Coach 2006 Annual Report Download - page 22

without penalty or premium. During fiscal 2007 and fiscal 2006 there were no borrowings under the Bank of America facility. Accordingly,
as of June 30, 2007 and July 1, 2006, there were no outstanding borrowings under the Bank of America facility.
The Bank of America facility contains various covenants and customary events of default. Coach has been in compliance with all
covenants since its inception.
To provide funding for working capital and general corporate purposes, Coach Japan has available credit facilities with several Japanese
financial institutions. These facilities allow a maximum borrowing of 7.4 billion yen, or approximately $60 million, at June 30, 2007.
Interest is based on the Tokyo Interbank rate plus a margin of up to 50 basis points.
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During fiscal 2007 and fiscal 2006, the peak borrowings under the Japanese credit facilities were $25.5 million and $21.6 million,
respectively. As of June 30, 2007 and July 1, 2006, there were no outstanding borrowings under the Japanese credit facilities.
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On October 20, 2006, the Coach Board of Directors approved an additional common stock repurchase program to acquire up to $500
million of Coach’s outstanding common stock. This authorization expires in June 2008. In connection with Coach’s stock repurchase
program, 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 of common stock become authorized but unissued shares and may be issued in the future for
general corporate and other purposes. The Company may terminate or limit the stock repurchase program at any time.
During fiscal 2007 and fiscal 2006, the Company repurchased and retired 5.0 million and 19.1 million shares of common stock at an
average cost of $29.99 and $31.50 per share, respectively. As of June 30, 2007, $500 million remained available for future repurchases
under the existing program.
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In fiscal 2007, total capital expenditures were $140.9 million. In North America, Coach opened 41 new retail and seven net new factory
stores and expanded six retail stores and seven factory stores. These new and expanded stores accounted for approximately $70 million of
the total capital expenditures. In addition, spending on department store renovations and distributor locations accounted for approximately
$9 million of the total capital expenditures. In Japan, we invested approximately $17 million, primarily for the opening of 19 net new
locations and nine store expansions. The remaining capital expenditures related to corporate systems and infrastructure. These investments
were financed from on hand cash, operating cash flows and by using funds from our Japanese revolving credit facilities.
For the fiscal year ending June 28, 2008, the Company expects total capital expenditures to be approximately $200 million. Capital
expenditures will be primarily for new stores and expansions both in the U.S. and in Japan. We expect to open approximately 40 new North
American retail stores, six new factory stores and 15-20 new locations in Japan, while continuing to invest in department store and
distributor locations. In addition, we will invest in corporate infrastructure and expand our Jacksonville distribution center. These
investments will be financed primarily from on hand cash and operating cash flows.
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 2007, Coach purchased approximately $663 million of inventory, which was funded by on hand cash, operating cash flow and by
borrowings under the Japanese revolving credit facilities.
Management believes that cash flow from continuing operations and on hand cash 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. 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, as
well as 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.
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At June 30, 2007, the Company had letters of credit available of $205 million, of which $115.6 million were outstanding. These letters
of credit, which expire at various dates through 2012, primarily collateralize the Company’s obligation to third parties for the purchase of
inventory. In addition, $13.2 million relates to a letter of credit for the benefit of the Sara Lee Corporation (“Sara Lee”). Prior to Coach’s spin
off from Sara Lee, Sara Lee was a guarantor or a party to many of Coach’s leases. Coach has agreed to make efforts to
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