Coach 2014 Annual Report Download - page 39

TABLE OF CONTENTS

Operating income increased 0.8% or $12.5 million to $1.52 billion during fiscal 2013 as compared to $1.51 billion in fiscal 2012. Operating margin
decreased to 30.0% as compared to 31.7% in fiscal 2012. Excluding items affecting comparability, operating income increased 1.7% or $26.5 million to
$1.58 billion, and operating margin was 31.1%, in fiscal 2013. Excluding items affecting comparability, operating income was $1.55 billion, or operating
margin was 32.6%, in fiscal 2012.
The following table presents operating income by reportable segment for fiscal 2013 compared to fiscal 2012:
(dollars in millions)
June 29,
2013(1)
June 30,
2012(1)
Variance
Amount
%
North America
$ 1,460.0
$ 1,448.0
$ 12.0
0.8%
International
582.2
557.7
24.5
4.4
Other(2)
30.0
26.5
3.5
13.2
Corporate unallocated
(547.7)
(520.2)
(27.5)
5.3
Total operating income
$ 1,524.5
$ 1,512.0
$ 12.5
0.8%
(1) In connection with the acquisition of the retail business in Europe, the Company evaluated the composition of its reportable segments and concluded
that the operating income associated with this region should be included in the International segment. Accordingly, fiscal 2013 and fiscal 2012
comparable amounts have been reclassified to conform to the fiscal 2014 presentation. See Note 7, "Acquisitions" and Note 16, "Segment Information"
for more information.
(2) Operating income in the Other category, which is not a reportable segment, consists of sales and expenses generated in ancillary channels, including
licensing and disposition.
North America Operating Incomeincreased 0.8% or $12.0 million to $1.46 billion in fiscal 2013 reflecting the increase in gross profit of $82.7 million
which was offset by higher SG&A expenses of $70.7 million. The increase in SG&A expenses was related to transformation-related store investments,
distribution costs associated with higher internet sales, and higher overall selling expenses. Operating margin decreased 170 basis points to 42.0% in fiscal
2013 from 43.7% in fiscal 2012 primarily due to higher overall selling expenses as a percentage of revenues.
International Operating Incomeincreased 4.4% or $24.5 million to $582.2 million in fiscal 2013 primarily reflecting the increase in gross profit of
$116.1 million which was partially offset by higher SG&A expenses of $91.6 million. SG&A expenses increased due to the acquisition of our distributor
businesses in Asia and additional costs incurred related to increased sales. Operating margin decreased 210 basis points to 37.4% in fiscal 2013 from 39.5%
in fiscal 2012 primarily due to investments made in the region.
Corporate Unallocated Operating Loss increased $27.5 million to $547.7 million in fiscal 2013, an increase of 5.3%. Excluding items affecting
comparability, net expenses related to Corporate Unallocated increased $13.5 million to $494.5 million, an increase of 2.8%. The increase in Corporate
Unallocated loss was attributable to (i) higher administrative and information costs (ii) advertising, marketing and design costs and (iii) distribution and
customer services expenses. These expenses were substantially offset by favorable production variances, particularly for labor.

The effective tax rate was 32.0% in fiscal 2013, as compared to the 31.0% effective tax rate in fiscal 2012. During fiscal 2013, the Company recognized a
favorable tax settlement and the benefit of certain permanent adjustments related to executive compensation. During fiscal 2012, the Company recorded the
effect of a revaluation of certain deferred tax asset balances due to a change in Japan’s corporate tax laws, the favorable completion of a multi-year transfer
pricing agreement with Japan and a favorable tax settlement. Excluding the items affecting comparability, the effective tax rate was 32.2% and 32.8% in
fiscal 2013 and 2012, respectively. The decline reflects the favorable tax settlement and the benefit of certain permanent adjustments related to executive
compensation, as well as the Company earning a higher proportion of its profits in lower tax rate jurisdictions.

Net income decreased 0.4% to $1.03 billion in fiscal 2013 as compared to $1.04 billion in fiscal 2012. Excluding items affecting comparability, net
income increased 2.7% to $1.07 billion in fiscal 2013, reflecting a 1.9% increase in income before provision for income taxes and the lower effective tax rate.
37