the respective year ends was:



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001

Projected benefit obligation:
	Beginning of year	$	5,414		$	5,515		$	5,289
	Service cost		15			15			183
	Interest cost		370			350			337
	Benefits paid		(218	)		(187	)		(177	)
	Actuarial loss (gain)		402			(279	)		(117	)

Benefit obligation at end of year		$	5,983		$	5,414		$	5,515

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001

Fair value of plan assets:
	Beginning of year	$	4,740		$	4,605		$	4,990
	Actual return (loss) on plan assets		(659	)		322			(208	)
	Employer contributions		—			—			—
	Benefits paid		(218	)		(187	)		(177	)

Fair value of plan assets at end of year		$	3,863		$	4,740		$	4,605



		Fiscal Year Ended

		June 28,			June 29,			June 30,
		2003			2002			2001

Funded status		$	(2,120	)	$	(675	)	$	(909	)
Unrecognized:
	Prior service cost		1			1			1
	Net actuarial loss		2,244			850			1,156
	Net initial asset		—			—			—

Prepaid benefit cost recognized		$	125		$	176		$	248

Amounts recognized on the consolidated balance sheets:
	Other noncurrent assets	$	1		$	1		$	1
	Accrued benefit liability		(2,120	)		(675	)		(909	)
	Accumulated other comprehensive income		2,244			850			1,156

Prepaid benefit cost recognized		$	125		$	176		$	248

Net pension expense for the Coach Leatherware Company, Inc. Plan is determined using assumptions as of the beginning of each year. Funded status is determined using assumptions as of the end of each year.

The assumptions used at the respective year-ends were:



	Fiscal Year Ended

	June 28,			June 29,			June 30,
	2003			2002			2001

Discount rate		6.50	%		7.00	%		6.50	%
Long-term rate of return on plan assets		7.50	%		8.25	%		8.50	%
Rate of compensation increase		5.50	%		5.50	%		5.50	%

10. Segment Information

The Company operates its business in two reportable segments: Direct-to-Consumer and Indirect. The Company’s reportable segments represent channels of distribution that offer similar merchandise, service and marketing strategies. Sales of Coach products through Company-operated retail and factory stores, the Coach catalog and the Internet constitute the Direct-to-Consumer segment. Indirect refers to sales of Coach products to other retailers and includes sales through Coach Japan. In deciding how to allocate resources and assess performance, Coach’s executive officers regularly evaluate the sales and operating income of these segments. Operating income is the gross margin of the segment less direct expenses of the segment.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

Unallocated corporate expenses include production variances, general marketing, administration and information systems, distribution and customer service expenses.


	Direct-to-				Corporate
Fiscal 2003	Consumer		Indirect		Unallocated			Total

Net sales	$	559,553	$	393,673	$	—		$	953,226
Operating income		198,247		166,604		(121,089	)		243,762
Interest income						1,754			1,754
Interest expense		—		—		695			695
Income (loss) before provision for income taxes and minority interest		198,247		166,604		(120,030	)		244,821
Provision for income taxes		—		—		90,585			90,585
Minority interest, net of tax		—		—		7,608			7,608
Depreciation and amortization		17,484		5,327		7,420			30,231
Total assets		194,157		137,587		285,908			617,652
Additions to long-lived assets		32,520		16,602		7,990			57,112


	Direct-to-				Corporate
Fiscal 2002	Consumer		Indirect		Unallocated			Total

Net sales	$	447,062	$	272,341	$	—		$	719,403
Operating income		135,831		106,720		(108,916	)		133,635
Interest income						825			825
Interest expense		—		—		1,124			1,124
Income (loss) before provision for income taxes and minority interest		135,831		106,720		(109,215	)		133,336
Provision for income taxes		—		—		47,325			47,325
Minority interest, net of tax		—		—		184			184
Depreciation and amortization		16,192		1,986		7,316			25,494
Total assets		150,315		108,764		181,492			440,571
Additions to long-lived assets		28,461		21,162		7,398			57,021


	Direct-to-				Corporate
Fiscal 2001	Consumer		Indirect		Unallocated			Total

Net sales	$	391,776	$	208,715	$	—		$	600,491
Operating income		120,330		89,516		(108,158	)		101,688
Interest income						305			305
Interest expense		—		—		2,563			2,563
Income (loss) before provision for income taxes and minority interest		120,330		89,516		(110,416	)		99,430
Provision for income taxes		—		—		35,400			35,400
Minority interest, net of tax		—		—		—			—
Depreciation and amortization		14,600		1,525		8,006			24,131
Total assets		135,760		60,374		62,577			258,711
Additions to long-lived assets		24,823		2,568		4,477			31,868

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

The following is a summary of the common costs not allocated in the determination of segment performance.



	Fiscal Year Ended

	June 28, 2003			June 29, 2002			June 30, 2001

Manufacturing variances	$	6,755		$	2,180		$	(170	)
Advertising, marketing and design		(48,491	)		(44,526	)		(44,837	)
Administration and information systems		(51,843	)		(38,512	)		(35,011	)
Distribution and customer service		(27,510	)		(24,685	)		(23,571	)
Reorganization costs		—			(3,373	)		(4,569	)

Total corporate unallocated	$	(121,089	)	$	(108,916	)	$	(108,158	)

Geographic Area Information

As of June 28, 2003, Coach operated 156 retail stores and 76 factory stores in North America and operated four distribution, product development and quality control locations in the United States, Italy and China. Geographic revenue information is based on the location of the end customer. Geographic long-lived asset information is based on the physical location of the assets at the end of each period. Indirectly, through Coach Japan, Coach operates 93 retail and department store locations in Japan.


						Other
		United States		Japan		International(1)		Total

Fiscal 2003
	Net sales	$	735,890	$	177,821	$	39,515	$	953,226
	Long-lived assets		127,251		31,966		785		160,002
Fiscal 2002
	Net sales	$	590,237	$	95,702	$	33,464	$	719,403
	Long-lived assets		106,600		20,647		705		127,952
Fiscal 2001
	Net sales	$	528,585	$	40,861	$	31,045	$	600,491
	Long-lived assets		87,217		489		377		88,083


(1)	Other International sales reflect shipments to third-party distributors primarily in East Asia and, in fiscal 2002 and fiscal 2001, sales from Coach-operated retail stores in the United Kingdom.

11. Coach Japan, Inc. and the Acquisition of Distributors

In order to expand its presence in the Japanese market and to exercise greater control over its brand in that country, Coach formed Coach Japan, Inc. and has completed a program to acquire the existing distributors. This entity is a joint venture with Sumitomo, which manages the Coach business in Japan. Coach owns 50% of Coach Japan and is deemed to have control as Coach appoints a majority of the Board of Directors, and, as such, Coach Japan is accounted for as a consolidated subsidiary. Under the terms of the joint venture agreement, Coach supplies its merchandise to Coach Japan for distribution and sale in Japan. Additionally, the joint venture agreement contains provisions to enable Coach to purchase the remaining minority interest in Coach Japan after the beginning of the seventh year of the joint venture agreement. Alternatively, Sumitomo could require Coach to purchase its ownership interest in the joint venture after such time as established in the terms of the joint venture agreement.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

On July 31, 2001, Coach Japan completed the purchase of 100% of the capital stock of P.D.C. Co. Ltd. (“PDC”) from the Mitsukoshi Department Store Group (“Mitsukoshi”) for a total purchase price of $9,018. Mitsukoshi established PDC in 1991 to expand Coach distribution to select department stores throughout Japan. At the time of acquisition PDC operated 63 retail and department store locations in Japan. The strength of the going concern and the established locations supported a premium above the fair value of the individual assets. The fair value of assets acquired was $22,351, and liabilities assumed were $20,732. Excess purchase price over fair market value is reported as goodwill. Results of the acquired business are included in the consolidated financial statements from August 1, 2001, onward. Unaudited pro forma information related to this acquisition are not included, as the impact of this transaction is not material to the consolidated results of the Company.

On January 1, 2002, Coach Japan completed the buyout of the distribution rights and assets, related to the Coach business, from J. Osawa and Company, Ltd. (“Osawa”) for $5,792 in cash. At the time of the acquisition, Osawa operated 13 retail and department store locations in Japan. The strength of the going concern and the established locations supported a premium above the fair value of the individual assets. The assets acquired of $5,371 were recorded at estimated fair values as determined by the Company’s management. Goodwill of $421 has been recognized for the excess of the purchase price over the estimate of fair market value of the net assets acquired. Results of the acquired business are included in the consolidated financial statements from January 1, 2002, onward. Unaudited pro forma information related to this acquisition are not included, as the impact of this transaction is not material to the consolidated results of the Company.

As of June 28, 2003 there were 95 Coach locations in Japan, including 75 department stores and 18 retail stores managed by Coach Japan and two airport locations operated by a distributor.

12. Derivative Instruments and Hedging Activities

Effective July 2, 2000, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in fair value of the hedged item are recorded in the statements of operations in the period incurred. If the derivative is designated as a cash flow hedge, effective changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged items affect earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings immediately. It is the Company’s policy not to enter into derivative instruments for trading or speculative purposes.

Substantially all purchases and sales involving international parties are denominated in U.S. dollars, the majority of which are not hedged using any derivative instruments. However, the Company is exposed to market risk from foreign currency exchange rate fluctuations with respect to Coach Japan as a result of its U.S. dollar-denominated inventory purchases. The Company, through Coach Japan, enters into certain foreign currency derivative contracts, primarily foreign exchange forward contracts, to manage these risks. Prior to the formation of Coach Japan, the Company had not used foreign currency derivative instruments. In addition, the Company is exposed to foreign currency exchange rate fluctuations related to the euro-denominated expenses of its Italian sourcing office. During the third quarter of fiscal 2003, the Company began a program to enter into certain foreign currency derivative contracts, primarily foreign exchange forward contracts, in order to manage these fluctuations.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

In assessing the fair value of these contracts, the Company has utilized independent valuations. However, some judgment is required in developing estimates of fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could settle in a current market exchange. The use of different market assumptions or methodologies could affect the estimated fair value.

The foreign currency contracts entered into by the Company have durations no greater than 12 months. The fair values of open foreign currency derivatives included in accrued liabilities at June 28, 2003 and June 29, 2002 were $0 and $3,308, respectively. The fair value of open foreign currency derivatives included in current assets was $405 and $0 at June 28, 2003 and June 29, 2002, respectively. For fiscal 2003, open foreign currency forward contracts not designated as hedges with a notional amount of $33,150 were fair valued and resulted in a pretax non cash benefit to earnings of $3,357. At June 29, 2002, open foreign currency forward contracts not designated as hedges with a notional amount of $33,150 were fair valued and resulted in a pretax non cash charge to earnings of $3,252. The fair value adjustment is included as a component of selling, general and administrative expenses. Also, as of June 28, 2003, open foreign currency forward contracts designated as hedges with a notional amount of $39,300 were fair valued resulting in an increase to equity as a benefit to other comprehensive income of $168, net of taxes. There were no foreign currency forward contracts entered into by the Company as of June 30, 2001.

13. Goodwill and Intangible Assets

The Company adopted SFAS No. 142 in the first quarter of fiscal 2002, resulting in no goodwill or trademark amortization expense in fiscal 2002 and fiscal 2003. Under this standard, goodwill and indefinite life intangible assets, such as the Company’s trademarks, are no longer amortized but are subject to annual impairment tests. In accordance with SFAS No. 142, prior period amounts were not restated. Coach recorded goodwill and trademark amortization expense of $900 in fiscal 2001. If the guidance of the statement had been applied retroactively, prior year results would have been different than previously reported. A reconciliation of net income as reported to adjusted net income for the exclusion of goodwill and trademark amortization, net of tax, for fiscal 2001 is as follows:


		Fiscal Year Ended
		June 30, 2001

Net income, as reported		$	64,030
Add back: amortization expense, net of tax			664

Proforma net income		$	64,694

Earnings per share as reported:
	Basic	$	0.78

	Diluted	$	0.76

Proforma earnings per share:
	Basic	$	0.79

	Diluted	$	0.77

Shares used in computing earnings per share:
	Basic		81,860

	Diluted		84,312

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

Changes in the carrying amounts of net goodwill for the years ended June 28, 2003 and June 29, 2002 are as follows:


	Direct-to-
	Consumer		Indirect		Total

Balance at June 30, 2001	$	3,408	$	1,516	$	4,924
PDC acquisition		—		7,399		7,399
Osawa acquisition		—		421		421
Foreign exchange impact		—		262		262

Balance at June 29, 2002	$	3,408	$	9,598	$	13,006
Foreign exchange impact		—		3		3

Balance at June 28, 2003	$	3,408	$	9,601	$	13,009

14. Earnings Per Share

Prior to October 2, 2000, Coach operated as a division of Sara Lee and did not have any shares outstanding. The initial capitalization of Coach, Inc. was two shares. On October 2, 2000, a stock dividend was declared resulting in 70,052 shares held by Sara Lee. The number of shares outstanding has been restated to reflect the effect of this stock dividend for all periods presented prior to October 2, 2000. During October 2000, the initial public offering of the Company’s common stock was accomplished, resulting in the issuance of an additional 16,974 shares. Following the offering, 87,026 shares were outstanding. Dilutive securities include share equivalents held in employee benefit programs and the impact of stock option programs.

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



		Fiscal Year Ended

		June 28,		June 29,		June 30,
		2003		2002		2001

Net earnings		$	146,628	$	85,827	$	64,030

Total basic shares			89,779		88,048		81,860
Dilutive securities:
Employee benefit and stock award plans			460		342		244
Stock option programs			2,682		2,562		2,208

Total diluted shares			92,921		90,952		84,312

Earnings per share:
	Basic	$	1.63	$	0.97	$	0.78

	Diluted	$	1.58	$	0.94	$	0.76

15. Relationship with Sara Lee

Prior to the Separation Date, Coach operated as a division of Sara Lee. As a division three types of intercompany transactions were recorded in the Coach intercompany account with Sara Lee: cash collections from Coach’s operations that were deposited into the intercompany account; cash borrowings that were used to fund operations; and allocations of corporate expenses and charges. Cash collections included all cash receipts required to be deposited into the intercompany account as part of the Sara Lee cash concentration

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

system. Cash borrowings made by Coach from the Sara Lee cash concentration system were used to fund operating expenses.

The Company was charged with allocations of corporate expenses in the amounts of $31,437 for fiscal 2001, which was included as a component of selling, general and administrative expenses. These charges consisted of expenses for business insurance, medical insurance, employee benefit plan amounts, income, employment and other tax amounts and allocations from Sara Lee for certain centralized administration costs for treasury, real estate, accounting, auditing, tax, risk management, human resources and benefits administration. As of the Separation Date there are no further transactions of this nature.

16. Shareholder Rights Plan

On May 3, 2001 Coach declared a “poison pill” dividend distribution of rights to buy additional common stock to the holder of each outstanding share of Coach’s common stock.

Subject to limited exceptions, these rights may be exercised if a person or group intentionally acquires 10% or more of the Company’s common stock or announces a tender offer for 10% or more of the common stock on terms not approved by the Coach Board of Directors. In this event, each right would entitle the holder of each share of Coach’s common stock to buy one additional common share of the Company at an exercise price far below the then-current market price. Subject to certain exceptions, Coach’s Board of Directors will be entitled to redeem the rights at $0.001 per right at any time before the close of business on the tenth day following either the public announcement that, or the date on which a majority of Coach’s Board of Directors becomes aware that, a person has acquired 10% or more of the outstanding common stock. The Company is currently aware of one institutional shareholder whose common stock holdings exceed the 10% threshold established by the rights plan. This holder has been given permission to increase its ownership in the Company to a maximum of 15%, subject to certain exceptions, before triggering the provision of the rights plan.

17. Business Interruption Insurance

Coach operated a retail store in the World Trade Center since 1995. During fiscal 2001, the store generated sales of $4,382. As a result of the September 11, 2001 attack, the store was destroyed. Inventory of $180 and fixed assets of $353 were removed from the accounts, and Coach has received payments under its property insurance coverage.

Losses relating to the Company’s business interruption coverage have been filed with the insurers. Coach has held discussions with its insurance carriers and expects to fully recover these losses. In fiscal 2003 Coach received payments of $1,484 under its business interruption coverage. In fiscal 2002 Coach received payments of $1,413 under its business interruption coverage. These amounts have been included as a reduction of selling, general and administrative expenses.

18. Stock Repurchase Program

On September 17, 2001, the Coach Board of Directors authorized the establishment of a common stock repurchase program. Under this program, up to $80,000 may be utilized to repurchase common stock through September 2004. Purchases of Coach stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases. Repurchased shares will become authorized but unissued shares and may be issued in the future for general corporate and other uses. The Company may terminate or limit the stock repurchase program at any time.

On January 30, 2003, the Coach Board of Directors approved an additional common stock repurchase program to acquire up to $100,000 of Coach’s outstanding common stock through January 2006. The duration

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

of Coach’s existing repurchase program was also extended through January 2006. Purchases of Coach stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases. Repurchased shares will be retired and may be reissued in the future for general corporate or other purposes. The Company may terminate or limit the stock repurchase program at any time.

During the fiscal 2003, the Company repurchased 1,929 shares of common stock at an average cost of $25.89 per share. During fiscal 2002, the Company repurchased 860 shares of common stock at an average cost of $11.45 per share.

As of June 28, 2003, Coach had approximately $120,000 remaining in the stock repurchase program.

19. Related-Party Transaction

On July 26, 2001, Coach made a loan to Reed Krakoff, its President, Executive Creative Director, in the principal amount of $2,000. The loan bears interest at a rate of 5.12% per annum, compounded annually. This loan amount and the applicable accrued interest, less payments received, is recorded as a component of other noncurrent assets in the accompanying balance sheet as of June 28, 2003. Repayments of $400 principal must be made on or before each of July 26, 2003, 2004, 2005; the remaining $800 of principal, together with all accrued interest under the loan, must be paid on or before July 26, 2006. Mr. Krakoff may repay these amounts at any time. As collateral for the loan, Mr. Krakoff pledged to Coach his options to purchase 300 shares of Coach common stock at a price of $8.00 per share, including the shares of stock and any cash or other property he receives upon exercise of or in exchange for those options. Mr. Krakoff would be obligated to repay the loan in full immediately following certain events of default, including his failure to make payments under the loan as scheduled, his bankruptcy or the termination of his employment with Coach for any reason.

On November 7, 2002, Mr. Krakoff paid Coach the first principal payment of $400 under the loan agreement. Upon receipt of this payment, the collateral options were reduced proportionately under the terms of the agreement.

20. Subsequent Event

On August 7, 2003, Coach’s Board of Directors authorized a two-for-one split of the Company’s common stock, to be effected in the form of a special dividend of one share of the Company’s common stock for each share outstanding. The additional shares issued as a result of the stock split will be distributed on October 1, 2003 to stockholders of record on September 17, 2003. The presented financial statements do not reflect the impact of the stock split other than the proforma disclosures presented on the consolidated statements of income, as the distribution of the additional shares has not occurred.

COACH, INC.

Notes to Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

21. Quarterly Financial Data (Unaudited)


		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter

Fiscal 2003
Net sales			192,791		308,523		220,396		231,516
Gross profit			131,224		216,842		159,807		169,556
Net income			22,480		62,431		31,853		29,864
Earnings per common share:
	Basic	$	0.25	$	0.70	$	0.35	$	0.33
	Diluted	$	0.24	$	0.68	$	0.34	$	0.32
Fiscal 2002
Net sales			150,702		235,750		161,571		171,380
Gross profit			96,571		161,618		111,106		114,067
Net income			12,538		44,166		11,817		17,306
Earnings per common share:
	Basic	$	0.14	$	0.51	$	0.13	$	0.19
	Diluted	$	0.14	$	0.49	$	0.13	$	0.19
Fiscal 2001
Net sales			131,495		211,028		125,714		132,254
Gross profit			81,931		136,882		80,442		82,729
Net income			7,591		39,204		7,993		9,242
Earnings per common share:
	Basic	$	0.11	$	0.45	$	0.09	$	0.11
	Diluted	$	0.11	$	0.44	$	0.09	$	0.10

The sum of the quarterly earnings per common share may not equal the full-year amount since the computations of the weighted-average number of common-equivalent shares outstanding for each quarter and the full year are made independently.

COACH, INC.

Market and Dividend Information

Coach’s common stock is listed on the New York Stock Exchange and is traded under the symbol “COH”. Prior to the October 4, 2000 initial public offering, there was no public trading market for any of our securities. The following table sets forth, for the fiscal periods indicated, the high and low closing prices per share of Coach’s common stock as reported on the New York Stock Exchange Composite Tape.



	Fiscal Year Ended 2003

	High				Low

Quarter ended
September 28, 2002	$	29.36			$	18.13
December 28, 2002		34.47				23.59
March 29, 2003		39.93				29.17
June 28, 2003		52.88				37.08
Closing price at June 27, 2003			$	49.94



	Fiscal Year Ended 2002

	High				Low

Quarter ended
September 29, 2001	$	21.10			$	10.95
December 29, 2001		19.32				11.42
March 30, 2002		26.28				18.98
June 29, 2002		29.94				23.93
Closing price at June 28, 2002			$	27.45



	Fiscal Year Ended 2001

	High				Low

Quarter ended
September 30, 2000	$	—			$	—
December 30, 2000		14.38				8.00
March 31, 2001		18.00				11.22
June 30, 2001		19.25				11.80
Closing price at June 29, 2001			$	19.03

Coach has never declared or paid any cash dividends on its common stock. Coach currently intends to retain future earnings, if any, for use in its business and is presently not planning to pay regular cash dividends in its common stock. The Fleet facility prohibits Coach from paying dividends while the credit facility is in place, with certain exceptions. Any future determination to pay cash dividends will be at the discretion of Coach’s Board of Directors and will be dependent upon Coach’s financial condition, operating results, capital requirements and such other factors as the Board of Directors deems relevant.

COACH, INC.

Schedule II — Valuation and Qualifying Accounts

For the Fiscal Years Ended June 28, 2003, June 30, 2002 and June 30, 2001


				Provision
				Charged
		Balance at		to Costs		Write-offs/			Balance
		Beginning		and		Allowances			at End of
		of Year		Expenses		Taken			Year


		(amounts in thousands)
Fiscal 2003
Allowance for bad debts		$	1,335	$	97	$	(120	)	$	1,312
Allowance for returns			2,841		3,561		(1,619	)		4,783

	Total	$	4,176	$	3,658	$	(1,739	)	$	6,095

Fiscal 2002
Allowance for bad debts		$	776	$	674	$	(115	)	$	1,335
Allowance for returns			5,512		268		(2,939	)(1)		2,841

	Total	$	6,288	$	942	$	(3,054	)	$	4,176

Fiscal 2001
Allowance for bad debts		$	535	$	355	$	(114	)	$	776
Allowance for returns			5,396		3,048		(2,932	)		5,512

	Total	$	5,931	$	3,403	$	(3,046	)	$	6,288


(1)	Includes a reclassification to accrued liabilities of $2,412 related to consumer returns where there is not an outstanding receivable.

COACH, INC.

EXHIBITS TO FORM 10-K

For the Fiscal Year Ended June 28, 2003

Commission File No. 1-16153

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


Exhibit
No.		Description

	3.1	Amended and Restated Bylaws of Coach, Inc., dated May 3, 2001, which is incorporated herein by reference from Exhibit 3.1 to Coach’s Current Report on Form 8-K filed on May 9, 2001
	3.2	Articles Supplementary of Coach, Inc., dated May 3, 2001, which is incorporated herein by reference from Exhibit 3.2 to Coach’s Current Report on Form 8-K filed on May 9, 2001
	3.3	Articles of Amendment of Coach, Inc., dated May 3, 2001, which is incorporated herein by reference from Exhibit 3.3 to Coach’s Current Report on Form 8-K filed on May 9, 2001
	3.4	Articles of Amendment of Coach, Inc., dated May 3, 2002, which is incorporated by reference from Exhibit 3.4 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2002
	4.1	Rights Agreement, dated as of May 3, 2001, between Coach, Inc. and Mellon Investor Services LLC, which is incorporated herein by reference from Exhibit 4 to Coach’s Current Report on Form 8-K filed on May 9, 2001.
	4.2	Specimen Certificate for Common Stock of Coach, which is incorporated herein by reference from Exhibit 4.1 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.1	Revolving Credit Agreement by and between Coach, certain lenders and Fleet National Bank, which is incorporated herein by reference from Exhibit 10.18 to Coach’s Registration Statement on Form S-4 (Registration No. 333-54402)
	10.2	Master Separation Agreement between Coach and Sara Lee, which is incorporated herein by reference from Exhibit 2.1 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.3	Tax Sharing Agreement between Coach and Sara Lee, which is incorporated herein by reference from Exhibit 2.2 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.4	General Assignment and Assumption Agreement between Coach and Sara Lee, which is incorporated herein by reference from Exhibit 2.3 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.5	Employee Matters Agreement between Coach and Sara Lee, which is incorporated by reference herein from Exhibit 2.4 to Coach’s Form 10-Q for the quarterly period ended September 30, 2000, filed with the Commission on November 14, 2000
	10.6	Real Estate Matters Agreement between Coach and Sara Lee, which is incorporated herein by reference from Exhibit 2.5 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.7	Master Transitional Services Agreement between Coach and Sara Lee, which is incorporated herein by reference from Exhibit 2.6 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.8	Indemnification and Insurance Matters Agreement between Coach and Sara Lee, which is incorporated herein by reference from Exhibit 2.7 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.9	Lease Indemnification and Reimbursement Agreement between Sara Lee and Coach, which is incorporated herein by reference from Exhibit 2.10 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.10	Coach, Inc. 2000 Stock Incentive Plan
	10.11	Coach, Inc. Executive Deferred Compensation Plan


Exhibit
No.		Description

	10.12	Coach, Inc. Performance-Based Annual Incentive Plan, which is incorporated by reference from Appendix C to the Registrant’s Definitive Proxy Statement for the 2001 Annual Meeting of Stockholders, filed on October 4, 2001
	10.13	Coach, Inc. 2000 Non-Employee Director Stock Plan
	10.14	Coach, Inc. Non-Qualified Deferred Compensation Plan for Outside Directors
	10.15	Coach, Inc. 2001 Employee Stock Purchase Plan, which is incorporated by reference from Exhibit 10.15 to Coach’s Annual Report on Form 10-K for the fiscal year ended June 29, 2002
	10.16	Jacksonville, FL Lease Agreement, which is incorporated herein by reference from Exhibit 10.6 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.17	New York, NY Lease Agreement, which is incorporated herein by reference from Exhibit 10.7 to Coach’s Registration Statement on Form S-1 (Registration No. 333-39502)
	10.18	Secured Loan Agreement dated July 26, 2001 between Coach and Reed Krakoff, which is incorporated by reference herein from Exhibit 10.17 to Coach’s Form 10-K for the fiscal year ended June 30, 2001, filed with the Commission on September 21, 2001
	10.19	Pledge, Assignment and Security Agreement dated July 26, 2001 between Coach and Reed Krakoff, which is incorporated by reference herein from Exhibit 10.18 to Coach’s Form 10-K for the fiscal year ended June 30, 2001, filed with the Commission on September 21, 2001
	10.20	Employment Agreement dated June 1, 2003 between Coach and Lew Frankfort
	10.21	Employment Agreement dated June 1, 2003 between Coach and Reed Krakoff
	10.22	Employment Agreement dated June 1, 2003 between Coach and Keith Monda
	21.1	List of Subsidiaries of Coach
	23.1	Consent of Deloitte & Touche LLP
	31.1	Rule 13(a)-14(a)/15(d)-14(a) Certifications
	32.1	Section 1350 Certifications

(b) Reports on Form 8-K

Current Report on Form 8-K, filed with the Commission on April 22, 2003. This report contained the Company’s preliminary earnings result for the third quarter of fiscal year 2003.

Current Report on Form 8-K, filed with the Commission on June 13, 2003. This report described a Rule 10b5-1 trading plan instituted by the Company’s Chairman and Chief Executive Officer.

Current Report on Form 8-K, filed with the Commission on July 29, 2003. This report contained the Company’s preliminary earnings result for the fourth quarter of, and full year for, fiscal year 2003.