Coach 2006 Annual Report Download - page 34

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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 believes no significant concentration of credit risk
exists with respect to these cash investments and accounts receivable.
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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 2007, inventories recorded at LIFO were $3,251 higher than if they were valued at FIFO. At the end of fiscal
2006, inventories recorded at LIFO were $911 lower than if they were valued at FIFO. Inventories valued under LIFO amounted to $49,301
and $54,651 in fiscal 2007 and 2006, respectively. Inventory costs include material, conversion costs, freight and duties.

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.
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The Company’s leases for office space, retail stores and the distribution facility are accounted for as operating leases. The majority of
the Company’s lease agreements provide for tenant improvement allowances, rent escalation clauses and/or contingent rent provisions.
Tenant improvement allowances are recorded as a deferred lease credit on the balance sheet and amortized over the lease term, which is
consistent with the amortization period for the constructed assets. Rent expense is recorded when the Company takes possession of a store to
begin its buildout, which generally occurs before the stated commencement of the lease term and is approximately 60 to 90 days prior to the
opening of the store.
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Goodwill and indefinite life intangible assets are evaluated for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The Company performed an impairment evaluation in fiscal 2007, 2006 and 2005
and concluded that there was no impairment of its goodwill or indefinite life intangible assets.
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Long-lived assets, such as property and equipment, are evaluated for impairment annually to determine if the carrying value of the
assets is recoverable. The evaluation is based on a review of forecasted operating cash flows and the profitability of the related business. An
impairment loss is recognized if the forecasted cash flows are less than the carrying amount of the asset. The Company performed an
impairment evaluation in fiscal 2007, 2006 and 2005 and concluded that there was no impairment of its long-lived assets.

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, Internet and catalog channels, upon shipment of merchandise, when title passes to the customer. Revenue associated with gift
cards is recognized upon redemption. The Company estimates the amount of gift cards that will not be redeemed and records such amounts
as revenue over the period of the performance obligation. Allowances for estimated uncollectible accounts, discounts and returns are
provided when sales are recorded. Royalty revenues are earned through license agreements with
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