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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




FORM 10-Q


[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 28, 2002

or

[   ]    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   (I.R.S. Employer
incorporation or organization)   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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]       No [  ]

On November 1, 2002, the Registrant had 88,737,051 outstanding shares of common stock, which is the Registrant’s only class of common stock.

The document contains 27 pages excluding exhibits.



1


TABLE OF CONTENTS

PART I
ITEM 1. Financial Statements
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
ITEM 4. Controls and Procedures
PART II
ITEM 4. Submission of Matters to a Vote of Security – Holders
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURE
CERTIFICATIONS


Table of Contents

COACH, INC.

TABLE OF CONTENTS FORM 10-Q

  Page Number
 
PART I
ITEM 1.
Financial Statements
   
Condensed Consolidated Balance Sheets –
   
At September 28, 2002 and June 29, 2002
4  
Condensed Consolidated Statements of Income –
   
For the Thirteen Weeks Ended
   
September 28, 2002 and September 29, 2001
5  
Condensed Consolidated Statement of Stockholders’ Equity –
   
For the period June 30, 2001 to September 28, 2002
6  
Condensed Consolidated Statements of Cash Flows –
   
For the Thirteen Weeks Ended
   
September 28, 2002 and September 29, 2001
7  
Notes to Condensed Consolidated Financial Statements
8  
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15  
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
21  
ITEM 4.
Controls and Procedures
22  
PART II
ITEM 4.
Submission of Matters to a Vote of Security Holders
23  
ITEM 6.
Exhibit and Reports on Form 8-K
23  
SIGNATURE
24  
CERTIFICATIONS
25  

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SPECIAL NOTE ON FORWARD-LOOKING INFORMATION

This Form 10-Q contains certain “forward-looking statements”, based on current expectations, that involve risks and uncertainties that could cause our actual results to differ materially from management’s current expectations. These forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will”, “should,” “expect,” “intend”, “estimate”, or “continue”, or the negative thereof or comparable terminology. Future results will vary from historical results and historical growth is not indicative of future trends which will depend upon a number of factors, including but not limited to: (I) the successful implementation of our growth strategies and initiatives, including our store expansion and renovation program; (ii) the effect of existing and new competition in the marketplace; (iii) our ability to successfully anticipate consumer preferences for accessories and fashion trends; (iv) our ability to control costs; (v) the effect of seasonal and quarterly fluctuations in our sales on our operating results; (vi) our exposure to international risks, including currency fluctuations; (vii) changes in economic or political conditions in the markets where we sell or source our products; (viii) our ability to protect against infringement of our trademarks and other proprietary rights; and such other risk factors as set forth in the Company’s Form 10-K for the fiscal year ended June 29, 2002. Coach, Inc. assumes no obligation to update or revise any such forward-looking statements, which speak only as of their date, even if experience or future events or changes make it clear that any projected financial or operating results will not be realized.


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 press releases, other information and gain access to periodic reports to the SEC.

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PART I

ITEM 1.  Financial Statements

COACH, INC.
CONDENSED CONSOLIDATED BALANCE SHEET

    September 28,
2002
  June 29,
2002
   
 
    (unaudited)    
    (amounts in thousands)
ASSETS
               
Cash and cash equivalents
  $ 44,033     $ 93,962  
Trade accounts receivable, less allowances of $6,092 and $4,176, respectively
    45,009       30,925  
Inventories
    152,724       136,404  
Other current assets
    26,154       26,297  
     
     
 
Total current assets
    267,920       287,588  
Goodwill and other intangible assets, net
    22,249       22,395  
Property and equipment, net
    97,099       90,589  
Other noncurrent assets
    39,081       39,999  
     
     
 
Total assets
  $ 426,349     $ 440,571  
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Accounts payable
  $ 32,547     $ 25,819  
Accrued liabilities
    96,751       99,365  
Revolving credit facility
    35,042       34,169  
Current portion of long-term debt
    80       75  
     
     
 
Total current liabilities
    164,420       159,428  
Long-term debt
    3,535       3,615  
Other liabilities
    3,640       2,625  
Minority interest
    15,863       14,547  
     
     
 
Total liabilities
    187,458       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 - 87,864,297 and 89,453,722 shares, respectively
    879       895  
Capital in excess of par value
    148,730       155,403  
Retained earnings
    93,474       105,509  
Accumulated other comprehensive (loss) income
    (242 )     215  
Unearned compensation
    (3,950 )     (1,666 )
     
     
 
Total stockholders’ equity
    238,891       260,356  
     
     
 
Total liabilities and stockholders’ equity
  $ 426,349     $ 440,571  
     
     
 

See accompanying Notes to the Condensed Consolidated Financial Statements.

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COACH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

    Thirteen Weeks Ended
   
    September 28,
2002
  September 29,
2001
   
 
    (unaudited)   (unaudited)
    (amounts in thousands, except per share data)
Net sales
  $ 192,791     $ 150,702  
Cost of sales
    61,567       54,131  
     
     
 
Gross profit
    131,224       96,571  
Selling, general and administrative expenses
    93,616       77,101  
     
     
 
Operating income
    37,608       19,470  
Interest (income) expense, net
    (165 )     447  
     
     
 
Income before provision for income taxes and minority interest
    37,773       19,023  
Provision for income taxes
    13,977       6,753  
Minority interest, net of tax
    1,316       (268 )
     
     
 
Net income
  $ 22,480     $ 12,538  
     
     
 
Net income per share
               
Basic
  $ 0.25     $ 0.14  
     
     
 
Diluted
  $ 0.24     $ 0.14  
     
     
 
Shares used in computing net income per share
               
Basic
    88,729       87,314  
     
     
 
Diluted
    91,992       90,200  
     
     
 

See accompanying Notes to the Condensed Consolidated Financial Statements.

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COACH, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

    Total
Stockholders’
Equity
  Preferred
Stockholders’
Equity
  Common
Stockholders’
Equity
  Capital in
Excess
of Par
  Retained
Earnings
  Accumulated
Other
Comprehensive
Income (loss)
  Unearned
Compensation
  Comprehensive
Income (loss)
  Shares
of
Common
Stock
   
 
 
 
 
 
 
 
 
    (amounts in thousands)
Balances at June 30, 2001
$ 148,314     $     $ 874     $  125,277     $ 22,650     $ (487 )   $               87,372  
     
Net income
  85,827                                 85,827                         85,827            
 
Exercise of stock options
  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
  22,480                         22,480                   22,480          
 
Exercise of stock options
  4,620             3       4,617                                 316  
 
Tax benefit from exercise of stock options
  1,520                   1,520                                    
 
Repurchase of common stock
  (49,947 )           (19 )     (15,413 )     (34,515 )                         (1,929 )
 
Grant of restricted stock awards
                    2,603                   (2,603 )                
 
Amortization of restricted stock awards
  319                                     319               23  
 
Translation adjustments
  (457 )                             (457 )           (457 )        
                                                             
         
 
Comprehensive income
                                                        $ 22,023          
     
     
     
     
     
     
     
     
     
 
Balances at September 28, 2002, (unaudited)
$ 238,891     $     $ 879     $  148,730     $ 93,474     $ (242 )   $ (3,950 )             87,864  
     
     
     
     
     
     
     
             
 

See accompanying Notes to the Condensed Consolidated Financial Statements.

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COACH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

  Thirteen Weeks Ended
 
  September 28,
2002
  September 29,
2001
 
 
  (unaudited)   (unaudited)
  (amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
             
Net income
$ 22,480     $ 12,538  
Adjustments for non cash charges included in net income:
             
Depreciation and amortization
  6,480       5,935  
Tax benefit from exercise of stock options
  1,520       570  
(Increase) decrease in deferred taxes
  (70 )     330  
Other non cash credits, net
  1,368       309  
Changes in current assets and liabilities:
             
Increase in trade accounts receivable
  (14,084 )     (8,623 )
Increase in inventories
  (16,320 )     (16,376 )
Increase (decrease) in other assets and liabilities
  2,146       (1,727 )
Increase (decrease) in accounts payable
  6,728       (260 )
Decrease in accrued liabilities
  (2,614 )     (1,850 )
   
     
 
Net cash from (used in) operating activities
  7,634       (9,154 )
   
     
 
CASH FLOWS USED IN INVESTMENT ACTIVITIES
             
Purchases of property and equipment
  (13,034 )     (9,685 )
Acquisitions of distributors, net of cash acquired
        (9,013 )
Proceeds from dispositions of property and equipment
        353  
   
     
 
Net cash used in investment activities
  (13,034 )     (18,345 )
   
     
 
CASH FLOWS FROM FINANCING ACTIVITIES
             
Partner contribution to joint venture
        14,363  
Repurchase of common stock
  (49,947 )     (7,657 )
Repayment of long-term debt
  (75 )     (45 )
Borrowings on revolving credit facility
  14,930       75,900  
Repayments of revolving credit facility
  (14,057 )     (56,530 )
Proceeds from exercise of stock options
  4,620       2,510  
   
     
 
Net cash from (used in) financing activities
  (44,529 )     28,541  
   
     
 
(Decrease) increase in cash and equivalents
  (49,929 )     1,042  
Cash and equivalents at beginning of period
  93,962       3,691  
   
     
 
Cash and equivalents at end of period
$ 44,033     $ 4,733  
   
     
 
Cash paid for income taxes
$ 446     $ 102  
   
     
 
Cash paid for interest
$ 98     $ 192  
   
     
 

See accompanying Notes to the Condensed Consolidated Financial Statements.

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COACH, INC.
 
Notes to Condensed Consolidated Financial Statements
Thirteen Weeks Ended September 28, 2002 and September 29, 2001
(dollars and shares in thousands, except per share data)
(unaudited)

1.      Basis of Presentation and Organization

         The accompanying unaudited condensed consolidated financial statements include the accounts of Coach, Inc. (“Coach” or the “Company”) and its subsidiaries. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from this report as is permitted by such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The consolidated balance sheet data for June 29, 2002 is derived from the audited financial statements which are included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended June 29, 2002 (“fiscal 2002”). Reference is made to such annual report on Form 10-K for a complete set of financial notes including the Company’s significant accounting policies. The results of operations for the thirteen weeks ended September 28, 2002 are not necessarily indicative of results to be expected for the entire fiscal year.

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

         In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial condition, results of operations, and changes in cash flows of the Company for the interim periods presented.

2.      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) 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.

3.      Goodwill and Other Intangible Assets

         The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) in the first quarter of fiscal 2002. Under SFAS 142, goodwill and intangible assets with indefinite lives, such as the Company’s trademarks, are no longer amortized but are subject to annual impairment tests or more frequently if impairment indicators arise. Accumulated amortization of goodwill and indefinite life intangible assets was $10,503 at September 28, 2002 and June 29, 2002.

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COACH, INC.

Notes to Condensed Consolidated Financial Statements – (Continued)
Thirteen Weeks Ended September 28, 2002 and September 29, 2001
(dollars and shares in thousands, except per share data)
(unaudited)

         The net carrying value of goodwill and other indefinite life intangible assets as of September 28, 2002 and June 29, 2002 was comprised of the following:

  September 28,
2002
  June 29,
2002
 
 
Goodwill
$ 12,860   $ 13,006
Indefinite life intangible assets
  9,389     9,389
   
   
Total
$ 22,249   $ 22,395
   
   

         The net carrying value of goodwill as of September 28, 2002 and June 29, 2002 by operating segment is as follows:

  Direct-to-Consumer   Indirect   Corporate
Unallocated
  Total
 
 
 
 
Balance at June 29, 2002
$   $ 8,082     $ 4,924   $ 13,006  
Foreign exchange impact
      (146 )         (146 )
 
 
   
     
   
 
Balance at September 28, 2002
$   $ 7,936     $ 4,924   $ 12,860  
 
 
   
     
   
 

4.      Debt

         At September 28, 2002, the LIBOR margin on our credit facility (the “Fleet facility”) was 100 basis points. Under this revolving credit facility, Coach pays a commitment fee of 20 to 35 basis points based on any unused amounts. At September 28, 2002, the commitment fee was 25 basis points. This credit facility may be prepaid without penalty or premium.

         During first quarter of fiscal 2003 there were no borrowings under the Fleet facility. During the first quarter of fiscal 2002 peak borrowings under the Fleet facility were $40,975. As of September 28, 2002, 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 contains various covenants and customary events of default. The Company has been in compliance with all covenants since the inception of the Fleet facility.

         CJI has available credit facilities with several Japanese financial institutions. These facilities contain various covenants and customary events of default. CJI has been in compliance with all covenants since the inception of the facilities. Coach, Inc. is not a guarantor on any of these facilities.

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COACH, INC.

Notes to Condensed Consolidated Financial Statements – (Continued)
Thirteen Weeks Ended September 28, 2002 and September 29, 2001
(dollars and shares in thousands, except per share data)
(unaudited)

         During the first quarter of fiscal 2003 the peak borrowings under the Japanese credit facilities were $38,606. There were no credit facilities agreements outstanding during the first quarter of fiscal 2002. As of September 28, 2002, the outstanding borrowings under the Japanese facilities were $35,042.

5.      Earnings 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.

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

  Three Months Ended
 
  September 28,
2002
  September 29,
2001
 
 
Net earnings
  $ 22,480       $ 12,538  
 
   
       
 
Total basic shares
    88,729         87,314  
Dilutive securities:
                 
Employee benefit and stock award plans
    446         360  
Stock option programs
    2,817         2,526  
 
   
       
 
Total diluted shares
    91,992         90,200  
 
   
       
 
Earnings per share:
                 
Basic
  $ 0.25       $ 0.14  
 
   
       
 
Diluted
  $ 0.24       $ 0.14  
 
   
       
 

6.      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 catalogue and the internet constitute the Direct-to-Consumer segment. Indirect refers to sales of Coach products to other retailers and includes sales through its joint venture in 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 at standard cost less direct expenses of the segment. Unallocated corporate expenses include manufacturing variances, general marketing, administration and information systems, distribution and customer service expenses.

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COACH, INC.

Notes to Condensed Consolidated Financial Statements – (Continued)
Thirteen Weeks Ended September 28, 2002 and September 29, 2001
(dollars and shares in thousands, except per share data)
(unaudited)

Thirteen Weeks Ended
September 28, 2002
Direct-to-
Consumer
  Indirect   Corporate
Unallocated
  Total


 
 
 
Net sales
  $ 106,570       $ 86,221       $         $ 192,791    
Operating income
    29,218         39,097         (30,707 )         37,608    
Interest (income) expense, net
                    (165 )         (165 )  
Income (loss) before provision for income taxes and minority interest
    29,218         39,097         (30,542 )         37,773    
Provision for income taxes
                    13,977           13,977    
Minority interest, net of tax
                    1,316           1,316    
Depreciation and amortization
    4,120         681         1,679           6,480    
Total assets
    181,729         145,232         99,388           426,349    
Additions to long-lived assets
    9,646         974         2,414           13,034    

Thirteen Weeks Ended
September 29, 2001
Direct-to-
Consumer
  Indirect   Corporate
Unallocated
  Total


 
 
 
Net sales
  $ 86,176       $ 64,526       $         $ 150,702    
Operating income
    19,706         28,332         (28,568 )         19,470    
Interest (income) expense, net
                    447           447    
Income (loss) before provision for income taxes and minority interest
    19,706         28,332         (29,015 )         19,023    
Provision for income taxes
                    6,753           6,753    
Minority interest, net of tax
                    (268 )         (268 )  
Depreciation and amortization
    3,901         1,462         572           5,935    
Total assets
    151,203         101,298         67,923           320,424    
Additions to long-lived assets
    8,721         9,255         727           18,703    

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COACH, INC.

Notes to Condensed Consolidated Financial Statements – (Continued)
Thirteen Weeks Ended September 28, 2002 and September 29, 2001
(dollars and shares in thousands, except per share data)
(unaudited)

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

    Thirteen Weeks Ended
   
    September 28,   September 29,
      2002       2001  
   
 
Manufacturing variances
  $ (1,515 )   $ (1,453 )
Advertising, marketing and design
    (10,568 )     (10,005 )
Administration and information systems
    (12,189 )     (11,223 )
Distribution and customer service
    (6,435 )     (5,887 )
     
     
 
Total corporate unallocated
  $ (30,707 )   $ (28,568 )
     
     
 

Geographic Area Information

          As of September 28, 2002, Coach operated 144 retail stores and 76 factory stores in the United States and operated four manufacturing, 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 CJI, Coach operates 83 retail and department store locations in Japan.

Thirteen Weeks Ended
September 28, 2002
  United States   Japan   Other
International (1)
  Total

 
 
 
 
Net sales
  $ 150,266     $ 33,289     $ 9,236     $ 192,791  
Long-lived assets
    113,289       19,491       757       133,537  

Thirteen Weeks Ended
September 29, 2001
  United States   Japan   Other
International (1)
  Total

 
 
 
 
Net sales
  $ 118,846     $ 16,660     $ 15,196     $ 150,702  
Long-lived assets
    97,197       7,866       312       105,375  

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

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COACH, INC.

Notes to Condensed Consolidated Financial Statements – (Continued)
Thirteen Weeks Ended September 28, 2002 and September 29, 2001
(dollars and shares in thousands, except per share data)
(unaudited)

7.        Commitments and Contingencies

         At September 28, 2002, the Company had letters of credit outstanding totaling $37,733, of which $19,820 relates to the letter of credit obtained under leases transferred to the Company by the Sara Lee Corporation (“Sara Lee”), for which Sara Lee retains contingent liability. The remaining letters of credit were issued for purchases of inventory and lease guarantees.

         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.

8.        Derivative Instruments and Hedging Activities

         Effective July 2, 2000, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 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 affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings immediately.

          Substantially, all purchases and sales involving international parties are denominated in U.S. dollars and, therefore, are not hedged using any derivative instruments. The Company had not used foreign exchange instruments prior to the formation of CJI.

          The Company is exposed to market risk from foreign currency exchange rate fluctuations with respect to CJI. The Company, through CJI, enters into certain foreign currency derivative instruments that economically hedge certain of its risks but have not been designated for hedge accounting. These transactions are in accordance with Company risk management policies. The Company does not enter into derivative transactions for speculative or trading purposes. During fiscal 2002, CJI entered into foreign currency forward contracts for its U.S. dollar-denominated inventory purchases. In assessing the fair value of these contracts, the Company has utilized independent valuations. However, some judgement 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 effect the estimated fair value.

          The foreign currency contracts entered into by the Company have durations no greater than 12 months. At September 28, 2002, open foreign currency forward contracts had a notional amount of $21,400 as compared to $33,150 at June 29, 2002. These contracts were fair valued (i.e., marked-to-

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COACH, INC.

Notes to Condensed Consolidated Financial Statements – (Continued)
Thirteen Weeks Ended September 28, 2002 and September 29, 2001
(dollars and shares in thousands, except per share data)
(unaudited)

market). For the quarter ended September 28, 2002 the fair value adjustment for these contracts resulted in a pretax non cash benefit to earnings of $1,809, included as a component of selling, general and administrative expenses. For the quarter ended September 29, 2001, the impact of the fair value adjustment was not significant. At September 28, 2002 and June 29, 2002 the Company recorded a liability of $1,457 and $3,308, respectively, to recognize the fair value of these contracts. These amounts are included in accrued liabilities.

9.        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 be retired and may be reissued in the future for general corporate and other uses. The Company may terminate or limit the stock repurchase program at any time.

         During the first quarter of fiscal 2002, the Company repurchased 660 shares of common stock at an average cost of $11.60 per share. During the first quarter of fiscal 2003, the Company repurchased 1,929 shares of common stock at an average cost of $25.89 per share.

         As of September 28, 2002, Coach had approximately $20,000 remaining in the stock repurchase program.

10.      Case London Ltd.

         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. In addition, Case assumed the responsibility of operating the existing Coach store on Sloane Street and the Coach shop in Harrods in London. Inventories and fixed assets at those locations have been sold to Case for amounts that approximated the net book value.

11.      Recent Accounting Pronouncements

         Reference is made to the Company’s annual report on Form 10-K for the year ended June 29, 2002 for a discussion of the recent accounting pronouncements.

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ITEM 2.  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 our condensed consolidated financial statements and related notes thereto which are included herein.

Overview

         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 into a designer and marketer of high-quality modern American classic accessories with expanding national brand recognition. Coach sells its products through upscale department and specialty stores, its own retail stores; direct mail catalog and on-line store. Coach has built upon its national brand awareness in the United States by expanding into international sales, particularly in Japan and East Asia, diversifying its product offerings beyond leather handbags, further developing its multi-channel distribution strategy and licensed products with the Coach brand name.

         Coach generates revenue by selling its products directly to consumers and indirectly through wholesale customers and by licensing its brand name to select manufacturers.

Results of Operations

         The following is a discussion of the results of operations for the first quarter of fiscal 2003 compared to the first quarter of fiscal 2002 and a discussion of the changes in financial condition during the first quarter of fiscal 2003.

         Net sales by business segment in the first quarter of fiscal 2003 compared to the first quarter of fiscal 2002 are as follows:

    Thirteen Weeks Ended
   
    Net Sales           Percentage of
Total Net Sales
   
    (unaudited)           (unaudited)
    September 28,
2002
  September 29,
2001
  Rate of
Increase
  September 28,
2002
  September 29,
2001
   
 
 
 
 
    (dollars in millions)   ('03 v. '02)                
Direct-to-consumer
  $ 106.6     $ 86.2       23.7 %     55.3 %     57.2 %
Indirect
    86.2       64.5       33.6 %     44.7       42.8  
     
     
             
     
 
Total net sales
  $ 192.8     $ 150.7       27.9 %     100.0 %     100.0 %
     
     
             
     
 

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         Consolidated statements of income for the first quarter of fiscal 2003 compared to the first quarter of fiscal 2002 are as follows:

  Thirteen Weeks Ended
 
  September 28,   September 29,
  2002   2001
 
 
  (unaudited)   (unaudited)
  (dollars in millions, except for earnings per share)
          % of            % of 
    $     net sales      $     net sales 
 
 
     
     
     
 
Net sales
$  191.8       99.5 %   $  149.9       99.5 %
Licensing revenue
  1.0       0.5       0.8       0.5  
 
 
     
     
     
 
Total net sales
  192.8       100.0       150.7       100.0  
Cost of sales
  61.6       31.9       54.1       35.9  
 
 
     
     
     
 
Gross profit
  131.2       68.1       96.6       64.1  
Selling, general and administrative expenses
  93.6       48.6       77.1       51.2  
 
 
     
     
     
 
Operating income
  37.6       19.5       19.5       12.9  
Interest (income) expense, net
  (0.2 )     (0.1 )     0.4       0.3  
 
 
     
     
     
 
Income before provision for income taxes and minority interest
  37.8       19.6       19.0       12.6  
Provision for income taxes
  14.0       7.2       6.8       4.5  
Minority interest, net of tax
  1.3       0.7       (0.3 )     (0.2 )
 
 
     
     
     
 
Net income
$  22.5       11.7 %   $  12.5       8.3 %
 
 
     
     
     
 
Net income per share:
                             
Basic
$  0.25             $  0.14          
 
 
             
         
Diluted
$  0.24             $  0.14          
 
 
             
         
Weighted-average number of shares:
                             
Basic
  88.7               87.3          
 
 
             
         
Diluted
  92.0               90.2          
 
 
             
         

First Quarter Fiscal 2003 Compared to First Quarter Fiscal 2002

Net Sales

         Net sales increased by 27.9% to $192.8 million in the first quarter of fiscal 2003, from $150.7 million during the same period in fiscal 2002. These results reflect increased volume in both the direct-to-consumer and the indirect segments.

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         Direct-to-Consumer. Net sales increased 23.7% to $106.6 million during the first quarter of fiscal 2003, from $86.2 million during the same period for fiscal 2002. Comparable store sales growth for retail stores and factory stores open during the quarter was 20.9% and 7.5%, respectively. Comparable store growth for the entire domestic store chain was 13.2%, which represented $10.5 million of the net sales increase. Since the end of the first quarter fiscal 2002, Coach opened 23 retail stores and five factory stores; and expanded five retail and two factory stores; which accounted for $8.8 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 that were closed since the end of first quarter of fiscal 2002.

         Indirect. Net sales increased 33.6% to $86.2 million in the first quarter of fiscal 2003 from $64.5 million during the same period of fiscal 2002. The increase was driven by our Japanese joint venture, Coach Japan, Inc. in which net sales increased $22.1 million over the comparable quarter in the prior year. The first quarter of fiscal 2002 only included two months of Coach Japan operations, while fiscal 2003 included a full three months. The incremental month of operations represented approximately $10 million of the increase in net sales. In addition, we opened nine locations in Japan since the end of the first quarter of fiscal 2002, which represented approximately $6 million of the increase. Finally, our Japan locations experienced double-digit net sales gains in comparable locations over the prior year, which represented approximately $6 million of the increase. The U.S. wholesale and business-to-business divisions contributed increased sales of $8.4 million and $3.4 million, respectively. The increase in net sales was partially offset by decreased sales in the international wholesale division of $14.3 million; however approximately $6 million of this decrease was attributable to sales in the prior year to our former distributors in Japan. The remaining change in net sales was due to increases in other indirect channels.

Gross Profit

         Gross profit increased 35.9% to $131.2 million in the first quarter of fiscal 2003 from $96.6 million during the same period in fiscal 2002. Gross margin increased 400 basis points to 68.1% in the first quarter of fiscal 2003 from 64.1% during the same period in fiscal 2002. This improvement was driven by the consolidation of Coach Japan, which contributed approximately 220 basis points. Gross margin also benefited from the continuing impact of sourcing cost reductions, which contributed 100 basis points. There was a shift in product mix, reflecting the continued diversification into non-leather fabrications with new and successful mixed-material collections, which contributed approximately 50 basis points. In addition, there was a shift in channel mix, which contributed approximately 30 basis points.

         The following chart illustrates the gross margin performance Coach has experienced over the last five quarters.

  Fiscal Year Ended June 29, 2002   Fiscal Year Ending June 28, 2003
 
 
  Q1 Q2 Q3 Q4   Q1
 



 
  (unaudited)   (unaudited)
 
 
             
Gross margin 64.1% 68.6% 68.8% 66.6%   68.1%

Selling, General and Administrative Expenses

         Selling general and administrative expenses increased 21.4% to $93.6 million in the first quarter of fiscal 2003 from $77.1 million during the same period in fiscal 2002. As a percentage of net sales, selling, general and administrative expenses during the first quarter of fiscal 2003 were 48.6% compared

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to 51.2% during the first quarter of fiscal 2002. The dollar increase was caused primarily by the inclusion of Coach Japan and increased domestic stores operating expenses due to new stores and increased variable expenses to support increased net sales, quarter on quarter. Fiscal 2002 selling, general and administrative expenses included two months of Coach Japan, while fiscal 2003 included three months.

          Selling expenses increased by 28.5% to $62.1 million, or 32.2% of net sales, in the first quarter of fiscal 2003 from $48.3 million, or 32.1% of net sales, during the same period 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 stores that were not open until after the first quarter of fiscal 2002. Fiscal 2002 expenses included two months of Coach Japan, while fiscal 2003 included three months. Included in these costs was a $1.8 million favorable fair value adjustment for open foreign currency forward contracts. The increase in Coach Japan expenses was $7.5 million. Domestically, Coach opened 23 new retail stores and five new factory stores since the end of the first quarter of fiscal 2002. The new stores increased expenses by $3.1 million. The remaining increase to selling expenses was due to increased variable expenses to support comparable store growth.

          Advertising, marketing, and design costs increased by 10.8% to $12.3 million, or 6.4% of net sales, in the first quarter of fiscal 2003, from $11.2 million, or 7.4% of net sales, during the same period in fiscal 2002. The dollar increase was primarily due to increases in design expenditures.

         Distribution and customer service expenses increased to $7.0 million in the first quarter of fiscal 2003 from $6.4 million during the same period in fiscal 2002. 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 4.2% in first quarter of fiscal 2002 to 3.6% in first quarter of fiscal 2003.

         Administrative expenses increased by 8.6% to $12.2 million, or 6.3% of net sales, in the first quarter of fiscal 2003 from $11.2 million, or 7.4% of net sales, during the same period in fiscal 2002. The dollar increase in these expenses was primarily due to increased employee staffing costs.

Operating Income

         Operating income increased 93.2% to $37.6 million in the first quarter of fiscal 2003 from $19.5 million in the first quarter of fiscal 2002. This increase resulted from higher sales and improved gross margins, partially offset by an increase in selling, general and administrative expenses.

Interest Income, Net

         Net interest income was $0.2 million in the first quarter of fiscal 2003 as compared to an expense of $0.4 million in the first quarter of fiscal 2002. The dollar change was due to reduced borrowings and positive cash balances during the first quarter in fiscal 2003.

Minority Interest

         Minority interest expense was $1.3 million, or 0.7% of net sales, in the first quarter of fiscal 2003 as compared to income of $0.3 million or 0.2% of net sales, in the first quarter of fiscal 2002. The dollar change was due to increased profit from the operations of Coach Japan.

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Income Taxes

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

Net Income

         Net income increased 79.3% to $22.5 million in the first quarter of fiscal 2003 from $12.5 million in the first quarter of fiscal 2002. This increase was the result of increased operating income partially offset by a higher provision for income taxes.

FINANCIAL CONDITION

Liquidity and Capital Resources

         Net cash used in operating and investing activities was $5.4 million for the first quarter of fiscal 2003. Net cash used in operating and investing activities was $27.5 million in the same period of fiscal 2002. The year-to-year improvement was the result of higher first quarter earnings of $9.9 million in addition to prior year distributor acquisition cost of $9.0 million not recurring in the current quarter.

         Capital expenditures amounted to $13.0 million in the first quarter of fiscal 2003, compared to $9.7 million in the first quarter of 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 $44.5 million for the first quarter of fiscal 2003 as compared to cash provided of $28.5 million in the comparable period of fiscal 2002. The year-to-year decrease primarily resulted from an increase of $42.3 million in funds expended to repurchase common stock, decreased net borrowings of $18.5 million under our revolving credit facility agreements and $14.4 million in proceeds received from its joint venture partner in the prior year not received in the current year. These amounts are partially offset by increased proceeds 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, as primary lender and administrative agent, entered into a $100 million senior unsecured revolving credit 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.

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

         At September 28, 2002, the LIBOR margin was 100 basis points. Under this revolving credit facility, Coach pays a commitment fee of 20 to 35 basis points based on any unused amounts. For the quarter ended September 28, 2002, the commitment fee was 25 basis points.

         During the first quarter of fiscal 2003 there were no borrowings under the Fleet facility. In fiscal 2002 the peak borrowings under the Fleet facility were $41.0 million. As of September 28, 2002, there

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were no outstanding borrowings under the Fleet facility. The facility remains available for seasonal working capital requirements or general corporate purpose.

         To provide funding for working capital, the acquisition of distributors and general corporate purposes, Coach Japan entered into credit facilities with several Japanese financial institutions. These facilities allow a maximum borrowing of 6,700 million yen or approximately $55 million at September 28, 2002. 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 the inception of these facilities. Coach, Inc. is not a guarantor on these facilities.

         During first quarter of fiscal 2003 the peak borrowings under the Japanese credit facilities were $38.6 million. There were no credit facilities agreements outstanding during the first quarter of fiscal 2002. As of September 28, 2002, borrowings under the Japanese revolving credit facility agreements were $35.0 million.

         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. 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 and other uses. Coach may terminate or limit the stock repurchase program at any time.

         During the first quarter of fiscal 2002, Coach repurchased 0.7 million shares of common stock at an average cost of $11.60 per share. During the first quarter of fiscal 2003, Coach repurchased 1.9 million shares of common stock at an average cost of $25.89 per share.

         As of September 28, 2002, Coach had approximately $20 million remaining in the stock repurchase program.

         The Company plans to open at least 20 new U.S. retail stores in fiscal year 2003, of which seven were opened at the end of the first quarter. We expect that fiscal 2003 capital expenditures for new retail and factory stores will be approximately $17 million and that capital expenditures for retail, factory and department store renovations will be approximately $15 million. We intend to finance these investments from internally generated cash flows or by using funds from our revolving credit facility.

         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. During the first quarter of fiscal 2003, Coach purchased approximately $78 million of inventory, which was funded by operating cash flow.

         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

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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.

         Reference should be made to our most recent annual report on Form 10-K for additional information regarding liquidity and capital resources.

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 seasonal in nature. In addition, fluctuations in sales and operating income in any fiscal quarter may be affected by the timing of seasonal wholesale shipments and other events affecting retail sales.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Our discussion of results of operations and financial condition relies on our consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgements and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risks described in our annual report on Form 10-K for the year ended June 29, 2002 are those that depend most heavily on these judgements and estimates. As of September 28, 2002, there have been no material changes to any of the critical accounting policies contained therein.

ITEM 3.  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 90% 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, Spain, Turkey, Thailand, Taiwan, Korea, Hungary, Singapore, Great Britain and the Dominican Republic. Additionally, sales are made through international channels to third

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party distributors. Substantially all purchases and sales involving international parties 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. Coach, through Coach Japan, enters into certain foreign currency derivative instruments that economically hedge certain of its risks but have not been designated for hedge accounting. These transactions are in accordance with Company risk management policies. Coach does not enter into derivative transactions for speculative or trading purposes. During fiscal 2002, Coach Japan entered into forward foreign currency contracts for its U.S. dollar-denominated inventory purchases. The foreign currency forward contracts have durations no greater than 12 months. At September 28, 2002, open foreign currency forward contracts had a notional amount of $21.4 million as compared to $33.2 at June 29, 2002. These contracts were fair valued (i.e., marked-to-market). For the quarter ended September 28, 2002 the fair value adjustment for these contracts resulted in a pretax non cash benefit to earnings of $1.8 million included as a component of selling, general and administrative expenses. For the quarter ended September 29, 2001, such impact of the fair value adjustment was not significant. At September 28, 2002 and June 29, 2002 the Company recorded a liability of $1.5 million and $3.3 million, respectively, to recognize the fair value of these contracts. These amounts are included in accrued liabilities.

Interest Rate

         Coach faces minimal interest rate risk exposure in relation to its outstanding debt of $38.7 million at September 28, 2002. Of this amount $35.0 million, under revolving credit facilities, is subject to interest rate fluctuations. A hypothetical 1% change in interest rate applied to the fair value of debt would not have material impact on earnings or cash flows of Coach.

ITEM 4.  Controls and Procedures

         Based on the evaluation of the Company’s disclosure controls and procedures as of a date within 90 days of the filing date of this quarterly report, each of Lew Frankfort, the Chief Executive Officer of the Company, and Michael F. Devine, III, the Chief Financial Officer of the Company, have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time period specified by the Securities and Exchange Commission’s rules and forms.

         There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II

ITEM 4.  Submission of Matters to a Vote of Security – Holders

In connection with the 2002 Annual Meeting of Stockholders held on November 6, 2002, stockholders were asked to vote with respect to one proposal. A total of 79,787,994 votes were cast as follows:

Proposal Number 1 – Election of Directors – The following persons received that number of votes set forth next to their respective names:

  Votes For Votes Withheld
 


Joseph Ellis
77,452,997 2,334,997  
Lew Frankfort
78,402,755 1,385,239  
Sally Frame Kasaks
79,129,365 658,629  
Gary Loveman
79,129,269 658,725  
Irene Miller
78,222,058 1,565,936  
Keith Monda
79,133,470 654,524  
Michael Murphy 78,217,549 1,570,445  

ITEM 6.  Exhibits and Reports on Form 8-K

None

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  COACH, INC.
  (Registrant)
     
     
     
  By:        /s/ Michael F. Devine, III
 
  Name: Michael F. Devine, III
  Title: Senior Vice President,
    Chief Financial Officer and
    Chief Accounting Officer
     

Dated: November 11, 2002

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CERTIFICATIONS

1. I, Lew Frankfort have reviewed this quarterly report on Form 10-Q of Coach, Inc.;
       
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
       
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
       
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
       
  (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
       
  (b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
       
  (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
       
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
       
  (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
       
  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
       
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  November 11, 2002

By: /s/ Lew Frankfort  

 
Name: Lew Frankfort  
Title: Chairman and Chief Executive Officer
     

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1. I, Michael F. Devine, III have reviewed this quarterly report on Form 10-Q of Coach, Inc.;
 
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
  (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
     
  (b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
     
  (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
 
  (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     
  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002

By: /s/ Michael F. Devine, III
 
Name:   Michael F. Devine, III
Title:   Senior Vice President and Chief Financial Officer

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         Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Coach, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i)     the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 28, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 11, 2002

By: /s/ Lew Frankfort
 
Name:   Lew Frankfort
Title:   Chairman and Chief Executive Officer

         Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Coach, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i)     the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 28, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 11, 2002

By: /s/ Michael F. Devine, III
 
Name:   Michael F. Devine, III
Title:   Senior Vice President and Chief Financial Officer

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